Contractors & Builders by Insurance Journal

WEST REGION

NOVEMBER 21, 2011 | VOL. 89, NO. 22

Kipper Back as Nevada’s Commissioner LexisNexis’ Lu and Beal Battle to Expand California’s Prop 103 Is the World a Riskier Place?

Whether your client’s company is large, small or something in between, we cover it. Small construction companies are different from mid-size companies. And they’re both different from the big guys. That’s why, at Travelers, we have dedicated account executives, risk control and claim specialists with an in-depth knowledge of construction companies of every size. So, whether we’re talking about one employee or one thousand, we’ll build insurance and surety programs to meet your needs. Contact your Travelers representative to learn more. No matter what size the construction company, we think you’ll see a big difference.

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Inside This Issue

On the Cover

November 21, 2011 • Vol. 89, No. 22• West Region

NATIONAL COVERAGE

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N6 Web Exchange

8 Another Suit Filed in Reno Air Race Tragedy

N8 Top 50 Personal Lines Agency Leaders N11 Special Report: Contractors, Agents Fight to Stay Afloat

Special Report: Contractors & Builders N10

8 Montana’s Occupational Injuries Down

N24

IDEA EXCHANGE N1 Growing Your Property Casualty Agency: Shulman N24 Closing Quote: LexisNexis’ Lu and Beal

8 Colorado Panel to Examine Pinnacol Privatization Proposal

N12 Special Report: Inconsistency Is the Norm in Construction Liability

16 Initiative to Expand California Prop 103 Ignites Battle

N14 Special Report: Turning Construction Red Flags into Opportunities

18 Is the World a Riskier Place? Insurance Industry’s Hartwig Answers

N16 Closer Look: Pearsall on Claims and Agency E&O

20 Kipper’s Back as Nevada’s Insurance Commissioner

N18 Closer Look: Claims and the Independent Agent N22 NCCI Study Examines Medical Costs in Workers’ Comp N22 P/C Market to See Moderate Changes in 2012 N23 Insurance Execs Turn Pessimistic Over Business Outlook: Survey 4 | INSURANCE JOURNAL-WEST REGION November 21, 2011

DEPARTMENTS 6 9 9 10 12 N4

Opening Note Declarations Figures People Business Moves MyNewMarkets

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Opening Note PLUS: Is the World a Risker Place?

hile former British Prime Minister Tony Blair may have been the most prominent speaker at the 24th Annual Professional Liability Underwriting Society International Conference in San Diego earlier this month, it was the panelists at various sessions who had some of the most interesting, and in some cases worrying, things to say. Did you know that 86 percent of corporate travelers believe their company is obliged to support them in the event of any trouble while abroad, and 50 percent of them would consider legal action if an emergency while traveling abroad were mishandled by their firm? That’s according to Ricardo J. Cata, the regional managing partner and co-chair of the Latin American Practice Group. Cata was on a panel titled “Border Tensions: Executive Liability in an Age of Political Unrest,” which focused on kidnap and ransom insurance. Cata’s figures become less mundane when you realize Worries about worries about trouble abroad trouble abroad are entirely justifiable. Among the heightened risks are entirely of employees being kidnaped justifiable. and ransomed are continued unrest in the Middle East following the “Arab Spring,” and piracy, which was up 28 percent in the first half of 2011 compared with last year, according to Daniel Wahlig, senior consultant of global services for Los Angles, Calif,-based Control Risks. But it’s not just political upheaval and opportunists on the high seas that have made it a risker world to live in. Employees traveling abroad can expect increased threats in places Latin America, Southern Africa and areas of Asia, according to panelists. Even neighboring Mexico is seeing more of these types of threats with what’s known as express kidnapping, in which abductors hold victims several days, but instead of ransom demands, they take the victim to automated teller machines and have them withdraw their max daily amount. Such activity has driven insurers to examine risks more broadly, said Jeremy Lang, vice president and manager of U.S. kidnap and ransom for Bermuda-based Hiscox. “What we’re seeing is a complete evolution in what a K&R policy is,” he said. It begs the question: “Is the world becoming a riskier place?,” which was posed by Insurance Information Institute President and Chief Economist Robert Hartwig during his talk at the annual conference (read the full story on Hartwig’s speech on page 18). “The world is nowhere near as risky as it has been,” he said, pointing to the 1300s as bleak example of a riskier time in human history, when life expectancies dropped to as low as age 24 for males, due lagely to the “Black Death” pandemic. Thank you, Dr. Hartwig, for always looking Don Jergler West Editor on the bright side of life.

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 Curtis Pearsall, Alan Shulman Contributing Writers John Beal, Xiaohui Lu, Bill Teed

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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

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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 21, 2011

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News&Markets Another Suit Filed in Reno Air Race Tragedy

Colorado Wants Insurance Company to Cut Severance

Colorado wants top executives at the statechartered workers’ compensation insurance fund to waive big severance payments if the quasi-state agency is privatized. Gov. John Hickenlooper and Pinnacol Assurance are negotiating over a proposal to privatize the insurer. Past efforts to strike a deal have failed in disputes over the company’s value. According to the Denver Post the proposed deal calls for turning the insurer into a private mutualassurance company, owned by its policyholders. In exchange, the state would receive a 40 percent ownership stake in the new company. ©2011 Associated Press.

Report: Questions Raised on Bay Bridge Safety Test

nother lawsuit has been filed in the Sept. 16 Reno Air Race crash that killed 11 people, including the pilot, and injured nearly 70 other spectators, the Reno Gazette Journal is reporting. The suit was filed earlier this month by a law firm on behalf of Gerry de Treville of Ukiah, Calif., a spectator who lost his eye when a vintage plane crashed during the Reno National Championship Air Races. The suit claims the air racing organization was negligent and the aircraft was too dangerous to fly so close to spectators. So far this is the second suit to be filed. The family of deceased man Craig Salerno, 50, of Friendswood, Texas, a dispatcher for Continental Airlines and father of two, is suing race organizer Reno Air Racing Association, pilot James Leeward’s racing team and corporation, and two enterprises that modified the plane to increase its speed. According to witness accounts, the P-51 Mustang nosedived into a section of white VIP box seats, and the plane flown by 74-year-old veteran racer and Hollywood stunt pilot Leeward disentigrated when it hit the ground.

California Department of Transportation technician responsible for crucial seismic tests to ensure the safety of the new San Francisco-Oakland Bay Bridge span is under investigation in connection with testing for major transportation projects throughout the state. The Sacramento Bee newspaper reported it uncovered falsified safety tests by the technician, who has been put on administrative leave and whose previous work is now being probed by federal and state officials. At a projected cost of $6.3 billion, the new eastern span of the Bay Bridge is the largest public works project in California history, and it is poised to open in 2013. In 2006 and 2007, Caltrans technician Duane Wiles performed tests to ensure the structural integrity of seven of the 13 deeply buried concrete and steel pilings that hold up the new bridge’s tower. Wiles did not follow a requirement to check that his testing gauge was working correctly to ensure its accuracy before testing, according to the report. Caltrans says the bridge tower foundation is safe. ©2011 Associated Press.

Colorado Panel to Examine Pinnacol Privatization Proposal

Montana’s Occupational Injuries Down

proposal to privatize the state-chartered workers’ compensation insurer, Pinnacol Assurance, would give Colorado a $340 million ownership stake while restructuring it as a subsidiary of a mutual insurance holding company owned by policyholders. Pinnacol said this month its proposal would provide the state an estimated $13.6 million in annual dividends to support education and business development and make Pinnacol a tax-paying entity. Gov. John Hickenlooper has chosen 19 people representing businesses, insurers, workers and foundations to review the proposal and offer guidance on legislation to restructure Pinnacol. Pinnacol’s board is appointed by the governor, but it operates largely like a private insurer. It is required to cover employers that private insurers won’t. ©2011 Associated Press.

8 | INSURANCE JOURNAL-WEST REGION November 21, 2011

he Montana Department of Labor and Industry’s annual survey of occupational injuries and illnesses shows injuries and illnesses in private industry are dropping, though still far above the national average. Private industry workplaces in Montana reported 5.0 injuries and illnesses per hundred full time workers in 2010. A year earlier the incidence rate was 5.3 cases per hundred full time workers. Montana’s incidence rate was above the national rate of 3.5 cases per hundred full-time workers in 2010 and 3.6 cases per hundred full-time workers in 2009. Montana’s incidence rate of injuries varies by major industry division, manufacturing leading the way. Rates based on the number of cases per 100 full-time workers are: 7.1 for manufacturing; 6.3 for utilities; 3.9 for mining; 1.0 for finance and insurance; 4.2 for education; 6.2 for retail. www.insurancejournal.com

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Declarations Trucking

Greece Meet Alabama

Whac-A-Mole

“He was not working with the truck in any way and was not entering or exiting the truck. He had no purpose or connection with the truck other than the incidental contact that led to his unfortunate injuries and death.” — Wrote Montana Supreme Court Justice Jim Rice, following a unanimous ruling by the court that the family of a man who was run over and dragged by a cement truck is not covered under the vehicle’s insurance policy because he did not technically “occupy” the truck.

“Greece has the economy of somewhere like Alabama. I think the high degree of uncertainty coming out of Europe is overblown.” — Insurance Information Institute President and Chief Economist Robert Hartwig said in early November during his talk at the annual Professional Liability Underwriting Society Conference in San Diego, which drew over 1,700 industry professionals this year.

“It’s sort of a ‘Whac-A-Mole’ situation.“ — Daniel J. Howell, senior executive vice president and managing director of Alliant Insurance Services Inc.’s Specialty Group, speaking at the annual Professional Liability Underwriting Society Conference in San Diego. He was discussing how municipalities are struggling to deal with prison overcrowding, which he believes is creating increased liability issues for such government entities.

Yakuza “The risk of doing business with organized crime has gotten massively larger.” — Nicholas Smith, head of Japanese equities strategy at CLSA in Tokyo, talking earlier this month about new laws that he said are “extremely powerful and likely to produce big changes” in Japan’s corporate world and its relation to the Yakuza Crime Syndicates.

Figures $ 2.30

That’s the amount per $100 of payroll California’s Workers’ Compensation Insurance Rating Bureau proposed in its advisory rate filing. The WCIRB has changed with way the pure premium rate is calculated. The $2.30 is 1.8 percent less than the pure premium rates filed in July 2011.

340

That’s how much of an ownership stake in millions Colorado would take under a proposal to privatize the state-chartered workers’ compensation insurer, Pinnacol Assurance, while restructuring it as a subsidiary of a mutual insurance holding company owned by policyholders.

Is the number of sales professionals Allstate Insurance agency owners throughout Colorado are planning to hire by the end of the year. The company made the announcement following a lackluster jobs report issued earlier this month, noting that Colorado’s unemployment rate remained flat at 8.3 percent.

3.7

The percentage Colorado’s “loss costs” component of workers’ compensation premiums will go up in 2012. The 2012 increase follows an increase of 3.4 percent in 2011 after nearly a decade of decreases in loss cost rates. www.insurancejournal.com

November 21, 2011 INSURANCE JOURNAL-WEST REGION | 9

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People John Russo

Hasley Fischer

Valencia, Calif.-based Petersen International Underwriters has named John J. Russo as legal director. Russo will assist in monitoring compliance and current legislation in various states, maintaining surplus lines conformity and directing industry relations with the departments of insurance in the United States as well as the District of Columbia and Canada. Russo has been practicing law for 32 years and was a senior partner with a law firm in Los Angeles. Petersen International Underwriters is a 30-year Lloyd’s Coverholder and underwriting facility of international disability, life, medical and contingency insurance products. Rancho Cordova, Calif.-based insurance investigator APEX Investigation has named Halsey Fischer as president. Fischer is responsible for building relationships, overseeing day-to-day operations and managing corporate strategy. Fischer has held the positions of senior vice president, chief operating officer, president and chief executive officer of four different companies. APEX conducts insurance, workers compensation, liability and human resource investigations. Tammy Magliola and Ferris M. Boulos have joined Networked Insurance Agents as territory sales vice presidents in northern and central California. Their responsibilities include business growth and development. John Dacquisto was named commercial lines manager, working in Networked’s Grass Valley, Calif. office. Networked provides independent agencies a variety of services including access to more than 50 carriers. Encino, Calif.-based lawfirm Michelman & Robinson LLP has added Robert Barbarowicz as of counsel in their regulatory and administrative group.

10 | INSURANCE JOURNAL-WEST REGION November 21, 2011

Prior to joining Michelman & Robinson, Barbarowicz was a business executive and chief insurance regulation executive for Balboa Insurance Group. Kevin Hoskinson has joined Lockton as its technology practice leader focused on property and casualty insurance for technology companies. Hoskinson will work in Kansas City, Mo. Lockton’s San Jose, Calif. office. Hoskinson’s most recent post was at Sun Microsystems Inc. as the senior director of global risk management and treasury. Duane Caldwell was added to Lockton’s technologyfocused team in San Jose, Calif. as a property risk control consultant. Caldwell will take a lead in expanding Kansas City, Mo. based-Lockton’s presence in the San Francisco Bay area and throughout the western region. Caldwell was most recently a vice president and senior property risk consultant with Marsh. He also served as Marsh’s risk consulting practice leader. Before that Caldwell worked as corporate safety program manager for Seagate Technology. Caldwell will report to Kevin Hoskinson, who recently joined Lockton as the technology practice leader in the San Jose office. David J. Gorin has been named president of Network E&S Insurance Brokers LLC, a Simi Valley, Calif.- based managing general underwriter and wholesaler. Gorin’s immediate responsibility will be to establish and to staff an office in Orange County to handle the underwriting/brokering of small- to medium-size excess and surplus lines accounts for various in-house binding facilities. Most recently, he was vice president with Partners Specialty Group’s Orange County office overseeing the underwriting responsibilities of its binding facility.

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Business Moves

Yates currently has five underwriters based in and around Stockton. Yates & Associates, which was started by founder Jim Yates in 1987, was recently sold to venture capital firm Scottish American Capital, with Jim Yates retaining ownership of 20 percent of the firm. The firm was renamed to Yates, and Scottish American chief Paul Thompson is now CEO of Yates.

Yates Tustin, Calif.-based managing general agent Yates has opened a northern California office in Walnut Creek . Jon Uyeyama has joined the office, bringing with him 10 years of underwriting experience. Uyeyama will oversee the expansion of the office over the next few months as the company further expands its presence in the East Bay and San Francisco, according to Yates.

Brown & Brown of California, Sitzmann Brown & Brown of Northern California Inc., a subsidiary of Brown & Brown Inc. has acquired substantially all of the assets of Sitzmann, Morris & Lavis Insurance Agency Inc. SML is in the employee benefits, life insurance, estate planning and business continuity fields. SML will continue to serve its California clients from its offices in Oakland, Lafayette, and Santa Rosa under the leadership of Matthew M. Sitzmann. SML Financial Services is not part of the transaction and will continue to operate from its existing Oakland, Calif. location.

12 | INSURANCE JOURNAL-WEST REGION November 21, 2011

Brown & Brown through its subsidiaries offers a range of insurance and reinsurance products and related services, as well as a variety of risk management, third-party administration and other services. Phonex, DAVID Private equity firm Phoenix Asset Management has acquired DAVID Corp., a provider of risk management and insurance software and services. DAVID Corp. has been providing software and services to commercial and alternative P/C insurance markets for more than 27 years. DAVID Corporation president and CEO Alex Aminian said the investment of capital by Phoenix will help with their strategic growth objectives. BB&T, Precept BB&T Insurance Services has acquired Precept Group, an employee benefits consulting and administrative solutions firm, continued on page 14

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Business Moves Business Moves, continued from page 12

as part of BB&T’s continued expansion in California. Precept has offices in Irvine and San Ramon, Calif. The new agency, which operates under the Precept Group name, will continue to

manage Precept Consulting Services and ProView Benefits Administration Services. The transaction closed Nov. 1, and terms were not disclosed. Winston-Salem, N.C.-based BB&T, a wholly owned subsidiary of BB&T Corp.,

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entered the California market in 2008 with its acquisition of San Diego-based UnionBanc Insurance Services. BB&T Insurance Services now operates agencies in Folsom, Fullerton, Glendale, Irvine, Pleasanton, San Diego, San Francisco and San Jose. ISU, ISU Cunnington & Associates ISU International has added ISU Cunnington & Associates to the ISU Network. Founded in 2005 and owned by Greg Cunnington, ISU Cunnington specializes in both commercial lines and personal lines, with locations in Idaho and California. Cunnington himself has over 30 years’ experience as an independent agent, serving clients throughout the West, with a focus on determining eligibility and placement of qualified businesses in group captives. San Francisco, Calif.-based ISU Network consists of over 125 independently owned and operated offices. Liberty Liberty International Underwriters (LIU), the global specialty lines division of Liberty Mutual Group, has opened an excess and surplus (E&S) property operation in Los Angeles to better serve the West Coast wholesale broker community. Chet Simmons, an insurance veteran with 35 years’ experience, has been named regional manager for LIU’s E&S Property West Coast operation. This new E&S Property operation builds upon LIU’s presence on the West Coast. Beazley, CalSurance Orange, Calif.-based CalSurance Associates, a division of Brown & Brown of California Inc., has named Beazley, an insurer of data privacy and network security risks, as a preferred information privacy and security insurer for insurance agents and other financial services professionals insured through CalSurance’s program. CalSurance will offer Beazley’s information security and privacy insurance with electronic media liability coverage. Brown & Brown of California is a wholly owned subsidiary of Brown & Brown Inc. www.insurancejournal.com

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News&Markets Initiative to Expand California Prop 103 Ignites Battle By Don Jergler

ballot initiative to expand the scope of California’s Proposition 103 to include health insurance could also impact the auto

insurance industry by challenging a longsought-after initiative on auto insurance discounts for persistency, industry watchers say. Santa Monica, Calif.-based advocacy

16 | INSURANCE JOURNAL-WEST REGION November 21, 2011

group Consumer Watchdog, which filed the Insurance Rate Public Justification and Accountability Act, must get 500,000 signatures to qualify it for the Nov. 6, 2012, ballot. If successful, the health insurance rate initiative could be placed on the same ballot as the 2012 Auto Insurance Discount Act, which is near to qualifying for that ballot. Either initiative would expand Prop 103. Prior to the passage of Prop 103 in 1988, insurance companies were not required to file rates for approval except for health and life, and the state was considered an “open competition” state in which competition regulated the marketplace. A major provision of Prop 103 dealt with personal automobile insurance, and it prevented rates from being determined based on a person’s history of insurance. Consumer Watchdog says its initiative would “ensure fair and transparent rates for health, home and auto insurance.” But, the proposed act’s language prohibits “unfair pricing” not only for health, but for auto and home insurance based on prior coverage and credit history. “Basically it goes to the heart of the persistency initiative that’s being circulated,” said John Norwood, the managing partner of Norwood & Associates who serves as a legislative advocate for Insurance Brokers & Agents of the West. The 2012 Auto Insurance Discount Act is being sponsored by the American Agents Alliance, which says it “will allow consumers to receive a discount for their years of continuous automobile coverage regardless of the company where they seek insurance.” The persistency initiative is similar to Proposition 17 on California’s ballot in 2010 sponsored largely by Mercury General Corp., which was narrowly defeated, 52 percent to 48 percent. The latest persistency initiative is being supported by Mercury’s chairman, George Joseph, but not by Mercury this time, said Joseph, who called the initiative he’s backing “pro consumer” because it would allow portable persistency as opposed to the singular choice of loyalty programs that lock consumers into one carrier. www.insurancejournal.com

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News&Markets Is the World a Riskier Place? Insurance Industry’s Hartwig Answers

“ s the world becoming a riskier place?” That was the question posed by Insurance Information Institute President and Chief Economist Robert Hartwig during his talk at the annual Professional Liability Underwriting Society Conference in San Diego, which drew more than 1,700 industry professionals this year. Hartwig gave a resounding answer to the question, while admitting many risks and downsides to the insurance industry continue to exist. “The world is nowhere near as risky as it has been,” he said. Hartwig did his best to allay fears that 2011 is turning out to be another 2008, though he acknowledged it’s tough to argue for, considering a host of disasters that have profoundly impacted the catastrophe market, including earthquakes, tsunamis, debt fears, the Eurozone economic crisis, the U.S. dollar, housing, stubbornly high unemployment and a government in Washington, D.C., that “is rudderless.” And then there’s the trouble with Greece’s economy. “We have the big, fat Greek debt problem,” he said.

But he called that problem “overblown,” considering that country’s economy is the 32nd largest in the world. By comparison, if California were a nation, its economy would rank 8th in the world. “Greece has the economy of somewhere like Alabama,” he said, adding, “I think the high degree of uncertainty coming out of Europe is overblown.” Despite all of the economic malaise, the worldwide economic situation is “very different from three years ago,” he said, pointing to the lack of numerous major financial failures, credit markets that aren’t seizing and bank balance sheets that are in much stronger shape. As for the property/casualty industry, he noted that profits for the first-half of the year were down 71.6 percent to $4.8 billion versus the first-half of 2010 due to high cat losses and as non-cat underwriting results deteriorated. Look for industry-wide return on equity to continue to stabilize, he said, adding “the industry is headed toward a trough in ROE.” ROE has fallen steadily each year, and while

18 | INSURANCE JOURNAL-WEST REGION November 21, 2011

there is some stabilization, based on past history, he said he doesn’t see it peaking until 2016 or 2017. He also noted that combined ratios must be lower in today’s depressed investment environment to generate risk-appropriate ROEs. The ratio for the first-half of 2011 was 109.4, according to I.I.I., which compiles its data from A.M. Best and ISO data. As for the cat market, he said, “2011 will rewrite catastrophe loss and insurance history.” The lion’s share of cat losses in 2011 came from the Asia Pacific area, instead of Europe. The first half of the year recorded 355 events. In the U.S. there were $25 billion in insured losses reported, a 129 percent increase over the $11.8 billion amount through the first half of 2010, Hartwig said. But even with those large losses, and other factors in the industry that seem to hint at a possible return to a hard market, Hartwig said he doesn’t see the market turning anytime soon. He did offer his thoughts on sectors he feels will grow in the next 10 years: • Heathcare • Health science • Alternative energy • Agriculture • Natural resources • Environmental • Technology • Light manufacturing • Export oriented industries • Shipping. www.insurancejournal.com

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News&Markets Kipper’s Back as Nevada Insurance Commissioner The second-time commissioner has captives on his mind at the center of a plan to make Nevada more business, and insurance, friendly. By Don Jergler

cott Kipper has returned to his role as Nevada’s insurance commissioner, and now that he’s back he says that fostering a business environment that helps insurance companies grow and brings new ones to the state is among his top priorities. Among his plans to bolster the state’s insurance business, and the business environment in general, are making the state more attractive to captives and encouraging the growth of those captives now in the state through captive-friendly legislation. The emphasis on captives in Nevada comes from above. ‘Nevada has been It goes up the state’s leadership ladder via home to a very a mandate handed strong captive insurance program down by Terry Johnson, Nevada’s for years, and we director of business want to make sure and industry, whose we continue to stated mission is expand on our cap- to help diversify Nevada’s economy by tive programs.’ building up industries like insurance so that the state is less reliant on tourism and gaming. Kipper, who was named to the post by Johnson, officially took office on Oct. 24. He replaces former insurance commissioner Brett Barratt, who resigned in August citing personal reasons. Barratt returned to his home state of Utah and is now that state’s deputy commissioner of insurance. Kipper previously served as Nevada’s insurance commissioner from December 2008 to June 2010. He has made his rounds from one side of the country to the other in various regula20 | INSURANCE JOURNAL-WEST REGION November 21, 2011

tory roles. After leaving his post as the state’s insurance commissioner, Kipper landed a role as deputy commissioner of the Office of Health Insurance for the Louisiana Department of Insurance. In April 2011, he accepted a position as CEO of the State of Louisiana Office of Group Benefits. He also previously served as Oregon’s insurance administrator. Nevada’s Insurance Industry In his newish role, Kipper will be the chief regulator of Nevada’s insurance industry, an industry that generates roughly $235 million in premium tax revenue for Nevada. The total premium dollar amount of all lines of insurance in Nevada for 2010 was $10.67 billion, which has been declining slightly but steadily since 2007, and there are roughly 2,187 admitted carriers in the state — of those, 184 are domestic to Nevada. “Nevada has previously experienced good steady growth in the insurance industry. The recent decrease in producer licenses and total premium dollar amount reflects the tough economic climate in Nevada,” Kipper said. “The good news is that the number of admitted carriers and domestics in the states has continued to increase.” In fact, the number of Nevada’s admitted carriers has nearly tripled since 2005, when there were 68 admitted carriers in the state. The number has risen steadily each year. Kipper, who offered little explanation why he left as the state’s insurance commissioner in 2010, offering only, “Well, it was a kind of a difference of opinion with some of the administration,” was keen to talk about his plans

Nevada Insurance Commisioner Scott Kipper

and priorities. “My priorities are many,” he said. “You know, we are faced with health care reform and implementing all the stages of health care reform. My background has primarily been in health insurance regulation. So I think that’s going to certainly be a challenge and one of our priorities.” Aside from that particular issue, one of Kipper’s other top goals is to be a business-friendly insurance commissioner, who helps to grow the industry, he said. “Helping make sure that the economy in Nevada bounces back is a huge priority,” he said, adding that having gone to Louisiana in the long-lasting recovery years following Hurricane Katrina as a regulator drove home for Kipper the value of the insurance industry. “The lesson that I learned is that in order for the economy to bounce back — or in that case, a devastated continued on page 22 www.insurancejournal.com

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News&Markets Kipper, continued from page 20

community to bounce back, it’s important to have a good insurance foundation, so that those who want to come in here and do business can find a way to manage and take care of the risks through insurance in an affordable but an efficient way,” he said.” So we want to make sure that to any extent possible that the insurance marketplace here is as efficient and as effective as possible at a very fair price.” Captives One way he plans to do this is to foster business growth by expanding the number of captives in the state, something he believes will create additional employment in the state and generate additional premium taxes. He declined to speculate on how many jobs or much tax income could be created by adding more captives in Nevada, but Kipper

said he plans to tap a now resurrected captive advisory committee to address the issues and concerns of the state’s captive industry to smooth the way for such expansion. “Nevada has been home to a very strong captive insurance program for years, and we want to make sure we continue to expand on our captive programs,” he said. “As companies grow and as the economy bounces back, there are entities, and we are one of them, that want to make sure that we look at alternative ways to manage and take care of risk. And to the end that Nevada can become a state that is known for alternative risk management, like our captive programs or the domiciliary state for risk retention groups and reinsurers. We would like to explore those avenues.” And Kipper’s boss Johnson said he

Podcast Listen to the Podcast of the full interview with Kipper. It can be found at www.insurancejournal.tv/videos/6122/. believes the state has the political will to do just that. “We need to look for ways in Nevada to diversify the economy,” he said. “We’re looking to be competitive with some of the other jurisdictions in recruiting and retaining companies to do business here, especially in the area of captives, which is why I’ve asked (Kipper) to reinstitute the captives work group.” In fact some groundwork to make the state more captive attractive has already been laid. This past legislative session Gov. Brian Sandoval signed Assembly Bill 74, a bill aimed at reducing filing requirements that captives are required to undergo, as well as the number of audits they are subjected to give captives added flexibility. But it’s not just about getting as many captives to the state as they can, Johnson added. “We don’t want to simply lower the cost of their doing business here and everybody’s going to get into sort of downward bidding match.” Instead, Johnson wants to look at the quality of the captives by examining their assets under management, looking at their potential impact on the state in an effort to “develop an index that we can use the gauge the quality of the captives that do business here and compare that to some of the neighboring jurisdictions and position ourselves so we can compete and do more business in this area.” Working toward an end goal of adding captives, Johnson said the insurance department will be taking a hard look at the state’s regulations, and asking “is this a requirement we need to maintain? Is it serving the public’s interest?” In attempting to answer those questions Johnson said the department will take a look at examination fees, the examination process, required regulatory filings placed on captive insurance companies, what continued on page 24

22 | INSURANCE JOURNAL-WEST REGION November 21, 2011

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News&Markets Kipper, continued from page 22

information such firms are required to submit and how often they have to submit it. “The objective is to compete with the Vermonts, to compete with the Utahs,” he said. “We do want to be competitive and if our regulatory structure inhibits our competitiveness, yes, we will look at removing those barriers.” Robert Vogel, vice president of operations for Pro Group Management, a planned administrator and captive manager that has a large share of the state’s workers’ compensation and captive action, said he believes in Kipper and Johnson’s promise to remove barriers and bring in more captives. There are roughly 120 licensed captives in Nevada, and Pro Group deals with nearly half of those. “The governor has stated his interest in bringing that kind of company into Nevada,” Vogel said. “It’s job creation and economic development. The governor, through Terry Johnson, and now though Scott Kipper, have shown they are committed to that.” The first steps in making Nevada more captive-friendly were taken during Kipper’s first go-around as the commissioner, by putting in place a staff that has remained and

beefing up the number of staff who deal with captives. “Doing insurance in the state has been very good since Scott came on to the scene the first time,” Vogel said of Kipper, referring to him as a “new but old commissioner.”

Number of Admitted Carriers 2005-2011 TOTALS

DOMESTIC TOTALS

2500 2000 1500 1000 500

Kipper’s Goals 0 2005 2006 2007 2008 2009 2010 2011 While fostering a good business environment is Source: Nevada Division of Insurance one of the two primary 2010 the total amount recovered for the functions of Kipper’s office, he said, conyear was $3.4 million. The records of annual sumer protection won’t go by the wayside. recoveries date back to 2006, and 2011 is the “We are really the consumer protection highest year the state has on record. agency for insurance issues,” Kipper said. “The second role that I see that the According to a preliminary report from department has is to foster a good business the Consumer Services Section of the environment,” Kipper said. Nevada Division of Insurance, the departBeside an easier regulatory environment, ment has netted $6.3 million in recovered Kipper believes one of Nevada’s greatest money for Nevadans so far in 2011. assets is its vast amount of developable A recovery is the amount of monetary space and an eager workforce — at a rate of compensation or relief received by a con13.4 percent, Nevada maintained the highsumer as a result of a filed consumer comest unemployment rate for the 16th straight plaint with the insurance department. In month in the most recent figures issued by the Labor Department. “We’ve had some good fortune in the state over last several years of some carries expanding their service centers into Nevada,” he said. “We believe that the economy in Nevada, the amount of office space, and the number of people that would be willing to go to work in those types of faciliMANUFACTURED HOMEOWNERS PERSONAL AUTO ties just make it a natural for places like Las HOME Vegas or Reno.” While the insurance commissioner can’t directly provide tax breaks or extend business incentives to draw companies to Nevada, there is one thing that office can do, Kipper said. “We can provide to them a fair, consistent, PERSONAL EARTHQUAKE and predictable regulatory environment in UMBRELLA which to work,” Kipper said. “And we think that that’s worth quite a bit when companies want to come and kick the tire on Nevada and see if this is a place where they want to expand their business.” ŚƚƚƉ͗ͬͬĐŶŝĐŽ͘ĐŽŵ ϴϬϬ͘ϳϯϯ͘ϬϴϴϬ

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Growing Your Property Casualty Agency How to Compete for Personal Lines with the Direct Writers

et’s face facts. It’s unlikely that any individual independent agency will ever “beat” the direct writers. They have massive marketing budgets, a strong online presence, great name recognition, and enjoy a reputation for being low in cost. Still, you can compete against them on an account-by-account basis. Sometimes, you’ll write the By Alan Shulman business, other times you won’t. But if you don’t make a continuous effort, you’ll never win and that’s the death knoll for the independents in personal lines. The path to successfully competing with the direct writers requires a basic understanding of their marketing prowess, including when to emulate it and when to differentiate from it. This watchful eye is important as the nation’s largest direct insurers know what garners attention for their brand of coverage. It’s what makes their names household words. No, it’s not just their massive marketing budgets; it’s also what they spend it on. How they invest their millions is seldom constant, as marketing by its nature is fluid; it changes with the times. Be Entertaining Today, the direct writers draw upon entertainment themes in their promotions, with a focus on silliness. It’s a smart move as humor is the great equalizer. The wealthy, middle class, and working class insurance buyers all love to laugh. It’s why GEICO employs squealing pigs, people living under rocks, the Gecko at conventions, and more. It’s why Allstate manipulates mayhem. And it’s why State Farm has its insureds singing the “good neighbor” jingle to instantly summon their agent. The lesson to independents is to be creative and entertaining when marketing personal lines. Advertising that you sell “all forms of insurance” and displaying a list of policy types is no longer viable. Creative promotional approaches for independents include imaginary resources such as amusing insurance advice columns, www.insurancejournal.com

humorous coverage knowledge quizzes, transcripts of imaginary conversations, “fake” blogs, and more. Use multiple channels to promote your efforts, including both digital and traditional marketing. Activate these ideas, and others, to attract the attention of today’s entertainment driven insurance buyer. Develop Your Web site In addition to entertaining consumers through their advertising, direct writers utilize the Internet in all its iterations to develop a continuous flow of leads, to deliver quotes, to close sales, and to perform various service functions. This includes the posting of robust Web sites and the persistent use of social media. Independent agencies that don’t emulate affordable aspects of these proven practices are fated to be hurt by them. A contemporary, dynamic Web presence and the imaginative use of Facebook and Twitter are well within the budget of every survival-minded independent. The place to start is on your agency Web site. It is the nucleus of your digital presence, so evaluate it objectively. Does it look outdated, contain obsolete graphics, text, and links? Is it enticingly promoted and interactive? Does it offer quotes and at least basic client service functions? Does it offer information packed landing pages with

easy to type URLs for targeted prospects to instantly access? The wrong answers to these basic questions means that you need to upgrade your Web site and keep it current. There are tons of vendors out there who will do the job for you if you can’t do it in house. The three social media biggies: Facebook, LinkedIn, and Twitter, along with traditional media (direct mail, inserts, print ads, etc.), can all drive people to your site, but it has to be worth the visit, or your promotional expenditures are for naught. Be Social To drive Web visits, and to attract a following, your social media involvement requires a steady feed of interesting insurance-related content. For instance, to compete against the direct writers and their skilled marketing staff, you can’t just open a few free social media accounts and forget about them. Nor, can you just make random postings and retweet, or otherwise link to, the work of others. Instead, you must develop your own social messaging voice. Some insurance agents worry about their postings being too commercial. Don’t be overly concerned. People who voluntarily connect to an insurance agency expect insurance-related information to be posted. So, freely develop multiple campaign themes and use the top continued on page N2

November 21, 2011 INSURANCE JOURNAL-NATIONAL REGION | N1

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Growing Your Property Casualty Agency Direct Writers, continued from page N1

social sites to promote them. Twitter example: Plant doubt in the minds of your prospects by beginning each tweet with the phrase “When was the last time your family insurance agent….” Then complete it with a positive action that you do but they probably don’t. Sample tweets: “When was the last time your family insurance agent contacted you? And bills don’t count. We stay in touch. [URL].” And “When

was the last time your family insurance agent gave you any money-saving tips? We send them regularly. [URL].” Include the URL of a tie-in landing page on your site (with a fill-in Web form) to convert the person’s doubt into a viable lead. Facebook example: Attach a series of miniposters (converted into an online graphic file and placed in a photo album) to your wall, each with the headline: “Bet you thought this was covered….” For instance, display a dramatic image of a flooded home and note that it’s not covered under a common homeowners policy. Present a solution. In this case, it’s a separate flood policy. Talk Savings Pricing is unmistakably important to all consumers. It’s why the direct writers focus their policy promotions on this central issue. They prominently display various threefigure dollar amounts as typical savings. You too can use price as a hook. Just don’t get lost in the “you can save up to $XXX”

shuffle. Instead, dazzle your prospects with the variety of discounts that you offer. Most people don’t realize that they can reduce their premiums through certain actions and forbearances, other than the obvious ones (no accidents, tickets, homeowners claims, etc.). Hook shoppers by distributing lists of the discounts that you commonly provide (one list per policy type). Then invite buyers to check off each insurance discount they believe they’re due and to return the list to you. An interested and informed prospect is often more salable than someone who responds to a savings promotion that cites a specific dollar figure. It’s because if you can’t approximate that number for the person, the sale is tougher to close. Personal lines discount checklists can be distributed in myriad ways, including as inserts, direct mail pieces, and online. You can easily create versions for auto, home, and watercraft policies. Promotional Ideas Attract price conscious consumers by placing auto insurance checklist inserts into your local shopping news or penny saver. Insert homeowners checklists into homebuyers’ guides to attract future property owners before they close on a new house. Boating and marina newspapers are well suited for your watercraft checklists. Inserts are less expensive than direct mail and can be targeted to selected areas. Also, distribute the pages at auto, boat, and home shows, fairs, and craft events or just hand deliver them to parked cars, homes, and docks (local laws permitting). Also, mail teaser postcards to prospects to visit your Web site and download the desired discount checklist as a PDF or to complete it online. Socially speaking, tweet discount teasers via Twitter and

N2 | INSURANCE JOURNAL-NATIONAL REGION November 21, 2011

attach images of the checklist, and links to it, on your Facebook wall. Create your Future Personal insurance marketing is in a state of transition. The production skill set of the 20th century is evolving to attract the post-baby boomer generations. Virtually all young insurance buyers use the Web to conduct research, yet many still buy from independents. So, make absolutely certain that your Web site is, and remains, contemporary in appearance and functionality. Use social media to promote and to dialogue with everyone, especially the Gen X and Gen Y buyers. Don’t try to be cool with them; just provide timely information and helpful answers. These basic online actions help keep you in tomorrow’s game. Still, don’t neglect today. There are some 77 million baby boomers still kicking (not to mention the tens of millions of folks aged 65 and older) most of who buy insurance. They too use the Web to research major purchases, but you can also reach them with traditional marketing methods as well, including systematic direct mail, inserts, and advertising. GEICO uses such offline marketing to reach beyond the young, and so should you. Bottom line: Independent agents will continue selling personal lines as long as quality regional companies and national carriers remain dedicated to the channel. But to do so, they need their agents to continuously invest in new producers, new technologies — and most importantly to unceasingly employ creative ideas. Without such approaches to marketing, selling, and retaining policies, independent agents are doomed to live off declining renewal bases, sporadic referrals, and other incidental new sales. A long-term lack of creativity makes it extremely difficult to compete against imaginative direct writers for personal lines business and puts the entire independent agency distribution system into question. Shulman, CPCU, is the publisher of Agency Ideas, a subscription-only sales and marketing newsletter. He is also the author of the many tools posted on the Agency Ideas Instant Download Store. Phone: 800-724-1435. Email: alan@ agencyideas.com. Website: www.agencyideas.com. www.insurancejournal.com

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insurance.com) has admitted and non-admitted markets for most hospitality risks. Fine restaurants to 100 percent alcohol sales, bars, including caterers and social/fraternal clubs can be covered. Package policy, property, general liability and liquor liability available. Available limits:As needed Carrier: Unable to disclose, admitted and non-admitted available. States: Ariz., Calif., Colo., Conn., D.C., Dela., Fla., Ga., Ill., Ind., Ky., La., Maine, Mass., Md., Mich., Minn., N.C., N.D., Neb., N.H., N.J., N.Y., Ohio, Pa., R.I., S.C., S.D., Tenn., Va., Vt., and W.V.

Service Stations Market Detail: Pacific Excess Insurance Marketing (www. pacificexcess.com) is a wholesaler/general agent with access to many standard, surplus lines and worker’s compensation markets. There are no premium volume requirements. Available limits:As needed Carrier: Unable to disclose States: Calif. only Contact: Customer service at 800-222-5582

Mexico Vehicle Insurance Market Detail: American Border Insurance Services Inc.’s (www.abis-group.com) AmigoMex offers full coverage and liability coverage for U.S.-registered vehicles driving into Mexico. Policies are underwritten by Chartis and MAPFRE, and include legal defense as well as roadside assistance. Available limits:Minimum $5,000, maximum $55,000 Carrier: Chartis Seguros Mexico States: Ariz., Calif., Colo., Ga., Ill., Nev., N.M., and Texas Contact: Customer service at 800-554-2247

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Youth Sports Programs Stafﬁng Firms Market Detail: World Wide Specialty Programs (www. wwspi.com) was founded 40 years ago with the express purpose of providing insurance tailored exclusively for the staffing services industry. The program includes, but is not limited to: staffing services liability (general liability and errors and omissions), general liability, professional liability, employment related practices, fidelity bond, commercial umbrella, property, office package and workers’ compensation. Specialty risk coverage is available also. Available limits:As needed Carrier: Chartis States: All states Contact: Dorothy Taylor at 866-927-2004, ext. 114 or e-mail: dtaylor@wwspi.com

Restaurant Tavern Bar Hospitality Market Detail: RCA Insurance Group (www.rcaN4 | INSURANCE JOURNAL-NATIONAL REGION November 21, 2011

Market Detail: Bollinger Insurance (www.bollingerinsurance.com) offers crime, commercial general liability, accident and health, equipment, directors and officers and excess liability for youth sports programs. Available limits:As needed Carrier: Unable to disclose States: All states Contact: Customer service at 800-526-1379

EPLI Coverage Market Detail: AMC/Fairmont (www.amcinsurance.com) offers EPLI coverage through online quoting for 50 lives or less. Third-party coverage and EPLI hotline available. Available limits:Minimum $500,000, maximum $1 million Carrier: Unable to disclose, admitted and non-admitted States: All states Contact: Stephen Strange at 800-233-2398, ext. 6825 or e-mail: stevejr@amcins.com www.insurancejournal.com

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Web Exchange Insurance Journal.com Reader Poll Do you think Congress should excuse the $18 billion debt owed by the federal ﬂood insurance program? 77.43%

Yes (253 votes)

20.69% 1.88%

IJ Video Highlights Pat Ryan Asks, ‘Are You Happy?’ www.insurancejournal.tv/ videos/6095/ Patrick Ryan is an innovator who sees opportunity. And it was opportunity that drove him to launch Ryan Specialty Group in early 2010. Success lies in hiring “good people,” Ryan says. In this interview Patrick Ryan from the annual National Association of Surplus Lines Offices (NAPSLO) annual convention in San Diego, Ryan says his newest venture gave opportunities to many good people already in the surplus lines industry. Ryan is a believer that more people leave, before they go. In this video, he talks about why so many professionals joined the ranks, and continue to join, Ryan Specialty Group.

No (947 votes)

boost this month when the U.S. Appeals Court for the District of Columbia Circuit upheld a lower court ruling that had found it constitutional to require Americans to buy healthcare insurance coverage by early 2014 or face a penalty

Other (23 votes) Total Votes: 1,223 that founded what is now known as HUB International Ltd. Rick Gulliver, president of HUB, says there’s not one hero in the success of HUB; but rather a group of heroes that turned 11 Canadian brokerages producing just $38 million in revenue collectively in 1998 to a powerhouse organization with some 250 offices in North America, producing $645 million in property/ casualty revenue in 2010. In this interview from MarketScout’s Entrepreneurial Insurance Symposium in Dallas, Gulliver discusses the idea that became HUB International.

Podcast Highlights Coverage and Security for Ships at Risk www.insurancejournal.tv/ videos/6014/ Catlin has launched a comprehensive policy to combat the piracy menace in Somalia. Headed by Peter Dobbs, Catlin’s asset protection service

A View From the HUB www.insurancejournal.tv/ videos/6003/ Being on the same page, with the same mind set and the same interests made all the difference for the group of entrepreneurs N6 | INSURANCE JOURNAL-NATIONAL REGION November 21, 2011

focuses on prevention as well as on extracting ship, cargo and crew. In this interview, Dobbs describes the problem, some solutions and how it will change global shipping. Best Practices www.insurancejournal.tv/ videos/6041/ Since 1993, the Independent Insurance Agents & Brokers of America (Big “I”) and Reagan Consulting have teamed up to investigate why some independent agencies do better than others even in challenging market conditions. The Best Practices Study has grown to become an industry standard for performance benchmarks. In this interview, Madelyn Flannagan, of the Big “I,” and Shirley Lukens, of Reagan Consulting, talk about the history of the study, what growth strategies top performing agencies use in today’s market, and what tools agencies might use to improve their own results in the future.

In a Reader’s View Appeals Court Upholds Obama Healthcare Law President Barack Obama’s signature healthcare law got a

and had dismissed a lawsuit challenging it. The story sparked a wave of reader response. Below are just a couple of the more than 60 comments generated by this story. To read visit: www. insurancejournal.com/news/ national/2011/11/08/223409.htm Sarah says: Liberal legislation from the bench again. ...What’s to prevent the Fed from telling us we need to buy any other product it thinks is good for us or profitable for one of their contributors to their campaigns. This is total hog wash and obviously not constitutional. Agent says: Mandating that we have to buy a product or service is hardly promoting the General Welfare Clause. ... It has basically bankrupted our country and Obamacare will put the final nail in the coffin. Has anyone seen their health premiums going down since this law was passed? It is not uncommon to see 15% increases on individual and group policies. How is this reducing the cost for us? www.insurancejournal.com

SPOTLIGHT

Top 50 Personal Lines Leaders Personal Lines Leaders

About the Personal Lines Leaders: The 2011 Personal Lines Leaders in this special feature are taken from Insurance Journal’s Top 100 Property/Casualty Independent Agencies as reported in August. This list utilizes only the 2010 personal 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 Personal Lines Agencies Ranked by Total 2010 Personal Lines Premium Written

2011 Rank Agency Name

2010 Personal Lines P/C Premium

2010 Total P/C Premiums Written

2010 Other than P/C Premium

2010 Total P/C Revenue

No. of Employees

Main Ofﬁce

Web site

1 HUB International Ltd.* $1,276,289,155 $4,777,000,000 $2,608,640,485 $645,000,000 4,900 Chicago, Ill. 2 Keystone Insurers Group* $667,039,120 $1,667,597,801 $250,279,764 $200,111,736 2,220 Northumberland, Pa. 3 ISU Group* $570,000,000 $1,280,000,000 $223,000,000 $172,000,000 1,180 San Francisco, Calif. 4 USI Holdings Corp. $477,000,000 $2,786,000,000 $5,503,000,000 $294,000,000 2,792 Briarcliff Manor, N.Y. 5 Confie Seguros $380,000,000 $380,000,000 $0 $125,000,000 1,175 New York, N.Y. 6 Satellite Agency Network Group Inc. (SAN Group)* $316,559,559 $426,063,905 $0 $57,493,897 50 Hampton, N.H. 7 Smart Choice* $285,232,990 $297,362,671 $1,523,620 $38,789,745 43 High Point, N.C. 8 GreatFlorida Insurance* $285,000,000 $302,000,000 $2,100,000 $36,240,000 250 Stuart, Fla. 9 Houchens Insurance Group $261,358,200 $284,085,000 $214,760,000 $29,674,000 195 Bowling Green, Ky. 10 Iroquois Group Inc.* $242,000,000 $404,000,000 $0 $62,373,861 50 Allegany, N.Y. 11 Renaissance Alliance Insurance Services LLC* $232,718,509 $410,677,000 $123,456 $58,202,694 70 Wellesley, Mass. 12 Leavitt Group Enterprises $210,590,000 $1,089,156,000 $840,089,000 $128,951,000 1,400 Cedar City, Utah 13 Brightway Insurance $140,000,000 $150,000,000 $1,000,000 $18,500,000 350 Jacksonville, Fla. 14 Combined Agents of America LLC* $128,700,286 $437,818,735 $52,058,090 $54,516,338 660 Austin, Texas 15 TWFG Insurance Services $128,000,000 $159,000,000 $7,000,000 $20,000,000 55 The Woodlands, Texas 16 Bollinger Inc. $120,000,000 $550,000,000 $450,000,000 $65,026,494 445 Short Hills, N.J. 17 United Valley Insurance Services Inc.* $94,170,812 $327,539,322 $0 $51,063,269 28 Fresno, Calif. 18 Celedinas Insurance Group $80,651,422 $95,818,392 $593,778 $13,658,511 115 Palm Beach Gardens, Fla. 19 Estrella Insurance* $75,704,978 $75,704,978 $0 $8,383,711 100 Miami, Fla. 20 Gowrie Group $70,431,934 $162,646,539 $36,250,790 $16,004,077 125 Westbrook, Conn. 21 North Florida Agents Network* $69,988,497 $115,652,117 $2,138,298 $9,172,404 7 Tallahassee, Fla. 22 Momentous Insurance Brokerage Inc. $69,000,000 $133,000,000 $47,000,000 $22,400,000 124 Van Nuys, Calif. 23 Oklahoma Agents Alliance* $68,299,248 $111,446,855 $0 $14,609,066 9 Oklahoma City, Okla. 24 SIA of the Great Lakes* $68,021,165 $100,249,516 $1,200,000 $16,000,000 30 Green Bay, Wis. 25 Professional Insurance Associates Inc. $65,000,000 $185,000,000 $0 $26,000,000 50 San Carlos, Calif. 26 Marshall & Sterling Enterprises Inc. $64,554,440 $260,957,492 $116,777,807 $42,705,154 326 Poughkeepsie, N.Y. 27 SAN of Florida / Comegys Insurance Agency* $63,509,011 $108,387,156 $197,325 $13,340,649 38 St. Petersburg, Fla. 28 Insurors Group LLC* $62,000,000 $260,000,000 $122,000,000 $33,680,000 225 College Station, Texas 29 AssureAlliance Inc.* $62,000,000 $120,000,000 $7,000,000 $5,500,000 22 Spartanburg, S.C. 30 The Advantage Group LLC* $61,230,000 $94,200,000 $9,620,000 $11,603,261 106 Edmonds, Wash. 31 PacWest Alliance Insurance Services Inc.* $60,138,195 $160,368,522 $34,831,577 $20,046,065 Fresno, Calif. 32 SIA Group Inc.* $60,115,930 $176,811,530 $17,793,320 $23,366,174 95 Jacksonville, N.C. 33 J. Smith Lanier & Co. $60,000,000 $575,000,000 $400,000,000 $74,420,000 540 West Point, Ga. 34 Agents Helping Agents Inc.* $59,000,000 $94,000,000 $11,000,000 $14,222,000 27 Louisville, Ky. 35 Midwest Insurance Agency Alliance Inc.* $57,359,675 $78,266,907 $204,803 $10,453,056 21 Lincoln, Neb. 36 INSURICA Insurance Management Network* $54,437,721 $454,607,166 $150,452,632 $57,790,080 476 Oklahoma City, Okla. 37 Starkweather & Shepley Insurance Brokerage Inc. $50,000,000 $193,000,000 $127,000,000 $28,300,000 170 East Providence, R.I. 38 Florida Insurance Specialists $50,000,000 $50,000,000 $0 $6,000,000 60 Lake Mary, Fla. 39 John M. Glover Agency $49,723,000 $104,259,000 $12,825,000 $16,509,000 150 Norwalk, Conn. 40 GIA Group LLC, Continental Ins. Agency Alliance Inc.* $47,246,194 $90,320,344 $12,507,189 $4,302,514 31 Glenwood Springs, Colo. 41 Behnke and Associates Inc. $45,000,000 $46,000,000 $50,000 $4,200,000 35 Hollywood, Fla. 42 Lawley Insurance $44,548,650 $183,528,647 $331,888,384 $29,343,278 280 Buffalo, N.Y. 43 Fiesta Auto Insurance Center $44,000,000 $45,500,000 $0 $5,406,000 115 Huntington Beach 44 TWG Insurance $43,108,000 $46,120,000 $16,000 $8,901,000 90 Irving, Texas 45 Lane McVicker LLC $40,100,000 $40,100,000 $0 $7,328,000 27 New York, N.Y. 46 Higginbotham & Associates $37,930,000 $347,930,000 $700,000,000 $29,840,000 502 Fort Worth, Texas 47 The Horton Group $36,849,743 $245,862,166 $281,707,435 $29,284,849 292 Orland Park, Ill. 48 Mesirow Insurance Services Inc. $36,000,000 $420,000,000 $980,000,000 $87,495,570 315 Chicago, Ill. 49 Rogers & Gray Insurance Agency Inc. $36,000,000 $71,000,000 $30,000,000 $10,300,000 108 South Dennis, Mass. 50 Bouchard Insurance $35,000,000 $170,000,000 $160,000,000 $21,513,422 187 Clearwater, Fla. * = 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.

N8 | INSURANCE JOURNAL-NATIONAL REGION November 21, 2011

www.hubinternational.com www.keystoneinsgrp.com www.joinisu.com www.usi.biz www.confieseguros.com www.sangroup.com www.smartchoiceagents.com www.greatflorida.com www.houchensins.com www.iroquoisgroup.com www.renaissanceins.com www.leavitt.com www.brightway.com www.combinedagents.com www.twfg.com www.bollingerinsurance.com www.unitedvalley.com www.celedinas.com www.estrellainsurance.com www.gowrie.com www.nfanflorida.com www.momentousins.com www.oaaonline.net www.siagl.com www.piainc.com www.marshallsterling.com www.sanflorida.com www.insurorsgroup.com www.assurealliance.com www.theadvantagegroupllc.com www.pacwestalliance.com www.siagroup.net www.jsmithlanier.com www.ahainsurancenetwork.com www.miaainsurance.com www.insurica.com www.starshep.com www.thefis.com www.johnmglover.com www.glenwoodinsurance.com www.insuringu.com www.lawleyinsurance.com www.FiestaInsurance.com www.twginsurance.com www.lanemcvicker.com www.higginbotham.net www.thehortongroup.com www.mesirowfinancial.com www.rogersgray.com www.bouchardinsurance.com

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SPECIAL REPORT

N10 | INSURANCE JOURNAL-NATIONAL REGION November 21, 2011

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Contractors, Agents Fight to Stay Afloat in Distressed Construction Market Some Signs Point to Better Times Ahead, Experts Say By Amy O’Connor

he construction market is show“California is unique because home ing hints of improvement, if only prices had skyrocketed so high [before the slightly, according to insurance recession] that it made the fall so much specialists for this market. harder,” says Jeana Ramos, vice president of Continental Risk Insurance Services, located The contractor class has been one of the in Lodi, Calif. “Other states that haven’t hardest hit by the financial crisis and three been hit near as hard are still doing well years later it is nowhere near where it was with jobs.” before the problems began. But, say underCady Sinks, assistant vice president for writers, it is better, and that may be all anyVictor O. Schinnerer in one can hope for at this Chevy Chase, Md., who point. ‘Some agents are concentrates on California “From a renewal very beat up and and Georgia, says she is standpoint, for accounts some are on the cautiously optimistic. we have had for the last verge of giving up.’ “I am definitely seeing couple years, we are some more stability in seeing receipts for those those areas which is fantastic to see. I am insureds go up and that is positive,” says not seeing the shrinkage we saw over the Ryan Grimes, senior vice president of the last few years.” Northeast and Western Regions of All Risks, The recent catastrophes could provide Ltd. “Two years ago they were still going some additional business for contractors in down and now they are going up. We are the coming months, but it is not enough to also seeing additional premiums on audits really change this class. for accounts we have written so that is good “We need other things in the economy news.” to happen to spur construction and build Grimes says financing for construction that foundation for people to start building projects is still a challenge, but there is again,” says Ramos. more confidence than there was in building There is also the issue of legislation surprojects centered around smaller residenrounding faulty workmanship and if that tial communities, condos, townhouses and is defined as an occurrence. Contractors duplexes, and it is now a little easier to get are liable either way, it is just a matter of those funded. how or if the insurance company will cover “There is also an increase in investment the incident if it is defined as intentional groups buying distressed properties and by legislation. There are a lot of questions putting money into them all around the country,” he says. “There is definitely a trend about how that will affect contractors in those states such as Arkansas, California, with buying properties that were abanColorado, Georgia, Hawaii and South doned or foreclosed upon.” Carolina where this is being addressed. Of course, the rate of improvement “It certainly could become a bigger issue depends on the geographic region of the in other states,” says Grimes. “Contractors country and how hard hit that region was are a court case away from big problems when this whole mess began. California, popping up all the time. Is that a trend or Florida and Georgia have suffered more not? It is hard to know because construction than other states, say agents, and have been is always moving and you have to pay attenslower to recover. www.insurancejournal.com

tion to different trends and court venues around the country. It can lead to future business if you are up on that.” Agents Work Hard to Stay in Business Those that insure this class have also been struggling. Ramos says some agencies she works with have seen their offices go from 25 people to two in the last several years because they have lost entire books of contractor business. Ramos says there are still a lot of insureds walking away from their businesses because they can’t afford to keep going. They include those who are nearing retirement age, which has been a common occurrence this year. This isn’t helping agents and brokers who concentrate on this class. “In some of the offices we visit, morale is so low,” she says. “If one unit fails, it affects the rest of the office; if you have an entire industry tank, it affects the whole company. It is a downward spiral and [these agents] are really trying to break into other parts of the industry but they are not keeping up with the pace they were doing before. It will get better, but it’s hard for some people to see the light at the end.” In the meantime, agents have to work with the business they do have and be aware of all the available policy forms and their differences so they can give their clients the best possible options. Agents also need to make sure they are fully aware of what coverages their clients need. Ramos says many agents have branched out from working with typical contractors and into others, such as marine contractors, to get more business, but they are not educating themselves about the class. This is also true for other companies that insure contractors. continued on page N13

November 21, 2011 INSURANCE JOURNAL-NATIONAL REGION | N11

SPECIAL REPORT

Contractors & Builders Inconsistency Is the Norm in Construction Liability Coverage By Young Ha

n construction liability insurance, there is a great deal of inconsistency in determining whether faulty workmanship is an occurrence. The answer is all over the map, according to Finley Harckham, a veteran insurance attorney at the New York law firm Anderson Kill & Olick. Harckham offered his perspective on construction liability insurance during his firm’s policyholder advisor conference, held in New York on Oct. 13. The goal of the event was to help risk managers and corporate general counsels maximize their companies’ insurance recovery. “There is a lot of uncertainty in the coverage and a lot of uncertainty in the law. There are all kinds of problems throughout the country,” Harckham told conference attendees. The topic drew a lot of interest. This breakout session drew dozens of corporate managers and lawyers. rence; there was really nothing accidental about what happened because the work was Uncertainty in Coverage defective workmanship; there is the “your Harckham talked about his client, a conwork” exclusion, which doesn’t cover defecstruction contracting company, to illustrate tive workmanship; and then the collapse his point. exclusion, sometimes it’s in these policies, A contractor was hired to construct a sometimes it’s not but it’s building. And a subalways raised in a context contractor was hired to Is bad construcput up the facade, brick tion an occurrence? like“Sothis. the big question is, work and some other Sometimes it is. is the contractor entitled work associated with Sometimes it’s not. to coverage under this the facade. The facade fact pattern?” the attorney was completed and then asked. collapsed. The developer demanded that “Who knows, unfortunately, may be the the contractor repair the building and the answer. It’s unpredictable.” contractor obliged and repaired the damage. Then the contractor sought coverage under Law Varies From State to State his liability insurance. The owners did not Harckham said the law on these issues submit this under their property program. varies from state to state. It’s all over the So the contractor was left to seek covermap, he said. On whether faulty workmanage under his own liability insurance. But ship is itself an occurrence, some states say the insurer denied the claim for a range of yes, some states say no, some states are undereasons: asserting that there was no occurN12 | INSURANCE JOURNAL-NATIONAL REGION November 21, 2011

cided, and some states say faulty workmanship is not an occurrence but the resulting damage is. “You also see differences in states in other issues as well.” Very often defective construction is something that’s created over time, according to the attorney. It’s not easy to point and say, “Oh there is the occurrence.” And that opens a door to a lot of dispute. “Is bad construction the occurrence? Or is it when a brick falls off the wall and hits a passerby on his head? Or is it something else? Sometimes it’s an occurrence, sometimes it’s not. Even in a state like New York, the courts cannot speak in a single tongue,” the attorney said. An important point, Harckham said, is that the law is literally all over map. “A bell has to go off in your head if you have a claim. You’ve got to think, where do I want to go on the map. Sometimes you have no choice. Sometimes you are here in New York, the policy is issued in New York, the project is www.insurancejournal.com

Distressed Construction Market, continued from page N11

in New York, everything is in New York, then you are just stuck in New York.” But many times, that’s not the case, Harckham explained. Oftentimes there are parties from different states and insurance policies are issued in different states. There is potentially an opportunity to forum-shop. He said forum-shopping has become a dirty term to most companies because most companies see it happen to them. “Plaintiffs’ lawyers decide, well, I’ve got a great claim against you and I am gonna’ bring it in Texas, some obscure little part of Texas, where they give plaintiffs everything under the sun.” So there is a bad connotation to forumshopping. But sometimes it is a perfectly legitimate exercise and sometimes it’s an important exercise to protect insureds’ rights, he said. “And guess what? The insurance companies are going to do it to you.” Harckham said in his client’s case, “our client was up in Massachusetts with New York connections. We were sued in New York and then we turned around and countersued in Massachusetts. That issue has not yet been resolved but it could be important for the outcome.” Proactive Risk Managers “So if you find yourself in one of these situations, first of all, think about what’s being brought and why, and you have to make strategies and be aware that the insurer is strategizing about the same thing,” Harckham told risk managers and corporate general counsels. “In what’s called first-filed rule, whoever sues first, they get to pick (in which jurisdiction to proceed). Our response to that is, we are the natural plaintiff, we are the aggrieved party. Sometimes that works, sometimes it doesn’t. So you have to be very proactive.” The law keeps changing, he added. Now several state have legislation on whether there is an occurrence in claims involving construction defects. www.insurancejournal.com

“You have different types of agents who are not familiar with this exposure and the different coverages you have to have in place versus a regular contractor,” she says. “What I see from my competition is you have them trying to force a policy that is not meant for a marine contractor and coverages are left off because the other wholesaler doesn’t understand it.” Grimes says agents should encourage their clients not to buy policies based on price alone, which he acknowledges can be difficult, especially right now. “Price is all that matters for some contractors, unfortunately, and some retail partners as well, but the price is not always what it seems to be,” he says. “There can be some very dangerous endorsements where coverage is not that great and it can lead to potential trouble in the future. If something is more expensive than another quote, there is probably a reason why,” Grimes says. All Risks has launched an online system for smaller contractors that will be nationwide by the first quarter of next year. Grimes says a big focus for them is automating the quoting process so agents and brokers can respond quickly to small contractor needs. Victor O. Schinnerer, which writes pollution and professional liability for contractors through CNA, is seeing an uptick in interest in professional liability coverage, especially from firms that have never carried it before. “More and more are realizing the importance of carrying [professional liability] coverage,” Sinks says. Schinnerer launched a new contractor professional liability and pollution liability form in March that targets general, design-build and many types of specialty contractors. The new and expanded coverages include:

rectification coverage; defendant’s reimbursement coverage of up to $10,000 per claim; expanded definition of professional services; ownership interest of 49 percent; proactive coverage for mold; automatic coverage for LEED consultants; as well as others. Sinks says Schinnerer enhanced the form because it wanted to clarify exactly what the insurer will and won’t cover and offer what many contractors have been asking for. The company also announced that it is reducing rates in northern California for all contractor types across the board. The rate reductions are dependent on the firm and their exposures. “In the last five years, we haven’t had any rate increases or decreases, so it is nice we have been able to remain stable and keep rates where they are, and that in this big area of California we are now able to reduce rates,” says Sinks. Ramos says it’s easy for agents in this class to be discouraged right now. “Some agents are very beat up and some are on the verge of giving up,” she says. “But the key to this industry is to stay positive and look towards the future and know it’s going to get better.”

November 21, 2011 INSURANCE JOURNAL-NATIONAL REGION | N13

SPECIAL REPORT

Contractors & Builders Turning Construction Red Flags into Opportunities

he role of an agent or broker as a trusted advisor to contractor clients is more important than ever given today’s challenging business environment. One of the many ways you can add value to your client relationships is to identify conditions or practices that often, from a risk management standpoint, turn problematic over time. By Bill Teed These warning signals are wide ranging, but well worth the effort to identify and address as early as possible. Watching for Red Flags Although the weak economy has impacted nearly all contractors, the duration of the current difficult conditions makes it all the more critical to frequently address your client’s financial health. Some red flags are obvious, such as negatively trending margins, operating losses, low cash reserves, slower collection patterns and rising debt. Other, less obvious indicators, such as more frequent use of or maximizing credit lines, a

higher percentage of jobs underbid, shorter terms on account payables, an increase to unfunded pension liabilities, or a change of independent auditor, all may warrant further investigation. Of course, a contractor under financial

pressure must react in ways that he or she Law in many cases impose absolute liability believes are in the best interests of the busion contractors for certain injuries to employness. Depending on the degree of urgency, ees. How can you prepare or educate your the reaction could be subtle or dramatic. client to help them weigh the options and to Changes that appear to be reasonable given operate successfully should they ultimately the circumstances still need to be examined decide to proceed? to make certain they are consistent with the There are many other examples of unique organization’s overall territorial issues such as Red flags can offer risk management plan, disparate anti-indemnity agents an opportunity statutes, widely varyand that all contingencies have been anato provide guidance on ing construction defect lyzed. Think of such environments and diverse risk management for changes as additional litigious conditions. Your construction clients. warning signals that guidance on navigating serve as an opportunity to provide valuable the issues associated with a new territory risk management assistance to your client. can strengthen your client relationship. Recognizing red flags in a contractor’s business practices is the first step. Different Projects Connecting the dots and finding ways to Similar to contractors who move into new provide helpful guidance is the critical next territories, some construction businesses step. Three examples demonstrate opportumay shift to different types of projects, even nities agents and brokers can watch for. though they may be outside their area of expertise. For many contractors, it is normal New Geography to transition back and forth between types Contractors may expand geographically of work depending on where the best profit to pursue business if work is lacking in opportunities emerge. These contractors their traditional markets. What services can have a history of operating in such a manner you offer regarding various and are successful at it. aspects of operating in a In other cases, however, financial presnew territory, such as work- sures often prompt a contractor to pursue ing with unfamiliar labor or jobs for which they are ill-prepared. It’s easy subcontractor pools? How to imagine, for example, the potential hardfamiliar are you with the ships for a contractor that typically performs jurisdictional issues in the only residential driveway paving to transinew territory, particularly tion into high volume street and road conif the expansion involves struction. Similarly, a residential plumbing a new state? Will your clicontractor that attempts to transition into ent’s current contractual commercial fire sprinkler installation may risk transfer program work encounter unexpected difficulties. well in the new state withEven when the economy is healthy it is out modifications? What often difficult to successfully shift into new changes, if any, are needed? operations. Many of us can recall the numDoes the new state have unique legislation of ber of commercial contractors that entered which your client is unaware? the residential building market during the A prime example of this is the contracheight of the housing boom, yet lacked the tor based in Vermont or Pennsylvania who necessary expertise and ultimately failed. It bids work in New York for the first time. is critical that you work closely as a trusted Sections 240 and 241 of New York’s Labor advisor with your customer if he or she is

N14 | INSURANCE JOURNAL-NATIONAL REGION November 21, 2011

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considering a new category of work. Reduced Resources Financial pressures might also cause some contractors to lose focus on various aspects of their overall risk management program. While it is natural to reduce expenses in times of difficulty, there are some expense savings that may not be in the best interests of the company. Look for the warning signals and help your client weigh the pros and cons of the proposed changes. A good example is when the firm cuts back on safety management. No company wants to compromise the safety of their employees or the public, but there are usually consequences when the focus on safety becomes a lower priority. When less attention is paid to jobsite conditions, accidents are more likely occur. A crew that senses a more relaxed policy on the use of personal protective gear may make unwise choices. Inconsistent drug and alcohol policy enforcement can lead to higher accident rates and OSHA citations. Higher frequency rates will impact the experience modification and increase the chance of a severe injury. Curtailment of training and new employee orientation programs can be particularly dangerous, especially considering that on average, employees in their first year on the job have a higher incidence of injuries than those with more tenure.

Agents can rely on these resources and also link their customers directly with information that carriers offer, such as safety planning templates, online safety courses and more. Agents and brokers are well positioned to understand the changes that contractors

are going through as the business environment evolves. These changes offer the agent an opportunity to provide risk management guidance and strengthen their relationship as a trusted advisor to their customer. Teed is president of Travelers Construction.

Resources for Agents Agents who spot red flags and identify opportunities to guide their customers have access to a variety of resources to help them increase their ability to offer effective risk management advice. In addition to insurance and construction industry associations that offer materials, a carrier that specializes in providing coverage and services for the construction industry can be an agentâ&#x20AC;&#x2122;s key ally. For example, a construction claims professional can share their state specific jurisdictional expertise on a variety of issues and requirements. A construction underwriter can review risk created by contractual language with an eye to its effect across multiple jurisdictions. A construction risk control consultant can offer practical consultation on specific projects or worksite environments. www.insurancejournal.com

November 21, 2011 INSURANCE JOURNAL-NATIONAL REGION | N15

CLOSER LOOK

Claims and the Independent Agent E&O Insights: Can the Manner in Which an Agent Handles a Claim Cause an Errors & Omissions Claim?

he answer to the question posed in the headline is a definite “yes.” This has actually developed into a significant issue for agents and is one of the current errors and omissions (E&O) hotspots agents must be aware of. It is projected that approximately 10 percent of all E&O claims are By Curtis M. due to alleged mishandling Pearsall of the underlying claim by the agency. What could go wrong? Improper Coverage Interpretations The scenario: a claim is reported to the agency, which is fairly certain there is no coverage, so they don’t bother sending the claim to the carrier. While some of these

instances are minor, more than a handful are serious. I am aware of one that actually involved a fatality. The agent did not report the claim because it was thought that it wasn’t covered. In this specific case — and many like this one — the claim was denied for late reporting after it was eventually reported to the carrier. What should an agent do? Even if you are completely convinced there is no coverage, report the claim to the carrier anyway. Let the carrier make the coverage decision. While we all pride ourselves on our insurance knowledge, it is difficult to be the “expert” on all lines of business. Take professional liability, for example. It is common knowledge that no two policies are the same — many of them have unique language that could determine the application of coverage.

In an E&O claim I am familiar with, the customer called the agent to report a claim. The agent interpreted the issue differently and advised the customer it was not necessary to report the matter because it wouldn’t be covered. The professional liability policy was written on a “claims made and reported” basis and, when the suit papers arrived, the matter was reported only to be denied because it did not meet the “claims made

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and reported” conditions. Bottom line: although the agent believed the matter was not covered, a simple reporting of it to the professional liability carrier would have: 1) triggered coverage and 2) allowed the carrier to make the coverage interpretation. Another hotspot: when an agent says there is coverage when there is not. If you advise your customer there is coverage only to find out there isn’t, the customer, needless to say, will not be happy. While you may be fairly certain coverage applies, it may be difficult to provide a definitive answer without reviewing the entire policy form for any applicable conditions or exclusions. Once again, it is best to submit the matter to the insurance carrier and let them determine coverage.

opportunity to show the agency’s strength and demonstrate you are there when customers need you. It is best to exercise caution at claims time. This is an emotional time for your customer, and the agency must avoid advising customers to the detriment of the customer. Determine the role you want

to serve and handle it professionally and promptly. Pearsall, CPCU, ARM, is president of Pearsall Associates Inc. He is also a special consultant to the Utica National Agents E&O program. Phone: 315-768- 1534. E-mail: curtis@ pearsallassociates.com.

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Failure to Advise All Carriers Have you ever seen what you thought was a minor liability matter all of a sudden become a major claim? It happens. Thus, it is best to advise all applicable carriers, especially any excess or umbrella carriers. This will give them the opportunity to conduct their discovery on the matter. When a claim is submitted to your agency, make it a practice to review the file for all possible available coverage, and then put those carriers on notice. Even with auto claims, the business owners policy or package policy may contain hired or non-owned coverage. Failure to Handle, Customer Requests The carrier often requires additional documentation as a claim unfolds. This can involve estimates, appraisals, etc. Make sure requests for information are handled promptly and professionally. This will help the carrier resolve the claim in a timely manner. From time to time, customers will contact an agency to notify of a loss, but ultimately tell the agent not to report the claim to the carrier. What should you do? It can be strongly argued that you have an obligation to notify the carrier. The concern would be that if you don’t notify the carrier and the claim takes a bad turn, the customer could find fault with your handling of the matter. Determine Your Role Most agents want to be involved in claims from their customers. This provides the www.insurancejournal.com

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CLOSER LOOK

Claims and the Independent Agent How to Produce and Keep Happy Claimants By Andrea Ortega-Wells

he best way to keep agency customers happy is to avoid claims in the first place but, of course, that’s easier said than done. When claims do happen, independent agents can play a valuable role in determining whether the customer is still a happy customer after the claim is settled. At the same time they are trying to make the claim experience better for their customers, agents must avoid turning one claim situation into another: an errors and omissions (E&O) claim against themselves. Claims handling is a magnet for E&O activity. About 10 percent of all E&O claims against agents are due to alleged mishandling of an underlying claim, according to Curtis Pearsall, president of Pearsall Associates Inc. and author of Insurance Journal’s E&O Insights column (see page N16). While most agencies have limited authority over the logistics of claims processing, there are some ways in which an agency and its carrier partners can make the claims experience better for customers and keep the agency itself out of claims trouble. Communication Key Above all, successful claims handling requires that the insured,

the carrier and the agency all be in the loop. “The most important thing is timely communication between not only the insured and our agency, but also with anyone involved in the claims process,” says Angela Drook, legal counsel and claims manager at Fargo, N.D.-based Dawson Insurance. The claims process begins to get off track when an insured feels left out and uninformed about the status of a claim, she says. “When people start calling up because they don’t know what’s going on, and they can’t get a hold of one of the adjusters, it can end up being an all day process trying to track things down,” Drooks explains. That makes it harder for everyone involved in the claims process, including the agency. “The longer it drags out or the more an insured feels like they are being pushed aside by the carriers, the angrier they are,” she says. Drook says most insureds, even commercial insureds, do not distinguish between their agency and insurance company. So when an insured gets angry, it’s usually the agency that feels the fury. “The insured knows Dawson because Dawson is the one they talk to,” Drook says. “An adjuster’s actions — and any independent appraisers that they hire down the line — directly reflect on Dawson whether we like it or not. If they are doing a perceived bad job, people call back and say that they are not happy with Dawson even though it wasn’t necessarily us doing it.” Communication alone isn’t enough. Carriers and agents must be proactive when it comes to handling any problems that might arise during the claims process, believes Lisa Banducci, executive

Tips for Agents Handling Claims

laimsJournal.com Editor Denise Johnson understands the claims business. She spent the last 14 years examining property/casualty claims for prominent insurance carriers nationwide. Johnson offered some advice for agents when it comes to claims handling. From her perspective, there are three factors that are important to the claims process, including: 1) The initial ACORD form submitted to the insurer by the agent. A common problem for adjusters is that the form was not filled out completely, causing issues to develop as the adjuster tried to make contact with an insured or claimant. The agent and adjuster can benefit from open communication between one another. Obviously, the greatest benefit is to the insured. If an agent has information that is vital to a claim, he/she should share it early on with the adjuster assigned to the claim. Sometimes an agent will refer the adjuster to the insured, who is angry that he/she must retell the facts or provide additional copies of records that he/she had already provided to the agent. That communication goes both ways. Whether the adjuster plans to pay a claim or deny a portion or all of a claim, it’s important to provide a heads up to the agent. 2) Coverage knowledge. It’s also important for an agent to understand the coverage to some degree. If an Denise Johnson insured thought he purchased a type of coverage he doesn’t actually have, this will reflect badly on both the agent and the insurer. 3) Certificates of insurance (COI). For COIs to be valid the documents must be issued by the insurer. This problem continues to come up time and time again, and is a big issue since it could mean lost business relationships for an insured if COIs are found to be invalid. Johnson can be reached at djohnson@claimsjournal.com.

N18 | INSURANCE JOURNAL-NATIONAL REGION November 21, 2011

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consultant for Heffernan Claims Consulting based in Walnut Creek, Calif. This is particularly true in the highly sensitive area of workers’ compensation, she says. “It is very important to have a workers’ compensation carrier that is very proactive with your claim,” she says. In order to be proactive, she thinks the loss control services offered by carriers are extremely important, as is having a dedicated claims unit in the agency. Relationships Matter Beyond communication and proactivity, the relationships an agency forms are imperative when it comes to claims. “It’s very important that you know who your claims examiner is as well as the claims supervisor so in the event that a claim is questionable, or you are experiencing problems, you know who to go to,” Banducci says. For highly sensitive workers’ comp claims, Banducci suggests checking in with the claims examiner weekly or at least every other week so there are no surprises. In claims, surprises can lead to unhappy insureds, claimants and agents. “As an example, if the claim is going to be reserved at over $10,000 in cost then the adjuster should immediately notify the employer and actually the broker and broker’s consultant so the employer is aware that this claim is escalating,” she says. If notified early enough, the employer and broker can work proactively with the claims examiner to make sure whatever is happening is fixed and that cost doesn’t escalate any further. Agents should take the time to find the right partners, including attorneys, with whom to build relationships. “At the time the business is placed with the carrier the broker should be specifying who they want their clients’ attorney to be should a claim become litigated,” Banducci says. “If your agency partners with a good one [defense firm], then you are going to get really good results for your clients once the claim is litigated.” In California, property/casualty claims tend to be less sensitive than highly-litigated workers’ compensation claims. Even so, Banducci says just as in workers’ comp www.insurancejournal.com

claims, staying in contact with claims examiners is critical. “It’s still important to know your claims examiner. It’s still important to make sure you partner with the right partners.” While overall communication and keeping the insured informed are important, the timing of communication can also be an issue. A

carrier’s claims department and the agency should be on the same page and discuss any disagreements together before involving the insured, says Oscar Marroquin, a manager at Farmers. “Claims people need to make sure they communicate any problems with coverage continued on page N20

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CLOSER LOOK

Claims and the Independent Agent Happy Claimants, continued from page N19

or damages to the agent first… don’t allow the client to blind side the agent,” Marroquin wrote to Insurance Journal. “The key is communication. There may be disagreements… just don’t get the client in the middle.” Charles Sanford, an independent claims adjuster from the Houston, Texas, area advises agents to be proactive in maintaining contact with the claims adjuster and empathize with what the adjuster may be going through. “The insured does not need any shocking news on coverage or claim payment. Neither should the agent,” he says. Sanford says many of the adjusters that agents come in contact with today are simply overloaded with little time to handle claims properly. “It is not their fault,” he says, as market conditions and economic pressures continue to push more work on fewer people. “Therefore in the present climate, the agent must take more time to stay on top of claims within their book of business and any changing situations that may impact their respective clients.”

Variation in Claims Service Superior claims service is not just about keeping customers happy. For carriers, it can also mean keeping their agencies happy. Since customers value smooth claims service, agents should consider claims service when selecting carrier partners. According to a 2008 survey, “How Independent Agents View Carriers,” agents do just that. In the survey, conducted by Channel Harvest Research and sponsored by Insurance Journal, agents cited claims experience as one of the top factors they weigh in judging carriers and deciding where to place their business. Drook and Banducci say not all carriers provide what agents want when it comes to claims. For Drook, carriers where Dawson has direct contracts tend to perform better on claims than those carriers accessed through brokered relationships. “Direct write carriers [with which Dawson has contracts] are a lot easier to deal with for us than somebody we have brokered,” Drook says. That’s because there are more degrees

of separation between the agency and claims professionals on a brokered account, she says. “They don’t have a contract with us. They don’t have a relationship with us and we don’t have a lot of pull if we brokered it through someone,” she says. Of course, there are some markets in the excess and surplus lines sector where claims handling is topnotch. But in general, contracted carriers outperform on claims, she says. Banducci says that claims experience definitely impacts Heffernan’s client retention ratio. If an insured has a “less than graceful experience” on a claim, the agent will hear about it, she says, which is why her agency employs its own claims consulting division. Some carriers perform well in claims while others do not. “Some don’t understand and don’t get it,” Banducci says. “But there are others where customer service is their top priority, both in working with customers and working with brokers to make sure the brokers’ clients are happy. Those are the types of carriers and claims administrators that we want to bring our clients to.”

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NATIONAL COVERAGE

News&Markets NCCI Study Examines Medical Services in Workers’ Comp Claims

new report on medical services casts light on how different combinations of medical services contribute to workers’ compensation claim costs over time. Understanding what combinations of medical services are used and for what types of injuries and for how big a claim is important, according to the study by the National Council on Compensation Insurance issued on Nov. 1. NCCI says a better understanding in this area offers insight into the growth in medical costs. The study said medical services now constitute almost 60 percent of workers’ comp claim costs. That figure is up from about 40 percent in the early 1980s. The study quantifies how a certain mix of medical services for a more serious injury or illness differs from the care provided for a worker healed from a minor mishap. The study also found the medical services profile for workers with serious injuries transforms over time. It said the profile becomes quite different during the later years of the treatment when compared with early years. NCCI used experiences through accident year 2006. The study said large claims have a substantially different mix of medical services compared with small claims. This difference in the mix of services affects the overall payout pattern and has implications for differences in trend for claims of varying sizes.

The study examined nine different service groups. It found the mix of medical services differs by service groups between small and large claims. Office visits and emergency services dominate the service mix for smaller claims. Surgery and anesthesia are a larger share of the services for mid-range ($5,000 to $100,000) claims than for other claim sizes. Hospital services and prescription drugs comprise more than 40 percent of the cost of claims that are greater than $100,000. The study also said large claims, in general, are subject to greater inflation than smaller claims. Looking at inflationary measures, the prices of hospital services has recently been growing at a faster rate than for office visits or physical therapy. Because historical cost trends have varied from one medical service type to another, knowing the service composition of different size claims could be useful in forecasting cost trends for different claim size groups, the study said. From 2001 to 2010, the average prices of medical care rose 43 percent. Hospital services had significantly above-average Medical services now price changes, at 82 percent, constitute almost 60 while professional services had percent of workers’ a below-average price increase, comp claim costs. at 33 percent. Hospital costs are a large share of medical costs for larger claims, while professional services are a large share of costs for smaller claims. Prescription drugs had price hikes slightly below average at 34 percent; claims with greater medical costs are likely to be trending at a higher rate than smaller claims.

P/C Market to See Only Moderate Changes in Rates in 2012: Willis

roperty/casualty insurance rates will continue to be flat to with some slight increases or decreases in most major and specialty lines of insurance. Some exceptions to that trend include catastrophe-exposed property programs and employee benefits, which are experiencing notable price increases, reports Willis Group Holdings in its 2012 edition of its Marketplace Realities report. Highlights from the report include: Property: The Property market was rocked by recent natural disasters and changes brought by RMS 11.0, the updated version of the leading catastrophe modeling tool. Catastrophe-exposed buyers are likely to experience increases of 7.5 percent to 12.5 percent in 2012, however, non-catastrophe exposed programs will see rates stay flat or decline slightly. Casualty: In primary casualty, excess/umbrella casualty, workers’ compensation and auto lines, light increases or flat renewals N22 | INSURANCE JOURNAL-NATIONAL REGION November 21, 2011

are expected. Executive Risks: Balancing the increases in casualty protection, the executive risks lines, including cyber, directors and officers, employment practices liability, errors and omissions, fidelity and fiduciary are expected to yield small decreases or remain flat. Employee Benefits: Compliance with healthcare reform continues to be a costly burden for insurers and employers, contributing to an anticipated 10 percent to 12 percent rise in benefit plan costs in the year ahead. Specialty Products: Predictions of slight increases in price are largely balanced by predictions of decreases in product areas ranging from aerospace to trade credit. As always, the quality of risk, and buyer submissions to the market, will make the difference in the final result. The publication, which is updated semi-annually, is available at: www.willis.com/What_We_Think/Publications. www.insurancejournal.com

NATIONAL COVERAGE

News&Markets Insurance Executives Turn Pessimistic Over Business Outlook: Survey

any U.S. insurance executives believe that business conditions have worsened compared to a year ago. Faced with continuing economic sluggishness and a changing regulatory environment, they remain guarded about their company’s performance and the industry’s ability to generate underwriting profit, according to a survey by KPMG LLP. At KPMG’s annual Insurance Industry Conference, more than a third (36 percent) of the 350 executives surveyed said that business conditions for the insurance sector have worsened compared to a year ago. This finding reflects a turnaround in executive perception compared to last year’s survey, when more than half (51 percent) said conditions had improved from 2009 to 2010. In addition, many do not anticipate much brighter prospects in the next 18 to 24

months, as 28 percent predict another downturn/double dip before the economy begins to significantly recover, and 58 percent believe the recovery will not occur until 2013 or later. Facing this economic environment, only 31 percent of insurance execs surveyed expect their company to perform above expectations next year — a decline of 10 percent compared with 2010 KPMG survey results. Twenty-four percent expect to perform below expectations — up from 19 percent in 2010. Furthermore, executives told KPMG that improving underwriting profit may be challenging in the next three years. In fact, nearly 4 in 10 executives (39 percent) characterized the chance of increased underwriting profit as “weak” — up from 33 percent last year. Only two percent expect strong profitability, down from 4 percent in 2010. “The industry is in a precarious situation,”

said Laura Hay, national leader of KPMG’s U.S. insurance practice. “These companies are challenged with the proverbial ‘perfect storm,’ including a sluggish economy, a weak pricing environment, and the inability to generate sufficient underwriting profit. “ The KPMG survey found that insurance company executives think the most significant challenges for the industry over the next three to five years are the risk associated with adequately pricing insurance products, and risk associated with regulatory reform. “As has been the case for a number of years now, insurers continue to carry a significant amount of capital,” said Hay. Despite economic and regulatory concerns, and declining optimism, executives say the top initiative from a management perspective over the next two years will be organic growth. In addition, executives indicate that organic growth, acquisitions/joint ventures, and the introduction of new products will be the biggest drivers of revenue growth over the next three years.

Advertisers Index E: East, M: Midwest, N: National, SC: South Central, SE: Southest, W: West Abram Interstate www.abraminterstate.com W22 ACE Insurance www.acelimited.com W11, SC17, SE11, E11, M11 American Reliable www.americanreliable.com N5 Applied Underwriters www.applieduw.com W52, SC48, SE40, E40, M40 Arrowhead General Insurance Agency www.arrowheadgrp.com W23 Astonish Results www.astonishresults.com N9, W10, SC12, SE10, E10, M10 Beacon Hill Associates www.b-h-a.com N15 Builders & Tradesmen’s Insurance www.btisinc.com W25, SC19 Century National www.cnico.com W24 Foremost Insurance Group www.foremoststar.com W13, SC11 Fujitsu PFU www.fcpa.fujitsu.com N3 www.insurancejournal.com

Gateway Specialty Insurance www.gatewayspecialty.com W18, SC22, SE14, E13, M13 Golden Bear Insurance Company www.goldenbear.com W19 The Gorst Company www.gorst.com W17 Insurbanc www.insurbanc.com N19 ISU Group www.joinisu.com W14, SC14, SE12, E12, M12 M.J. Hall & Company, Inc. www.mjhallandcompany.com W16 McClelland & Hine www.mhi-tx.com SC21 Monarch E & S Insurance Services www.monarchexcess.com W21 Navigators Management Company, Inc. www.navg.com N7 PersonalUmbrella.Com www.personalumbrella.com W5, SC5, SE5, E5, M5

RiskMeter.com www.riskmeter.com N17 SIAA www.siaa.net W3, SC15, SE3, E3, M3 State Compensation Fund www.statefundca.com W15 Tejas American General Agency www.taga1.com SC3 Texas Mutual Insurance Company www.texasmutual.com SC13 Travelers www.travelers.com W2, SC2, SE2, E2, M2 Western Security Surplus www.wssib.com W12, SC18, SE13 Westrope www.westrope.com N16 XL Group www.xlgroup.com W7, SC7, SE7, E7, M7 Zurich Insurance Company www.zurichna.com W51, SC47, SE39, E39, M39

November 21, 2011 INSURANCE JOURNAL-NATIONAL REGION | N23

IDEA EXCHANGE

Closing Quote these segments. Agents could also contrast the growth trends of its business against those of the industry to identify whether they have captured growth points of the market. Pioneering agents focus on understanding, influencing and capitalizing on changes. They continually monitor where the industry is going at segment-level and analyze how decisions will affect future trends. The timeliness of data is critical.

Are You Prepared for the Changing Insurance Market? By Xiaohui Lu and John Beal

n today’s personal property/casualty insurance market, agents and brokers face increasing uncertainty. Staying the course is no longer an option to drive profitable growth. You must understand your performance relative to the market, and optimize your business processes throughout the insurance policy lifecycle. Understand Your Performance To improve performance, you must know whether you are underperforming or outperforming the market. Agents and brokers who acquire benchmarking data will succeed on multiple fronts. You can: • Analyze your position against market conditions to improve marketing campaign messaging and target prospective customers more effectively. • Measure quoting activities relative to the industry to identify segments that are underperforming, and design marketing strategies that will help close the gap. • Benchmark growth against the industry, rewarding agents who contribute to the success of the organization, rather than those who happen to be at the right place at the right time. • Avoid overreacting to sudden changes in performance caused by uncontrollable market forces. • Avoid underreacting to steady but detectable market changes more analytical competitors will profit from. Benchmarking could be conducted across customer segments or over time. By profiling the prices of quotes across multiple customer segments, agents can identify less competitive segments and recruit underwriters with better prices for

N24 | INSURANCE JOURNAL-NATIONAL REGION November 21, 2011

Optimize the Insurance Policy Lifecycle Successful agents will be the ones that adapt the fastest to market changes. Consider: • Personal drive or a corporate culture for high growth. • Technical capabilities to turn market insights into actionable strategies. These might include: Proactive data procurement. By obtaining relevant data at the earlier stages of policy lifecycle, agents can maximize the usefulness of the information. For example, agents that retain customer quoting experiences can use that data to optimize product offers. Persistent data linking. Persistent linking technology can help create complete, in-depth profiles of current consumers from existing policies, subsequent interactions, and third-party data sources. For example, by linking a customer’s quote with a previous policy, you can create a more relevant interaction with the customer by offering a multi-product or “welcome back” discount. Advanced data analytics. Most advanced analytic techniques are multivariate in nature. Rich insights frequently arise from multidimensional interrogation of data. It is important to observe the metric with “all else being equal.” For example, an agent’s low conversion rate might be due to its underwriters’ poor competitive positions. • Business processes that are optimized for quick responses to market changes. You need: 1) A fact-based decision-making process; 2) An execution workflow that is efficient and accurate; and 3) A monitoring process that continually collects market data and alerts users to potential changes. Optimization is a continual and iterative process throughout the insurance policy lifecycle. For example, in direct marketing, optimization can help you determine the best time to contact customers, identify prospects that are most likely to convert, and pinpoint customer segments which give the biggest return. To get started, you need to: 1) Assess your business culture and capabilities before optimizing operations. Identify gaps and seek external help where needed. 2) Seek out the tools and data that your carrier partners, underwriters and third party vendors offer. Consider what you need and manage the underwriter and vendor relationships accordingly. 3) Embed optimization in the daily workflow and include it in annual or semiannual business reviews. Lu is director of vertical marketing for personal auto insurance, and Beal is vice president, modeling services insurance, at LexisNexis Risk Solutions. www.insurancejournal.com

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Zurich HelpPoint A single property insurance solution designed to help reduce coverage gaps and overlaps. Polycom, a global leader in telepresence solutions, needed a ﬁnancially strong carrier that could make complex insurance coverage easier. Zurich provided a custom solution that’s as simple as it is seamless, integrating property with liability coverage all under one policy. It’s an example of how Zurich HelpPoint delivers the help businesses need when it matters most. Watch the video to learn more. www.zurichna.com/stories7

Insurance is underwritten by insurance company subsidiaries within the Zurich Financial Services Group including, in the US, Zurich American Insurance Company and its underwriting subsidiaries. Insurance product obligations are the sole responsibility of each issuing insurance company. For example, only the assets of Zurich American Insurance Company (and no other assets of the Zurich Financial Services Group) are available to meet its obligations for the performance of its products. For more complete ﬁnancial information, audited annual statements of the Group and information on the ratings of the underwriting companies of Zurich in North America, access www.zurichna.com. Certain insurance coverages are not available in all states. Some coverages may be written on a non-admitted basis through licensed surplus lines brokers.

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