Top Commercial Lines Agencies, Habitational / Dwellings, Agents' E&O Survey by Insurance Journal

NOVEMBER 7, 2011 | VOL. 89, NO. 21

WEST REGION Underwriters Ponder Social Network Data Latino-izing the Insurance Industry California Court Denies Ogilvie Petition Aggressive Driving Linked to Personality

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WEST

Inside This Issue November 7, 2011 • Vol. 89, No. 21 • West Region

WEST COVERAGE

N8 Special Report: Agency E&O Survey Agency PRO-tection: E&O and Agency Assets

8 NOAA: U.S. Values Hawaii Reefs at $33.57 Billion

N18 Spotlight: Top 50 Commercial Lines Agencies N20 Spotlight: Habitational/ Dwelling Rental Properties as a Niche Market N24 Home Insurance Rates Do Not Reflect Cost of Risk N26 Independent Agencies Show Signs of Recovery, Study Reports N27 Generous P/C Sector Seeks Ways to ‘Give Better’

4 | INSURANCE JOURNAL-WEST REGION November 7, 2011

Special Report: Agency E&O Survey Agency PRO-tection: E&O and Agency Assets

NATIONAL COVERAGE

N14 Special Report: State Specialist P/C Insurers

On The Cover

N20

IDEA EXCHANGE 34 Insurance Innovators and Their Inspirations

12 Tech Chiefs Take on Standards, iPad, Light Bulb

42 Top 10 Risky Industries to Avoid

16 Association Founder Urena Still on Mission to ‘Latino-ize’ Insurance

48 How to Optimize the Value of Inspections

22 Auto Insurers Keep Eye on Cross-Border Claims with Canada 26 Workers’ Comp Outlook Still Grim: A.M. Best 46 Underwriters May Soon Be Using Social Network Data

50 Myself, the Car: Aggressive Driving Linked to Personality N1 Minding Your Business: Oak & Schoeffler N4 The Competitive Advantage: Burand N28 Closing Quote: Lexington’s Cogliano

DEPARTMENTS 6 9 9 10 14 N22 N28

Opening Note Declarations Figures People Business Moves MyNewMarkets Closing Quote www.insurancejournal.com

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Opening Note Read-in

gathering in late October of people in the communications field in Santa Barbara, Calif. during the Insurance Information Network of California’s annual planning meeting highlighted what may be considered one of the biggest hurdles not only in the field, but possibly throughout the industry. Trying to communicate to the general public the need for disaster preparedness, and for consumers (individuals and businesses) to read and know their insurance policies was the main theme of the meeting between a dozen top communicators for large insurance firms and groups. A guest speaker at the group’s meeting was Santa Barbara County First District Supervisor Salud Carbajal. The supervisor discussed the public’s perception of the insurance industry and his own frustrations in getting his constituents to understand the dangers of fires and other hazards, such as the Jesusita Fire in 2009, which destroyed 80 homes causing an estimated $17 million in damages. The fire was one of four major “The single biggest fires in two years, includproblem in communicaing the Montecito Tea Fire in November of 2008 that tion is the illusion that it destroyed 210 homes. has taken place.” While the fires are recent history, Carbajal feels that --George Bernard Shaw efforts to improve public safety continue to be met with a lack of understanding, or in some cases outright political opposition. Communicating the need for such plans to people and businesses puts politicians like him on the same playing field as those who work in the insurance industry, he said. Following disasters, people are often quick to assign blame, and in such cases some may view the insurance industry as the bad guys, Carbajal said. “But I understand that you are not,” he said, adding a call for more concerted, and creative, communications efforts to get people to understand these dangers and what risks they are and are not covered for in their policies. At that point, Insurance Information Network spokesman Pete Moraga suggested that carriers hold a massive “read in” in communities, during which policyholders can learn to read their policies. “Our major challenge after every disaster is that homeowners don’t always understand their policies and many of them have never read them until it’s too late,” Moraga said. “We know it’s not the sexiest reading.”

Don Jergler West Editor

Publisher Mark Wells

Chief Executive Officer Mitch Dunford

EDITORIAL Editor-in-Chief Andrea Ortega-Wells | awells@insurancejournal V.P. Content Andrew Simpson | asimpson@insurancejournal.com East Editor Young Ha | yha@insurancejournal.com Southeast Editor Michael Adams | madams@insurancejournal.com South Central Editor/Midwest Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Don Jergler | djergler@insurancejournal.com International Editor Charles E. Boyle | cboyle@insurancejournal.com ClaimsJournal.com Editor Denise Johnson | djohnson@claimsjournal.com MyNewMarkets.com Associate Editor Amy O’Connor | aoconnor@mynewmarkets.com Columnists Chris Burand, Catherine Oak, Bill Schoeffler Contributing Writers John Cogliano, Diana Matalka, Paul Osborne, Douglas A. Powell

SALES V.P. Sales & Marketing Julie Tinney (800) 897-9965 x148 jtinney@insurancejournal.com West Dena Kaplan (800) 897-9965 x115 dkaplan@insurancejournal.com South Central Mindy Trammell (800) 897-9965 x149 mtrammell@insurancejournal.com Midwest Lauren Knapp (800) 897-9965 x161 lknapp@insurancejournal.com Southeast Howard Simkin (800) 897-9965 x162 hsimkin@insurancejournal.com East Dave Molchan (800) 897-9965 x145 dmolchan@insurancejournal.com New Markets Sales Manager Kristine Honey | khoney@insurancejournal.com Classified Advertising (800) 897-9965 x125 classifieds@insurancejournal.com

MARKETING/NEW MEDIA Marketing Administrator Gayle Wells | gwells@insurancejournal.com Advertising Coordinator Erin Burns | eburns@insurancejournal.com (619) 584-1100 x120 New Media Producer Bobbie Dodge | bdodge@insurancejournal.com Videographer/Editor Matt Tolk | mtolk@insurancejournal.com

DESIGN/WEB Vice President/Design Guy Boccia | gboccia@insurancejournal.com Vice President/Technology Joshua Carlson | jcarlson@insurancejournal.com Design and Marketing Executive Derence Walk | dwalk@insurancejournal.com Art Director Jamie Bethell | jbethell@insurancejournal.com Web Developer Jeff Cardrant | jcardrant@insurancejournal.com Web Developer Chris Thompson | cthompson@insurancejournal.com

IJ ACADEMY OF EDUCATION Director of Education Christopher J. Boggs | cboggs@ijacademy.com Online Training Coordinator Barbara Dooley | bdooley@ijacademy.com

ADMINISTRATION Accounting Manager Megan Sinclair | msinclair@insurancejournal.com

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insurancejournal.com/subscribe Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semimonthly by Wells Publishing, Inc., 3570 Camino del Rio North, Suite 200, San Diego, CA 92108-1747. Periodicals Postage Paid at San Diego, CA and at additional mailing offices. SUBSCRIPTION RATES: $7.95 per copy, $12.95 per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this publication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended to be legal, accounting, tax, technical or other professional advice. Readers are advised to consult competent professionals for application to their particular situation. Copyright 2011 Wells Publishing, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. Insurance Journal is a publication of Wells Publishing, Inc. POSTMASTER: Send change of address form to Insurance Journal, Circulation Department, PO Box 9049, Maple Shade, NJ 08052

6 | INSURANCE JOURNAL-WEST REGION November 7, 2011

ARTICLE REPRINTS: For reprints of articles in this issue, contact Rhonda Brown at 1-866-879-9144 ext. 194 or rhondab@fosterprinting.com. Visit insurancejournal. com/reprints for more information.

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News&Markets California Earthquake Authority Keeps “A” Ratings

Fitch Ratings has affirmed the “A” rating on California Earthquake Authority’s outstanding fixedrate revenue bonds, which mature on July 1, 2016, citing the organization’s ability to cover losses for at least a one-in-500-year earthquake. Fitch has also affirmed CEA’s issuer default rating at “A.” The rating outlook is stable. CEA had $9.5 billion in sources of funds to pay claims at June 30. Included was $3.9 billion in available capital, as well as the proceeds from the revenue bonds, reinsurance and postearthquake industry assessments, Fitch stated. CEA’s principal risk is a catastrophic earthquake large enough to exhaust its claims-paying resources and requiring it to access the capital markets or other sources in order to pay claims, according to Fitch. The total claimspaying resources are estimated to cover losses for a one-in-529-year earthquake, or a probability of resource exhaustion of 0.19 percent.

NOAA: U.S. Values Hawaii Reefs at $33.57 Billion

Fourmile Fire Insurance Losses Exceed $200 Million

mericans peg the value of coral reefs around the main Hawaiian Islands at $33.57 billion, according to a study commissioned by the federal government. Officials frequently cite coral reefs as being vital to tourism and other industries, so the National Oceanic and Atmospheric Administration asked researchers to study the issue. Researchers surveyed 3,200 Americans, asking them how much of their taxes they would want devoted to hypothetical initiatives to improve Hawaii’s reefs.Researchers estimated the average American household would be willing to have $287.62 of its taxes spent on protecting Hawaii’s reefs.

Pro-biz Groups Praise Brown on Workers’ Comp

pair of California pro-business groups focused on workers’ compensation last month hailed Gov. Jerry Brown’s record on handling legislation sent to him this year. The California Coalition on Workers’ Compensation and the Workers’ Compensation Action Network webinar, titled “2011 Report Card and 2012 Forecast,” states Brown’s record on vetoes versus his bills signed on workers’ comp was “perfect.” “In our opinion, he batted 1,000,” said Jason Schmelzer, a legislative advocate for CCWC. “Frankly it displayed some bravery we can appreciate.” The groups listed about a dozen pieces of workers’ comp-related legislation that reached Brown’s desk that they wanted him to sign, and those bills they wished him to veto. And based on the messages sent by the governor and his staff along with those vetoes, “reforms are coming, broad reforms,” Schmelzer added.

8 | INSURANCE JOURNAL-WEST REGION November 7, 2011

preliminary report on the 2010 Fourmile Canyon wildfire in Boulder County shows insured losses exceeded $200 million, and the fire spread fast and burned intensely due to the area it was in and the large amount of vegetation. The fire, considered one of the most destructive in state history, destroyed 168 homes. Researchers found that the condition of the home ignition zone–design, materials and maintenance of the home and the area 100 feet around it–were critical to whether a home survived the fire. A portion of the report contains a 2007 survey, which had included 127 of the landowners who were evacuated during the Fourmile Canyon Fire. They and others were surveyed regarding their perceptions of their wildfire risk and mitigation efforts. While most respondents were familiar with wildfire risk, most did not believe that characteristics of their home and immediate surroundings were significant factors influencing the likelihood of a wildfire damaging their property within the next five years.

Total Disability to Rise in California in 2012

he California Division of Workers’ Compensation announced recently that the minimum and maximum temporary total disability rates for 2012 will increase on Jan. 1. The minimum TTD rate will increase to $151.57 and the maximum TTD rate will increase to $1010.50 per week. The annual adjustment is tied to the state average weekly wage. This is the second consecutive year it has been adjusted upward. SAWW is defined as the average weekly wage paid to employees covered by unemployment insurance as reported by the U.S. Department of Labor for California for the 12 months ending March 31 in the year preceding the injury. In the 12 months ending March 31, 2011 the SAWW increased from $979.90 to $1003.55. www.insurancejournal.com

WEST COVERAGE

Declarations Pollution

Ryan on Leadership

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“It’s not like we have the luxury to move out of there. The pollution is still there.” — Carla Hernandez, whose 4-year-old daughter is being treated at Children’s Hospital in Los Angeles for a rare cancer. Such accounts of families and children living near transportation corridors and experiencing health problems helped prompt a conservation group and two environmental justice groups to file a lawsuit last month against two of the nation’s biggest rail road companies, Union Pacific Corp. and BNSF Railway Co. The lawsuit alleges problems at 17 rail yards across California, from Oakland to San Bernardino.

“Leadership is establishing a vision and getting others to buy into that vision, and when they buy into that vision, it’s establishing trust.” — Patrick Ryan, chairman and CEO of Chicago, Ill.-based Ryan Specialty Group. Ryan, who led the U.S. bid to host the 2016 Olympic and Paralympic Games, was speaking on a panel on developing leadership in the industry at the annual National Association of Professional Surplus Lines Offices (NAPSLO) conference in San Diego last month.

“People say that getting the Lloyd’s market to agree on things is like trying to herd cats. That’s very unfair—to cats.” — Peter Montanaro, head of delegated authorities for Lloyd’s of London, on the challenge in the market of not just coming up with technology standards, but also getting the myriad companies, groups and individuals to buy in, and sign on, to those standards. Montanaro was speaking on a panel at the annual National Association of Professional Surplus Lines Offices (NAPSLO) conference in San Diego last month.

Figures 3,800

Moody’s Rules “We expect the new rules to lead to greater consistency in financial reporting, to the benefit of investors and other users of financial statements.” — Wallace Enman, Moody’s vice president and senior credit officer, who authored a report on new accounting rules intended to align U.S. insurers’ varied approaches to accounting for deferred acquisition costs.

The number of reports of oil and hazardous material oil spills received each year by the Washington Department of Ecology. The department says it sends out field personnel to handle or oversee such spills about 1,200 times each year.

The percentage medical costs are up for a five-year trend, according to the “2011 Report Card and 2012 Forecast” issued by The California Coalition on Workers’ Compensation and the Workers’ Compensation Action Network during a webinar last month. www.insurancejournal.com

The number of bills sponsored by California Insurance Commissioner Dave Jones that were signed by Gov. Jerry Brown this legislative year, giving Jones a perfect record on bills that reached Brown’s desk.

217

The dollar figure in millions for insured losses from the Fourmile Canyon wildfire in Boulder County, Colo. in 2010. A report issued by the state last month revealed the fire spread fast and burned intensely due to its location and the vast amount of vegetation. November 7, 2011 INSURANCE JOURNAL-WEST REGION | 9

WEST COVERAGE

People David Zona

Kathleen Zortman

Charles Pugh

Bob Short

Novato, Calif.-based Fireman’s Fund Insurance Co. has named David Zona as chief underwriting officer and Kathleen Zortman as chief field executive. Zona is responsible for setting the direction and priorities for commercial and personal insurance product lines and is accountable for driving growth. Prior to joining Fireman’s Fund in 2010, Zona held leadership positions at Nationwide and AIG. Zortman is responsible for leading the field underwriting, customer service and sales teams. Zortman most recently was president of Professional Risk Solutions, a wholesale broker headquartered in the Northeast. Bob Short has been promoted from senior vice president of claims for Salt Lake City, Utah-based Workers Compensation Fund to executive vice president. Short joined WCF in 1993 as senior vice president of claims. Short is also the president and CEO of Pinnacle Risk Management Services, a WCF wholly-owned subsidiary. Charles Pugh, vice president of safety and health, will replace Short as the senior vice president of claims. Pugh joined WCF in 1996 as a senior safety and health consultant. In 2005, he was promoted to vice president of safety and health. Beazley has appointed Lindy Hardman to develop new business and broaden the company’s broker relationships on the west coast. Hardman was recently regional vice president at Crum & Forster in Los Angeles, Calif. He has held senior positions at Zurich North America and Crump Group. Beazley plc (BEZ.L) is the parent company of specialist insurance businesses with operations in Europe, the US, Asia and Australia. Lockton has added two reinsurance brokers to its Lockton Re team in downtown Los Angeles, Calif. Allan Huxley has been named managing director of Lockton Re and Olive Chang has been named senior vice pesident of Lockton Re, Kansas City, Mo.-based Lockton’s reinsurance

10 | INSURANCE JOURNAL-WEST REGION November 7, 2011

intermediary. Huxley most recently was a managing director with reinsurance broker Guy Carpenter & Co., based in southern California. He has more than 35 years of experience in reinsurance. Chang most recently was a senior vice president at Guy Carpenter & Co. The insurance segment of Dublin, Ireland-based XL Group plc (NYSE: XL) has expanded its North America property and casualty team in the Rocky Mountain area by naming Gregory Melton senior property underwriter and Stephen Sanford vice president and business development manager. Both are based in Denver. Melton comes from Ironshore Insurance Co. Sanford previously was a managing director and broker at Aon Corp. Align General Insurance Agency Inc. has named Rod Eldred senior vice president. Eldred will lead the company’s new workers’ compensation division and the expansion of San Diego, Calif.-based Align’s commercial automobile underwriting activities. Eldred was President of the Berkshire Hathaway Homestate Cos., the regional specialty lines businesses of billionaire Warren Buffett’s Berkshire Hathaway Insurance from 1990 until 2009. Privately-heald insurance broker The Leavitt Group has named Brett Borisoff as executive vice president. Borisoff will have an office in the Leavitt Group’s PrideMark-Everest agency, in Santa Ana, Calif. Borisoff most recently served as senior vice president for SullivanCurtisMonroe. Barbara Carey has joined Tustin, Calif.-based Yates as an underwriter and broker. Carey spent the last eight years as senior broker and vice president of another California wholesale brokerage. Carey has a background in commercial and professional lines and also has experience in the agriculture industry.

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News&Markets Tech Chiefs Take on Standards, iPad, Light Bulb

homas Alva Edison would have been glowing had he been at the “Technology Issues in the U.S. & U.K.” panel discussion at the annual National Association of Surplus Lines Offices (NAPSLO) conference in San Diego last month. The panel was moderated by Mike Ardis, NAPSLO’s director of communications and technology, and on it sat some of the top technology officers in the industry. The high-tech conversation tackled subjects like standards, XML and the iPad, as well as the electric plug, electrical outlets and the light bulb. Frank Neugebauer, chief information officer for Farmington Hills, Mich.-based wholesale brokerage Burns & Wilcox, used analogies to the commercial use of electricity and the light bulb to discuss standards. “At the end of the day standards enable these things,” said Neugebauer, who was previously chief technology officer at ACORD Corp. Panelists focused on standards and data exchange through extensible markup language (XML), praising programs like the Reinsurance Large Commercial Standard in London, and

a number of other programs in the U.S. and abroad. Mike Roy, chief information officer with Scottsdale, Ariz.based Risk Placement Services, said the technology talk in the insurance industry in the last seven or so years has gone from a focus on networking and infrastructure to a focus on data and data exchange. “This is where everybody seems to be focusing their energy, their attention,” Roy said. “Streamlining” was another keyword, and the panelists used it while referring to what they called the “war on keystrokes.” Panelist Peter Montanaro, head of delegated authorities for Lloyd’s of London, offered a British take on that front. “Americans call it the war on keystrokes,” Montanaro said, adding that in the U.K, and at specifically at Lloyd’s, “the vision is to have the capability to deliver straight-through processing.” Panelists got into a debate about the future of the iPad, and how new hardware may change how business is being done. Neugebauer dismissed Apple Computer’s touch-screen phenom as a trend, but Montanaro defended Apple’s hottest product. He said Lloyd’s recently had a program to give away 35 iPads to brokers and to see what they used them for. Most of them used them for business, and have continued using them, he said.

Surplus Execs Address Leadership, Perpetuation

our industry leaders attempted to tackle explaining the definition of “leadership” and what it takes to be a leader, while addressing perpetuation concerns during the “Next Generation Panel Discussion: Developing the Future Leaders of Our Industry” at the annual National Association of Professional Surplus Lines Offices (NAPSLO) conference in San Diego last month. The panel consisted of Steven Gross, chairman and CEO of Springfield, N.J.-based Metro Insurance Services Inc., Letha Heaton, vice president of marketing for Cherry Hill, N.J.-based Admiral Insurance Co. and NAPSLO president, Patrick Ryan, chairman and CEO of Chicago, Ill.-based Ryan Specialty Group and Michael Miller, president and CEO of Scottsdale, Ariz.-based Scottsdale Insurance Co. “Leadership is establishing a vision and getting others to buy into that vision, and when they buy into that vision, it’s establishing trust,” said Ryan, who led the U.S. bid to host 12 | INSURANCE JOURNAL-WEST REGION November 7, 2011

the 2016 Olympic and Paralympic Games. Miller said he believes leadership has added meaning nowadays. “Leadership equals influence,” he said. Gross said leadership is about passing along to others one’s state of mind. “A leader has something in them that is very positive and allows them to pass that along to others,” he said. The panelists discussed how to become a good leader. “You have to trust your instincts about people you surround yourself with,” Heaton said. Heaton said being confident and communicating that confidence to others is important. “The most valuable thing you have is what is thought of you,” she said. Despite persistent concerns echoed in regard to perpetuation in the industry, the panelists held out positive views on the future of leaders in the insurance industry. “I think that I’m very bullish about the future of leadership in our industry,” Ryan said. www.insurancejournal.com

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Business Moves Jim Buckley, IAS Claim Services Jim Buckley & Associates of Anaheim, Calif. has been purchased by IAS Claim Services. Jim Buckley, a regional adjusting firm, which also operated under the name JBA Insurance Adjusters, has offices in California, Arizona and Nevada. The acquisition gives San Antonio, Texasbased IAS a footprint servicing more than one-third of the U.S. population for day-today property and casualty claims and twothirds of the U.S. population for catastrophic claims, IAS stated. JBA Insurance Adjusters will begin operating as IAS Claims Services immediately.

USG National wholesaler and managing general agent USG Insurance Services Inc. has opened a satellite office in San Francisco, Calif. and another in Tempe, Ariz. The offices are part of USG’s plan to expand operations on the West coast, according to the company. The San Francisco office will be headed by producer Lorraine Iglesias. Iglesias most recently was a commercial underwriter with CK Specialty Insurance Associates. The office in Tempe, Ariz. will be run by Chris Kops, who was the branch manager of the Tampa, Fla., office. Kops, who relocated to open the new branch, has 25 years of experience and previously held positions with USG as a senior underwriter/broker, production manager and brokerage manager. Bell-Anderson, Unico Renton, Wash.-based Bell-Anderson Agency Inc. has acquired Unico Insurance of Woodinville, Wash. The terms of the deal were not disclosed. “Bell-Anderson will continue to pursue acquisition opportunities as they become available to us,” Jim Hunt, president and CEO of Bell-Anderson, said in a statement. Bell-Anderson was formed in 1929 and has offices throughout Washington. MOC, San Francisco Insurance Center San Francisco Insurance Center has joined MOC Insurance Services, the two Northern

14 | INSURANCE JOURNAL-WEST REGION November 7, 2011

California firms announced. Van Maroevich, president and CEO of San Francisco-based MOC Insurance Services, and Fred S. Nagle, III, president of San Francisco Insurance Center, said the merger creates an organization of 65 employees servicing business and personal clients with annual premiums exceeding $100 million. The merger was effective Sept. 1. MOC Insurance Services provides risk management and employee benefits consulting services within specialized industries across the U.S. “We’re in specialized areas and this adds additional specialization,” Maroevich said. “We’re trying to grow.” The company’s insurance and risk management services units focus on serving the industries of real estate, entertainment, thoroughbred racing, agriculture and viticulture, marine and aviation. The Doctors Co., FPIC The Doctors Co. has completed its previously-announced acquisition of FPIC Insurance Group Inc., a major provider of health care liability insurance in Florida, Texas, Georgia and Arkansas. FPIC Insurance Group includes First Professionals Insurance Co., Inc.; Advocate, MD; Intermed; and Anesthesiologists Professional Assurance Co. With the completion of the merger and the addition of 18,000 insureds, The Doctors Co. said it solidifies its position as the nation’s largest insurer of physician and surgeon medical liability, with 71,000 member physicians. “Combining our two physician-founded companies strengthens our ability to defend, protect, and reward the practice of good medicine,” said Richard E. Anderson, chairman and CEO of The Doctors Co. FPIC will function as a wholly owned subsidiary of The Doctors Co., and its operations are being integrated with the company’s existing operations. The company said that it will maintain FPIC’s offices, including its Jacksonville, Florida headquarters, and the office of Advocate, MD that is located in Austin, Texas. www.insurancejournal.com

U N I V E RS A L VA L U E # 4

Appreciate your team. Great people build a great company. At Universal North America®, we know our success is possible because of the people who make things happen – you! So, this holiday season, we extend sincere thanks to our growing family of agent partners. In 2012, we look forward to continuing to provide the best in Homeowners, Auto, Flood and Commercial insurance for you and your clients. And, we’ll remember to say thank you. It’s one of those Universal values we do business by. (866) 338-4262 UniversalNorthAmerica.com Universal North America Insurance Company’s Financial Strength Rating of A- (Excellent) has been reafﬁrmed by A.M. Best. The company’s Outlook is Stable. Insurance products are issued and underwritten by one of Universal North America’s insurance companies: Universal North America Insurance Company or Universal Insurance Company of North America. Issuance of coverage is subject to underwriting review and approval. Products may not be available in all states. © 2011 Universal North America.

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News&Markets Association Founder Urena Still on Mission to ‘Latino-ize’ Insurance By Don Jergler

he narrative of Andre Urena’s life is told in a series of lessons, many handed down from his peasantturned-bank president father Alvaro. His father died in December—but not before having a heavy hand in shaping his son’s career and outlook on the world. “He taught me to learn from people—from their failures and successes,” said the 42-year-old co-founder of New York, N.Y.-based Confie Seguros, a growing network of Latin agencies.

Andre Urena

“When he died, that left a big void for me. He was my sounding board.” The elder Urena started in poverty, selling shirts hand sewn by his grandmother in the Costa Rican capital San Jose. In short, Alvaro’s story is that he was educated, worked hard and rose 16 | INSURANCE JOURNAL-WEST REGION November 7, 2011

through the financial ranks to eventually lead two banks in Costa Rica – Banco Popular and Banco de Costa Rica. “He started from nothing; he came from nothing,” Urena said of his father. Urena’s own story, though still unfolding, has been so far impressive. He has had a hand in the development of several large insurance companies and worked to focus the industry on America’s fastest growing, but a still largely underserved, demographic. “Insurance to most people is a boring business. It is a quintessential American-type, golftype business,” said Urena, who remains a citizen of Costa Rica. “My life has been the opposite of boring, but I’ve always made my money in insurance.” Urena, founder and CEO of the Montebello, Calif.-based Latin American Agents Association, is on a mission to change the business, or as he puts it, to “Latinoize” the industry — making the industry realize that tapping the buying power of Latino consumers is not only wise, but essential for future growth. “For the longest time there’s been this buzz about ‘Latino,’” he said. “It’s not only a cultural thing, it’s unavoidable.”

The Hispanic population now represents 16 percent of the nation’s entire populous, according to Washington, D.C.-based nonprofit Pew Hispanic Center. “The Latino population in the U.S. has reached more than 50 million,” said Mark Lopez, associate director of Pew. “More than half the nation’s growth came from Hispanics during the last decade.” And while California and Texas still represent the largest population of Hispanics, the group is now more dispersed, with rapid growth being reported in Southeastern states including South Carolina, Georgia and Tennessee, according to Pew. This population is also very young. The median age in the U.S. for Hispanics is 27, compared to 42 for white non-Hispanics, meaning much more growth for Hispanic population can be expected over the course of the next few decades. By 2050 there will be 130 million Hispanics in the U.S., representing 30 percent of the total population—double the group’s share of the population today, according to Pew. That growth becomes more staggering when the group’s raw purchasing power is considered. Pew estimates the purchasing power of the Latino community is “about $1 trillion nationwide,” according to Lopez. Enter Urena, who has taken his “Latino-izing” campaign and ideas to Direct General Insurance Co. as the company’s director of national diversity. The Nashville, Tenn.-based firm is in the middle of opening 50 stores in San Antonio, Texas and Austin, Texas continued on page 18 www.insurancejournal.com

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News&Markets ‘Latino-ize’ Insurance, continued from page 16

that will focus on the Latino market. “Latino-izing makes a difference in sales,” Urena said. “When a Latino consumer quotes insurance, they are buying out of fear, not out of need. Therefore it makes a big difference to be able to communicate in language, and in culture too. For example, I teach our staff how to speak with a person from Guadalajara versus a person from Mexico City. When a Latino feels comfortable that you understand where they come from, they will trust you more.” Urena said he is also working to help the company increase its “Hispanic capabilities” at call centers in Baton Rouge, La. and its claims offices in Tampa, Fla. and Dallas. Most insurance companies aren’t approaching “Latino-izing” the right way, he said. “The first thing a company does is translate their paperwork to Spanish, however they do not invest the time in understanding the different languages used by different countries and areas,” Urena said. “Mexico, as an example, has many areas that speak Urena and staff at the opening of the first Latino-focused Direct Auto Insurance office in San Antonio. different Spanish than the others and their culture is different. Also companies do not invest the time to teach their staff as to how he said. So he got his son into Pac-West’s to handle Latino customers in general.” 1984 after being held back a year in school customer service department. Not too long Mostly important, many companies are in Costa Rica. His father sent him to live in missing the market when it comes to marCerritos, Calif. with his aunt, who owned an afterward, the owner discovered Urena’s drawing talent, and asked Urena to create a keting to this group. When Latinos buy, it’s accounting firm. Shortly thereafter, Urena’s marketing department. often from referrals, and they typically shop father moved with them and went to work Not only was he marketing at Pac-West, within a five-mile radius from their house, for one of the firm’s customers, a managing but Urena also was learning how to create according to Urena. general agency in Studio rates and guidelines to make programs. “The best approach to ‘The best approach City named Pac-West Soon after, he partnered with a fellow the Latino market is to Surplus Lines. to the Latino market Urena’s father had agent to form Oasis Insurance in Van Nuys, be a big fish in the small is to be a big fish in started working with the Calif., a firm that focused on the Latino marpond by participating in the small pond.’ ket. Oasis grew to 38 stores in less than five community events and agency as a client of the years. doing a lot of local adveraccounting firm, and when Urena’s life hasn’t been boring because tisement,” he added. it started growing, the elder Urena’s father he gets bored easily. He had returned for a Flyers, bus benches, stores that are high in became Pac-West’s chief financial officer. visibility and located in areas where Latinos Around that time, Urena’s love of drawing period to Costa Rica, where he still keeps a home, and while there he realized he was shop weekly, such as near supermarkets — led him to begin designing women’s shoes “fed up with having partners.” these are among the effective outreach meth- for a local shoemaker and retailer who sold “I was watching the monkeys eating manods Urena is urging firms to try. knock-offs of the hottest products on the market. He had Urena draw something simi- gos and asked myself, ‘Why do I have partners?’” he said. Insurance Journey lar to popular shoes, and the maker would So he returned to the U.S. and got rid Urena’s journey to the U.S., and his entry craft and sell them. of his partners. They kept Oasis South into the insurance world, took place in the That’s when Urena’s father again stepped Insurance Services Inc. and Oasis San Jose span of a few years on the heels of a minor into his son’s life to offer a little direction. continued on page 20 failure as a youth. He came to the U.S. in “My dad believed that I should have a trade,” 18 | INSURANCE JOURNAL-WEST REGION November 7, 2011

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News&Markets ‘Latino-ize’ Insurance, continued from page 18

Insurance Services Inc., and Urena kept Oasis Insurance Services Inc., a company with a presence from Orange to Ventura counties. It was around that time, sometime in 1998, that Urena started the Latin American Agents Association, and part of the impetus for his decision was opportunity. After several years of running the business and the association, he said he got a call from a New Jersey group that was interested in buying his agency. It dawned on him that this could be an opportunity to focus his time and efforts on Latino-izing the industry. It was around 2006 when IDT Corp., a company in New Jersey that sold calling cards, a popular product with Latinos at the time, was seeking an avenue into the insurance business to duplicate its success with calling cards. The Confie Connection His respite from the insurance business was short-lived, thanks again to opportunity, this time to buy back his firm Oasis at a discount.

This was the beginning of Confie Seguros Holdings, which has been creating a nationwide network of insurance agencies serving the Hispanic market since 2008. Urena served on the executive team as senior vice president of business development. Life Events A lot has happened in Urena’s life since. He spent some time in a home in Rosirito, Baja California, painting, and working as a deejay in Panama, another passion. He got divorced and his father died from complications from diabetes at age “They weren’t doing anything with it,” 67. Both disruptions to his life occurred at Urena said, adding that he and a partner bought it back for “pennies on the dollar.” He the same time, around December. Perhaps taking a final cue from his father, declined to name the selling price, or what Urena, who was also severely he paid to repurchase overweight and a diabetic, the firm. Urena’s life hasn’t the restrictive surgery Soon after, Urena been boring because got known as the Lap Band to says San Francisco, he gets bored easily. help him lose weight. He’s Calif.-based Genstar lost 180 pounds. Capital financed him Because he has experience opening call and partners for an undisclosed sum, and centers, and because of his international the group went around the U.S. looking for connections and ability to work with varismall Hispanic insurance agencies to buy. ous governments, Urena’s attorney’s cousin tapped him to help open call centers in Costa Rica, as well as a 2,000-person call center in Panama that was opened last year. It was while in Panama that Urena found his latest calling. A friend of his, who was executive vice president of Direct Auto, brought on Urena to help Latino-ize, or organize, the firm’s efforts to open Latinofocused stores in call centers in and around Texas. Working with Direct CEO John W. Mullen, they have 13 signed leases, and have hired nearly two-dozen staff in San Antonio and Austin in the past three months. “We should have all the 50 open by the end of quarter next year,” Urena said. Of course, all the stores have an Hispanic motif and a new slogan. “Direct Auto, we’ll do right by you,” the original slogan, has been changed. The slogan now says, “Estamos con usted.” That translates to: “We are with you.”

20 | INSURANCE JOURNAL-WEST REGION November 7, 2011

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News&Markets Auto Insurers Keep Eye on Cross-Border Claims with Canada By Denise Johnson

taged automobile accidents in Canada’s most populated province of Ontario pose a unique problem for American auto insurers that must deal with Ontario’s stringent no-fault benefits. Some U.S.-based adjusters may be unfamiliar with the Canadian insurance system and not understand how to adjust claims under that country’s or one of its province’s guidelines. Though issues with the Mexican border have been highly publicized, the border between Canada and the U.S. is the actually the longest in the world, stretching 5,525 miles. The province of Ontario borders several states including Michigan, New York, Ohio, Minnesota and Pennsylvania. During a recent webinar presented by the National Association of Insurance Commissioners, Jeffrey Cirino, Midwest field supervisor of GEICO’s Special Investigations Unit (SIU) discussed the problem of cross-border claims and the complications that may arise under Ontario’s statutory accident benefit schedule (SABS). Cirino said U.S. carriers are bound to comply with Canadian standards. “When our vehicles cross the border and there’s an accident that occurs in Ontario, we are bound by their…statutory accident 22 | INSURANCE JOURNAL-WEST REGION November 7, 2011

benefit,” he said. In early 2009, Cirino began to notice a trend involving Ontario losses with Ohio-rated policies. He compiled a list of non-catastrophic claims. “We pulled out nine claims that were Ohio-rated. Out of these nine claims, we found that four of these claims had losses within 60 days of the policy inception. All the losses had at least four eligible insured or injured occupants…you’ve got 16 claimants seeking coverage on four claims.” State Farm has the benefit of having operations in three Canadian provinces: Alberta, New Brunswick and Ontario. “We have an entire electronic network where we can communicate from one claims office to another,” said Terry O’Brien, an Ontario-based State Farm claims manager. He said accidents involving insureds can be transferred to the appropriate Canadian office for further claims handling. As a result, his company hasn’t noticed the uptick in these types of claims. Ontario Auto Accident Benefits Ontario has what’s called the Statutory Accident Benefits Schedule. “It’s a government regulation that forms part of the Ontario automobile policy,” State Farm’s O’Brien said. “It’s written into our insurance act and that’s really the no-fault statute. Anyone who is involved in an accident in Ontario could access this.” Thus, any vehicle insured in the U.S. that is involved in an accident in Canada will be subject to the statute and bound to a higher standard of coverage than may have been written. Three distinct weekly benefits are available: income replacement, non-earner benefit and a caregiver benefit. GEICO said it has scrutinized losses involving the caregiver benefit because of the potentially fraudulent activity associated with it. The benefit provides

$250 a week for 104 weeks. A claimant will claim he or she is unemployed and is also the primary caregiver to children, providing a physician’s declaration in order to claim the benefit, which allows an additional $50 per child. Other benefits include housekeeping, home maintenance, visitation expenses, loss of educational benefits and even damage to clothing. In addition to SABS, Canada has an agreement that is known as the NonResident Inter-Province Motor Vehicle Liability Insurance Power of Attorney and Undertaking (PAU). The PAU document is filed by insurers in the U.S. that issue motor vehicle liability policies outside of Canada. An insurer that files this form protects its insureds in the event they drive in Canada. Not all companies are signatories to the PAU. Carriers that don’t become signatories that have an insured who is involved in an accident in Ontario would breach Ontario’s Compulsory Automobile Insurance Act. A carrier’s breach could cost an insured, who may be fined, face vehicle impoundment, and could even lose the right to sue for damages. “There’s an agreement between insurance companies that transact on both sides of the border. If you drive from Ohio to Ontario, you have that extra layer of coverage. They’re getting a higher level of protection than perhaps they have paid for. That doesn’t necessarily mean the insurance carrier is going to pay on it,” O’Brien said. Overall, Cirino said GEICO spends upwards of $20,000-$30,000 in expenses investigating each suspicious claim from north of the border. Because carriers don’t typically send investigators across international borders to investigate losses, Cirino recommended insurers work with Homeland Security to use information compiled by license plate readers. www.insurancejournal.com

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News&Markets Insurers, Policyholders Clash Over Business Interruption Claims people, there were workers who had to come in and had to be housed somever the years, insurance compawhere to rebuild the area,” Harckham nies and policyholders have been said. arguing in courts over how to calculate “This created a strong demand for business interruption losses during shelter. If hotels had been spared in catastrophes. the hurricane, they would have done This is the type of coverage that is a fantastic business. They would have often ignored until there is a loss. But done better than they would have done once there is a loss, some companies had there been no catastrophe.” realize their lost profits may be more The courts listened to the policythan the amount of property damage holders’ argument and decided, “well, they suffered. there is some logic to that, but we are Insurance companies have figured not going to rule that way. That would this out as well, according to Finley be a loophole for policyholders.” Harckham, an insurance attorney However, the courts did agree with at the New York law firm some policyholders Anderson Kill & Olick. using this approach. The more insurers get hit Harckham pointed with $100 million business out a Louisiana case interruption claims, the harder involving a carpet store they work at restricting this in the wake of a mascoverage, either through exclusive flood. Everybody’s sions or asking the courts to carpets were flooded interpret the existing language and had to be thrown in a way that narrows the out. The store could scope of coverage, according to have sold out its invenFinley Harckham Harckham. tory and done fantastic He spoke at his firm’s recent business if its own policyholder advisor conference in stock had not been ruined during the New York, where the goal was to help flood. The policyholder asked that the risk managers and corporate general business interruption loss be calculated counsels maximize insurance recovery. using this higher profit. Both policyholders and insurance And the court agreed. “But that was companies have been trying to interthe only case where the court has realpret wider effects of catastrophes to ly gone that way,” the attorney said. their own respective advantage. The result was a backlash from This issue began with hotels in areas insurers. Insurance Services Office devastated by hurricanes and other (ISO) and others changed their policy storms. Policyholders that owned forms to state that coverage would not hotels argued that the business interbe provided for the potential beneficial ruption loss should be calculated using effects that a catastrophe would have projected higher profits they would had, he said. Some insurance compahave made from the increased demand nies have also tried to interpret coverfor shelter in the aftermath of hurriage to their advantage. canes. There were stores in the World “The entire neighborhoods were Trade Center in the mall in the lower destroyed, there were lots of displaced level destroyed on 9/11. Fortunately By Young Ha

24 | INSURANCE JOURNAL-WEST REGION November 7, 2011

everybody got out, and stores had highdollar limits of business interruption insurance. But insurance companies’ position was stores really aren’t entitled to business interruption coverage, because had survived, they wouldn’t have been able to do any business anyway. The area was blocked off and occupied by rescue workers, followed by construction crews. “Insurers tempered it by saying, ‘Well, we are nice guys so we are not gonna hold you to that standard we are entitled to,’” Harckham said. “’We are gonna’ assume instead that your stores survived but in the area of ground zero, not in the middle of ground zero. And so you would have done a little bit of business but not much. We are nice guys so we are gonna’ give you a little bit of business interruption coverage.’” The court rejected the insurers’ argument, ruling the losses should be calculated with the assumption that policyholders continued to do business in a world in which Sept. 11 never happened. Even after that case, some insurance companies have raised this argument again. So far, odds favor policyholders, but he warned risk managers and corporate counsels that while many policies protect insurers from their own downside risk on this issue, there is no corresponding provision for policyholders. www.insurancejournal.com

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News&Markets Workers’ Comp Outlook Still Grim: A.M. Best

he U.S. workers’ compensation insurance segment continued to face competitive pricing, further rate decreases, weak macroeconomic factors, growing medical costs and an uptick in claim frequency during 2010. As a result, premium volume declined and underwriting results deteriorated yet again, reported A.M. Best. While the line is still dealing with the same issues in 2011, A.M. Best said there is some reason to be hopeful as premium growth is on track to be positive for the first time since 2005. However, conditions appear grim over the near term, and A.M. Best said it expects underwriting results to weaken further before improving. A.M. Best released a report on the state of workers’ compensation. Other key findings in this report: Results for the workers’ comp line of

business deteriorated sharply in 2010, with the calendar-year combined ratio increasing nearly seven points to 118.1, the highest level since 2000. Net premiums written (NPW) for the line fell for the fifth consecutive year in 2010. Premium volume has declined more than 30 percent since NPW reached its high in 2005. The top five workers’ comp insurers in 2010 remained unchanged: Liberty Mutual Insurance Cos., American International Group (AIG), Travelers Group, Hartford Insurance Group and the State Insurance Fund of New York. Through Sept. 15, negative rating actions outpaced positive rating actions by more than a 2-to-1 margin. In addition, there were eight rating units affirmed with negative outlooks during this time, and A.M. expects this trend to continue for the remainder of 2011.

26 | INSURANCE JOURNAL-WEST REGION November 7, 2011

California Supreme Court Denies Ogilvie Petition

he California Supreme Court in late October rejected San Francisco’s petition for review of the First District Court of Appeal’s decision in the Ogilvie case. The First District’s decision supports a decision by the Workers’ Compensation Appeals Board that the diminished future earnings capacity adjustment in the calculation of permanent disability awards could be rebutted. In July the First District annulled the award by the WCAB in the case of Ogilvie vs. WCAB and sent the case back to the appeals board for further review. In 2009 in the Ogilvie case, WCAB decided for the first time that injured workers could challenge the schedule used in adjusting workers’ compensation awards so that they reflect the injured worker’s diminished capacity for future employment. Before workers were not allowed to challenge the payment schedule or how it was applied. After the WCAB 2009 decision, experts warned that a decision upholding the right of claims applicants to challenge the permanent disability schedules could add $800 million annually to the costs of workers’ compensation insurers. The Supreme Court’s rejection for review was a blow to opponents of the First District decision. “That’s bad,” said Don Barthel, a partner in Bradford and Barthel LLP, who and assisted on the Olgilvie arguments. “But that doesn’t mean that’s the end of things.” Barthel said there are so many cases like this one that another district court of appeals is bound to pick one up and issue a differing decision. “I have every expectation that there will be splits on this issue in the various courts of appeal,” he said. “This is not the end of the Ogilvie issue. The case is done, but the issue could be taken up by the Supreme Court. They can’t resist split decisions.” www.insurancejournal.com

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News&Markets

Judge Blocks San Francisco’s Cell Phone Warning

U.S. judge has blocked most of a San Francisco ordinance that required warnings about cell phone safety risks, saying it violated the First Amendment. Health questions about cell phone use

grew this year after a group of World Health Organization cancer experts suggested that such use be deemed “possibly carcinogenic.” Industry groups say this does not mean that cell phones cause cancer.

28 | INSURANCE JOURNAL-WEST REGION November 7, 2011

Among the ordinance’s provisions is one requiring retailers to display posters stating that “studies continue to assess potential health effects of mobile phone use.” In his ruling, U.S. District Judge William Alsup said it was acceptable that customers be given “fact sheets” to discuss possible risks of cell phone use, but insisted on changes so they do not lead customers into believing cell phones are dangerous. The judge disallowed provisions of the ordinance that mandate large posters and warning stickers on in-store displays. The city will ask a federal appeals court to uphold part of the ruling allowing the fact sheet to go forward, San Francisco City Attorney Dennis Herrera said. But, Herrera said he will also ask the appeals court to make clear the city has even broader authority. “I disagree with his decision to limit the city’s message in the way he has done,” Herrera said. John Walls, vice presdient of public affairs for wireless industry group CTIA, said the organization was considering its options. “CTIA respectfully disagrees with the court’s determination that the city could compel distribution of the revised ‘fact sheet,”’ Walls said. Alsup ruled that most of the ordinance violated the U.S. Constitution. San Francisco may “within reason” force retailers to communicate its message, Alsup wrote, but “cannot paste its municipal message over the message of the retailers.” Alsup temporarily blocked enforcement of the ordinance through Nov. 30 pending expected appeals, and said he will void it entirely if the city refuses to revise the fact sheets. The case in U.S. District Court, Northern District of California is CTIA-The Wireless Association v. The City and County of San Francisco, California, 10-cv-3224. Copyright 2011 Reuters. Reporting by Dan Levine in San Francisco and Jon Stempel in New York, editing by Bernard Orr. www.insurancejournal.com

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News&Markets Death Toll from U.S. Cantaloupe Listeria Outbreak Rises

he death toll linked to listeria-contaminated cantaloupes in the United States reached 28 in late October, the Centers for Disease Control and Prevention said. Whole or pre-cut Rocky Ford-brand cantaloupe from Colorado-based Jensen Farms have been traced as the cause of what has become the deadliest U.S. food-borne listeria outbreak in a quarter century. A total of 133 people in 26 states have fallen ill so far, and one woman

had a miscarriage. The deadliest known food-borne listeria outbreak in the U.S. was in 1985 when cheese contaminated with listeria killed 18 adults and 10 newborns, and caused 20 miscarriages. The illness has a long incubation period, with symptoms sometimes not appearing for two months. In a letter to Jensen Farms the U.S. Food and Drug Administration said testing turned up widespread listeria contamination at its Granada, Colo. packing plant. The elderly, pregnant women and people with weakened immune systems are most at risk from listeriosis. Symptoms include fever and muscle aches, sometimes preceded by diarrhea and other gastric problems. (Reporting by Lisa Baertlein; Editing by Greg McCune, Cynthia Johnston and Eric Walsh)

California AG Sues Water Bottle Companies over Biodegradability

ttorney General Kamala D. Harris filed a “greenwashing” lawsuit recently against three companies alleged to have made false and misleading claims by marketing plastic water bottles as “100 percent biodegradable and recyclable.” It is illegal under California law to label a plastic food or beverage container as biodegradable. Plastic takes thousands of years to biodegrade and may never do so in a landfill. The lawsuit is the first government action to enforce the state’s landmark environmental marketing law, according to Harris. “These companies’ actions violate state law and mislead consumers,” Harris said in a statement. “ Balance and AquaMantra sell their products in plastic water bottles marketed by ENSO Plastics LLC. The bottles’ labeling states that the bottles will break down in less than five years in a typical landfill or

compost environment, but the additive does not speed up the centuries-long process required to break down plastic. The claim of recycling is also deceptive. The microbial additive put into the bottle is considered by the Association of Post Consumer Plastic Recyclers to be a “destructive contaminant.” The California Legislature banned the use of words like “biodegradable,” “degradable,” or “decomposable” in the labeling of plastic food or beverage containers. A bill signed by the Governor this year will expand that law to all plastic products beginning in 2013.

30 | INSURANCE JOURNAL-WEST REGION November 7, 2011

Southern California Couple and Mother Arrested in Alleged Ponzi Scheme

Southern California couple and their mother were arrested and have been charged with violating multiple sections of the state’s penal code and corporations code. Arrested were Anthony Trae Carlson, 42, Mariah Waterfall O’Brien, 40, and Arvina Joyce Carlson, 68. “This family conspired to rip off honest investors,” Insurance Commissioner Dave Jones said in a statement announcing the arrests. Carlson was charged with 40 felony counts, his wife O’Brien and mother Arvina Carlson were each charged with 23 felony counts. If convicted on all counts, Carlson faces a maximum sentence of 27 years, 8 months in state prison while both Arvina Carlson and O’Brien face a maximum sentence of 21 years in state prison. According to California Department of Insurance investigators, between 2005 and 2008, the suspects participated in an elaborate Ponzi scheme to defraud victims out of their investments. Suspects represented to victims that they either owned or had invested in an insurance company involved in the bail industry called State Bonding California, and that the company conducted business in over 44 states and produced over one billion dollars in annual revenue, according to investigators. The investments were supposedly guaranteed with returns ranging between 19 to 21 percent, with at least $2.5 million taken from three different couples and one individual, according to investigators. Investigators later determined that some of the monies collected from the victims were used to fund a lavish Hollywood lifestyle being lived by Carlson and O’Brien in the hills of Los Feliz, Caif. www.insurancejournal.com

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News&Markets Damages Expert: California Trust Company Owed $81M for Trade Secrets Bradford Cornell, a damages witness for TCW, a unit of French bank Societe damages expert asserted Trust Generale, said that without the use of Company of the West (TCW) is owed proprietary information obtained from his $81.7 million in royalties due to trade secret former employer, Gundlach would not have theft as the high-profile civil case pitting the been able to build up his new rival business, asset management firm against its former DoubleLine Capital, so quickly and effecchief investment officer Jeffrey Gundlach tively. resumed late last month. DoubleLine is less than two years old but Both sides sued each other in one of the is already managing $18 billion in assets, most contentious battles ever to grip the according to the most recent data given by multitrillion-dollar bond fund world, after DoubleLine. Gundlach was fired from “Without trade secrets, “Without trade TCW in December 2009 Gundlach’s business and set up a rival firm, secrets, Gundlach’s wouldn’t have been ready,” DoubleLine Capital. Cornell told California business wouldn’t Superior Court Judge Carl In September a Los Angeles jury ordered have been ready.” West. TCW to pay Gundlach The $81.7 million figure $66.7 million in wages, to be divided by was based on a hypothetical negotiation that Gundlach between himself and his co-defenwould have occurred in the fall of 2009 if dants. Gundlach and his associates sought Gundlach had tried to buy the information hundreds of millions of dollars. contained in the trade secrets, Cornell said. TCW prevailed in its claim that the fund Lawyers for Gundlach and DoubleLine manager took trade secrets. It is now up to insist they do not owe anything. the judge in the case to decide damages. “TCW is living in an alternative universe.

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They are seeking royalties based on a draft that envisioned TCW negotiating with Jeffrey Gundlach to continue to manage $48 billion in assets as part of an amicable separation. Instead, TCW fired Jeffrey, and he built DoubleLine from scratch, without a penny from TCW,” said DoubleLine spokesman Lew Phelps. DoubleLine was unable to call witnesses during the hearing in late October because of time constraints, and a second hearing on the trade secrets damages portion of the case was scheduled for Nov 21. The damages hearing brought both sides back to court for the first time since the sixweek trial ended in mid-September. During the trial jurors got a glimpse of the huge personalities involved in the dispute. Jurors heard testimony about tirades against TCW by Gundlach in the company cafeteria and other sometimes salacious details. Meanwhile, against the backdrop of the bruising courtroom drama, Gundlach continues to score high in the market. His DoubleLine Core Fixed Income Fund, rose 9.5 percent for the nine months ended Sept. 30, putting it in the top percentile of its category, according to financial research firm Morningstar. TCW sued its former star a month after it fired him. Gundlach fired back with a counter-lawsuit. In the weeks following his termination, Gundlach and three of his co-defendants at the trial formed DoubleLine. Roughly 45 TCW employees followed him. The case is in Superior Court of California, County of Los Angeles is Trust Co. of the West v. Jeffrey Gundlach et al, BC429385. Copyright 2011 Reuters. Editing by Steve Orlofsky. www.insurancejournal.com

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Innovation Insurance Innovators and Their Inspirations into how to grapple with the challenges of today and even here are lots of ideas out tomorrow. there. Some of them come For instance, Ross to fruition but most do not. In Buchmueller, CEO and cobusiness, success or failure of an founder of PURE (Privilege idea often comes down to timing; Underwriters Reciprocal sometimes other factors come Exchange) — which specializes into play. in insurance coverages for the In other words, “not every high net worth market — says idea is a good one,” says he and his partners find inspiraRichard Kerr, chairman and tion in breakthroughs of the past. CEO of the electronic insur“We are inspired by the entreance exchange MarketScout, preneurial thinking of people 80 CEO of Bermuda-based Monster or 150 years ago,” Buchmueller Insurance Co., co-founder says. “When we look at the and chairman of MarketScout formation of some of the oldWholesale (MSW), and foundfashioned mutual companies er of the Entrepreneurial that developed out of various Insurance Symposium and underwriting crises or problems, the Entrepreneurial Insurance whether it’s Factory Mutual or Alliance. USAA or Amica, or other compaSuccessful innovators and nies whose roots were developed entrepreneurs “realize that from some problem that they maybe two out of 10 of their ideas solved, we get inspiration from should be taken to market, and those companies as much as from the other eight are either too many of the more modern entreearly, too late, or just simply not preneurial companies. … We a good idea,” Kerr says. look back at the entrepreneurBut where do successful entre- ship of the 1920s as an inspiration preneurs in the insurance world for us.” find inspiration for their ideas? Like past innovators, when Some who have achieved sucstarting his now six-year-old comcess in this field look back to pany, Buchmueller recognized a previous innovations for insight need in the market for high net By Stephanie K. Jones

worth individuals that he had the experience and skill to fulfill. “For good or for bad, the high net worth market’s the only thing I’ve done nearly 25 years in the business,” he says. “But it is a large market and relatively underserved compared to other markets of similar size. There were at that time only three or four companies that had any interest in specializing in that space. We saw a large profitable market that was relatively underserved.”

Buchmueller also recognized that a start-up company as opposed to an acquisition or merger presented an opportunity to begin with a clean slate. Some have asserted that PURE “seems like a great company but it’s new,” he says. But, “in many respects, this is a great company because it’s new,” Buchmueller counters. “To be able to put the best technology in from scratch without having to deal with legacy integrations and all the continued on page 36

From Concept to Execution: Taking Ideas to Market I n today’s competitive insurance market and tough economic times, staying relevant and innovative is key to success. And one industry event has come to serve as a launching pad for new ideas in the industry. Since its creation just five years ago, MarketScout’s

Entrepreneurial Insurance Symposium in Dallas has grown into a unique forum for insurance industry innovators. Each year, successful insurance entrepreneurs share their stories of success, as well as the challenges they encountered on their journeys, to hundreds of attendees.

34 | INSURANCE JOURNAL-WEST REGION November 7, 2011

In 2010, MarketScout formed the Entrepreneurial Insurance Alliance (EIA) to promote further innovation in the industry. Entrepreneurs and innovators “have ideas they want to bring to market but they don’t have a platform to get their concept to market. For instance, they

either don’t have the capital they need to get to the next level, or they don’t have an underwriting partner, or a fronting carrier, or a software provider to assist them in getting where they need to go,” Kerr explains. The EIA is an incubator, he continued on page 38 www.insurancejournal.com

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Innovation Insurance Innovators, continued from page 34

Richard Kerr

complications that most insurance companies deal with, to be able to install very sophisticated products where regulators would embrace it because we weren’t trying to disrupt an existing book of business.” PURE provides “interesting solutions in the areas where a lot of companies aren’t writing anymore,” he continues. “Not because they don’t like those areas, but because they have too much business there. Whether it’s from capacity or technology or regulatory issues, this clean sheet of paper has been a huge asset.” Dave Bresnahan, president of Lexington Insurance Co., acknowledges that some inno-

Ross Buchmueller

vations of the past, such as the advent of employee practices liability coverages, were “major game changers.” But, he says, emerging risks also present new opportunities for creative problem solving within the industry. “When I think about what lies ahead, I think maybe the biggest opportunity revolves around social media,” Bresnahan says. “Social media doesn’t mean as much to me and the colleagues that are a little older than me in the insurance industry. But as younger people are coming up in the industry, this is the way they communicate and this is probably the way they are going to be doing business. This is probably

Dave Bresnahan

the way they are going to expect content to be pushed to them. “We spend a lot of time thinking about social media and its impacts and how it will change the way we do our business down the road,” he adds. Historic Lloyd’s of London, where the modern concept of insurance began, also looks to the future and emerging risks as sources for creative output. Lloyd’s emerging risk team, based in London, works closely with the Lloyd’s managing agents, the Syndicates, brokers, and a number of outside organizations, including universities, the press, think tanks, and others

Hank Watkins

to “basically spotlight the emerging risks out there, whether it’s nanotechnology, climate change,” says Hank Watkins, president of Lloyd’s America. “Behavioral risk is a big part of what we’re looking at, because clearly that’s not really been looked at from an insurance perspective in a long time.” While underwriters at Lloyd’s are looking ahead, he says, they have guidelines and structures to follow, and often make decisions based on historical experience. “But there’s also a certain behavior aspect of underwriting that is not really quantifiable, or hasn’t been to date.”

Rob Byler, president of Program Business, QBE Alan Kaufman, chairman & CEO, Burns & Wilcox

On Change On Acquisitions Not every acquisition works. Some of the acquisitions we overpaid. … We’ve paid too much for what value we ended up having and the profit that it produced. Some acquisitions, you thought that there’s a great team, and there may have only been three or four people in the team that are turning out to be good players and the rest just don’t fit into the culture. Your evaluation just didn’t turn out right. Not every hire and not every individual that you acquire from an acquisition is going to work out. When you all ended up and mix it together, you hope that a majority of the people work out. You hope that there is a profit that you are getting some value for the acquisition. Sometimes, it turns out, unfortunately, that our acquisitions have not materialized into a very profitable business.

36 | INSURANCE JOURNAL-WEST REGION November 7, 2011

[With] change, certain people are always going to push back. So you have to recognize that as a starting point. And my biggest thing with change is laying out a directional plan and a clear vision and message on where we want to go, why we want to go there, and how we’re going to go there. The way of addressing it is — staying transparent, constantly communicating with people, making them aware why we want the change.... Then you have to get down specifically with each of the individual people and talk to them about how they need to make the change and what their job function and role, whether it’s going to change, if it’s going to change, how it’s going to change, so that they can understand the reasons behind it, and then people are more willing to make that move and to implement different processes, procedures, business approaches. To me, if you can understand and see the path, it’s much easier to go there.

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Innovation Taking Ideas to Market, continued from page 34

Glen Hargrove, president, MarketScout Wholesale Insurance Symposium, 11 On Establishing Value finalists presented their I think all organizations are looking to establish their value propositions within ideas to the the industry and establish why people should do business with them. … Not only panel of EIA do you have to do the basics of being fast and being of good value, and compete says. “It’s judges and on those basic structures, but I think you have to be able to offer something a little populated by symposium different. … The ability to innovate in how you deliver products, what type of companies with attendees. The products you deliver, and how your customers can access you, I think can set orgadiffering skill sets following facnizations apart in this industry. … that can provide tors determined a big brother incubateach candiobjective perspectives from renowned indusing approach to these date’s scores: applicability to the insurance try and subject matter experts on a variety upstart, fledgling entrepreindustry; impact on a broader marketplace; of topics such as data breaches, green and neurial companies. Again, financial implications; unique features; and sustainable design, or the impact of health they may need underwriting judges’ discretion of other relevant factors. reform on the medical liability market. support for their product, they Through LexPlorations, brokers and climay need fronting support or reinAnd the Winners Are … ents are able to access information, insights surance, or a specific aid with software or The 2011 Entrepreneurial Award winners and perspectives on the latest risk manageback room technology. And the companies for this year are: LexPlorations, created ment issues and the solutions available that are in the alliance can do that.” by Lexington Insurance, in the underwritneeded to address them. In line with its mission to foster innovaing category; PC Central from Huntington WorkSmart is “a tool for agencies to tion, the EIA sponsors the Entrepreneurial Insurance in the distribution category; manage their staff and their business proInsurance Awards, the winners of which are Insurance360 by Risk Metrics, and cesses,” says Susanna Morgan, senior vice selected at the Entrepreneurial Insurance WorkSmart from Vertafore in the technolpresident of corporate development at Symposium. The EIA receives hundreds of ogy category. Vertafore. Launched in 2010, it combines applications for the most entrepreneurial LexPlorations is designed for exploring content management, business process manand innovative new insurance concept each in depth information on current market agement, workflows and reporting, allowing year. issues, emerging risks, and innovative soluagencies to “create more capacity,” she says. At the MarketScout 2011 Entrepreneurial tions, according to its creators. It provides Around 50 agencies are currently using the system, Morgan says, and the feedback has been positive. “We’ve had amazing results from our clients, things like reducing the The Leavitt Group, the nation’s 2nd largest privately-held insurance brokerage, is pleased to welcome number of steps and the times spent on Brett Borisoff to their executive team. Borisoff is a known insurance leader in the Southern California common processes by about 50 percent, region who brings with him 30 years of insurance innovation to the sales management initiatives of the Leavitt Group. Borisoff will office in the Leavitt Group’s PrideMark-Everest agency, which is located in which is an amazing result,” she says. It the heart of Orange County. “really has allowed them to free up capacity, to work on revenue generating items.” “The way the Leavitt Group has positioned itself Property Casualty Central, or PC in California to become the predominant middle Central, is an agency knowledge management system that allows information to market brokerage is very exciting. It was an easy be shared with employees in wide-ranging decision to join in and become part of the action.” locations, according Jeff Gillmor, vice presi- Brett Borisoff dent at Huntington Insurance. The firm is a “bank-owned agency that grew out of Leavitt Group agencies provide clients with market clout and creative P&C and employee benefits several acquisitions,” Gillmor says. As such, solutions. Clients also benefit from the consultative approach to risk management found within the Huntington has multiple regional offices culture of each office and the unique flexibility that comes with local, on-the-ground agency principals. across four states, so PC Central grew out of a need to share communication among www.leavitt.com | Leavitt Insurance Agency of San Diego Lic. 0B72756 people and locations. Having served in the Leavitt Insurance Services of Los Angeles Lic. 0769447 | PrideMark-Everest Lic. 0F13098 military — Gillmor was deployed to Iraq in

Leavitt Group Welcomes Brett Borisoff

Valley Insurance Service Lic. 0566246 | Leavitt Benefits Insurance Services of S. CA Lic. 0G13624

38 | INSURANCE JOURNAL-WEST REGION November 7, 2011

continued on page 40 www.insurancejournal.com

IDEA EXCHANGE

Innovation Taking Ideas to Market, continued from page 38

2005 — he drew upon communication strategies employed by U.S. forces to disseminate information to many people in many different places in developing PC Central. Gillmor says it took about six months to go from concept to execution into a usable product and another six months to refine it. Insurance 360 is an expansion of Risk Metrics’ existing dataset, explains Kevin McCarthy, vice president of national accounts. At the same time it’s a new mechanism for delivery of aggregated “riskindicative data on U.S.-based businesses,” he says. The system can “identify what would be indicative of an insurance exposure … things like workers’ compensation coverage, commercial auto exposures, commercial property, and other factors like importexport or some specialty risks. We’ve been providing that to carriers, agents, brokers, banks, and other insurance-selling organizations for just over 10 years now.” With Insurance 360, Risk Metrics has

expanded the dataset into new states and new lines by leveraging a new delivery mechanism for an application program interface, or API. An API, he says, “is just a sophisticated way of how one computer talks to another computer.”

Resource Box Visit Insurance Journal TV to access a series of video and podcast interviews with presenters and award winners at the 2011 Entrepreneurial Insurance Symposium. www. insurancejournal.tv.

Michael Lee, chairman, CEO and president, Tower Group Companies

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Market Research Top 10 Risky Industries to Avoid Future Looks Brighter for Overall Economy But These Top Industries Will Be Left Behind, Says IBISWorld

s the United States inches Blu-ray discs. The biggest source toward recovery, there are of difficulty is the declining several induslife cycle stage, which inditries that aren’t cates weakening demand. The expected to Recordable Media Manufacturing improve along industry has suffered a sharp with the rest of drop-off in producthe economy. In tion volumes a risk analysis over the five By Nikoleta Panteva of U.S. indusyears to 2011. tries, industry Revenue has research firm IBISWorld (www. fallen as the ibisworld.com) found declinswitch to ing life cycles, high competition, online content declining consumer demand and has dented – technology changes to be the con- and will continue tributing perils for many of the to do so – demand top 10 riskiest industries. for physical media. Industry To calculate overall risk scores, decline has instigated industry IBISWorld assesses the risks consolidation, with the number pertaining to industry structure of firms in the industry forecast (structural risk), expected future to drop at an annualized rate performance (growth risk) and of 3.0% to 572 over the 10 years economic forces (sensitivity risk). 2016. Furthermore, the difficulty Risk scores are is exacerbated based on a scale The industries’ perils by the number of one representinclude declining life of broadband ing the lowest cycles, high competi- connections and tion, declining conrisk and nine external competisumer demand and representing the tion. Competition technology changes. from cable TV, highest risk. The three types of particularly videorisk are scored separately, then on-demand services, reduces weighted and combined to derive demand for DVD rentals and the overall risk score. The 10 purchases, which in turn reduces industries identified are considdemand for recordable media. ered HIGH risk because they all have scores beyond a six rating. Wired Telecom Carriers Industry participants provide Recordable Media direct communication services Manufacturing (such as local, long-distance This industry manufactures and international phone service and mass replicates optical and using wired telecommunications magnetic media, including audio networks) and own, operate and video tapes, diskettes and and maintain this infrastrucoptical discs, CDs, DVDs and ture, which includes landlines,

42 | INSURANCE JOURNAL-WEST REGION November 7, 2011

microwaves and satellite linkups. In recent years, the continuous emergence of new technologies, like naked DSL and voice over internet protocol (VoIP) technologies, and rapidly falling cell phone prices are making this industry particularly risky. However a positive for operators within the industry are the high barriers to entry, which protect against higher competition in the long run by reducing the ability of new operators to enter the marketplace, and low revenue volatility. Soda Production Firms in the Carbonated Soft Drink (CSD) Production industry blend various ingredients with carbonated water and also package and distribute these beverages for resale, excluding still beverage production, water purifying and ice manufacturing. Industry revenue is expected to grow only anemically due to declining per capita consumption of carbonated soft drinks. Alternative beverage categories have stepped up their marketing campaigns and gained market share as a result, hampering some of the traditional demand for CSDs. Top competitor categories include

energy drinks and ready-to-drink teas and coffees. Furthermore, soft drink syrup concentrate is a significant raw material required by soft drink and energy drink makers to produce consumer beverages, so its unit costs directly affect industry value added and profit. Laundromats Establishments in this industry primarily operate facilities with coin-operated laundry and drycleaning equipment for customer use on the premises. Businesses competing fiercely for market share are forced to incur expenses to differentiate their offerings, keep prices low to entice demand or both. The industry primarily targets renters because they typically use coin-operated washers and dryers at local laundromats or those that landlords provide in the rental complex. Therefore, when rental vacancy rates increase, the industry is negatively affected. Additionally, the industry faces external competition from the sale of residential washers and dryers purchased primarily for the home as well as from colleges that buy machines for students. DVD, Game & Video Rental This industry includes subscriptions for mail-distributed continued on page 44 www.insurancejournal.com

IDEA EXCHANGE

Market Research Industries to Avoid, continued from page 42

and in-store media rentals, but it excludes on-demand and web streaming rentals. A slew of alternative media is causing consumers to reduce and even cease renting physical copies of videos and games. Instead, Americans are choosing streaming media, video on demand and online downloads. Additionally, this industry is affected by changes in consumer spending, which can be influenced by changes in the rate of employment growth, interest rates and tax rates. When spending rises, consumers will be more likely to rent DVDs and games. Furthermore, broadband is necessary for consumers to stream and download video content online, the primary substitute for physical media rentals. People without a steady Internet connection are unlikely to subscribe to streaming services, such as Netflix. So greater penetration of internet connections will likely hurt the industry. Homeowners’ Associations A homeowners’ association is a legal entity created by a real estate developer for the purpose of developing, managing, selling or administering a community of homes. The two factors with the most significant impacts on the industry are homeownership rates and housing starts. Amid heightened unemployment during the recession and slow recovery period, fewer homeowners had the disposable income necessary to pay assessment fees to community associations. This trend has negatively affected industry revenue during the period. Although the recession officially ended in June 2009, unemployment continued to rise during 2010 and has remained stubbornly high during 2011, a trend that has adversely affected many homeowners. Petroleum Refining Firms in this industry refine crude oil into petroleum products, which involves one or more of the following activities: fractionation, straight distillation of crude oil and cracking. Crude oil is the industry’s key input; therefore, it is the major cost item. When prices increase, petroleum refiners are

adversely affected. Government regulations regarding the type of petroleum products (which also include blended petroleum or blended ethanol) that can be sold at different times and in different regions have a direct influence on industry performance. Furthermore, Chinese GDP growth indicates an increase in oil demand, which places upward pressure on world crude oil prices and will contribute to this industry’s risk in the coming year. Bridge & Tunnel Construction This industry is comprised of firms that are primarily engaged in the construction of bridges, viaducts, elevated highways and tunnels, including new work, reconstruction and repairs (the industry does not include road and highway construction activity). Industry establishments include general contractors, design builders, engineer-constructors and joint-venture contractors. The two factors with the most significant impacts on the industry are government funding for highways and value of private non-residential construction. Furthermore, projects and contractors typically bid for funding and contracts based on the estimated costs. As the price of inputs like concrete rise, bridge and tunnel construction demand diminishes. The cyclical growth and dispersal of residential construction activity generally contributes funds in the form of development and impact fees for the installation of local transport infrastructure, such as roads, bridges and tunnels. These factors will contribute to risk in the coming year. Gift Shops & Card Stores Operators in this industry retail a range of gifts, gift wrap, novelty merchandise, souvenirs, greeting cards, party supplies, seasonal and holiday decorations. The industry excludes retailers that operate primarily as used merchandise stores, electronic shopping and mail-order houses or discount retail stores. Gifts and cards supplied by this

44 | INSURANCE JOURNAL-WEST REGION November 7, 2011

industry compete with comparable products offered by discount and online retailers. Such external competitors generally offer lower prices, a wider selection of goods and the added convenience of one-stop shopping, thus eroding sales from industry operators. Furthermore, the rising prevalence of e-cards and social networking websites has been reducing the demand for traditional greeting cards and postcards. As such, a rise in the number of broadband connections will likely lead to more online activity, further driving down demand for traditional cards. Low consumer sentiment and per capita disposable income will also contribute to this industry’s high risk score in the coming year. Community Food Services This industry comprises establishments that collect, prepare and deliver food for the needy. The two factors with the most significant impacts on the industry are per capita disposable income and the poverty rate. As the economy recovers, a rise in per capita disposable income will decrease the demand for community food services since individuals and households will be better able to purchase food for themselves. In 2012, industry revenue is expected to drop 7.1 percent to $5.1 billion, eliminating most of the gains experienced during the recession. This lowto negative-growth trend will occur as the unemployment rate falls from 9.1 percent currently to 6.0 percent by 2016. This trend will aid incomes and lower demand for community food services. Also, as the poverty rate decreases, so will demand for community food services. In terms of government funding, the main driver of revenue, IBISWorld expects that the public focus will revert to balancing state and federal budgets, causing funding to fall in 2012 through 2014. Panteva is senior analyst for IBISWorld, a global industry and market research firm headquartered in Los Angeles, Calif. IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. Visit www.ibisworld.com or call 1-800-330-3772. www.insurancejournal.com

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Technology Underwriters May Soon Be Using Social Network Data By Young Ha

he insurance industry is paying increasing attention to what people and businesses post on social networking sites like Facebook, Twitter and LinkedIn. Already, scouring the social network pages of insureds is a common practice on the claims side of the business. Some investigators say it’s one of the first things they do when looking into fraudulent claims. Currently, social network data are being used as evidence in courts of law in claims cases. Individual underwriters are retrieving risk evaluation information on their insureds through searches on social sites. But in a few years, automatically mined data from social networking sites could find their way into the underwriting pricing process. This data could become a factor in determining premiums for both personal and business insurance, according to a new report from Bostonbased research firm Celent, titled “Using Social Data in Claims and Underwriting.” Insurers are now using social media for sales and advertising, Michael Fitzgerald, Celent senior analyst and co-author of the report, told Insurance Journal. “Some are using it in claims. Underwriting is next.” Regulators have not yet offered guidelines on the use of social data, Fitzgerald added. But that could soon change. “Just as insurers recognize a link between credit health and risk in auto insurance, social data may offer similar insights for insurers who set out to crack the data,” the report says.

As users purchase items online, and communicate with others in public forums, they leave behind data about their preferences, lifestyle, operations and habits, according to the Celent report. This data can be used to develop

writing and claims processes” and ‘private’ claimant/insured’s combecome standard inputs into risk ments indirectly, detailing events evaluation and settlements. they attend, groups they’re associCelent contends that social ated with, etc.” data has the potential to join While bypassing certain existing third party data sources privacy settings is technically such as CLUE (Comprehensive possible, it also raises a differLoss Underwriting Exchange), ent question: what is ethically motor vehicle reports, and MIB or legally allowed when mining fraud reports to enable more social networking sites, and to accurate underwriting evaluawhat extent should they be used tion/pricing and to help lower for insurance? claims costs. Celent suggests one way to Pew Research Center shows deal with this issue is engaging that the young are still the with customers, seeking permisdominant users (77 percent of sion to use their social data, and U.S. Internet users in the 18-29 then automatically gathering it. age group use social networks). Depending on regulatory rules, But those in the older age group insurers could offer customers of 30 to 49 are also using social discounts as an incentive. a risk profile for an individual or sites in big numbers (55 percent for a company. of Internet users in this group Challenges That Lie Ahead On the corporate side, companow use social networks). In the There are plenty of hurdles. nies postings also include descrip- 50-plus age group, 23 percent of Companies need to develop tions of new product offerings Internet users utilize social sites more sophisticated authentica(hence new added risks), services and the numbers are increasing. tion methods, (Is that the same and operations. This expansion into additional John Smith who may be filing a Also useful is the “social age groups is meaningful, the fraudulent workers’ comp claim?) graph,” which shows how indiCelent report says, since people improved data extraction tools, viduals or companies are linked in older groups are the target and more advanced analysis together: a picture of who is market for many lines of business techniques. The challenge for friends with whom, and what including high underwriting friends of friends people have. net worth Regulators have no organizations These graphs can give insurers personal lines, guidelines on overall is to develop insight into how an individual life and annuimethods and use of social data. may perform as a risk, based on ties, and small procedures for the behavior of those he or she is commercial. collecting, sifting, analyzing, and connected to. The report says claims profesincorporating social data informaSuch data can be integrated sionals have been learning how to tion into their existing system into an insurer’s existing process link relationships on social sites environments, the report says. and automation environment to gain information on profiles According to Celent, there are and compared to previous risk which use the highest privacy untapped analysis opportunities information to identify material settings. Investigators report that in tapping into recent advances in changes that should be addressed “People always have friends of actuarial science, predictive modfrom in underwriting. friends willing to ‘accept’ a new eling, and tools to analyze social Celent predicts that over the ‘friend,’ and that friend’s privacy data and to discover and leverage next three years, social data will settings aren’t always set, allow“hidden relationships in social be “incorporated into core under- ing us to access pictures and the data.”

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Technology How to Optimize the Value of Inspections

nsurance carriers spend approximately $190 million a year on inspection programs, yet 75 percent of inspections done today offer no immediate value to loss By Denise Johnson experience or a carrier’s bottom line, according to a claims firm. The problem with inspection efficacy isn’t the quality of the report; instead, it’s the old way of thinking, said Steven Brewer, senior vice president of underwriting solutions at Marshall & Swift/Boeckh (MSB). “The carriers are getting very consistent information from the inspection process. The problem is they are getting consistent information on the wrong risks or risks that don’t pose a high risk, he said. There are a number of reasons a carrier will order an inspection, according to Brewer. “In some cases they will want the data to be verified for the risk that they are insuring. The company may be looking for condition hazards or other factors that may yield risk or a likelihood of a loss.” Most underwriting departments have criteria to determine if a policy is an acceptable risk. “There are two classifications of criteria: One is whether the properly is insured to value. The second are risk factors; a multi-peril policy can cover a lot of different type of losses. And so the carriers like to put eyes on a property to confirm that those conditions do not exist or if they do exist, give an insured an opportunity to mitigate the issues,” Brewer said. According to Brewer, carriers want to ensure proper coverage

is set along the guidelines of the policy. “A lot of carriers will look for conditions that they know can yield a higher propensity for a loss, such as attractive nuisances like an unfenced pool. General conditions that may be high risk factors or that may be excluded under a certain policy condition.” Carriers are ordering inspections on homes that aren’t the highest risk homes in their portfolio. “Historical inspection guidelines would say go inspect a home over this value or over this age. That’s not always the best correlation to the actual homes that are the highest risk,” he said. Updating Guidelines Rather, carriers need to consider updating inspection guidelines to suit their company needs. “What we find is that a lot of inspections ordered don’t actually yield a result that is actionable to the carrier,” Brewer said. “So they may go out and they may take photos of the property and they may calculate the replacement value and they may find there is nothing notable that is a risk factor and that the insurance is properly set for that risk.” According to Brewer, at $25 to $35 per inspection, carriers aren’t getting information that helps them mitigate future loss. “I wouldn’t say they are not valuable, but if you could have a predictive model that could identify where your areas of highest risk are, you would certainly want to use a method of inspection to go after those first and right now that is really not prevalent in the industry,” he said. In order to optimize the inspection process, Brewer recommends carriers re-examine the criteria

48 | INSURANCE JOURNAL-WEST REGION November 7, 2011

Graphic provided by Marshall & Swift/Boeckh used in requesting inspection reports. This is necessary not only to improve a carrier’s bottom line but also to remain competitive within the marketplace. “Carriers are moving to compete on information. Carriers who can use better risk indicators to more effectively utilize risk management and inspection dollars are going to find the actionable issues and they will be able to take a better risk management approach to their book,” Brewer said. MSB reviewed close to 5 million inspections for its carrier clients. What MSB found allowed it to make a concerted effort to aggregate new risk predictors. “New risk predictive data, such as foreclosure information and home vacancy rates, are emerging as predictive of when a

home or a person may modify or maintain their homes differently,” Brewer said. “This new predictive modeling of data not previously available to carriers gives a new perspective on which homes they may not be looking at historically, but may be a high risk within their portfolio.” MSB’s predictive modeling efforts involve aligning the coverage a carrier writes and the risk variables the carrier indemnifies to each carrier’s desired outcome. The current inspection actionable rate is 20-30 percent, while MSB’s proprietary predictive model generates client carriers a 60-70 percent actionable rate, according to Brewer. Johnson is editor of www.ClaimsJournal. com. www.insurancejournal.com

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Research & Trends Myself, the Car: Aggressive Driving Linked to Personality

hose who view their car as an extension of themselves have stronger aggressive driving tendencies, a new study finds. The study “Aggressive Driving: A Consumption Experience,” by a Temple University Fox School of Business professor, is thought to be the first to comprehensively examine how personality, attitude and values contribute to aggressive driving. Driving is one of the most common consumptive behaviors, and aggressive driving causes a third of all accidents that involve personal injuries and two thirds of all fatal accidents in the United States. “It explains much of the phenomenon we knew existed,” said Ayalla Ruvio, lead author and an assistant professor of marketing at the Philadelphia university. For instance, “we know men tend to be more aggressive drivers and we know men tend to

see their cars as an extension of themselves more than women.” Ruvio’s article in the Journal of Psychology & Marketing features two studies: a holistic look at personality, attitudes and values gathered from 134 surveys of men and women average age 23.5; a study of 298 people built from the first and added risk attraction, impulsivity, driving as a hedonistic activity and perceptions about time pressures. The studies found: People who perceive their car as a reflection of their self-identity are more likely to behave aggressively and break the law. Compulsive people are more likely to drive aggressively and disregard consequences. Increased materialism is linked to

increased aggressive driving tendencies. Young people feel the need to show off their car and driving skills, and underestimate reckless driving risks. Those who admit to aggressive driving also admit to breaking the law more. Ruvio said the implications of the study are evident in cultural contexts: the “soccer-mom” stigma of minivans, the Thelma and Louise personas, and songs like Shania Twain’s “You Don’t Impress Me Much,” with its line, “I can’t believe you kiss your car goodnight.”

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50 | INSURANCE JOURNAL-WEST REGION November 7, 2011

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Minding Your Business The Power of the Mastermind W

hat is a mastermind group? A masterto provide feedback, brainmind group is simply an alliance of storm new possibilities, and two or more individuals dedicating themset up accountability strucselves to a specific goal. It is a way to get all tures that keeps each member the knowledge, expertise, focused and on track. It is a and connections one needs collection of supportive peers to achieve their goal. who work together to move It is believed that each individual of the group Napoleon Hill, author of to the next level. “Think and Grow Rich”, Things grow at an expofirst defined the term masnential level when people are termind. Hill said it is a in groups. 1+1+1+1 equals 5, or By Bill Schoeffler “coordination of knowledge 6 or even 10! Napoleon Hill and effort, in a spirit of believed there was a mystical harmony, between two or quality created when a masmore people, for the attaintermind group was formed. ment of a definite purpose.” He said: “No two minds ever Andrew Carnegie, the come together without, thereby, creating a wealthy steel magnate, third, invisible, intangible force which may inspired Hill’s concept be likened to a third mind.” of the “Master Mind.” In other words, the sum of the ability of and Catherine Oak According to Hill: “Mr. individuals to create things in the world is Carnegie’s Master Mind group consisted of a multiplied when individuals operate as a staff of approximately 50 men, with whom group. he surrounded himself, for the definite purpose of manufacturing and marketing steel. Types of Masterminds He attributed his entire fortune to the power There are two basic types of mastermind he accumulated through groups: One that is focused this “Master Mind.’” Things grow at an on the success and vision of Over the past 75 years, one individual, and one that exponential level the idea of mastermind is focused on helping everywhen people are in one in the group. groups has grown and groups. evolved to become a valuThe mastermind group able tool of successful indithat Carnegie created was viduals. solely directed at his personal vision. The 50 Participants bring to an effective mastermen in the group were not there to discuss mind group a synergy of energy, committheir own projects. Instead, they focused ment and excitement. The group together on one main goal: the building of a steel will raise the bar by challenging each other empire. The originator of the group is the to create and implement goals, brainstorm driving force behind the goal. He/she gathideas, and support each other with total honers together a group of people who have the esty, respect and compassion. Mastermind knowledge, expertise and connections he or participants act as a catalyst for growth, by she lacks. playing the roles of the devil’s advocate as Consider this a personal board of direcwell as the supportive colleague. tors. It can be a formal board that meets The mastermind group belongs to the periodically at one place. Or, it can be inforparticipants. So, it is key for each person to mal, where one meets with their advisors participate, contribute and follow the guideindividually on the phone or in person to go lines. Fellow members in the group are there over issues and ideas. www.insurancejournal.com

This type of personal board of advisors could and should include the management team, a CPA, attorney, business consultant, friendly peers, vendors, customers, HR experts and fellow business owners in other industries. The second type of mastermind group is one where all members of the group are meeting to support one another in achieving a goal. The people in this kind of a group are not totally focused on one person’s project/ goal all the time. Instead, the members help each other brainstorm and strategize, and introduce leads or other people and resources that might help a member with their goal. A mastermind group solves the problem of how to get the expertise, experience, resources, and specialized knowledge one does not have. To get these resources, guess what — there is a price to pay. The creator of the group needs to make sure that the other members are generously compensated in one way or another. This is usually in the form of idea sharing and support of one another. Some groups are run by a paid facilitator that can also offer other services. It is a good idea not to have family and close friends as members of your mastermind group. The dynamics of the relationship will interfere with the openness of advice and opinion. Today’s economic and social landscape continued on page N2

November 7, 2011 INSURANCE JOURNAL-NATIONAL REGION | N1

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Minding Your Business Mastermind, continued from page N1

has shifted so radically in the last few years. Business owners need to learn to think differently just to maintain the status quo. With the current trends, things look as if they’re going to get a lot more confusing in the months ahead. A mastermind group is a way to share ideas, opinions and experience

to keep a business owner up-to-date with today’s rapidly changing environment. Elements of a Mastermind Group The basic foundations of a great mastermind group starts with a clear and definite purpose. For the second kind of group,

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N2 | INSURANCE JOURNAL-NATIONAL REGION November 7, 2011

where people with different goals come together to help each other, the purpose is that when one person is discussing their goal, everyone else must be focused in that moment on helping that person get what they want, to the best of their ability. The second crucial element in a mastermind group is harmony. There must be a complete meeting of the minds, without reservation on the part of any member. For a successful alliance, each member subordinates personal needs to the needs of the overall goal. If at any time the harmony of the group is damaged, it must immediately do something to restore it, including eliminating a member, if that becomes necessary. Never try to operate a mastermind alliance that includes negative people. A general positive attitude is required. Key Elements Other key elements to a successful mastermind group include: •Establish guidelines for how the group is to operate. •Create an agenda for each meeting prior to the meeting. •Start out sharing a success or breakthrough. •Everyone must participate in some way at each meeting. •Commitment to the group and each other. •Maintain a balance of attention and sharing by each member. •There should not be any direct competitors in the group. •Members should have similar success and experience levels. •Members should also have a diversity of skills and abilities. Summary A mastermind is about moving one forward and helping one achieve a dream or a goal. The mastermind is a very effective way to share resources, skills and experience, so that the goal can be achieved much faster than if one operated on their own. Schoeffler and Oak are partners at teh international consulting firm Oak & Associates, providing services for mergers, acquisitions, management and financial consulting. E-mail: bill@oakandassociates.com. Phone: 707-935-6565. Web site: www.oakandassociates.com www.insurancejournal.com

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The Competitive Advantage Procedural Consistency: A Good Defense for Agency E&O

have often been asked why procedural consistency is important for reducing errors and omissions (E&O) exposures. Another way of asking the question is, “Why is inconsistency an issue?” Let’s first consider the strict legal perspective. The most applicable case law is By Chris Burand titled “The Invariable Practice Rule.” An invariable practice is done “one way, all the time, by everyone.” This rule is based on a Florida statute which states that the demonstration of an invariable practice is considered equivalent to documentation that something was done. Does this rule work as a defense for agencies that process business consistently? Excluding situations with clear extenuating circumstances, my experience is that it has worked every time. Furthermore, I have seen it work with regulators too. This is an extremely powerful reason to be consistent. Conversely, I have heard many defense attorneys argue that inconsistency can be used as a defense. Their argument goes something like this, “If you’re inconsistent all the time and have not given the insured any reason to believe you are consistent, then

inconsistency is a great defense.” Given this argument, I could agree with those agency owners and producers that do not believe consistency is important, provided the agency is always inconsistent. However, I’m really not sure how an agency would advertise the advantages and benefits of being consistently inconsistent. Maybe: “You can count on us to be so inconsistent that you’ll always be surprised by what coverage you really have!” Who knows? Some client might find total inconsistency appealing.

chases both commercial and personal lines not have the right to expect the same standard applied to both? I have seen cases lost in courts because the agency applied different standards and consistency to personal lines versus commercial lines for the same client. I see this exposure today even more often between group health and commercial lines. Too few agencies have made the effort to integrate similar procedures for mutual issues between these departments. Another level of complexity was added when the industry began differentiating service levels between small accounts and large accounts. Economically, this makes sense. However, from an E&O perspective, is the E&O claim of a client paying a $500 commission materially less than that of a client paying a $10,000 commission? If not, then most small business units need a redo.

E&O Perspective Now let’s consider the E&O perspective. Consistency provides a great defense against E&O claims, but does inconsistency really create E&O exposures? I argue that inconsistency does create exposures because if business is inconsistently processed, the odds of a mistake occurring resulting in an insured having an uncovered claim are Service Centers higher. Consistency, by its nature, provides Complexity is also added when agenchecks and balances that prevent and catch cies use outside service centers. The initial mistakes. The result is fewer E&O exposures concern is usually whether these providers, and a higher quality of service. usually companies, will cover E&O mistakes Before the industry began emphasizing their own people make. Most contracts state cross-selling, consistency was fairly straightthe servicing company will be responsible forward. Cross-selling can be a great strategy for such claims provided the agency did not for improving profits and I thoroughly suptouch the file. Somewhere between 98 perport it. However, it adds an extra level of cent and 100 percent of agencies ignore this complexity. Cross-selling is not the risk-free clause. panacea or the pure profit However, this may be strategy that a number a minor exposure when Consistency, by its of industry consultants using outside service cennature, provides paint. Like everything in ters. The real exposure arischecks and balances es from the difference in life, cross-selling carries a that prevent and price. consistency. Most service One part of that price centers have a far higher catch mistakes. is higher E&O exposures. consistency level than their If a commercial client is sold a personal client agencies. So what happens when an lines policy, do they have the right to expect agency incurs an E&O claim involving inconthe same level of consistency/quality in sistency as either the cause or the defense? both lines? I believe a reasonable argument, For example, an agency is sued for a certhough I doubt a winning argument, can be tificate of insurance. The agency cannot use made that just because an agency processes consistency as its defense because a quick commercial lines consistently, personal review of other certificates shows too much lines customers should not expect the same. inconsistency. Furthermore, the plaintiff’s However, why should a customer that purcontinued on page N6

N4 | INSURANCE JOURNAL-NATIONAL REGION November 7, 2011

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The Competitive Advantage Agency E&O, continued from page N4

attorney learns that the service center is more consistent and that the agency had the option of placing that insured in the service center, but did not so they could supposedly provide better service. Is the agency’s case better or worse by having a service center?

The suit would likely exist either way, but the defense would likely be different. In fact, there is no way the agency can use the “but we’re always inconsistent” defense when using a service center for similar accounts. If the service center is consistent, and

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since most agencies service some parts of service center accounts in-house, then doesn’t this raise the bar for the in-house servicing? For example, a service center has 99.9 percent accuracy and consistency in processing endorsements. A mistake or accusation of a mistake is made regarding an endorsement processed by the agency. What is the agency’s defense? It cannot claim “one way, all the time, by everyone” on the business processed in-house. Furthermore, the plaintiff’s attorney can show an option existed to have it processed correctly. The plaintiff’s attorney can even show that the agency knows consistency is important and can be achieved (because this is a reason for hiring a service center — after all, who would hire a service center that was inconsistent?). Where does this leave the agency’s defense? I am not suggesting the use of service centers increase E&O exposures. I am arguing that the use of service centers decrease an agency’s defense because inconsistency becomes more stark. Consistency Increases Profits The solution? Consistency throughout the organization. Aside from the fact that consistency creates accountability and many people consciously and subconsciously deplore accountability, consistency is relatively easy to achieve. It takes good procedures, education, some thought, and usually auditing whether everyone (including producers) is following procedures. The best result is that consistency increases profits and morale for all willing to be held accountable. For those that cannot stand accountability, I believe this industry is quickly passing them by. If an agency employs such people, management has an important decision to make. Will management appease people that deplore accountability or will management put their agency on the path to success with reduced E&O exposures, better quality of service, and a far better defense when an E&O claim does arise? Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719-485-3868. E-mail: chris@burand-associates.com. www.insurancejournal.com

SPECIAL REPORT

By Andrea Ortega-Wells

N8 | INSURANCE JOURNAL-NATIONAL REGION November 7, 2011

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2011 Agency E&O Survey

gency owners have a lot to protect. Of course, first and foremost they must protect their clients. But they must also protect their book of business. They must protect their relationships. They must protect their reputation in the community they serve. One way agency owners protect themselves and their business is by purchasing agency errors and omissions (E&O) coverage. Most independent insurance agencies and brokerages purchase E&O coverage today, but why do they buy it? What are they actually protecting with E&O coverage? The vast majority of agency owners (86.5 percent) say they buy agency E&O coverage to protect the assets of their agency, according to Insurance Journal’s 2011 Agency E&O Survey. Protecting an agency’s assets — financial and possibly even reputational assets — is why most agency owners choose to buy E&O, the experts agree. But these same experts warn that their E&O policy may not cover everything agents think it covers. “If an agent makes a mistake in anything that they do on behalf of a client, and the insurance company ends up not covering it, they’re responsible for it,” says Al Diamond, president of Agency Consulting Group in Cherry Hill, N.J. “They’re basically acting as the primary insurer for their clients if the insurance companies don’t cover the losses that occur within their agency.” Diamond says even frivolous lawsuits can be costly for agency owners. “And there are an awful lot of them these days that need to be defended and E&O will cover that.” Most agencies buy E&O coverage to avoid paying out those large losses from their own pocket, says Chris Burand, founder and owner of Burand & Associates LLC, based in Pueblo, Colo. “In most cases, agencies don’t have enough cash on hand to pay those losses,” he said. “They would have to sell their book of business, or some portion of their book of business, or even their entire agency, in order to www.insurancejournal.com

pay the claim if they didn’t have E&O insurance,” Burand said. Diamond says the asset agency owners want to protect the most is the agency’s book of business. “The revenue stream created by the book of business is their greatest asset,” he says. Diamond agrees that most agencies are cash poor businesses, with little in the way of funds to pay out claims on hand. “The bulk of the value of an agency is in this book of the business. … 90 percent to 95 percent of the value of an agency is in its book of business.” But while good E&O coverage may be important to protect an agency’s financial assets, the coverage does nothing to protect an agency’s reputation, according to Burand. “E&O insurance does not protect their reputation and that’s a big deal,” Burand said. Curtis Pearsall, president of Pearsall Associates Inc. who is also a special consultant to the Utica National Agents E&O program, has seen E&O claims appearing in local press that can be very damaging to an agency’s reputation. For example, if the agency erred when insuring a local school, local press would be more apt to pick up a news story where the agency might be exposed further. “The agency insured a school, and all of a sudden, the claim isn’t covered. Now, all of a sudden, that appears in the local paper that the school suffered a loss that wasn’t covered by insurance written through such and such an agency,” Pearsall said. “It certainly will hurt the reputation of that agency.” Reputational damage resulting from E&O claims may have some unexpected consequences. “It could potentially impact the ability of the agency to make necessary changes, not only hiring people, but hiring the right people,” Pearsall says. “When a claim is made against an agency, if they don’t have any E&O, they’re really potentially sacrificing everything they have worked to build. Why would they do that?” Transfer the risk

No. 1 Reason Agencies Carry E&O Coverage

0.2% 13.3%

Protect the assets of the agency Required by my carriers Access to risk management information on Retire from the business

Number of Agency E&O rs Carriers in Past Five Years One carrier Two carriers Three carriers More than three carriers

86.5%

5.5%

0.8%

38.1%

55.6%

Why Change in E&O Carriers iers 5.4% Lower price Nonrenewed due to claims 7.2% Nonrenewed due to change in 7.6% underwriting criteria Carrier withdrew from agency E&O market et Needed broader coverage 2.1% Other reasons 1.8%

Agency E&O Premium Change in 2010 Compared to 2009

38.1%

Increased Decreased Stayed same

Agency E&O Premium Change in the Past Three Years Increased Decreased Stayed the same

31.9%

42.1%

19.7%

28.3% 53.3% 18.4%

Prediction on E&O Premium mium m Change at Next Renewall Increase Decrease Remain the same

53%

40.4%

6.7%

continued on page N10 November 7, 2011 INSURANCE JOURNAL-NATIONAL REGION | N9

SPECIAL REPORT

2011 Agency E&O Survey Agency PRO-tection, continued from page N9

to insurance via an E&O policy and agency owners can sleep better at night, he says. One defensive tactic to guard against reputational damage could be an E&O audit, says Burand. “That’s really where E&O audits come into play,” Burand says. “That’s one of the key reasons agencies should pay for E&O audits; because an audit does more to protect their reputation by helping them with risk management than an E&O policy does. … It’s their only protection for reputational damage.” Altruistic E&O Buyer A small portion of the Agency E&O Survey respondents, 13.3 percent, reported that they buy E&O mainly because their carrier partners require it. This is not the best reason agencies should buy coverage, says Tony Messec, president of Western E&O Brokers in Albuquerque, N.M., an independent insurance agency that specializes in insurance agents’ and brokers’ E&O coverage. Messec agrees that agency E&O coverage is important when it comes to protecting agency assets, but he says asset protection should only be 50 percent of the reason for buying E&O coverage. “They should not be buying it because their carriers require them by contract to buy it,” Messec says. Agents should buy E&O because it protects their agencies and their clients, he says. Buying E&O to protect clients should be the other 50 percent, Messec adds. Messec believes there should be an altruistic motivation to buying E&O coverage as well. “If the agency really and truly has erred and one of their clients is damaged, doesn’t that agent want to have some means of making the client whole to the point that the agency should have made them whole if only they had done their job properly? That’s what E&O coverage does,” Messec says. “It repairs that damage to the client as if the agency had done the job correctly to start with, which to me is an equally valid reason for buying E&O coverage,” he says. “So you could buy for selfish reasons, you could buy

Annual Cost of Agency E&O Coverage $1,000 or less

3.1%

$1,001 to $2,500

15.8%

$2,501 to $5,000

22.9%

$5,001 to $10,000

18.5%

$10,001 to $15,000

12.2%

$15,001 to $25,000

7.8%

$25,001 to $50,000

9.5%

More than $50,000

10.1%

10%

15%

20%

25%

30%

Percent Change for E&O Premium in Past Three Years Increased Decreased

1-5% 29.6% 15.6%

6-10% 20.2% 11.7%

for altruistic reasons, or you could buy for both. I prefer the both.”

11-15% 10.8% 13.0%

16-20% 6.3% 8.4%

ence professionally, but make sure that the staff is not going out there saying negative comments about the competition or about certain customers, things of that nature. It certainly has the potential to get them into an E&O problem.” “Agents don’t realize what exposure they have right through their Web site and through the social media they use,” Diamond says. “They have to be extremely careful. Once you hit that ‘enter’ button, or once you post something on the Web site, if it offends

Newer Exposures If protecting the agency and its clients are not reason enough to purchase E&O, the rising number of E&O exposures should serve as motivation to invest in appropriate coverage and limits, experts say. One area for new E&O exposures is social media, according to Pearsall. “As agencies get involved with social media, they should make sure that they have a plan in place Risk Management Steps for how they’re going Implemented in Past Three Yearss to use it, and what do Attended an E&O class they hope to accomAgency staff has achieved additional designations More actively utilized an exposure analysis checklist plish,” Pearsall says. Hired a third-party to perform an agency audit “Make sure not only Enhanced agency focus on internal quality control the agency is handling Developed/updated agency procedural manual their social media pres-

N10 | INSURANCE JOURNAL-NATIONAL REGION November 7, 2011

More than 20% 5.6% 11.6%

47% 79.1% 62.6% 36.8% 37.2% 6.8%

www.insurancejournal.com

anyone, you can get sued for it. … Whether you’re joking or not, if you’re critical about them, you face certain lawsuits, and that risks your assets tremendously.” But Burand says it’s not the technology that’s increasing the E&O exposure; it’s the E&O carrier’s reaction to the technology that’s increasing the exposure as more carriers require encryption as part of E&O policies. “Agents haven’t read those memos. Agents have not read those clauses,” Burand says. “Those are just phenomenally increasing exposure to agents and most agents have not adopted adequately for it.” Messec doesn’t see technology as an E&O threat as much as he sees coverage changes as a threat to agents today. “I’m not quite as concerned with the new method of delivery,” Messec says. “Generally speaking it makes no difference to an insurance agent’s E&O policy whether the policy was sold online or face-to-face in the retail agency’s office.” Not that there aren’t some new exposures in the technology space, Messec adds. “But those don’t concern me nearly as much as the way in which coverage is changing and expanding,” he says. “The world of insurance is creating new products, improved products, at a much more rapid rate than it did decades ago and agents have to stay up on all these things to know what their clients need, what’s available for them. And that I believe has increased the exposure to E&O, quite significantly,” Messec says. It’s not only the newer coverages but also the new exclusions that are creating additional E&O challenges for agencies. “It’s not just enhancements; it’s changes,” Messec says. “There is just an immense amount that must be known and it is impossible to be an expert in all of them; and it’s very difficult to be competent in all of them.” Burand cites a traditional business owner policy (BOP) as an example where coverage changes and differences could potentially be an E&O issue. “There’s a lot of difference in BOPs,” Burand says. “Sometimes they’re real www.insurancejournal.com

small and sometimes they’re significant. It depends on the client. It depends on the carrier. But there are a lot of differences.” Burand says it’s an area where he sees that most agencies fail to manage E&O exposures. “If you look at just the vast number of BOPs that exist in any agency, then just by sheer numbers, the fact that they’re moving, that they have that many, there’s a good chance of an uncovered exposure.” According to Pearsall, there is one particular area of coverage that could come back to bite agents: dogs. In 2010, the insurance industry paid out more than $410 million in dog bite claims, according to the Insurance Information Institute. “The insurance industry is not going to continue to pay those dollars. They are going to try to find a way to solve the problem, and I believe it’s going to be through tighter underwriting guidelines. They’re going to identify breeds that they’re not going to be willing to cover.” In today’s world of mixed breeding in dogs, many insureds don’t even know the combination of breeds in a household pet. “Maybe German Shepherd is one of the excluding classes. If the people don’t know that there’s German Shepherd in the dog, there could be a claim problem down the road if something does happen,” Pearsall warns. If the agent makes a statement that implies to the customer that there will not be a claim problem because the dog is a mutt, but then the dog bites someone coming on the premises and the carrier then denies the claim because of the breed of the dog, then, all of a sudden, the agency is now going to be faced with a problem for telling the customer that there was coverage, Pearsall said. But Diamond says the greatest E&O exposure facing agents today might just be renewals. “Don’t let any insurance renewals be renewed as is without having someone competent review them,” Diamond advises. “A small insurance policy, one that doesn’t pay much premium, can still be sued for millions of dollars.” The good news: 84.1 percent of IJ’s

Satisfied with Agency E&O Terms, Conditions and Limits

28.9% 63%

Yes No Somewhat satisfied

Changed Agency E&O Limit in Past Three Yearss

23.3%

Yes No

74.9%

New E&O Risk Management ment Steps in the Past Year 28.3%

Yes No

71.7%

Concerned that Reduced d Staff Could Lead to More Errors ors 25% Concerned Not concerned

75%

% of Agencies to Update te Client Exposures Each Year 15.9% Yes No

84.1%

% of Agencies to Enhance nce Customer Education in Past Three Years Yes No

15.9%

84.1%

continued on page N12 November 7, 2011 INSURANCE JOURNAL-NATIONAL REGION | N11

SPECIAL REPORT

2011 Agency E&O Survey Agency PRO-tection, continued from page N11

Aware of Insolvency

agency has a much better chance Agency E&O Survey respondents reported Provision in E&O 27.6% of having solid gold coverage at an that their agency looks to update the expoPolicies 72.4% affordable price than an agency did sures of clients at each renewal. The same Yes 25 years ago.” number of respondents said they have also No Messec says only agencies with enhanced the agency’s effort to educate cusunderwriting issues see undesirable tomers on insurance issues in the past three Insolvency Provision terms, conditions and higher prices years. Impacts Carrier for coverage. But for the most part, 42.2% Placement it’s a soft market, he adds. Market Conditions 57.8% Yes “It’s always a competitive market,” Even with the rising number of exposures No Messec says. “It doesn’t make a differfacing agency E&O today, the market for ence whether or not it’s a soft market coverage continues to improve and enhance The 2011 Annual Agency E&O Survey addressed inquiries related to the or hard market; it’s always competicoverages to better protect agency assets, the insolvency provision in agency E&O policies. Insurance Journal’s Official tive.” experts say. Research Partner, Demotech Inc., has developed several solutions to this challenge. Contact Joe Petrelli at 800-354-7207 or jpetrelli@demotech.com The majority of respondents (63.0 “Over the 25 plus years that I’ve been doing to discuss a solution to address concerns related to the insolvency provision. percent) to IJ’s Agency E&O Survey E&O, coverage has improved in both pricreported satisfaction with terms, coning and availability,” Messec says. “Today’s ditions and limits in their E&O coverage. However, some 74.9 percent About the Survey Comparison of Average E&O Premium reported that their agency had not Insurance Journal’s Agency E&O Survey for in Largest States increased the agency’s E&O limit in 2011, conducted Oct. 5 through Oct. 24, 2011, the past three years. drew 590 respondents from 49 states. IJ’s 2010 2009 California $19,872 $20,265 Pearsall says higher E&O coverage official research partner, Columbus, OhioFlorida $17,612 $22,821 limits should be considered because based Demotech Inc., provided analysis for Illinois $9,284 $23,735 it could mean the difference between the Agency E&O Survey. New York $16,868 $15,765 surviving an E&O claim, or not. There were no respondents from the Texas $16,645 $21,271 “I’m aware of an E&O claim where District of Columbia and Hawaii. The five All Other $16,638 $18,679 Grand Total $16,803 $19,622 the agency had E&O, but they didn’t states with the highest number of responhave a high enough limit. They were dents were California (14.9 percent), Texas sued for $3 million, and they only (11.2 percent), Florida (8.6 percent), New Comparison of Changes in E&O Premium had $1 million of E&O,” Pearsall said. York (6.8 percent) and Illinois (5.6 percent). in Largest States “Now, the claim got settled well Total property/casualty premium volume State Decreased Increased Same within the $1 million, but had it been in 2010 was less than $5 million for 49.9 California 20.0% 32.0% 48.0% settled for $3 million that agency percent of responding agencies; 17.7 perFlorida 22.9% 39.6% 37.5% probably would have had to sell cent said their agency’s P/C premium was Illinois 24.1% 31.0% 44.8% their operation to pay off the amount between $5 million and $10 million; and 14.3 New York 20.6% 50.0% 29.4% of the claim.” percent had P/C premium between $11 milTexas 19.3% 56.1% 24.6% All Other States 18.7% 42.6% 38.7% Even though many E&O claims lion and $25 million. Some 14.8 percent said Average Total 26.4% 32.6% 41.0% are closed out without payment, P/C premium was between $26 million and one claim could make $200 million while 2.9 percent reported P/C or break an agency, premium as more than $200 million. Comparison of E&O Claims Made Against Diamond says. Having Most agencies (64.5 percent) had between Agencies in Largest States the right E&O limit is 1-10 full time employees; 26.1 percent had State Never <5 years 6 to 10 >10 critical. between 11-50 employees; 4.9 percent had “It’s like life insurbetween 51-100 employees, while 4.4 percent California 42.1% 40.8% 10.5% 6.6% ance. You may have had more than 100 employees. Florida 47.9% 22.9% 12.5% 16.7% only one claim, but it’s a The majority of agencies (51.6 percent) Illinois 51.9% 14.8% 11.1% 22.2% doozey,” Diamond says. responding to the survey reported being in New York 48.5% 30.3% 12.1% 9.1% Texas 43.6% 32.7% 12.7% 10.9% “You don’t want to go business for more than 30 years. All Other States 45.4% 23.8% 17.7% 13.1% into it without being The average premium volume for all Average Total 45.5% 27.1% 15.0% 12.5% protected.” responding agencies was $24 million. N12 | INSURANCE JOURNAL-NATIONAL REGION November 7, 2011

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Shad Steadman, Vice Chairman & COO, Rutherfoord

The LexisNexis® Insurance Exchange allows us to focus on the account, not the process. We can now better match the risk with the best available coverage and market—and that’s why we’re making the Insurance Exchange happen.

Rutherfoord, a Marsh & McLennan Agency LLC Company, covers a 10-state region from Pennsylvania to Georgia with nearly $90 million in revenue. Today’s risk submission process presents an overabundance of data entry and too much opportunity for error. The Insurance Exchange provides a safe environment for us to transact business with our carriers and makes us more efﬁcient. Using the Insurance Exchange, we can focus on coverage differentials, rather than checking boxes. We can concentrate more on the issues that are important to our clients. And we’re excited for the real-time metrics that will enable us to more effectively market our business to meet our carriers’ risk appetites. It’s here and it works. Keep up. With us. Email insurance.exchange@lexisnexis.com or visit www.lexisnexis.com/KeepUp

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SPECIAL REPORT

State Specialists The Demotech Company Classification System Reveals State Specialist Property/Casualty Insurers By Douglas A. Powell

2011 State Specialist Property/Casualty Insurers Company Name

he Demotech Company Classification System categorizes insurers into one of 11 categories based on an analysis of data reported by the companies to the National Association of Insurance Commissioners (NAIC). The 11 categories that comprise the system are Nationals, Near Nationals, Super Regionals, Regionals, State Specialists, Coverage Specialists, Strategic Subsidiaries, Risk Retention Groups, Surplus Lines Carriers, Reinsurers and companies with less than $1 million in direct written premium. To be categorized as a State Specialist, a carrier must be an individual, active company reporting data to the NAIC using the P/C annual statement format at Dec. 31, 2010. It must write at least $1 million at Dec. 31, 2010, with 90 percent or more of its premium in one state. Further, it cannot be a surplus lines company, risk retention group or reinsurance company. In total, 814 companies were categorized as State Specialists for 2011. This is approximately 30 percent of the nearly 2,750 companies that reported data at Dec. 31, 2010. continued on page N16

Texas Mutual Insurance Co. Old American County Mutual Fire Insurance Co. SAIF Corporation St. Johns Insurance Co. Inc. Brickstreet Mutual Insurance Co. Farm Bureau Mutual Insurance Co. of Arkansas Inc. American Coastal Insurance Co. Nuclear Electric Insurance Limited Florida Peninsula Insurance Co. Hospitals Insurance Co. Inc. Royal Palm Insurance Co. Pioneer State Mutual Insurance Co. Indiana Farmers Mutual Insurance Co. United Property & Casualty Insurance Co. Louisiana Workers’ Compensation Corp. Adirondack Insurance Exchange Security First Insurance Co. Louisiana Farm Bureau Mutual Insurance Co. Rural Mutual Insurance Co. Mutual Insurance Co. of Arizona American Transit Insurance Co. Homeowners Choice Property and Casualty Insurance Co. Inc. American Steamship Owners Mutual Protection & Indemnity Association Inc. Country-Wide Insurance Co. Missouri Employers Mutual Insurance Co. Kentucky Employers’ Mutual Insurance Authority American Integrity Insurance Co. of Florida Copic Insurance Co. Alliance United Insurance Co. First Protective Insurance Co. Olympus Insurance Co. Bear River Mutual Insurance Co. Southern Oak Insurance Co. New York Schools Insurance Reciprocal Fremont Insurance Co. Luba Casualty Insurance Co. Gulfstream Property and Casualty Insurance Co. Underwriters At Lloyd’s, London Wisconsin Mutual Insurance Co. Underwriters At Lloyd’s, London MDAdvantage Insurance Co. of New Jersey Colorado Farm Bureau Mutual Insurance Co. Louisiana Medical Mutual Insurance Co. Erie and Niagara Insurance Association Academic Health Professionals Insurance Association-a Reciprocal Insurer Interboro Insurance Co. Sterling Insurance Co. Agrinational Insurance Co. Homeowners of America Insurance Co. Lawyers’ Mutual Insurance Co. Fiduciary Insurance Co. of America Inc. Ark Royal Insurance Co. IFA Insurance Co. Dryden Mutual Insurance Co. New York Municipal Insurance Reciprocal School Boards Insurance Co. of Pennsylvania Inc. Wellington Insurance Co. Farmers Union Mutual Insurance Citizens United Reciprocal Exchange Alabama Municipal Insurance Corp. Tri-State Consumer Insurance Co. Peoples Trust Insurance Co. Florida Doctors Insurance Co. Missouri Professionals Mutual Security Mutual Insurance Co. West Virginia Mutual Insurance Co. Germantown Mutual Insurance Co. Farmers Mutual Fire Insurance Co. of Salem County Hamilton Insurance Co. Madison Mutual Insurance Co. Kingstone Insurance Co. Crusader Insurance Co. Unique Insurance Co. Kansas Medical Mutual Insurance Co. Hawaii Employers’ Mutual Insurance Co. Inc. Global Liberty Insurance Co. of New York Ram Mutual Insurance Co. Edison Insurance Co. Farmers Insurance Co. of Flemington

N14 | INSURANCE JOURNAL-NATIONAL REGION November 7, 2011

State of Speciality

2010 TOTAL DPW

Company Name

TX TX OR FL WV AR FL DE FL NY FL MI IN FL LA NY FL LA WI AZ NY

596,191 575,100 327,373 257,106 239,951 218,667 203,696 193,280 179,272 174,889 165,538 164,492 159,974 157,870 152,321 150,216 146,207 141,938 141,190 141,092 124,220

116,063

NY NY MO KY FL CO CA FL FL UT FL NY MI LA FL KY WI IL NJ CO LA NY

115,337 112,251 109,670 106,206 105,056 102,682 97,277 96,205 89,748 88,212 80,655 79,331 75,319 74,010 72,777 67,002 64,434 63,977 62,879 53,435 53,231 52,362

NY NY NY VT TX CA NY FL NJ NY NY PA TX ND NJ AL NY FL FL MO NY WV WI NJ TN IL NY CA IL KS HI NY MN FL NJ

52,223 50,168 47,466 47,348 45,726 43,945 43,549 43,142 43,020 42,458 41,121 41,059 40,558 40,499 40,154 38,459 37,912 37,892 37,591 37,369 37,299 35,550 35,099 34,301 33,425 33,392 33,249 32,698 32,388 32,011 31,673 31,334 30,383 30,275 28,409

German Mutual Insurance Co. Discovery Insurance Co. First Home Insurance Co. Prepared Insurance Co. Care West Insurance Co. Windhaven Insurance Co. Texas Lawyers’ Insurance Exchange Ascendant Commercial Insurance Inc. Lighthouse Property Insurance Corp. Sterling Casualty Insurance Co. National Automotive Insurance Co. NC Grange Mutual Insurance Co. Agent Alliance Insurance Co. Housing and Redevelopment Insurance Exchange Eveready Insurance Co. Center Mutual Insurance Co. Springfield Insurance Co. Bremen Farmers Mutual Insurance Co. NHRMA Mutual Insurance Co. League of Wisconsin Municipalities Mutual Insurance Conventus Inter-Insurance Exchange CIFG Assurance North America Inc. Idaho Counties Risk Management Program Retailers Casualty Insurance Co. Professional Casualty Association Granada Insurance Co. Marysville Mutual Insurance Co. Seven Seas Insurance Co. Inc. Otsego Mutual Fire Insurance Co. Illinois State Bar Association Mutual Insurance Co. Farmers Union Mutual Insurance Co. Samsung Fire & Marine Insurance Co. Ltd. (US Branch) Mt. Morris Mutual Insurance Co. Harbor Insurance Co. Park Insurance Co. Upland Mutual Insurance Inc. Maya Assurance Co. Michigan Professional Insurance Exchange Interstate Bankers Casualty Co. Peachtree Casualty Insurance Co. Farm Credit System Association Captive Insurance Co. Sawgrass Mutual Insurance Co. US Lloyds Insurance Co. American Risk Insurance Co. Inc. New Jersey Physicians United Reciprocal Exchange Baldwin Mutual Insurance Co. Inc. Midstate Mutual Insurance Co. Northern Mutual Insurance Co. The Responsive Auto Insurance Co. Allegany Co-Op Insurance Co. Southern Mutual Insurance Co. Nevada Mutual Insurance Co. Inc. Mennonite Mutual Insurance Co. Independent Nevada Doctors Insurance Exchange OHA Insurance Solutions Inc. The Farmers Fire Insurance Co. Wayne Cooperative Insurance Co. Avatar Property & Casualty Insurance Co. West Virginia Insurance Co. Usplate Glass Insurance Co. Florida Lawyers Mutual Insurance Co. Direct Auto Insurance Co. Lebanon Mutual Insurance Co. The USA Insurance Co. Fairmont Farmers Mutual Insurance Co. Medical Alliance Insurance Co. Farmers Mutual Fire Insurance Co. of Marble, Pennsylvania German American Farm Mutual Cities & Villages Mutual Insurance Co. Star & Shield Insurance Exchange Finger Lakes Fire and Casualty Co. Spring Valley Mutual Insurance Co. The Members Insurance Co. Oklahoma Attorneys Mutual Insurance Co. The Paramount Insurance Co. Insurance Placement Facility of Pennsylvania Healthcare Underwriters Group of Florida Positive Physicians Insurance Exchange Pennsylvania Physicians Reciprocal Insurers Nations Insurance Co. Bell United Insurance Co.

State of Speciality

2010 TOTAL DPW

OH NC FL FL CA FL TX FL LA CA LA NC NC PA NY ND CA KS IL WI NJ NY ID LA PA FL KS FL NY IL MT NY WI OK NY KS NY MI IL FL CO FL TX TX NJ AL NY MI FL NY GA NV OH NV OH PA NY FL WV FL FL IL PA MS MN IL

27,820 27,791 26,595 25,881 25,045 23,770 23,423 23,274 22,767 22,674 22,276 22,155 21,950 21,590 21,567 21,341 21,256 21,205 20,820 20,784 20,445 20,249 19,657 19,268 18,312 18,070 17,787 17,395 17,258 16,925 16,805 16,773 16,731 16,547 16,231 16,155 16,087 15,986 15,857 15,565 14,498 14,374 14,335 14,189 14,110 14,090 13,716 13,238 13,092 12,811 12,790 12,724 12,638 12,608 12,582 12,468 12,356 12,056 12,033 11,799 11,744 11,731 11,622 11,525 11,077 11,011

PA TX WI FL NY MN NC OK MD PA FL PA PA CA NV

10,843 10,787 10,305 10,232 9,597 9,258 9,235 9,153 8,905 8,859 8,836 8,801 8,779 8,769 8,555

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SPECIAL REPORT

State Specialists Demotech, continued from page N14 Company Name

This group wrote about 15 percent of the industry’s direct written premium in 2010. “State Specialists are typically the independent agent’s most reliable and consistent markets. These companies are dedicated to a geographic area, understand it and consistently strive to serve it. Demotech is pleased to provide State Specialists with the attention they deserve,” said Demotech’s President Joseph Petrelli. As space limitations precluded an enumeration of each of the 814 State Specialists, the accompanying list includes the 341 State Specialist insurers that are not affiliated with a group. A full list of State Specialists is available by contacting dpowell@ demotech.com. Powell is a senior financial analyst with Demotech Inc., the official research partner of Insurance Journal. Founded in 1985, Demotech is a Columbus, Ohio-based financial analysis firm that provides services to regional insurance companies, title underwriters and specialty insurance markets. Demotech has been assigning Financial Stability Ratings® (FSRs) to these markets since 1992. FSRs of A or better are accepted by the secondary mortgage marketplace, as well as virtually all mortgage lenders, an increasing number of umbrella insurance markets and some writers of insurance agents errors and omissions insurance. Web site: www.demotech.com.

North Country Insurance Co. Capitol Insurance Co. Farmers Union Mutual Insurance Co. Manufacturing Technology Mutual Insurance Co. Chautauqua Patrons Insurance Co. Physicians Insurance Co. McMillan Warner Mutual Insurance Co. Casualty Corp. of America Inc. Associated Mutual Insurance Cooperative Kansas Mutual Insurance Co. Halifax Mutual Insurance Co. Battle Creek Mutual Insurance Co. American Fellowship Mutual Insurance Co. Physicians’ Insurance Program Exchange Texas Hospital Insurance Exchange Physicians Professional Indemnity Association Dealers Choice Mutual Insurance Inc. Georgia Mutual Insurance, a Stock Co. CEM Insurance Co. Nazareth Mutual Insurance Co. Farmers Mutual Fire Insurance Co. Kensington Insurance Co. ARECA Insurance Exchange Southern Eagle Insurance Co. Farmers Mutual of Tennessee Waco Fire & Casualty Reamstown Mutual Insurance Co. Lawyers Mutual Insurance Co. of Kentucky Mid-Hudson Co-Operative Insurance Co. Elephant Insurance Co. Leatherstocking Cooperative Insurance Co. Union Mutual Insurance Co. Synergy Insurance Co. Districts Mutual Insurance American Millennium Insurance Co. Healthcare Underwriters Group Mutual of Ohio Healthcare Underwriters Group of Kentucky Callicoon Co-Operative Insurance Co. First Benefits Insurance Mutual Inc. Ohio Bar Liability Insurance Co. Broome Co-Operative Insurance Co. Oswego County Mutual Insurance Co. Fulmont Mutual Insurance Co. Georgia Dealers Insurance Co. Alaska Timber Insurance Exchange Farmers Mutual Insurance Co. Central Co-Operative Insurance Co. Comptrust AGC Mutual Captive Insurance Co. First Mutual Insurance Co. Hospitality Mutual Insurance Co. Delta Lloyds Insurance Co. of Houston, Texas Interstate Auto Insurance Co. Inc. Victory Insurance Co. Inc. Laundry Owners Mutual Liability Insurance Association Texas Builders Insurance Co. Workers Compensation Exchange Alliance Mutual Insurance Co. Manitowoc Mutual Insurance Co. Hartland Mutual Insurance Co. Maple Valley Mutual Insurance Co. Wisconsin Lawyers Mutual Insurance Co. AGIC Inc. Juniata Mutual Insurance Co. Americas Insurance Co. Merced Mutual Insurance Co. Health Care Insurance Reciprocal Bedford Grange Mutual Insurance Co. Genesee Patrons Cooperative Insurance Co. Wisconsin Municipal Mutual Insurance Co. Ontario Insurance Co. Freedom Advantage Insurance Co. Trans City Casualty Insurance Co. Springfield Fire & Casualty Co. Preferred Auto Insurance Co. Inc. Briar Creek Mutual Insurance Co. Farmers Mutual Fire Insurance Co. of McCandless Township Health Care Mutual Captive Insurance Co. Texas Medical Insurance Co. Capacity Insurance Co. Missouri Valley Mutual Insurance Co. Farmers and Merchants Mutual Fire Insurance Co. Madison Mutual Insurance Co. Great Lakes Mutual Insurance Co. Building Industry Insurance Association Inc. Gem State Insurance Co. Midrox Insurance Co. Normandy Harbor Insurance Co. Inc. California Mutual Insurance Co. Community Mutual Insurance Co. Sheffield Insurance Co. National Home Warranty Inc. Sunderland Marine Mutual Insurance Co. Ltd.

N16 | INSURANCE JOURNAL-NATIONAL REGION November 7, 2011

State of Speciality

2010 TOTAL DPW

Company Name

State of Speciality

NY PA AR MI NY FL WI OK NY KS NC NE MI PA TX MO NC GA TX PA OK NY AK FL TN GA PA KY NY VA NY OK NC WI NJ OH KY NY NC OH NY NY NY GA AK WV NY GA NC MA TX MD MT PA TX ID NC WI ND WI WI FL PA LA CA MN PA NY WI NY PA AZ IL TN PA

8,429 8,416 8,360 8,332 8,157 8,113 8,103 8,010 7,625 7,624 7,520 7,454 7,364 7,328 7,327 7,323 7,259 7,176 7,159 7,136 7,115 7,048 7,031 7,025 6,909 6,859 6,735 6,650 6,398 6,350 6,344 6,316 6,312 6,171 6,047 6,039 6,022 6,015 5,938 5,841 5,670 5,484 5,477 5,426 5,365 5,363 5,324 5,318 5,250 5,172 5,156 5,107 5,094 5,037 4,952 4,844 4,841 4,823 4,822 4,808 4,740 4,725 4,717 4,692 4,682 4,667 4,542 4,473 4,379 4,378 4,304 4,282 4,266 4,254 4,234

PA GA TX FL SD MI NY MI VA ID NY FL CA NY TN NV AK

4,233 4,232 4,216 4,211 3,976 3,954 3,777 3,767 3,751 3,748 3,713 3,654 3,654 3,629 3,553 3,551 3,516

Indemnity National Insurance Co. Agents Mutual Insurance Co. Tank Owner Members Insurance Co. Retailers Mutual Insurance Co. Transit Mutual Insurance Corporation of WI Utah Business Insurance Co. Inc. Petroleum Marketers Management Insurance Co. Synergy Comp Insurance Co. Doctors Direct Insurance Inc. Ethio-American Insurance Co. Inc. Safe Insurance Co. Little Black Mutual Insurance Co. Penncommonwealth Casualty of America Corp. Arrow Mutual Liability Insurance Co. US Insurance Co. of America Northern Plains Insurance Co. Friends Cove Mutual Insurance Co. CBIA Comp Services Inc. Carolina Farmers Mutual Insurance Co. Piedmont Mutual Insurance Co. National Direct Insurance Co. Wilmington Insurance Co. Hay Creek Mutual Insurance Co. United Frontier Mutual Insurance Co. New Mexico Property and Casualty Co. National Heritage Insurance Co. Geneva Insurance Co. Whitecap Surety Co. United Casualty and Surety Insurance Co. American Alliance Casualty Co. Galen Insurance Co. Garden State Indemnity Co. Inc. Road Contractors Mutual Insurance Co. Farmers Mutual Insurance Co. Washington County Co-Op Insurance Co. Town and Country Mutual Insurance Co. Mound Prairie Mutual Insurance Co. Integra Insurance Inc. Vasa-Spring Garden Mutual Insurance Co. Pan Handle Farmers Mutual Insurance Co. of West Virginia Bloomfield Mutual Insurance Co. Quality Casualty Insurance Co. Inc. Heartland Mutual Insurance Co. Mt Carroll Mutual Insurance Co. Mutual Insurance Co. of Lehigh County First Jersey Casualty Insurance Co. Inc. United Business Insurance Co. (a Mutual Captive) Alamance Farmers Mutual Insurance Co. Great Plains Casualty Inc. Ellington Mutual Insurance Co. Western Mutual Fire Insurance Co. Centre County Mutual Fire Insurance Co. British American Insurance Co. Palmetto Surety Corp. Lincoln Mutual Insurance Co. Hannahstown Mutual Insurance Co. Tift Area Captive Insurance Co. Otsego County Patrons Co-Operative Fire Relief Association Primeone Insurance Co. Farmers’ Mutual Insurance Co. Benefit Security Insurance Co. TPA Captive Insurance Co. Farmington Mutual Insurance Co. Black Diamond Insurance Co. Indiana Old National Insurance Co. Commonwealth Mutual Insurance Co. of America Distributors Insurance Co. First Surety Corp. Conemaugh Valley Mutual Insurance Co. Professional Insurance Exchange Transit General Insurance Co. Slavonic Mutual Fire Insurance Association Club Insurance Co. Wall Rose Mutual Insurance Co. Mower County Farmers Mutual Insurance Co. Legal Mutual Liability Insurance Society of Maryland Farmers & Mechanics Mutual Insurance Association of Cecil County Inc. Peninsular Surety Co. Yel County Insurance Physicians Insurance Mutual Professional Aviation Insurance Reciprocal Medmal Direct Insurance Co. Bondex Insurance Co. Canonsburg Mutual Fire Insurance Co. Clearfield County Grange Mutual Fire Insurance Co. Farmers Mutual Fire Insurance Co. of Branch County Columbia Federal Insurance Co. Grange Mutual Fire Insurance Co. Atlantic Bonding Co. Inc.

2010 TOTAL DPW

KY AR TX MI WI UT IA PA IL GA WV WI PA MA IL SD PA CT NC NC NV DE MN NY NM IL IN MN MA IL MO NJ TN KS NY AR MN MN MN

3,497 3,470 3,429 3,381 3,358 3,332 3,321 3,250 3,249 3,248 3,245 3,199 3,195 3,153 3,145 3,136 3,112 3,090 3,088 3,076 3,057 3,054 3,021 3,017 3,004 2,982 2,901 2,892 2,878 2,745 2,658 2,610 2,565 2,556 2,542 2,499 2,483 2,439 2,425

WV MN AL MN IL PA NJ GA NC IA WI MN PA TX SC NC PA GA

2,416 2,416 2,402 2,393 2,385 2,355 2,320 2,301 2,293 2,221 2,207 2,159 2,143 1,994 1,895 1,809 1,774 1,714

NY MI MI IL GA WI NV IN MD TN WV PA UT IL TX OH PA MN MD

1,700 1,698 1,694 1,649 1,627 1,575 1,544 1,498 1,481 1,471 1,469 1,441 1,416 1,400 1,397 1,395 1,389 1,379 1,368

MD FL FL MO NV FL NJ PA PA MI DC PA MD

1,326 1,234 1,198 1,182 1,167 1,141 1,137 1,121 1,095 1,084 1,045 1,031 1,025

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SPOTLIGHT

Top 50 Commercial Lines Leaders Commercial Lines Leaders

About the Commercial Lines Leaders: The 2011 Commercial Lines Leaders in this special feature are taken from Insurance Journal’s Top 100 Property/Casualty Indepdendent Agencies as reported in August. This list utilizes only the 2010 commercial lines numbers of the privately owned agencies and brokerages that submitted data to the Top 100 agencies report. For more information on Insurance Journal’s Top 100 Property/Casualty Independent Agencies list, contact awells@insurancejournal.com.

Top 50 Commercial Lines Agencies Ranked by Total 2010 P/C Premium Written

2011 Rank Agency Name

2010 Commercial Lines P/C Premium

2010 Total P/C Premiums Written

2010 Other than P/C Premium

2010 Total P/C Revenue

No. of Main Employees Ofﬁce

Web site

1 Lockton Cos. $9,061,644,800 $9,089,178,800 $7,594,288,000 $633,480,000 4,107 Kansas City, Mo. www.lockton.com 2 HUB International Ltd.* $3,500,710,845 $4,777,000,000 $2,608,640,485 $645,000,000 4,900 Chicago, Ill. www.hubinternational.com 3 USI Holdings Corp. $2,309,000,000 $2,786,000,000 $5,503,000,000 $294,000,000 2,792 Briarcliff Manor, N.Y. www.usi.biz 4 Alliant Insurance Services Inc. $1,708,945,000 $1,712,358,000 $1,788,540,000 $234,986,100 1,436 Newport Beach, Calif. www.alliantinsurance.com 5 Keystone Insurers Group* $1,000,558,681 $1,667,597,801 $250,279,764 $200,111,736 2,220 Northumberland, Pa. www.keystoneinsgrp.com 6 Leavitt Group Enterprises $878,566,000 $1,089,156,000 $840,089,000 $128,951,000 1,400 Cedar City, Utah www.leavitt.com 7 ISU Group* $710,000,000 $1,280,000,000 $223,000,000 $172,000,000 1,180 San Francisco, Calif. www.joinISU.com 8 Insurance Oﬃce of America Inc. $673,704,730 $701,260,850 $103,889,107 $70,214,090 692 Longwood, Fla. www.ioausa.com 9 Beecher Carlson $659,640,000 $672,335,000 $114,726,000 $74,348,365 413 Atlanta, Ga. www.beechercarlson.com 10 The IMA Financial Group $648,000,000 $660,000,000 $360,000,000 $65,306,898 438 Wichita, Kan. www.imacorp.com 11 Hylant Group $587,960,000 $615,036,000 $554,456,000 $66,230,000 605 Toledo, Ohio www.hylant.com 12 J. Smith Lanier & Co. $515,000,000 $575,000,000 $400,000,000 $74,420,000 540 West Point, Ga. www.jsmithlanier.com 13 Heffernan Insurance Brokers $449,090,000 $468,902,000 $143,032,000 $62,628,000 400 Walnut Creek, Calif. www.heﬃns.com 14 Bollinger Inc. $430,000,000 $550,000,000 $450,000,000 $65,026,494 445 Short Hills, N.J. www.bollingerinsurance.com 15 INSURICA Insurance Management Network* $400,169,445 $454,607,166 $150,452,632 $57,790,080 476 Oklahoma City, Okla. www.insurica.com 16 Mesirow Insurance Services Inc. $384,000,000 $420,000,000 $980,000,000 $87,495,570 315 Chicago, Ill. www.mesirowfinancial.com 17 Woodruff-Sawyer & Co. $368,345,000 $368,400,000 $333,300,000 $47,200,000 288 San Francisco, Calif. www.wsandco.com 18 Barney & Barney LLC $351,000,000 $360,000,000 $1,123,000,000 $37,950,000 393 San Diego, Calif. www.barneyandbarney.com 19 Capacity Coverage Co. of New Jersey Inc. $335,695,594 $354,093,740 $36,531,823 $54,560,416 198 Mahwah, N.J. www.capcoverage.com 20 Neace Lukens $328,192,074 $359,574,213 $692,256,540 $63,805,991 516 Louisville, Ky. www.neacelukens.com 21 Higginbotham & Associates $310,000,000 $347,930,000 $700,000,000 $29,840,000 502 Fort Worth, Texas www.higginbotham.net 22 Combined Agents of America LLC* $309,118,449 $437,818,735 $52,058,090 $54,516,338 660 Austin, Texas www.combinedagents.com 23 RCM&D Inc. $296,679,046 $304,127,572 $68,980,425 $33,304,996 258 Baltimore, Md. www.rcmd.com 24 Frenkel & Co. $286,112,201 $315,122,595 $355,500,080 $36,639,411 240 New York, N.Y. www.frenkel.com 25 M&T Insurance Agency Inc. $286,000,000 $295,000,000 $190,000,000 $26,500,000 112 Buffalo, N.Y. www.mtb.com 26 EPIC Insurance Brokers $265,404,000 $275,337,000 $300,708,000 $42,279,000 296 San Francisco, Calif. www.edgewoodins.com 27 Assurance Agency $264,728,000 $269,235,000 $148,801,000 $34,550,180 225 Schaumburg, Ill. www.assuranceagency.com 28 McQueary Henry Bowles Troy $244,000,000 $256,500,000 $235,000,000 $27,530,000 209 Dallas, Texas www.mhbt.com 29 Propel Insurance $243,000,000 $270,000,000 $205,000,000 $34,600,000 243 Tacoma, Wash. www.propelinsurance.com 30 Moreton & Co. $240,000,000 $250,000,000 $240,000,000 $22,000,000 180 Salt Lake City, Utah www.moreton.com 31 United Valley Insurance Services Inc.* $233,368,509 $327,539,322 $0 $51,063,269 28 Fresno, Calif. www.unitedvalley.com 32 SullivanCurtisMonroe $233,022,000 $249,272,000 $349,978,000 $27,578,000 163 Irvine, Calif. www.sullicurt.com 33 The Horton Group $209,012,423 $245,862,166 $281,707,435 $29,284,849 292 Orland Park, Ill. www.thehortongroup.com 34 InterWest Insurance Services Inc. $205,617,529 $222,383,404 $137,193,021 $28,641,466 275 Sacramento, Calif. www.iwins.com 35 Insurors Group LLC* $198,000,000 $260,000,000 $122,000,000 $33,680,000 225 College Station, Texas www.insurorsgroup.com 36 Marshall & Sterling Enterprises Inc. $196,403,052 $260,957,492 $116,777,807 $42,705,154 326 Poughkeepsie, N.Y. www.marshallsterling.com 37 The Graham Co. $186,728,683 $213,903,454 $25,293,432 $31,828,008 148 Philadelphia, Pa. www.grahamco.com 38 Parker Smith and Feek Inc. $185,962,305 $199,003,764 $144,333,577 $28,406,855 182 Bellevue, Wash. www.psfinc.com 39 The Mahoney Group $183,093,144 $198,236,818 $70,013,388 $32,000,157 213 Mesa, Ariz. www.mahoneygroup.com 40 Renaissance Alliance Insurance Services LLC* $177,958,497 $410,677,000 $123,456 $58,202,694 70 Wellesley, Mass. www.renaissanceins.com 41 Sterling & Sterling Inc. $174,000,000 $198,000,000 $94,000,000 $30,282,000 185 Woodbury, N.Y. www.sterlingrisk.com 42 United Agencies Inc.* $173,000,000 $192,000,000 $45,000,000 $44,000,000 265 Pasadena, Calif. www.unitedagencies.com 43 Ascension Insurance Inc. $163,707,164 $189,067,017 $378,597,983 $26,722,981 405 Kansas City, Mo. www.ascensionins.com 44 Bowen, Miclette & Britt Inc. $163,280,000 $178,891,000 $156,786,000 $23,105,000 177 Houston, Texas www.bmbinc.com 45 Iroquois Group Inc.* $162,000,000 $404,000,000 $0 $62,373,861 50 Allegany, N.Y. www.iroquoisgroup.com 46 Robertson Ryan & Associates Inc. $162,000,000 $192,000,000 $42,000,000 $25,037,792 185 Milwaukee, Wis. www.robertsonryan.com 47 Millennium Corporate Solutions $160,000,000 $125,000,000 $35,000,000 $12,000,000 65 Irvine, Calif. www.mcsins.com 48 The Insurance Alliance of Central Pa. Inc.* $159,850,770 $192,210,985 $0 $23,381,290 190 Camp Hill, Pa. www.tiacp.com 49 Acrisure LLC $159,376,935 $193,273,344 $137,863,182 $21,358,465 276 Grand Rapids, Mich. www.acrisure.com 50 Lovitt-Touche Inc $157,435,236 $166,212,607 $142,898,968 $15,307,000 185 Tempe, Ariz. www.lovitt-touche.com * = Identified as having an affiliation with an independent network or cluster group. Employee count for these groups does not necessarily include all affiliates responsible for total premium written.

N18 | INSURANCE JOURNAL-NATIONAL REGION November 7, 2011

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SPOTLIGHT

Habitational/Dwelling Rental Properties Offer a Lucrative Niche for Insurance

building this book of business is networking. While agents may think about realtors as an important first stop for networking â&#x20AC;&#x201D; and they are â&#x20AC;&#x201D; itâ&#x20AC;&#x2122;s important to go further. There are many other professionals involved in buying, selling and managing rental properties, including financial advisors, lenders, escrow offices and professional associations. Financial Advisors Begin your networking with financial advisors, professionals who include financial managers, investment advisors and money managers. All provide expert investment advice and these days, with continued fluctuations in the stock markets, more and more are steering their clients towards rental properties as an investment that has a good chance of appreciating over the long term. They often point out a 401(k) account can be used for a real estate investment.

Look for those financial advisors who are highly qualified with credentials to match: Certified Financial Planners (CFP), Personal Financial Specialists (CPA/PFS) or Chartered Financial Consultants. Also, there are national professional associations (National Association of Personal Financial Advisors, National Association of Insurance and Financial Advisors or International Association of Registered Financial Consultants) that may have a chapter in your area that hosts networking events. Of course, you donâ&#x20AC;&#x2122;t want to waste another professionalâ&#x20AC;&#x2122;s time by seeking them out solely for your own gain. Understand their field, explain your value and make yourself available as a go-to expert on finding the right insurance fit for rental property owners. Lenders Since buyers of rental properties almost 3794 1011

ark clouds continue to hang over the U.S. housing market with prices still well below their peak and foreclosures high in many parts of the country. But there is a silver lining â&#x20AC;&#x201D; great bargains on rental properties. Whether the buyers are experienced landlords looking to By Diana Matalka expand their properties or first-time investors looking for alternatives to the stock market, theyâ&#x20AC;&#x2122;ll find that low housing prices and foreclosures mean they can find properties at the right price. For insurance agents, this trend is more than just an interesting footnote. It provides an opportunity to carve out a specialty selling rental/landlord property insurance. Like many types of specialty insurance, the key to

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N20 | INSURANCE JOURNAL-NATIONAL REGION November 7, 2011

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always need a mortgage, you can benefit by reaching out to lenders. In fact, many banks have their own financial advisory specialists who understand the investment potential of a rental property. Lenders are inherently as interested in protecting a property as the owner is, so you have an opportunity to make yourself available as a trusted expert on rental property insurance. What do you need to know about connecting with lenders? To start, those who work in commercial and multi-family markets will be most relevant. As with financial advisors, look to professional credentials for cues; the National Associate of Mortgage Professionals certifies lenders on three levels, from least to most experienced: General Mortgage Associate (GMA), Certified Residential Mortgage Specialist (CRMS) and Certified Mortgage Consultant (CMC). Beyond finding lenders at your local banks, you can connect with the Mortgage Bankers Association (www.mbaa.org), which has state and local associations that can be a valuable networking source. Do your research. As any scan of news headlines can tell you, the mortgage industry is highly complex. Keep up-to-date on industry news and regulatory changes through professional association newsletters, major financial news outlets or a weekly Google Alerts e-mail. No matter how you go about it, you need to be known as a knowledgeable resource in order to gain traction selling rental property insurance.

means there is another outreach opportunity for you. Not every state is an escrow state, so if you are on the east coast, you may not find an independent, licensed escrow company in your area. However, if you do reside in an escrow state — primarily the western states — you can look for licensed, bonded escrow agents or offices. Try networking through professional associations; for example, California agents may reach out to the Escrow Institute of California. As with any industry, take the time to understand what escrow professionals do before you start handing out business cards. Fortunately, escrow accounts exist to handle insurance and taxes, so your input is relevant. Property Owner Associations You can also network with rental property owners. But rather than approaching the nearest building manager’s office, reach out to landlord associations, property owner associations and investor groups. These can

offer valuable networking opportunities. One place to start is the National Real Estate Investors Association (www. nationalreia.com), a federation made up of local associations or investment clubs throughout the United States. These include local investor associations, property owner associations, apartment associations and landlord associations on a national scale. You may also try the National Association of Residential Property Managers to reach landlords and other professionals involved in property management. As more and more people choose to rent rather than buy a home, agents who establish themselves as rental property insurance experts stand to benefit. Networking with local realtors helps, but so does connecting with the many professionals who work with rental property throughout the purchase process. All can benefit from your expertise. Think outside the box and you may be able build a stronger — and more lucrative — network of connections. Matalka is the assistant vice president of property products at American Modern Insurance Group. She has worked in property insurance for 20 years specializing in the specialty dwelling market including hard to place homeowners and vacant dwellings. E-mail: dmatalka@amig.com.

Escrow Offices Depending on state regulations, lenders may require property owners to open an escrow account for insurance and taxes. This www.insurancejournal.com

November 7, 2011 INSURANCE JOURNAL-NATIONAL REGION | N21

NATIONAL COVERAGE

MyNewMarkets Commercial Automobile Market Detail: TEE & GEE Underwriting Managers LP (www.teeandgeegroup.com) offers commercial auto coverage for taxis, limousines and shuttles in Texas. Available limits: As needed Carrier: Unable to disclose States: Texas Contact: Shellie Voisard at 214-905-9970 or e-mail: shellievoisard@yahoo.com

Dry Cleaners/Laundries Market Detail: Intercorp Inc. (www. intercorpinc.net) offers pollution liability, workers’ comp, environmental liability, directors and officers liability, pollution and business owners policies for dry cleaners/ laundries. Available limits: As needed Carrier: Unable to disclose, admitted and non-admitted available States: All states except D.C. Contact: Customer service at 800-640-7601

maximum $10 million Carrier: XL Capital States: All states except Ore., Alaska, Okla., La., W.V., Wyo. and N.J. Contact: Customer service at 800-336-5529 or e-mail: lpp@bbprograms.com

Mental Health Plus Market Detail: Thompson Insurance Enterprises LLC (www.thomcoins.com) offers a program for the mentally ill, which can involve, but not limited to: depression; schizophrenia; manic depressive; and substance abuse. The program is designed to provide coverage for residential care facilities, outpatient counseling and transitional living. Mental Health Plus is a multi-line program available nationally. Available limits: As needed Carrier: Stonington/Lantana Insurance Cos. States: All states except Mass., Minn. and N.J. Contact: Customer service at 800-476-4940

Lawyers Professional Liability Market Detail: Lawyer’s Protector Plan (www.lawyers.protectorplan.com) offers professional liability for law firms of up to 10 members. All practice areas can be considered. E&S markets also available. Available limits: Minimum limit $250,000,

Investment Advisors Market Detail: Markel Cambridge Alliance (www.markelcambridge.com) provides errors and omissions insurance to several classes of investment advisors. Coverage is provided in all 50 states on a surplus lines

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® CoverX is a registered trademark of CoverX Corporation. CoverX®Specialty products and services are offered on a wholesale basis through CoverX Corporation, a wholesale surplus lines insurance producer, with insurance policies issued by Crum & Forster Specialty Insurance Company, Seneca Specialty Insurance Company and/or First Mercury Insurance Company, each a surplus lines insurance company.

N22 | INSURANCE JOURNAL-NATIONAL REGION November 7, 2011

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www.mynewmarkets.com basis. Available limits: As needed Carrier: Unable to disclose, admitted and non-admitted available States: All states Contact: Customer service at 800-691-1515

Vacant Property Market Detail: Texas All Risk (www. allriskga.com) provides coverage for vacant properties which can include strip centers, homes, office space, warehouses and other commercial buildings. Texas All Risk has binding authority with eight A-rated (or better) carriers with up to $2 million per location. Agents can get appointed by filling out application on Web site. Available limits: Minimum $5,000, maximum $2 million Carrier: Eight non-admitted domestic carriers, unable to disclose States: Texas, Okla. and La. Contact: Customer service at 972-669-1188

Lenders Environmental Liability Market Detail: ISM General Insurance Agency (www.ismga.com) offers lenders environmental coverage for commercial lenders providing debt financing that is secured by commercial real estate. This coverage is designed to address two major concerns of lenders in regards to environmentallyimpaired properties: potential environmental liability and compromise of their collateral. Coverage is available through either a portfolio policy or a single site policy. Available limits: As needed Carrier: Unable to disclose, non-admitted States: Calif., Ariz., Nev., Ore., Wash., www.insurancejournal.com

Texas, Okla. and N.Y. Contact: John Farinacci at 714-544-6125 or e-mail: j.farinacci@ismflex.com

Bed Bug Infestation Recovery Market Detail: Professional Liability Insurance Services Inc. (www.plisinc.com) has introduced a business interruption and extra expense coverage for bed bug infestations for lodging facilities. Bed bug infestations are becoming a national epidemic, racking up expenses and devastating profits. Professional Liability Insurance Services policy features: no waiting period for policy triggers; up to six-month period of restoration available; no deductible for all expenses except decontamination expenses (coinsurance applies for decontamination expenses); loss of lodging revenue; rehabilitation expenses: marketing, overtime of regular staff, other mitigation expenses; third-party remediation expenses: customer decontamination expenses, onsite customer first aid; extortion payments; decontamination expenses (affected lodging room and lodging rooms immediately adjacent to the affected lodging room): no co-insurance for first $5,000, then 10 percent

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co-insurance applies; immediate and expert crisis management from Specialty Risk Management Inc.: 24/7 customer hotline, assistance with regulatory authorities and requirements, marketing and media control, and preventative resources. Available limits: As needed Carrier: Certain Underwriterâ&#x20AC;&#x2122;s at Lloydâ&#x20AC;&#x2122;s States: All states Contact: PLIS Product Team at 512-328-0677 or e-mail: underwriting@plisinc.com

Storage Tank Liability Insurance Market Detail: Chamber Insurance Agency Services (www.chamberagent.com) offers coverage to protect clients business from environmental exposures. Coverage for: corrective action; cleanup and third party bodily injury; and property damage from pollution conditions emanating from scheduled storage tanks. Available limits: Minimum $100,000, maximum $10 million Carrier: Unable to disclose, admitted States: All states

Contact: John Ferreira at 973-669-2309 or e-mail: jpferreira@chamberagent.com

Kidnap and Ransom Market Detail: Petersen International Underwritersâ&#x20AC;&#x2122; (www.piu.org) kidnap and ransom insurance has been developed to reimburse the policy owner for the expenses incurred with a kidnapping or extortion and include the response team, ransom payments, negotiations, and numerous other expenses associated with a kidnapping or extortion. Key benefits include: ransom reimbursement, personal accident, loss of ransom during delivery, private negotiator, public relations, travel expenses, psychiatric expenses, reward payments, financial losses, loss of income, employee lost income, asset protection, security coverage, specialized equipment, rehabilitation benefit, and funeral expenses. Available limits: As needed Carrier: Unable to disclose States: All states except D.C. Contact: Customer service at 800-345-8816

November 7, 2011 INSURANCE JOURNAL-NATIONAL REGION | N23

NATIONAL COVERAGE

News&Markets Home Insurance Rates Do Not Reflect Cost of Risk: Aon Benfield

the current annual .S. insurers’ prospective after-tax return period, a decrease on equity for homeowners’ insurance is from the 5.0 percent 4.8 percent on average, a decrease from the seen in prior years. 6.9 percent of 2010, mainly due to subdued Excluding this investment returns and higher estimates of change, insurers’ pronon-coastal losses. spective ROE would That calculation comes from Aon be 6.3 percent, down Benfield, the global reinsurance intermedifrom 6.9 percent in ary and capital advisor of Aon Corp. in its 2010, and still well annual Homeowners ROE Outlook report, below the true cost of capital, according to which analyzes insurers’ prospective returns the report. on equity for homeThe report says homeowners business Homeowners insurance owners insurers have based on their July consumers benefit from improved their recovery 2011 rate filings. rates that do not fully of the cost of reinsurance The report reflect the annual cost of capital in recent years reviews the latest insuring their homes. but could still recover rate filings of insura greater share of the ers operating in the annual cost of exposing capital to retained 25 largest states. catastrophe losses. Aon Benfield estimates that investment “Great progress has been made across the returns will average 3.8 percent during

N24 | INSURANCE JOURNAL-NATIONAL REGION November 7, 2011

homeowners’ insurance industry to more fully recover the cost of reinsurance over the past few years — a net cost that is generally lower than the cost of exposing an insurer’s own capital to catastrophic risk. However, homeowners’ insurers continue to maintain and expose significant capital to retained catastrophe risk,” said Bryon Ehrhart, chairman of Aon Benfield Analytics. Ehrhart said the filings show that the annual cost of exposing insurer capital to catastrophic risk is not being fully recovered. “Homeowners insurance consumers therefore continue to benefit from rates that do not fully reflect the annual cost of insuring their homes,” he said.

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News&Markets

Independent Agencies Showing Signs of Recovery, Better Profitability, Study Reveals

Online

To listen to a podcast interview with the Big I’s Madelyn Flannagan and Reagan Consulting’s Shirley Lukens on the history of the Best Practices Study, growth strategies for agencies today and how to improve agency revenue results, visit: http://www. insurancejournal. tv/videos/6041/

hings are looking better for the nation’s property/casualty independent insurance agencies. Organic growth for these agencies improved somewhat last year and their profitability held constant across most of the six revenue groups studied by the Independent Insurance Agents & Brokers of America (IIABA or the Big “I”) in its 2011 Best Practices Study. “The results of this year’s Best Practices Study indicate good news after several years of negative growth, shrinking profit margins and declining agency values,” says Madelyn Flannagan, Big “I” vice president of agent development, research and education. “Most study participants benefited from the growth strategies deployed over the last couple of years when the recession suddenly amplified the pressure of a prolonged soft market.” Other findings from the 2011 Best Practices Study include: • Big Picture: Most study participants benefited from the growth strategies deployed over the last couple of years when the recession suddenly amplified the pressure of a prolonged soft market. A strong focus on total account development, increased advertising/marketing activities, and producer hiring/development/management strategies gave most agencies a competitive advantage when the economy began to rebound in 2010, and stopped or reversed the revenue decline that first became apparent in the 2006 study. Generally, the smaller revenue-sized agencies reported flat growth, while the larger commercial agencies reported improvement over the 2010 study results. Organic growth for the $10 million to 25 million group

N26 | INSURANCE JOURNAL-NATIONAL REGION November 7, 2011

increased from 0.7 percent to 2.4 percent and the more than $25 million group increased from 1.2 percent to 3.3 percent. • Cutting the Fat: As with revenue growth, the agencies benefited from steps taken over the last couple of years to control and lower expenses. Profitability remained flat in all study groups with an average Pro Forma EBITDA margin of 26.2 percent for agencies with revenue less than $5 million and 20.0 percent for agencies with revenue above $5 million. Margins had decreased continuously since 2006 when they were at their highest in the study’s history. • Rule of 20: In recent years, the Rule of 20 outcomes, a quick measure for determining whether an agency is creating value for its shareholders, have fallen significantly short of the desired score of 20 for most of the study groups. The 2011 results leveled off at an average score of 13.2 for the “Less than $5 million” agencies and increased to an average 11.7 for the “More than $5 million” agencies. • Revenue per Employee: An industry standard productivity measure, revenue per employee also remained flat with the average for the “less than $5 million” agencies just over $150,000 and the “more than $5 million” at $172,000. These averages are down only slightly from the revenue per employee levels reached prior to the start of the soft market. The resulting drop in revenue forced agencies to concentrate on better utilizing new and existing technology to support sales and marketing efforts and to contain costs. As a result, productivity remained stable. • Personal lines: Once again, personal lines had positive growth rates

(an average of 3.1 percent for the less than $5 million and 3.8 percent for the more than $5 million). However, group medical grew more last year with an average of 3.0 percent for the less than $5 million and a strong 4.2 percent for the more than $5 million, up more than 3 percent from last year. • Commercial lines: This line continued to see negative growth but far less negative than last year. Many agents said they are starting to see some commercial insurance rates hold at their current levels. This could indicate that the 2012 results are bound to improve providing the economy doesn’t stall again. “While the 2011 results are not stellar, they do indicate that Best Practices agencies are rebounding from the devastating effects of the recession and soft market, and are poised for new growth and stronger profitability, the key components of agency value,” said Robert Rusbuldt, Big “I” president and CEO. Every three years, the Big “I” collaborates with Reagan Consulting to select “Best Practices” firms throughout the nation for outstanding management and financial achievement in six revenue categories (less than $1,250,000; $1,250,000 to $2,500,000; $2,500,000 to $5,000,000; $5,000,000 to $10,000,000; $10,000,000 to $25,000,000; and more than $25,000,000). Twelve insurance companies and four industry vendors provide financial support for the research and development of the Best Practices study — Applied Systems, Addis Intellectual Capital, Central Insurance Cos., Chubb, EMC Insurance Cos., Encompass Insurance, Erie Insurance, Great American Insurance Group, The Hanover Insurance Group, Harleysville Insurance, Imperial PFS, InsurBanc, Kemper Preferred, Liberty Mutual Agency Corp., MetLife Auto & Home and Zurich North America. www.insurancejournal.com

NATIONAL COVERAGE

News&Markets Generous P/C Sector Seeks Ways to ‘Give Better,’ McKinsey Author Says By Young Ha

he property/casualty insurance sector that already does a lot of good work is interested in doing more and having even more of an impact, according to the lead author of a landmark report on the property/ casualty industry’s charitable giving. “If you look at how the industry is performing today, it’s doing a tremendous amount of giving. It’s doing a tremendous amount of good work,” Peter Hahn, a partner at McKinsey & Co. and author of the charitable giving report, told Insurance Journal. “And what we heard from the industry was that the industry would like to continue to increase the impact of giving and increase its recognition.” This research arose out of discussions McKinsey had with industry representatives and with the Insurance Industry Charitable

Foundation (IICF). “The genesis of this report came from discussions last year about the need within the industry to put some fact base around the state of charitable giving within the P/C industry,” Hahn said. He said McKinsey felt this was an important topic where it wanted to invest resources to “create the fact base and to share our perspectives and find best practices and ideas on how the industry could increase the impact of its giving and increase its recognition to the fullest.” How to Give Better The McKinsey report stresses several themes including the need to combine social and business goals in the individual company’s charitable giving program and the benefits of utilizing skills and capabilities that are unique to the insurance industry. According to the McKinsey report, more

insurance companies could better utilize their unique insurance-specific knowledge and expertise to contribute to society in ways that others cannot. “If you look at the results of the research, 60 percent of the industry felt that disaster relief and preparedness was one of the top three causes for them as a company,” Hahn said. Hahn said this is one area where industry collaboration could potentially have greater impact and achieve greater recognition. The report advises companies to manage charitable giving like they do other major business investments. “There are a number of aspects to that,” Hahn said. “They include deep senior management commitment, focusing on a defined number of topics, and committing for the long term.”

Advertisers Index E: East, M: Midwest, N: National, SC: South Central, SE: Southest, W: West Abram Interstate www.abraminterstate.com ACE Insurance www.acelimited.com

W26

W17, SC23, SE17, E17, M23 Agency Ideas www.agencyideas.com N21 Agent Support Network of America www.asnoa.com W3, M3 American Integrity Insurance Group www.aiicfl.com SE11 American Modern Insurance Group www.amig.com N17 AmTrust www.amtrustgroup.com N5 Amwins Group, Inc. www.amwins.com W25, SC15, SE3, E3, M17 Anderson & Murison, Inc. www.andersonmurison.com W40 Applied Underwriters www.applieduw.com W80, SC68, SE64, E64, M64 Astonish Results www.astonishresults.com N3, W10, Sc12, SE12, E10, M10 Catlin US www.catlinus.com W43, SC25, SE21, E27, M31 Century National www.cnico.com W32 Charity First Insurance Services, Inc. www.charityfirst.com W47, SC33, SE27, E31, M27 Chartis www.chartisinsurance.com W7, SC7, SE7, E7, M7 Chubb Corporate www.chubb.com W19, SC11, SE9, E19, M19

www.insurancejournal.com

CoverX www.coverx.com N22 Crump Insurance Services www.crumpins.com N15 Demotech www.demotech.com N7 Foremost Insurance Group www.foremoststar.com W13, SC21 Gateway Specialty Insurance www.gatewayspecialty.com W20, SC22, SE20, E20, M20 General Star www.generalstar.com W33, SE31, E29, M33 Golden Bear Insurance Co www.goldenbear.com W39 Great American Insurance Group www.greatamericaninsurance.com W31, SC37, SE23, E23, M29 Great American- Specialty Human Services Division www.specialtyhumanservices.com W35 Ironshore www.ironshore.com W45,S C19, SE15, E15, M15 ISU Group www.joinisu.com W14, SC16, SE14, E14, M14 JM Wilson www.jmwilson.com SE22, M18 Leavitt Group Enterprises, Inc www.leavitt.com W38 LexisNexis www.lexisnexis.com N13 Liberty Mutual www.libertymutual.com W2, SC2, SE2, E2, M2 M.J. Hall & Company, Inc. www.mjhallandcompany.com W28 McGowan Program Administrators www.mcgowanins.com N19 Monarch E & S Insurance Services www.monarchexcess.com W37

National Alliance for Insurance Education & Research www.scic.com N20 Pacific Gateway Insurance Services www.pgiainsurance.com W49 PersonalUmbrella.Com www.personalumbrella.com W5, SC5, SE5, E5, M5 RiskeMeter.com www.riskmeter.com N14 RSI International www.rsimga.com SC20 RT Specialty www.rtspecialty.com W21, SC17, SE19, E13, M13 Russell Bond www.RussellBond.com E26 SIAA www.siaa.net W27, SC31, SE29, E21, M21 State Compensation Fund www.statefundca.com W41 Tejas American General Agency www.taga1.com SC3 Texas Mutual Insurance Company www.texasmutual.com SC13 Texas Surplus Lines Association www.tsla.org SC38 Travelers www.travelers.com W23, SC29, SE25, E25, M25 UCA General Insurance Services www.ucageneral.com W29 Universal North America www.uihna.com W15, SC35, SE33 Western Heritage Insurance Company www.westernheritageins.com N2 XL Specialty Insurance Company www.xlgroup.com W11, SC27, SE13, E11, M11 Zurich Insurance Company www.zurichna.com W79, SC67, SE63, E63, M63

November 7, 2011 INSURANCE JOURNAL-NATIONAL REGION | N27

IDEA EXCHANGE

Closing Quote Another hindrance to designing effective terrorism coverage was that with terrorism exposures — unlike natural catastrophe disasters, which have abundant historical data and sophisticated modeling to rely on — there was little to use as a baseline for underwriting the coverage. In the past 10 years, however, the industry has developed stronger modeling to help build effective terrorism risk underwriting tools. Additionally, insurers are forging relationships with partners such as the Stimson Center and the Rand Institute to assist in creating better loss scenarios and practical ways of lessening terrorism exposures. As a result, insurers have introduced higher limits and wider coverages to include biological, chemical, and cyber terrorism threats — coverages that weren’t even a consideration just a few years ago. Building Solutions to Terrorism Risk Terrorism risk has also changed how insurers act as underwriters and business partners to their insureds and brokers. As businesses seek ways to build their own security measures, insurers must understand the very specific exposures that terrorism presents. An office building in a major city has different vulnerabilities than a hotel in a resort area. Part of understanding terrorism risk is addressing the very specific nature of these exposures. Facilities such as dams and power plants in the heartland may be just as attractive to terrorists as high value targets in urban centers, and private sector facilities become increasingly vulnerable as government assets have become better protected. Insurers are working with clients as they develop their own security practices and procedures. Many companies are now working on ways of protecting employees by diverting traffic to rior to the Sept. 11 attacks 10 years ago, the thought of tersecure locations in the event of a threat or replacing windows rorism didn’t loom large in our nation’s collective psyche or our business decisions; since then, however, it has become a with bomb-proof glass. Entranceways or vulnerable building constant factor. This past summer, the initial reaction of many areas are being protected, staff is being trained, building construction is being examined — all with a new appreciation of who experienced the earthquake in the eastern United States security. thought that they were experiencing With the nation spending $100 billion the effects of a new wave of terrorTerrorism risk has annually on counter-terrorism efforts, it’s ist activity. It’s an understandable changed how insurers tempting to believe our good fortune in response given the way terrorism has act as underwriters and avoiding another mass casualty attack will now become such a real and present business partners to their hold. Since 9/11, there have been approxithreat. insureds and brokers. mately 39 thwarted terrorism attempts on the United States, and while some observers Changing Everything doubt that terrorist organizations have the capability to launch In the immediate wake of 9/11 — and faced with financial another attack as coordinated and devastating as 9/11, reducing losses of between $30 and $40 billion — one of the insurance the impact of another major event remains largely within our industry’s most pressing concerns was the issue of limited own control. capacity. Lexington Insurance Co. was one of the few carriers Eighty percent of terror attempts have been exposed through able to extend stand-alone terrorism coverage at that time. the vigilance of law enforcement and the public. The actions The passing of the Terrorism Risk Insurance Act of 2002, and cooperation of federal, state, and local governments as well along with its two extensions, served to effectively increase as the general public will help maintain safety and security in market capacity. Over the past several years, there has been an increasingly dangerous world. a significant increase in capacity in the stand-alone market with the current penetration of terrorism insurance hovering around 60 percent. Cogliano oversees property terrorism at Lexington Insurance Co.

Why 9/11 Changed Everything P

By John Cogliano

N28 | INSURANCE JOURNAL-NATIONAL REGION November 7, 2011

www.insurancejournal.com

“We’re a growing company. And, with Zurich’s help, we’re already a global one.” Chip Bottone, President and CEO FuelCell Energy, Inc. Connecticut, USA

International insurance solutions for the global companies of today and tomorrow. FuelCell Energy is bringing renewable and ultraclean power generation to three continents—and counting. Zurich’s ability to design a ﬂexible insurance program in compliance with local and global regulations is helping them grow. And with a single, U.S.-based contact, supported by a global network spanning more than 170 countries, Zurich is making it even easier for FuelCell to manage their overseas risks. It’s an example of how Zurich HelpPoint delivers the help businesses need when it matters most. Let FuelCell tell you more. Watch the video at www.zurichna.com/stories6

In the United States, insurance coverages are underwritten by individual member companies of Zurich in North America, including Zurich American Insurance Company. Certain coverages are not available in all states. Some coverages may be written on a non-admitted basis through licensed surplus lines brokers. Prior results do not guarantee a similar outcome. Risk engineering services are provided by Zurich Services Corporation.

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