June 18, 2012 | Vol. 90, No. 12
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Ready for Battle. Sharron is here for you. She’s here to find the carrier you need to deliver your quote. She’ll fight for the best coverage at the best rates on these commercial lines: • General Liability – Manufacturers, Various Mercantile • Packages – Apartments, Property Owners, Vacant Buildings • DIC Including Quake • Builders Risk • Product Liability • Artisan & General Contractors • Property Including Large Schedules Still looking for an arsenal? Look no further. Sharron is ready. One Who Serves Sharron Johnson, Senior Underwriter Simi Valley Office x222 sharronj@monarchexcess.com
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N8 On The Cover
WEST
Special Report: Major Construction Projects See Growth After the Storm
Inside This Issue June 18, 2012 • Vol. 90, No. 12 • West Region
8
12
N16
N10
NATIONAL COVERAGE
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Idea exchange
N4 Why Buy Side ‘A’ Directors & Officers Liability?
8 Family of Girl Who Died at Los Angeles Rave Settle Lawsuit
N1 Growing Your Property Casualty Agency: Shulman
N8 Special Report: Major Construction Projects See Growth After the Storm
8 Farm Mutual Insurance Co. Under Montana Supervision
N2 The Competitive Advantage: Burand
8 Victim in Arizona Shooting Files Suit Against FBI
N24 Closing Quote: Akbarali on Specialization
N10 Special Report: Demand on the Rise for Contractors Pollution Liability N12 Special Report: Navigating Construction Accident Litigation N14 Special Report: How to Prevent Project-Killers in Construction Delays
12 Professional Liability Exposures Evolve with Changing Healthcare Environment 18 Study: Spinal Implant Loophole Costs Calif. Workers’ Comp $67M
N16 Closer Look: E&O Insights on Umbrella Coverage N17 Commercial Insurance Prices Continue to Rise N20 Looming Agent Retirements: Carriers Face Major Turnovers N22 Web Exchange
4 | INSURANCE JOURNAL-WEST REGION June 18, 2012
DEPARTMENTS 6 Opening Note 9 Declarations 9 Figures 10 People 16 Business Moves N18 MyNewMarkets
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Opening Note Transition Time Opportunity
T
ransition time yields an opportunity in the insurance business. That’s according to a recent survey from BizBuySell.com. The survey from the San Francisco-based business-for-sale online Internet marketplace shows businesses spend $3.9 billion annually on insurance suppliers and vendors during business-for-sale transitions. In fact nearly all buyers and 30 percent of sellers of small businesses indicated that they either increased spending, added products or services or switched vendors within the insurance industry as part of the ownership transition process, the survey shows. The expenditure numbers are based on information collected by BizBuySell.com and U.S. government that indicates roughly 500,000 businesses change hands each year. According to the BizBuySell survey, 69 percent of new business owners either added a new insurance provider or switched to a new provider. Another 16 percent added ‘…businesses spend $3.9 or switched to new insurance products after buybillion annually on insurance ing a business, and nearly suppliers and vendors 15 percent of business buyers extended the coverage during business-for-sale provided by their existing transitions.’ policies, the survey shows. More than one-in-five respondents in the survey who sold their business reported they added or switched to a new supplier prior to selling. BizBuySell.com estimates show that business buyers spend more than $3.4 billion on insurance products during the first year of business ownership, while business sellers spend about $460 million more each year to help prepare their businesses for sale. “There’s no doubt that newly launched businesses provide an excellent opportunity for service providers,” Curtis Kroeker, general manager of BizBuySell.com said. “However, this survey reveals a new opportunity that has largely flown under the radar — that owners selling and, especially, those buying established small businesses are a huge target market. It’s a bit counterintuitive, but it makes sense. In most cases, someone who has recently purchased a business has more capital available, more concrete needs, and is managing a much larger business than his counterpart starting a business from scratch. That’s definitely something all insurance providers should keep in mind when pursuing new sales.” In fact, one of the most interesting findings in the survey was that business buyers tend to buy more insurance than do startups. The survey shows the average business buyer spends more than $95,000 during the first year of business ownership. That’s 25 percent more than the reported Don Jergler West Editor $76,000 spent by the average startup.
E D I TO R I A L
Editor-in-Chief Andrea Ortega-Wells | awells@insurancejournal V.P. Content Andrew Simpson | asimpson@insurancejournal.com East Editor Young Ha | yha@insurancejournal.com Southeast Editor Michael Adams | madams@insurancejournal.com South Central Editor/Midwest Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Don Jergler | djergler@insurancejournal.com International Editor Charles E. Boyle | cboyle@insurancejournal.com ClaimsJournal.com Editor Denise Johnson | djohnson@claimsjournal.com MyNewMarkets.com Associate Editor Amy O’Connor | aoconnor@mynewmarkets.com Columnists Chris Burand, Curtis Pearsall, Alan Shulman Contributing Writers Sahil Akbarali, Carl Doby, Jeanne Oronzio Wermuth
S A LES
V.P. Sales & Marketing Julie Tinney (800) 897-9965 x148 jtinney@insurancejournal.com West Dena Kaplan (800) 897-9965 x115 dkaplan@insurancejournal.com South Central Mindy Trammell (800) 897-9965 x149 mtrammell@insurancejournal.com Midwest Lauren Knapp (800) 897-9965 x161 lknapp@insurancejournal.com Southeast Howard Simkin (800) 897-9965 x162 hsimkin@insurancejournal.com East Dave Molchan (800) 897-9965 x145 dmolchan@insurancejournal.com New Markets Sales Manager Kristine Honey | khoney@insurancejournal.com Classified Advertising (800) 897-9965 x125 classifieds@insurancejournal.com
M A R K ET I N G / NE W M E D I A
Marketing Administrator Gayle Wells | gwells@insurancejournal.com Advertising Coordinator Erin Burns | eburns@insurancejournal.com (619) 584-1100 x120 New Media Producer Bobbie Dodge | bdodge@insurancejournal.com Videographer/Editor Matt Tolk | mtolk@insurancejournal.com
D ES I G N / W E B
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
I J A C A D E M Y O F I NSU R A N C E
Director of Education Christopher J. Boggs | cboggs@ijacademy.com Online Training Coordinator Barbara Dooley | bdooley@ijacademy.com
A D M I N I ST R A T I ON
Chairman Mark Wells Chief Executive Officer Mitch Dunford Accounting Manager Megan Sinclair | msinclair@insurancejournal.com
FOR QUESTIONS REGARDING SUBSCRIPTIONS: Call: 856-380-4176 or You may subscribe or change your address online at
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 2012 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 June 18, 2012
ARTICLE REPRINTS: For reprints of articles in this issue, contact Rhonda Brown at 1-866-879-9144 ext. 194 or rhondab@fosterprinting.com. Visit insurancejournal. com/reprints for more information.
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News & Markets Family of Girl Who Died at Los Angeles Rave Settle Lawsuit
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he family of a 15-year-old girl who died of an ecstasy overdose at a rave at the Los Angeles Memorial Coliseum in Southern California will receive a $190,000 lawsuit settlement on behalf of the stadium, the event’s organizer and the Coliseum’s manager. Sasha Rodriguez got into the two-day Electric Daisy Carnival in 2010 even though the minimum entry age was 16. She collapsed at the rave and later died at a hospital. Her family sued the event’s organizer, Insomniac Inc., and the Coliseum for damages for personal injury and wrongful death.
DOE Proposes $150,000 Fine Against Bechtel
The Energy Department has proposed a $150,000 fine against Bechtel National for two construction incidents in Washington at the vitrification plant on the Hanford nuclear reservation. One worker lost two toes when a rail landed on his foot. Heavy equipment was improperly rigged in the other incident last year at the waste treatment plant under construction. Bechtel told the Tri-City Herald it has modified training, work processes and supervision to prevent similar ev ents from recurring. It has 30 days to contest the fine. AP
An insurance company for Insomniac will pay $175,000 for its liability and the Coliseum’s, and an insurer for the stadium’s manager, Todd DeStefano, will pay an additional $15,000, lawyers for both sides told the Los Angeles Times. A lawyer for Insomniac, however, said the event promoter is not admitting any wrongdoing as part of the settlement. “Insomniac was sued for who we were, not what we did,” Gary Jay Kaufman said in a statement. “If Sasha Rodriguez had snuck into the Hollywood Bowl during a Barry Manilow concert and overdosed on some drug, there never would have been a lawsuit.” An attorney for the Rodriguez family contends Insomniac and the Coliseum were responsible for her death. @2012 Associated Press. All Rights Reserved.
Farm Mutual Insurance Co. Under Victim in Arizona Shooting Montana Supervision Files Suit Against FBI
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ontana’s insurance commissioner has placed Great Falls-based Westland Farm Mutual Insurance Co. under her office’s supervision, citing the company’s diminishing cash reserves. Commissioner of Securities and Insurance Monica Lindeen said Westland will cancel all of its homeowner’s insurance policies by June 30. Its crop-hail insurance policies will remain in effect. Lindeen’s office recommended current holders of farm and homeowner’s policies move them to another company before the end of the month so they don’t risk a lapse of coverage that could violate the terms of their mortgage or result in higher premiums on future policies. Lindeen’s order bars Westland from taking on any more liabilities or selling any new non-crop-hail insurance policies. To protect their customers, Montana farm mutual insurers sell policies that are backed, or reinsured, by other national and international insurance companies While Westland’s crop insurance policies are fully reinsured, its farm and homeowner policies were only partially reinsured, meaning Westland had to pay a portion of every claim out of its own reserves. With Westland’s increased exposure and dwindling reserves, Lindeen’s office estimated the company would run out of money to pay claims on its farm and homeowner’s insurance policies by August. @2012 Associated Press. All Rights Reserved.
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he surviving victim of a 2009 Arivaca, Ariz., home invasion that left a young girl and her father dead says the FBI should have prevented their deaths. The Arizona Daily Star reported that Gina Gonzalez claims in a lawsuit filed May 15 in Tucson federal court that FBI agents were warned about the shooting. Gonzalez lost her husband, Raul Flores, and 9-year-old daughter Brisenia Flores when three people pretending to be Border Patrol agents shot and killed them on May 30, 2009. She was shot once in the shoulder and in the leg. In the federal complaint, Gonzalez states one of the convicted shooters, Shawna Forde, asked an FBI informant in Colorado to help in the attack two weeks before it happened. Gonzalez says Forde even drew a map of the home’s location. Copley passed the map to his FBI contact, who passed it on to the FBI office in Phoenix. Gonzalez said she is requesting damages for the wrongful deaths of her family for pain, suffering, medical expenses and loss of earnings. Forde and another shooter, Jason Bush, were both sentenced to death row last year. The third shooter, Albert Gaxiola, was sentenced to two life terms. @2012 Associated Press. All Rights Reserved. www.insurancejournal.com
Declarations AIG Pays
Wake-up
Tangible and Intangible
“This important settlement is a significant win for California businesses and consumers and is the culmination of an extensive effort by insurance regulators across the country to investigate and ultimately correct serious issues of non-compliance by a major national commercial insurer.” — Insurance Commissioner Dave Jones referring to American International Group Inc. (AIG ) agreeing to pay California $15.6 million in penalties to settle allegations that its insurance companies underreported workers’ compensation premiums over several decades.
“This report is a wake-up call for consumers and regulators who are not aware of the many ways that computer claims software can be manipulated to produce unjustifiably low injury payments to consumers and tens of millions of dollars in illegitimate ‘savings’ for insurers.” — Mark Romano, claims project director for the Consumer Federation of America, which issued a report that claims systems used by many of the nation’s largest auto insurance companies can be adjusted to make “lowball” claims payments to injured motorists.
“This motion for preliminary injunction raises the difficult intersection of a sale of a bankruptcy estate’s interest in all assets, tangible and intangible, and the rights of former officers of the debtor corporation to continue pursuing their trade after their employment with the debtor ceases.” — United States Bankruptcy Court Judge Maureen Tighe, who denied a request for a preliminary injunction against the old owners of Woodland Hills, Calif.-based C.M. Meiers, a 76-year-old agency that went bankrupt.
Worker’s Comp Line “Workers’ compensation, because of its direct connection to employment and the labor markets, has been the property/casualty line most significantly impacted by the continued difficult economic environment.” — National Council on Compensation Insurance Chief Actuary Dennis Mealy commending on an NCCI report on the workers’ comp line.
Figures
3.5
$
Million
In safety dividends will be paid by SCF Arizona for 2011 to qualified policyholders, making it the 41st consecutive year the company’s board of directors approved a dividend payment. Arizona’s largest provider of workers’ compensation insurance began paying safety dividends in 1969, and since has returned more than $1.5 billion to qualified policyholders who maintain safe workplaces, according to SCF.
40
$
Million
Is the amount Nasdaq OMX Group Inc. said it will offer in cash and rebates to compensate clients affected by the problems with Facebook Inc.’s initial public offering, an amount well short of the losses claimed by top market makers for the IPO. www.insurancejournal.com
$650,000 Is how much Washington State University has agreed to pay to settle a racial discrimination lawsuit brought by two former employees of Chinese descent. The settlement will pay $325,000 each to Dr. Ying Li and her husband, Lizhong Yang. The plaintiffs contended that while working in WSU’s Laboratory for Bioanalysis and Biotechnology they were subjected to overt discrimination by the lab supervisor.
$20 Million
Is the amount in which a notice of claim has been filed against Phoenix and the Maricopa County Sheriff’s Office over a jail inmate’s death last year. The family of Ernest “Marty” Atencio filed the claim as a precursor to a lawsuit. The 44-year-old Atencio died on Dec. 20, four days after an altercation with police and detention officers in a Maricopa County Jail. June 18, 2012 INSURANCE JOURNAL-WEST REGION | 9
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People Lou Savage, Oregon’s interim insurance commissioner for the past seven months, has been appointed to the position, replacing Teresa Miller, who left in November, 2011 to accept a position with the federal government. Savage initially planned to return to his former DCBS position as the agency’s senior policy advisor. Savage directed DCBS legislative activities before taking on the role of interim insurance commissioner. Oregon’s insurance division employs 100 and has a $10.5 million annual budget. An attorney, Savage worked for Multnomah County Legal Aid Services for more than 16 years, including eight years as executive director. He was also state director of former Congressman Ron Wyden’s state congressional office.
Lou Savage
Menlo Park, Calif.-based McGraw Group of Affiliated Cos., which includes Pacific Specialty Insurance Company (PSIC), named Brian Cohen chief executive officer. Cohen’s appointment is effective immediately. Cohen joins McGraw from Strategic Growth Advisors where he was president and CEO, serving companies in the technology, financial services and insurance industries. Prior to SGA, Cohen led the turnaround of global software company Clear Technology. He previously worked at Farmers Insurance as the senior vice president and chief marketing officer. Los Angeles, Calif.-based Poms & Associates Insurance Brokers Inc. named Chris Poveromo branch manager and senior vice president of property/casualty. Additionally, the firm named Mark Ulrich senior vice president of employee benefits and property/casualty and Evelyn Castellanos as account executive in employee benefits. All three were added to the firm’s Los Angeles office. Poveromo focuses on property/casualty lines on behalf of food manufacturers and distributors, restaurant chains, grocery stores, as well as trucking companies. He will also
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oversee the development of new business and manage the Los Angeles office staff. Prior to joining Poms & Associates, Poveromo was a vice president with Andreini & Co. Ulrich has more than 15 years’ experience in the insurance industry and specializes in employee benefits and property/casualty with a diverse client base. He was previously a vice president with Andreini & Co. Castellanos has been in the insurance industry for 13 years with an emphasis in employee benefits. Castellanos will service new accounts and assist with business development. Castellanos was previously an account executive with Andreini & Co. Poms & Associates deals in commercial insurance, employee benefits, corporate wellness, personal lines, and risk management and risk control. The firm has offices in California, Colorado, New Mexico and Washington. San Diego, Calif.-based Atlas General Insurance Services LLC hired Kevin Rodgers as a senior underwriter. Rodgers comes to Atlas with underwriting experience from various insurance companies while working in workers’ comp underwriting departments. Prior to Atlas, he worked as a senior underwriter at Arrowhead General. Atlas General Insurance Services is a full service general insurance agency focused on workers’ compensation. Renton, Washington-based Bell-Anderson Agency Inc. named Dwight Newman director of marketing. Newman’s responsibilities will lie mainly with the insurance agency’s commercial division. Newman has worked for years in the Pacific Northwest insurance community and has relationships with several insurance carriers. Bell-Anderson has six offices across Washington.
www.insurancejournal.com 1/27/11 9:42 AM 6/11/11 9/6/11 2:54 8:30 PM
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Financial Strength and Exceptional Claim Service Property | Liability | Executive Protection | Workers Compensation | Marine | Surety Homeowners | Auto | Yacht | Jewelry | Antiques | Accident & Health
Chubb Group of Insurance Companies ("Chubb") is the marketing name used to refer to the insurance subsidiaries of The Chubb Corporation. For a list of these subsidiaries, please visit our website at www.chubb.com. Actual coverage is subject to the language of the policies as issued. Chubb, Box 1615, Warren, NJ 07061-1615. Š2012 Chubb & Son, a division of Federal Insurance Company.
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News & Markets Professional Liability Exposures Evolve with Changing Healthcare Environment By Stephanie K. Jones
N
ational healthcare reform legislation passed by Congress in 2010 may or may not survive consideration by the U.S. Supreme Court, but the healthcare system already has been evolving in ways that are likely to proceed regardless of the success or failure of national reform efforts, experts say. The evolutionary pressures on the nation’s healthcare delivery system and the liability exposures that go along with those changes have not been unnoticed by insurance companies, either. The insurance industry is well-
12 | INSURANCE JOURNAL-WEST REGION June 18, 2012
other medical care entities are increassituated to respond to developing risks ingly hiring — rather than contracting in health care with new products and with — physicians, thoughtful and healthcare prounderwriting, ‘There’s going to fessionals such as according to be some gray areas physicians’ assistants Jim Fasone, between traditional and certified nurse senior vice presmalpractice and D&O practitioners are takident of Alliant Insurance risk and other, broader ing on greater roles in Services in emerging risk issues.’ the delivery of healthcare services. These Denver, Colo., which specializes in helping healthcare employment trends in health care organizations add new complications professionals and facilities with their — and possibly more opportunity for insurance and risk management needs. claims — in the medical professional “I think the insurance industry liability line of insurance, according has been pretty adaptive at finding to Laurel Byerly, senior vice president opportunities where there’s a need for Western Litigation, a third party out there,” he said. Companies are “creating administrator that manages medical malpractice claims and litigation for products to respond to self-insured entities. that, reputational risk When hospitals employ more phyissues, Medicare fraud and abuse issues, there’s sicians, “they expose themselves to more direct malpractice risk from the product evolving for physician-led services being provided,” that.” Fasone agreed. In addition to Byerly added that “the more people medical malpractice that hospitals employ, the more their exposures faced by hosrisk is going to increase. If a physipitals, physicians and other healthcare provid- cian is an employee of a hospital, that immediately makes the hospital ers, changing employvicariously liable for the acts of that ment patterns, decreasemployee, whether it’s a nurse, a radiing reimbursements ology tech or a physician. They’re going and greater regulatory to be added to a lot more lawsuits scrutiny are among the simply because they are employing this increasing challenges person. … And hospitals are not going healthcare executives to be able to get out of cases as easily, must manage. maybe, as they have in the past, when “There’s going to physicians were considered indepenbe some gray areas dent contractors. They’re going to be between traditional seen as much more responsible for the malpractice and D&O risk management and training of the risk and other, broader physicians that they’re employing.” emerging risk issues,” The additional utilization of nonFasone said. continued on page 14 Hospitals and www.insurancejournal.com
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News & Markets Healthcare, continued from page 12
physician healthcare providers, such as physicians’ assistants and certified nurse practitioners, may also heighten an organization’s exposure to what Byerly called “mid-level provider” issues. “Most of these people are very welltrained. They have extensive education, licensing, testing that they need to go through,” Byerly said. “The impulse to hire them is to be able to provide more care to more patients. The idea is you’re going to put them on cases that may not require, at least initially, the intensive attention of a physician. I think what’s happened is that a lot of care has been pushed down to that level. … “It’s another person to bring to the party, so to speak. So as these providers are providing more care to patients and their names are appearing in the record, plaintiff attorneys go through the record and it’s like, ‘OK, Sue Smith, PA, saw the patient. She had an opportunity, we think, to bring a particular
situation to the doctor’s attention. She didn’t. We’re naming her as a defendant.’” At the same time, many of these mid-level providers may not have “the same experience with litigation and a litigious environment that many of our physicians have. So they’re not quite as sophisticated about medical malpractice as a physician would be, and they require more education from the claims staff, when they are sued, about what the process is about,” Byerly added. Increased Regulatory Scrutiny Managing reimbursements — both private and governmental (Medicare) — has always been a challenge for healthcare
organizations and practitioners, but now the coding and billing practices of such entities are coming under increased scrutiny, Fasone said. That’s not likely to change even if part or all of the Patient Protection and Affordable Care Act (PPACA) is shot down. “Healthcare executives have more and more responsibility to make sure that the organization is not only run well financially and operationally, but they comply with all the various codes and changes that are going on in a declining reimbursement environment,” Fasone said. There have always been “reimbursement challenges to a degree, but [10 years ago] it didn’t seem as though the regulators were as aggressive as they are now in making sure that the billing environment is properly done,” he said. Regulatory bodies are investing more time and energy “in going after healthcare organizations to make sure they’re not improperly coding and billing the government, and trying to recapture some of those monies,” he added. A lot of the regulatory framework for newer healthcare models such as Accountable Care Organizations “has yet to be hammered out,” said Kristin McMahon, vice president of underwriting for IronHealth. But, she noted, regulators are paying attention to issues such as medical loss ratios and billing/coding fraud, whether intentional or not. “The government has dedicated a lot of funding to oversight of Medicare fraud — continued on page 20
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6/4/12 12:11 PM
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CO is o NF n th ID e ag EN end C E a. D&O insurance solutions from Chartis. Today’s directors and officers face more risk than ever, due to a growing breadth of regulations and heightened enforcement. Having the right coverage is critical. At Chartis, we offer cutting-edge insurance solutions built to meet the challenges of D&O risk today—and will keep innovating to meet the challenges of tomorrow. Learn more at www.chartisinsurance.com/D&O
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Business Moves
Atlas Atlas Financial Holdings Inc. has started selling its core commercial automobile insurance products in Utah, becoming the 31st state where Atlas is actively underwriting. Atlas’ insurance subsidiaries, American Country Insurance Co. and American Service Insurance Co., Inc., distribute their specialty insurance products focused on “light” commercial auto industries (taxi cabs, non-emergency paratransit, limousine/ livery and business auto) through a network of retail independent agents. Together, American Country and American Service are licensed to write property and casualty insurance in 47 states throughout the United States. During 2011, Atlas expanded its core commercial automobile insurance product offering in a total of 10 additional states, with another seven states added in 2012. With the addition of Utah, Atlas is now actively underwriting in 31 states across the U.S. and views this as the primary near-term distribution footprint. While Atlas may continue to expand into new states in the future, it now will begin to transition from geographic expansion to a vertical growth strategy as it enters the second half of 2012, with an emphasis on generating more business from existing agents.
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Ebix, PlanetSoft Atlanta-based insurance software and e-commerce supplier Ebix said it has agreed to buy life insurance and annuity services provider PlanetSoft Inc. for $40 million. Ebix said the acquisition is expected to be immediately accretive to earnings per share (EPS). PlanetSoft has been in business 14 years offering data exchanges that streamline core life insurance operations in the areas of client acquisition, underwriting, and distribution management. The firm currently has 575 employees — 90 percent of them in India — and serves some of the top 20 life insurance companies in the United States and India including Swiss Re, MassMutual, Liberty Mutual, Manulife Financial, Sun Life Financial, Desjardins and New York Max Life, according to the announcement. Ebix said it has acquired all of the outstanding capital stock of PlanetSoft for $35 million in cash at closing, and $5 million payable in the form of 297,265 shares of the common stock of Ebix issued at the time of closing. The deal will also involve earn-out cash payments to PlanetSoft shareholders based on specific revenue numbers achieved in the next 24 months.
1/12/11 12:46 PM
Ebix said it is funding the purchase using a mix of internal cash reserves and the bank credit line available to Ebix at Libor plus 1.5 percent. Ebix has offices across Brazil, Singapore, Australia, the United States, New Zealand, India and Canada. It offers multiple exchanges across the world in the fields of life, annuity, health and property/ casualty insurance. According to Ebix, it platforms handle in excess of $100 billion in insurance premiums. Towers Watson Towers Watson, a global professional services company, has launched the Chief Risk Officer (CRO) Network, a knowledge-sharing network dedicated exclusively to senior risk officers of life, health and property and casualty insurers with significant operations in North America. The CRO Network will provide an ongoing series of events, including conferences, webcasts, and networking opportunities. The principal benefits for members of the CRO Network include: •Peer Networking- Access to colleagues at peer life, health and property and casualty insurers to develop relationships, exchange ideas, discuss ERM challenges and approaches, and share lessons learned •Expert Access-Access to industry CROs and industry experts to discuss emerging best practices that help insurers operationalize new processes and maximize ERM value within their organizations •Topical ERM Issues- Insights into current ERM topics and issues that are prioritized by member companies and provided during the CRO Network series of educational events The CRO Network is open to CROs and executives with risk management leadership responsibilities at life, health and property and casualty insurance groups with significant operations located in the United States, Bermuda and Canada. There is no cost to join the CRO Network. www.insurancejournal.com
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News & Markets
Study: Spinal Implant Loophole Costs Calif. Workers’ Comp $67M
By Don Jergler
W
orkers’ compensation medical costs in California were boosted by nearly $67.5 million in 2010 due to loophole in the law that allows double billing for surgical implants, according to a study released earlier this month by the California Workers’ Compensation Institute. That number could be “significantly higher” when CWCI compiles a report following the anticipated release of more current government data in the next few months, one of the report’s authors said. “We think that’s an extremely conservative estimate,” said Alex Swedlow, executive vice president of research for CWCI. “I would not be surprised if that dollar value goes up significantly higher.” Swedlow,who called the
report a “preliminary analysis,” believes their estimate is low due to the lack of data available data. The full set of data for 2011 from the California Office of Statewide Health Planning and Development isn’t expected to be released for at least another month. Swedlow said the authors used a previous study from CWCI based on information from 2008 and updated it with more current information to produce the latest study. The study was conducted at the request of the Senate Committee on Labor and Industrial Relations, which is chaired by state Sen. Ted Lieu, D-Torrance. Lieu is the author of Senate Bill 959. The bill would address the Medicare fee schedule adopted in 2004 and California law, which allows for a 120 percent payment for medical costs and allows separate costs for material and hardware in spinal plants to be added upon the original costs.
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This payment, known as a “pass-through,” is considered a double payment because it allows a hospital to pass along the cost of a device, instrumentation, or hardware even though the cost is technically taken into consideration when setting the reimbursement level. Lieu’s bill cleared the Senate floor on a 34-2 vote late last month and is now in the Assembly. According to the CWCI study, duplicate payments on all pass-through procedures averaged $20,137. CWCI researchers reviewed discharge data from the Office of Statewide Health Planning and Development and identified 4,718 workers’ compensation back surgeries during 2010 in which spinal hardware could have been used. The researchers applied a 71 percent surgical implant rate calculated in an earlier study and estimated that 3,350 of the 2010 back surgeries involved hardware that made them eligible for the duplicate payments, according to the authors of the study. Authors arrived at the $67.5 million figure by multiplying the $20,137 average with the estimated 3,350 workers’ comp back surgeries that used implantable hardware. That figure was up 22 percent from $55.5 million in 2008, according to CWCI. Lieu, who had been using estimates of $40 million and up to push his bill, noted that the double-billing being incurred is on top of the 120 percent of cost already being charged in such workers’ comp surgeries. “Workers comp already charges a premium for spinal surgery,” he said. “It’s completely unnecessary.” Swedlow said the 22 percent increase from 2008 doesn’t reflect a shift in the number of workers’ comp spinal surgeries, but and increase in the mean value that’s being charged for the surgeries. “There are fewer back surgeries in California workers’ compensation,” he said. “There are fewer inpatient admissions, so there are fewer back surgeries. However the cost of instrumentation continues to rise.” www.insurancejournal.com
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als that are being litigated has generally declined over the last decade, payouts for successful medical professional liability claims have increased. One of the main drivers of the trend toward higher claims payouts is increased selectivity of cases by the plaintiffs’ bar, according to Byerly. “When I first started in this industry, 20 years ago or so, if you had 100 claims that you were managing, maybe 30 of them were cases that you knew, right off the bat, really had no merit,” Byerly said. “Twenty of them were really bad cases that you had concerns from the beginning about liability and causation, that you really needed to keep an eye on. And then everything else kind of fell in the middle.” Over the years, malpractice insurers have become more defense-oriented, she said. “Our attorneys have been trained to vigorously defend cases, we’ve been very successful with our defense verdict rate, and been very aggressive about defending and trying
all of the upcoding, the double billing,” McMahon said. “You’re going to see the government continue to come down pretty hard on the medical community … for any fraud. It’s billions of dollars that are recovered every year, and that number’s going up, by the government, because of the increased resources that they’re dedicating to it. In this new environment, healthcare providers are trying to determine whether they can survive in this era of declining reimbursements and increased scrutiny, Fasone said. “So more and more companies are looking to either merge or come together with other organizations because they don’t quite have the capital or leadership team ready to handle the challenges,” he added. Less Litigation, Higher Payouts Medical professional liability insurance has had a good news/bad news story to tell in recent years. While the frequency of claims filed against medical profession-
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On The Web Watch exclusive Insurance Journal interviews with Western Litigation’s Laurel Byerly and Alliant Insurance Services’ Jim Fasone on IJTV. • Healthcare Evolution Creates New Risks for Industry Executives; http:// www.insurancejournal.tv/videos/7176/ • Employment Trends in Health Care Complicate Liability Issues; http:// www.insurancejournal.tv/videos/7173/ • Good Defense but Higher Severity in Med-Mal Cases; http://www.insurancejournal.tv/videos/7128/
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IDEA EXCHANGE
Growing Your Property Casualty Agency Help Young Producers to Think Beyond the Internet Veteran Agents Have Much to Teach Their Successors
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oday’s youngest agents crave to be online. It’s no surprise since they grew up in the Internet age. Their experiences include playing video games, doing schoolwork, surfing, communicating via email, and texting and social media. It’s this endless tapping on real and virtual keyboards, By Alan Shulman combined with their boundless enthusiasm, that makes them so desirable as producers. To sustain relevance over the long-run, agencies need to employ younger producers to attract, sell and retain longer-term insurance buyers. These new hires no longer need just a desk and PC; they require the tools to connect from anywhere. Instant twoway communications, via apps and mobile websites, is their métier. But, linking your agency’s survival to youthful web veterans has a price. Side Effects Aside from the costs of developing and maintaining a viable mobile presence, the offspring of the computer age can come with baggage. The headline of John K. Mullen’s March 16, 2012, Harvard Business Review blog posting states it succinctly: “Digital Natives are Slow to Pick Up Nonverbal Clues.” In it, Mullen cites sources that suggest that people who grew up spending tons of time on computers and the Internet may have difficulty understanding what a person thinks, as they don’t easily recognize key signals or readily express empathy. Essentially, they are weak in business social skills and short on eye contact. It’s likely that you have participated in frustrating encounters with young professionals accustomed primarily to online communications. A few moments of small talk during a telephone or web meeting, or in actual meetings, before getting down to business seems impossible, and entirely unnecwww.insurancejournal.com
essary to them. This inability to interact can be costly to the agency when selling or servicing insurance voice-to-voice, much less face-to-face.
fully developed P/C agents, they need to be equally adept at insurance and interpersonal communication. Seasoned producers possess well-honed prospecting and sales abilities that are highly effective in connecting with and selling to buyers one-on-one. These old-school lessons can be taught to younger agents, but for them to take, the students must be willing to learn.
Agency Approaches Young, technologically competent agents are needed to keep your agency relevant and growing organically in the post-PC era. So what can you do? Young agents need to be One solution is to help younger producers to market and sell to others like equally adept at insurance and them online. This way any social defiinterpersonal communication. ciencies are less noticeable to their digital clientele, if spotted at all. You can even The Future? set up a distinct agency operation for them If once ordinary interpersonal skills are with company service centers fulfilling the allowed to die out with the retirement of day-to-day needs of its insureds. baby boomer producers, how will tomor A wider approach is to help them become row’s online-only independents differentiate fully rounded producers. Let them start off themselves from the direct writers? Will they doing their digital thing, and then wean just be little GEICOs? Is this what being them offline gradually. Not entirely, of independent will ultimately become? course. Just enough so that they develop a healthy person-to-person skill set to compliShulman, CPCU, is the publisher of Agency Ideas, a subment their online prowess. Invite them to scription-only sales and marketing newsletter. He is also accompany classically trained producers the author of the many tools posted on the Agency Ideas who thrive in the field to learn by watchInstant Download Store. Phone: 800-724-1435. Email: alan@ ing. For agencies without mentors readily agencyideas.com. Website: www.agencyideas.com. at hand, perhaps this is something that agency sales trainers can build into their curriculums. Learn From Each Other Young agents, with years of online experience and a yearning to remain contemporary, have plenty to teach their elders about digital interaction. But to be June 18, 2012 INSURANCE JOURNAL-NATIONAL REGION | N1
IDEA EXCHANGE
The Competitive Advantage The Future of Producer Compensation I
t is a fact that many people with the title “producer” don’t produce. They service and they accept what comes to them, but they do not produce. It is also a fact that companies are going to find a way to minimize what they pay agencies. After watching benefits carriers drastically reduce compensation without realizing By Chris Burand drastic losses, property/ casualty carriers will certainly follow their lead. Benefits carriers have learned they do not have to pay agents, at least not for small accounts. Sure, ObamaCare plays into this, but the writing is on the wall. And even if company compensation is not cut going forward, producers and agencies are going to have to do much more to earn their money. This is not a “doom and gloom” future. Clearly some agencies will continue their paternalistic and ego-driven model of employing non-producing producers for as long as denial trumps financial reality. The great news is for those agencies and producers that are innovative and want to bring more than an insurance policy to their clients, the future promises tremendous rewards. The agencies that act first will gain a long head-start. How Producers Get Paid Producer pay, however, has to change. Most agencies are far behind in recognizing this. Large brokers and more sophisticated agencies have a big head-start. The fact is that to deliver the value that will be required, producers have to take a pay cut. This is not as bad as it sounds, because even at a lower percentage, the best producers will make more money than ever as they take over the accounts of all the producers who don’t produce or don’t realize the world of insurance sales has changed forever. Some sales consultants are on the right path. They are preaching that agencies’ opportunities lie in bringing “value added”
services to clients. “Value added” is in quotations because the effectiveness of the different messages varies considerably, with some consultants not even telling their clients clearly what those valueadded services are. The ones delivering the truest messages are giving some of the best sales advice I have heard in my 25 years in this industry. Any sales consultants who suggest agencies offer these services without suggesting the agencies’ producers pay for it are only advocating growth, not profits and not survivability. I have seen agencies barely make payroll as a result of focusing on these strategies without understanding the cost of these strategies. These value-added services cost money, sometimes serious money. At the simplest level, some web-based marketing programs are reported to cost $50,000 annually. The average agency today has a profit margin of 0 percent on a commission basis. If a producer is paid the same for sales generProducer pay ated by the website as they are for sales they generate on their own, how is it affordable? Some other programs easily exceed $100,000 when the cost of training, personnel, software and other tools are considered. These efforts should benefit producers, so why shouldn’t they pay at least part of the price? Big Agency Advantage This is where the big agencies are so far ahead. They generally pay half of what normal independent agencies pay producers. Many agency owners do not understand
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this completely and make the mistake of continuing to pay producers normal commissions. Paying 40 percent when the producer does everything may make sense. Why continue to pay 40 percent when the agency has to effectively pay an extra 3 percent to provide the tools necessary for future quality sales? To put it in perspective, a consulting firm used to publish an annual study on producer compensation. Every year, the press release would be the same: “Producers at large agencies are paid significantly more than producers at small agencies!” The headline was completely wrong every year. Producers at large agencies were paid significantly less, 20 percent versus 40 percent. However, they made more because their books were so much bigger that they made up the difference between 20 percent and 40 percent. (For example, 40 percent of $200,000 is $80,000 and 20 perhas to change. cent of $800,000 is $160,000.) Give the right producers these tools, have them pay for them, and everyone will make more than ever. Owners however, will be burned if they employ producers who cannot really sell. These employees will implore the agency to pay for all their tools without them putting any skin into the game. I have seen this time after time. Performance improves when everyone has skin in the game. If I were a producer who could not sell, I would absolutely not want to put skin in the game because I’d be a definite loser. www.insurancejournal.com
Agencies that act now have a great future. Combine sales tools with refined producer compensation now so you can take advantage of your slower competitors. When companies really begin to pay commission rates commensurate with doing nothing but delivering policies, those agencies still in denial will be doomed. When a policy is renewed year after year with no proactive contact with the client, it is ridiculous to argue that the agency is working for the commission. Yet, many agencies rely on this business model because they cannot afford to regularly touch every client. Imagine then what happens when they feel compelled to provide producers with better tools?
rarely going to be long-term competitors. The industry already has changed. Few agencies seem to recognize the true scope of these changes. The agencies that do and act upon them have the brightest futures ever. I look for-
ward to experiencing it with my clients. Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Read “Burand’s Agency E&O Blog” exclusively on InsuranceJournal.com. Phone: 719-4853868. Email: chris@burand-associates.com
Procedures and Pay Another advantage sophisticated agencies have is their producers must already follow procedures. I estimate that more than 90 percent of all producers are not required to follow their agency’s policies and procedures except, maybe, in a couple of key areas such as turning money over to the agency immediately. The most sophisticated agencies completely understand how producers not following procedures create huge inefficiencies. To pay for the tools and extra staff that enable these agencies to work proactively all the time with clients, they had to get more efficient. So they demand producers follow procedures. To get ahead of all others and to catch up with the ones that have gone before, make your producers follow procedures. Tie compensation and following procedures together, and the agency wins the jackpot. Providing sales tools increases the cost of the servicing platform. Producers who follow procedures significantly decrease that extra cost. My recommendation is to not pay producers if they do not follow the agency’s procedures on an account. If the producer professes that the rules are too complex, make the producer pay for additional staff. Make them put skin in the game. Otherwise, all the sales they make will only move the agency closer to bankruptcy. Agencies do not owe their producers these tools for free. Some agencies may provide them for free, but these are www.insurancejournal.com
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SPotlight
Directors & Officers Why Purchase Side ‘A’ Directors & Officers Liability Coverage? O
ur clients sometimes ask why they should purchase side “A” directors and officers (D&O) liability coverage to protect their directors and officers from lawsuits when they are already providing broad indemnification for damages and defense through the corporate bylaws (or an equivalent). By Jeanne Oronzio The simplest Wermuth answer is that D&O liability insurance is useful to attract and retain qualified board members. Their personal assets are at risk every day in making decisions to further the growth and success of your organization. Outside directors, in particular, tend to feel more secure when there is an insurance policy in place to back up the organization’s promise to indemnify. The side “A” portion of the coverage is protection for directors, officers or members of a board of managers (and other individuals in equivalent positions) in situations when they are not indemnified by the organization. But if the organization intends always to indemnify its directors and officers, which is why the indemnification provisions in the bylaws exist, when would this side “A” insurance coverage ever come into play? Indemnification of an organization’s directors and officers is generally permissible in every state for most causes of action; however, it is generally only mandatory in a limited number of circumstances. Therefore, in most cases, the company has the option to indemnify or not to indemnify. Possibly even more important is whether or not the N4 | INSURANCE JOURNAL-NATIONAL REGION June 18, 2012
organization is permitted to or will advance money to the directors and officers to properly defend themselves against allegations, whether or not those allegations have merit. The cost to defend these claims is often more than the actual damages, if any. Prudence would suggest that an organization provide for broad indemnification provisions in its bylaws or equivalent, so as to attract and retain qualified board members. However, consider the following: •Organizations generally may not indemnify their directors and officers when faced with a security holder derivative demand. This occurs when security holders or shareholders of the company step into the shoes of the organization and sue the directors and officers on the organization’s behalf. It is intended that the proceeds of the lawsuit be paid by the directors and officers directly to the organization, making the organization whole for the directors’ and officers’ liability. The security holders are indirect beneficiaries. In this instance, most state statutes will not allow the organization to then turn around and indemnify its directors and officers for the money they were responsible to pay back into the compa-
ny. This would be circular, and ultimately, the company would not be made whole. In the event that the organization refuses to advance defense costs to a director or officer, whether or not the corporate bylaws state the defense will be advanced, the insurance policy can generally be written to provide those defense costs to the insured person. The insurance carrier will seek reimbursement from the organization, if warranted. Organizations cannot indemnify their directors and officers if there are no corporate assets (i.e., the organization is in bankruptcy proceedings). Finally, if one can imagine becoming a former director or officer of the organization, imagine also that the broad bylaws that were in place during the director’s time on the board become drastically revised with respect to indemnification of damages and advancement of defense costs for former directors and officers who are sued today for their actions while having served on the board in the past. This is exactly what happened in Schoon v. Troy, a landmark case in 2008 (948 A. 2d 1157 Del.Ch. 2008). In this case, it was decided there is nothing barring a company from revising its bylaws in future years, even if only for one group of individuals such as former directors (other than if it agrees within the bylaws that it will not do so). Therefore, former directors and officers who have fallen out of favor could be at risk. The bylaws that were in place during their past tenure on the board will not necessarily be those in effect at the continued on page N6 www.insurancejournal.com
SPotlight
Directors & Officers D&O, continued from page N4
time of the future lawsuit. The insurance policy that is in place today, however, will generally be the policy that provides coverage for today’s lawsuit against the former board member. Excess/DIC Side ‘A’ Coverage In addition to buying side “A” coverage, organizations should also consider the purchase of excess/DIC side “A” coverage through a separate insurance policy. D&O liability policies are often written to include coverage for lawsuits brought directly against the organization (side “C” coverage), which has resulted in a sharing of the policy limits among the organization and its directors, officers or members. In addition, where the organization is covered under the policy, bankruptcy courts have in some situations seized the D&O liability policy as an asset of the bankruptcy estate, leaving the directors, officers or members without coverage. So one benefit of the excess/DIC side “A” coverage is that it provides separate limits that apply only for the directors and officers, not the organization. These policies are written with very few exclusions and will provide coverage on a primary basis where the coverage is broader than the underlying primary D&O liability policy. One major benefit is that the policy does not typically have an insured v. insured exclusion (or this exclusion might be limited to an entity v. insured exclusion). If there is concern about one director being sued by fellow board members with regard to the management of this company, certain excess/ DIC side “A” policies can be purchased to provide protection in those suits. These suits are usually excluded in a primary D&O liability policy. Likewise, there could be other exclusions in your primary D&O policy that might not exist in an excess/DIC policy, such as exclusions for claims arising out of manufacturing or distribution of products or intellectual property exclusions. There are several other key advantages to the purchase of an excess/DIC side “A” policy: Excess coverage to protect the directors, officers or members in situations where the
organization is unable to indemnify the directors, officers or members (“non-indemnified” claims) due to: • Bankruptcy or where prohibited by law (shareholder derivative lawsuit) and the underlying limits have been exhausted; • Difference in conditions (DIC) coverage in situations such as where the traditional D&O liability policy is seized by a bankruptcy court as an asset of the estate; • Difference in conditions (DIC) coverage for situations where the underlying D&O liability carrier wrongfully refuses to indemnify the directors, officers or members; • Drop-down coverage for situations where the underlying D&O liability carrier is able to rescind the underlying policy; • Drop-down coverage in the event the underlying carrier becomes insolvent. Benchmarks According to the most recent Towers Watson Directors and Officers Liability Survey, side “A” D&O liability coverage is the most widely purchased component of a D&O liability policy by an organization. Of its 401 survey respondents (public, private and nonprofit), 86 percent purchased side “A” coverage, either on its own or in addition to either side “B” (coverage for the organization’s indemnification of its directors, officers or members) or side “B” and side “C” (coverage for suits brought directly against the organization); 57 percent purchased excess side “A” or side “A” DIC policies. The vast majority of organizations cited the breadth of the coverage under the excess/DIC side “A”
N6 | INSURANCE JOURNAL-NATIONAL REGION June 18, 2012
policies as their main reason for making that purchase. These percentages increase each year. A Prudent Purchase There are several reasons why an organization’s promise to indemnify might fail its directors and officers (whose personal assets are at risk every day) in their time of need. Purchasing D&O liability insurance, particularly the side “A” coverage component, provides extra assurance to directors and officers that the organization’s promise to indemnify will be fulfilled. Many organizations take it one step further and purchase broader protection through an excess/DIC side “A” policy. Therefore, this is a prudent purchase that will help to attract and retain qualified leaders in an organization. Oronzio Wermuth is senior technical specialist at The Graham Co., one of the mid-Atlantic region’s largest insurance and employee benefits brokerages. She leads The Graham Co.’s Management Liability Practice Group. Phone: 215-701-5409. Email: joronzio@grahamco.com. www.insurancejournal.com
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SPECIAL REPORT
Construction Outlook Is Cautious As Some States See Major Construction Projects Apartment Communities May Be Key to Revival By Andrea Ortega-Wells
T
he overall construction industry appears to be making a recovery, albeit, a very slow one. Industry watchers say the outlook is better for big utility and public works construction projects, as well as for luxury, mixed-used apartment projects. New construction starts in April advanced 11 percent to a seasonally adjusted annual rate of $531.3 billion, according to McGrawHill Construction. The increase for April followed a 23 percent gain in March. Much of the lift in March came from work at a nuclear power facility in Georgia, and a similar lift was provided in April by work at a nuclear power facility in South Carolina. Aside from the strength shown by electric utilities, April drew support from public works construction activity and a sizeable upturn for nonresidential building after a weak March. Also contributing to April’s gain for total construction was a slight increase for residential building. During the first four
months of 2012, total construction on an unadjusted basis came in at $138.2 billion, up 4 percent from the same period a year ago. Michael Hastings, national project risk practice leader in Marsh’s U.S. Construction Practice, believes indicators point to a bettering construction market. Design firm business is picking up. “That’s always a good harbinger,” Hastings says. But Hastings warns the industry’s recovery is slow. “We are only seven months out of a 12-year low for construction in the U.S. so we are better than we were a year ago but things are moving very slowly and it’s very specific by sector,” Hastings says. “We are going to have a slow construction market at least through 2012.” Scott Rasor, president of construction for Zurich North America, is seeing more megasized U.S. projects; big projects that he says will bring much needed jobs and infrastructure to some states. “We are seeing an uptick in the large, over $500 million projects,” Rasor says, however some of these are speculative. “Some of them are being rushed out before the financing is
N8 | INSURANCE JOURNAL-NATIONAL REGION June 18, 2012
lined up,” he says. He thinks state governments are trying to create an expectation that the commitment is there to bring the big dig jobs to fruition — a move states hope will push the federal government to also buy in. “A lot of states have been identifying major infrastructure needs for years — identifying major projects that will create jobs in their area such as bridges, tunnels, mass transit on a large scale,” Rasor says. This trend is different than what was going on right after the economic downturn began in 2008. “In 2008, the American Infrastructure and Reinvestment Act that the president put out was mainly small type projects aimed at a broader array of state and governmental construction needs,” Rasor says. That money has since dried up. While big project construction starts have ticked upward, that growth is geographically-driven and not widespread. “We are seeing (big projects) along the West coast, up in Washington and parts of California. In the East, we are seeing them in New York, Virginia, and Washington, D.C.,” Rasor says.
www.insurancejournal.com
Texas is another area where major construction projects are underway. “We have seen a lot of work in Texas,” says Michael Pilla, president and CEO of Technical Risk Underwriters (TRU), a managing general underwriter of Ryan Specialty Group. “Louisiana has had a couple of really big projects as well, in particular big hospital starts. There’s still a lot of rebuilding going on.” Pilla says even in Florida, where building hotels and condominiums might seem counter intuitive, things are going up. Private investment seems to be driving that construction growth, he says. While mega construction projects do exist, the number of these projects is small. “There are some good solid projects out there, but nowhere as close to as many as it was a couple of years ago,” according to Peter Arkley, senior managing director, construction services group, at Alliant Insurance Services Inc. Arkley says the number of surety bonds issued by Alliant has dropped dramatically year-over-year. Lack of funding and investor confidence is still very much a concern. For many travel destination states, hospitality construction has fallen off completely. “When you look at the southeast, southwest and Hawaii, those areas are having very difficult times,” says Arkley. “The only work you see is civil work.” Arkley agrees that New York continues to see major projects but by New York standards, the amount of work is still down. Competition Tough Competition within the insurance sector for the big projects remains tough, says David DeLaRue, senior vice president, national construction practice, and managing director, project insurance practice, for Willis. DeLaRue says that in recent months he has experienced increased activity for projects more than $100 million in size. “We are getting more submission flow, more requests for proposals, broker selection on the large projects looking at some kind of owner or www.insurancejournal.com
contractor controlled programs,” he says. “It seems that the activity has increased, and we are hearing that same song from some of our carrier partners.” While the number of insurance carriers willing to write major project accounts is select, there is plenty of capacity available and plenty of price jockeying going on. There’s a large number of underwriters chasing a small amount of work. “The carriers are still being very competitive,” DeLaRue says. “There’s about seven or eight players in the large project space and there’s always going to be one or two (carriers) that will still provide very competitive pricing.” TRU’s Pilla agrees there is sufficient capacity and competition in the market for major construction projects. “We probably have as
much, or more capacity than I’ve ever seen in the market,” Pilla says. Marsh’s Hastings says the slowdown in the construction industry has heightened competition for business, while at the same time the property/casualty industry’s poor investment results and rising loss cost trends have made underwriting a core focus on these accounts. “You have a need for increased rates, but a lot of competition,” he says. “So what we are getting is that every project is very carefully underwritten. They want to look at the controls and want to see clients who are a source of recurring business so the carriers are not betting their entire results on one project.” The big construction sector has seen a firming of prices when it comes to the lead
excess market, according to DeLaRue. Not too long ago, carriers were more willing to offer $25 million on the lead excess followed by another $25 million, and then followed by another $150 million. That has changed. In today’s market, it also takes more carriers to get to the big dollar limits needed by major construction project risks. “Where you would maybe get $25 million and $50 million layers, today you might be dealing with $10 million or $20 million on the first layer and building up,” according to DeLaRue. “But now it’s taking a few more players to get up to $100 million. Instead of dealing with three or four carriers to get up to $100 million, it might be more like six carriers.” Zurich’s Rasor says geography is affecting prices the most in the major construction market. “There are some very challenged geographies right now,” he says. When it comes to workers’ compensation for the construction industry, loss costs are outpacing premium dollars. “In California you are seeing loss ratios above 100,” Rasor says. In New York, the general liability line for construction is experiencing substantial loss development, three or four times that of neighboring states, according to Rasor. “So depending on your geography, you are seeing a lot of rate differential, and in some markets, such as California, New York, Florida and Illinois, you are seeing the rates go up in a meaningful fashion,” Rasor says. In other states, rates seem to be moderating. Luxury Apartments One bright light in the construction industry today continues to be the apartment market. The amount of multifamily housing in April was up 9 percent relative to its average monthly pace for 2011, according to McGrawHill Construction. Most apartment projects do not fit into the major construction projects market, but some large scale mixed use projects, as well as condominium developments, have caught continued on page N19
June 18, 2012 INSURANCE JOURNAL-NATIONAL REGION | N9
SPECIAL REPORT
Construction
Regulations, Exclusions Driving Demand in Contractors Pollution Liability Market say, ‘I want to buy more insurance’?” Some of that demand is attributed to the Environmental Protection Agency’s (EPA) n increase in contract requirements Renovation, Repair and Painting (RRP) and government regulations has led to Rule, which was issued in April 2008 and a surge in demand for contractors pollution addresses lead safe practices on work perliability coverage, the experts say. formed on pre-1978 homes, child care facili Kenneth Schneider, senior vice president ties and schools. In April 2010, federal law of Rockhill Underwriter Managers, which began requiring that renovation firms be is wholly owned by Rockhill Insurance Co., certified under the EPA’s RRP Rule and be says the company has seen an uptick in covtrained in lead-safe work practices by EPA erage requests from all types of contractors accredited training providers (EPA.gov). that wouldn’t normally purchase pollution Schneider said the Kansas City, Mo.-based liability, such as street and road pavers. “We don’t see the [job] contracts often, but Rockhill Underwriting Managers launched its lead safe contractors professional liability the way I can gauge that is because we see a (CPL) program back in 2010 in response to lot more first time buyers who are not envithe 1:03 EPA PM regulations. ronmental IJ contractors,” he says. “How often Professions ad FINAL.pdf 1 4/2/12 “It was really designed to be a less do contractors wake up in the morning and
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or Fax: (323) 255-0957 800 W. Colorado Blvd. Los Angeles, CA 90041 California License #0323106 4/2/12 1:36 PM
expensive version of a CPL policy that addressed only the risks associated with doing work in schools, apartments, condos or residences where there are young children,” says Schneider. “Contractors could have access to a less expensive policy if the [RRP Rule] was all they were worried about.” Schneider says Rockhill has written quite a few policies since it launched this product just over two years ago, but it has actually written more monoline CPL policies. “Once people evaluated the lead safe policy versus a full blown CPL policy, we ended up selling more CPL policies than writing the less expensive, less broad, lead-safe policy.” Contractual Requirements Scott Kreuzer, vice president of American Safety Insurance’s environmental division, says the company is also receiving more requests for coverage. General contractors and governmental risk managers now require their subcontractors to carry CPL, which seems to be driving the demand. “I think it’s a recognition on the part of the general contractor that if a claim arises and they aren’t pushing that requirement on to their subcontractor, they are liable, whether it be their fault or not,” he says. The contractual requirement also motivates first time CPL buyers to become continuous policyholders, says Kreuzer. “They may have purchased a project-specific policy the first time around, but after the third or fourth contract requirement they realize it is just something they will have to carry and move over to a practice policy,” he says. “The market just grows from there. If they carry it they can be more competitive.” Kreuzer says ASI’s monoline CPL premium has grown substantially since the middle of 2011, but has especially picked up www.insurancejournal.com
in the first half of this year with growth of about 15 percent already over last year. ASI released new contractors pollution liability forms in December 2011 that broaden its coverage to include lead abatement and asbestos, as well as mold on an occurrence basis. The carrier wanted to make it easier for the client by including these coverages on a CPL policy rather than adding them back by endorsement, which is what it had previously done. Policy limits can go up to $11 million and minimum premiums start at $2,500. Kreuzer says the affordability is also a selling point for new CPL buyers. “Folks are making the decision with the understanding that we have pretty soft rates and they might as well get in while the pricing is low,” he says.
However, Robinson says their CPL book can be complicated for agents and insureds, among larger contractors is up 25 percent with no standard form and constantly changto 30 percent year-over-year, and more than ing environmental regulations, but the bot40 percent of the accounts they look at are tom line is CGL policies exclude any claims first time buyers. arising out of polluVery few that ‘It is becoming very difficult tion incidents. This purchase policies leaves contractors for contractors to operate don’t renew the very vulnerable, coverage, says especially in the and feel comfortable with Robinson, because current regulatory only a commercial general environment. even though it is a low claims “It is becoming liability policy.’ frequency class, it very difficult for is very high severity so once an insured has contractors to operate and feel comfortable decided to purchase and understands the with only a CGL policy,” says Robinson. realm of potential issues, they maintain the “There are all kinds of exclusions and more coverage. and more pollutions. If you want full protec Carriers acknowledge that the CPL class tion, you need a CPL policy.”
Small Contractors Not Buying One segment that is still not buying CPL coverage, however, are the small construction firms, according to Adrien Robinson, president of Navigators Environmental Division. The carrier offered a contractors pollution product to contractors in more than 70 different categories with receipts up to $10 million through an online platform, but has recently made the decision not to continue with this offering. Robinson says Navigators tried cross selling CPL with general liability policies to the smaller contractors segment, but not many bought it or even knew what it was. “It is a discretionary buy and these small contractors in an economy like ours where they are just trying to keep their doors open are not worried about pollution,” he says. “It’s about what they are required to have when they show up to the job site.” www.insurancejournal.com
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June 18, 2012 INSURANCE JOURNAL-NATIONAL REGION N11 12/15/11 9:26| AM
SPECIAL REPORT
Construction Navigating Construction Accident Litigation By Denise Johnson
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etween 2006 and 2008, there were 7,461 claims involving falls resulting in $243 million-plus in reserves, according to Bradford S. Purcell, a partner at the Illinois-based law firm of Purcell & Wardrope. During that period, 23 percent of construction accident injuries related to overexertion, 25 percent to falls, and 22 percent involved the injured person being struck by an object. Purcell, who spoke at the Property Loss Research Bureau’s national conference in Orlando, Fla., said the law allows injured workers to pursue recovery in civil litigation against multiple parties involved in a construction project — even those who had no direct role in creating the hazard or unsafe work practice that led to the injury. “The law casts a wide net in construction litigation,” Purcell said. The parties named in a construction accident lawsuit could include: any contractor who subcontracted with the employer of the injured person;
general contractor; construction managers; safety consultants; architects and engineers; project developers; property owner; and subcontractors. Any company that is or has worked on a construction site can be exposed to a claim or lawsuit, Purcell said. “Because of responsibilities they have on the job site, they have exposure,” he said. Purcell suggested collecting the following documents relating to the construction project/site: • Contract, purchase order or other written agreement, bid documents; • General conditions, safety mandates, specifications and other documents incorporated by reference in the contract; • Subcontracts, purchase orders; • Payroll records, time tickets; • Change orders; • Safety manuals of all contractors; • Safety meeting minutes; • Photos; • Accident reports, form 45s; • Entire OSHA file, including statements and photos’ • Certificates of insurance; • OSHA standards; • Daily diaries, job progress notes from 60 days prior to the date of loss to 30 days after; • Any written communication in relation to the job; and • Site plans, blueprints, schematics. The Law According to Purcell, while there is a general rule that one who employs an inde-
N12 | INSURANCE JOURNAL-NATIONAL REGION June 18, 2012
pendent contractor is not liable for that contractor’s negligence, there are exceptions in the Restatement (Second) of Torts §414. Most notably, the direct liability exclusion and retained control exception, he said. Most states have adopted some form of §414, he said. The retained control exception is also known as the vicarious liability exception. According to Purcell, the main question raised by this exception is to what degree of control must a construction company defendant exercise to be subject to liability under the theory? He described the case law as focusing on two factors: the terms of the contract agreed to by the parties and the active participation of the defendant on the job site. While case law exists to assist in determining whether this standard has been met, courts across the country do not view job site control in the same way, he said. Even construction practices can establish retained control. “Just that flippant way of sharing tools can establish exposure in some cases,” Purcell said. He said the direct liability exception focuses on the overall safety supervisory responsibilities of the defendant. Purcell said courts apply the exception by utilizing two criteria: Did the contract require the defendant to perform an overall safety function on the job site? And did the defendant have pre-accident notice, actual or constructive, of the unsafe work practice or hazardous work condition that caused the injury? In addition, direct liability can be imposed on a party if it assumes safety responsibilities. Purcell outlined the following points impacting the notice issue: • Actual notice. • Did the defendant actually see the hazardous condition or unsafe work www.insurancejournal.com
• Were there prior accidents involving the practice prior to the accident? same hazard or practice? • Did the defendant receive a complaint about it prior to the accident? ‘The law casts a wide net • Did the defendant participate in creating the hazard or recommend the in construction litigation.’ unsafe workplace practice? Risk Transfer • Was the defendant present at safety According to Purcell, there are three main meetings prior to the accident where ways to transfer risk in construction accithe topic was discussed? dent litigation — indemnity agreements, • Constructive notice. insurance requirements and contribution. • How long did the hazard exist prior to Purcell said that a minority of jurisdicthe accident? tions allow a party the ability to contract • How long did the unsafe workplace go away their responsibility. However, most on prior to the accident? recognize indemnity agreements as partially • Did the hazard or unsafe practice exist enforceable. in an area not readily accessible by any “You cannot contract away, by way of one other than plaintiff’s employer? an indemnity agreement, your own fault,” • Was the hazard or unsafe practice visPurcell said. ible to the naked eye from a reasonable Westrope IJ-BB4_IJ-BB4 6/6/11 3:20 PM Page 1 And in some states, indemnity agreements distance?
are not enforceable at all, he said. Most jurisdictions allow insurance requirements as long as they are imposed on other contractors downstream. Purcell suggested getting all of the applicable policies because with insurance requirements and contribution, it’s important to know all of the parties’ coverage. “It dictates, many times, how cases are structured,” he said. He suggested adjusters tender early and often, ensuring a response is received in order to line up coverage. Because of the other insurance clause in a policy, he said adjusters need to determine who is covering who, how much coverage exists, and in what order the policies will pay. Breach of contract claims can be filed against those parties who fail to procure insurance required by the contract, he said.
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SPECIAL REPORT
Construction Why Preparation Can Prevent Hurdles from Becoming Project-Killers in Construction Delays Financing and Weather Among Top Delay Issues
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eeping a construction project on track and on schedule is a big job. Many different pieces need to be in place at the right time. One big issue that often arises is the problem of delays. Whether they’re caused by bad weather, financing that dries up or other problems, delays can derail a project. Being By Carl Doby prepared gives owners and contractors the ability to navigate delays and keep a project on track. Insurance and risk management are two of the most important tools for managing delays. When put in place upfront, they can help reduce serious problems down the road. The foundation for any insurance program is builders risk coverage, which is designed to cover projects in the course of con-
struction. Each policy is tailored to the unique needs of a particular project. Builders risk is fundamentally different from standard property insurance. Builders risk also offers critical extensions and endorsements that N14 | INSURANCE JOURNAL-NATIONAL REGION June 18, 2012
address specific construction issues, such as delay in start-up (DSU) coverage, which triggers if an insured loss delays the completion of the project. Builders risk policies also provide clauses to address policy extensions that are needed if a project fails to meet its scheduled completion date in the absence of an insured loss. DSU insurance and policy extensions are sometimes overlooked by insurance buyers. Properly insuring a construction project can be challenging. Experienced brokers and insurers can help owners and contractors avoid pitfalls, and skilled underwriters can ensure that the policy accurately reflects the project’s scope, value and risks. The policyholder also should be confident that the insurer is willing to adapt coverage if the project changes. If not, the owner could confront multiple problems, including failure to meet a lender’s requirements, higher premiums, and uncertainty about whether an extension will even be granted. In one Miami project, for instance, the schedule was delayed because the project ran into hurricane season, altering the cost and availability of coverage. Insurance buyers also should consider the quality of claims administration. Quick claims payment is critical when the owner or contractor encounters time-sensitive issues or needs to make up for lost time. Properly managed claims help mitigate losses. For their part, insurance buyers can keep their carrier up-to-date on project developments. The insurer needs to know that the project is delayed and the reason. The insurer may also send a risk engineer or other professional to the site to monitor risks and mitigation.
In the event of a claim, the adjuster will want to review the schedule to identify the project’s status immediately prior to the loss. On a dormitory project in Southern California, for instance, the contractor had installed electrical panels but there was no roof on the building. The contractor had assumed that since the weather was usually sunny, it was unlikely to rain. That was unacceptable to the risk engineer. The risk engineer provided the insured and the underwriter with specific written recommendations to improve the risk and help prevent a water damage loss. Keeping in mind the fundamental guidelines, following are two potential delay issues and steps that can prevent them from undermining a project’s success. Financing Delays The 2008 financial crash caused financing disruptions for many construction projects. Some owners couldn’t get funding. Others found funding pulled or lines of credit cut off or drastically reduced. Some projects had everything necessary to get started — land, contractor, engineering and design plans, and permits — but expected financing didn’t materialize. The situation has improved. Brokers, insurers, owners and contractors are seeing more re-starts, and new projects are being financed. Still, lending hasn’t returned to its pre-crash level, and financing disruptions are possible. It is difficult to plan for major financial upheavals, which will impact insurance coverage. For example, the lender may cut off financing. The owner may find a new funding source. If the owner has to close out the deal, the cash flow ends and the contractor stops working. The site shifts from active to inactive and security www.insurancejournal.com
becomes a priority. The insurance policy may not align with the new focus, and will need to be re-negotiated or replaced. In some cases, insurers may require a change in the deductible that applies at the same premium rate. Or, the policy may be canceled and a new policy must be found. Often, a wellsecured, well-protected, idle property may be rolled into the owner’s property insurance policy for coverage, until construction resumes. On a $400 million project, for example, the builders risk policy may cover $20 million worth of materials stored offsite in a secure location. But once the project stops either temporarily or permanently, because materials were procured in advance, with delivery planned on a just-in-time basis, that 7.5 x 4.625 $20 million in stored materials could rise to a jgs_brightfuture_7.4x4.625v1 $60 million replacement cost exposure. If the June 2011 insurance coverage is not adjusted the stored material could be significantly underinsured. In another scenario, the owner may
choose to keep the contractor onsite but slow down the schedule until more financing becomes available. This could be a concern to insurers, who may see it as stretching out the risk over a longer period. This is much easier to manage than the zero cash flow scenario. In a third possibility, the project could change ownership partway through. The new owner could keep things the same or make wholesale changes. Some insurers may have the desire and flexibility to underwrite a significantly different project. Others may not have the interest or the ability to continue under their underwriting guidelines. A new builders risk underwriter, coming on midway through, will want to take a fresh look at the project scope, schedule and values, and may find underwriting to be challenging. The owner should expect a different and possibly better policy and terms than they had previously.
Weather Delays Weather delays are among the most common issues and ones that contractors, agents, brokers and insurers should be prepared for. It’s an area where taking precautions can really pay-off. It’s important to start with a realistic schedule that has time built in for weather disruptions, such as hurricanes, tornadoes or major snowstorms. Delay in startup coverage and renewable extensions also should be written into the policy, where appropriate. Delays are an inevitable fact of the construction business. While experienced advisors, advance planning, insurance and risk management can help reduce the number and impact of delays, they can’t be entirely eliminated. What these tools can do, however, is help make delays a manageable obstacle, not a project-killer. Doby is vice president of Hiscox USA. Phone: 213-412-0049. Email: carl.doby@hiscox.com.
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June 18, 2012 INSURANCE JOURNAL-NATIONAL REGION N15 5/31/12 9:14| PM
Closer Look
Umbrellas E&O Insights: Why Businesses Need Umbrella Protection
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been bound. Here is an actual claim where such documentation would have made a huge difference. The agency client, a tow truck operator, was involved in a claim where the tow truck apparently hit a car in the rear end, causing an occupant of the car to become a wheelchair-bound paraplegic. The underlying case was worth $5 million to $10 million. The client was a new customer, had provided a copy of his previous policy to the agent and asked for coverage. The agent stated that he saw the previous policy had $1 million primary and $4 million Coverage Not Placed umbrella. The agent stated he Potentially because of the told the client he was only going economy, umbrella coverage to obtain a primary policy for $1 has become an expense some million and that the client was businesses choose to go withgoing to think about whether out. These businesses either he wanted umbrella coverage. don’t believe they could have a According to the agent, the cliclaim that would penetrate the ent never got back to him on the umbrella layer, or it is possibly umbrella. The client testified in an expense that is just not in the underlythe budget. Umbrella coverage has ing action Agents must become an expense that he told be careful not the agent to to make any some businesses judgments choose to go without. duplicate his prior policy, on whether and assumed he had umbrella a client can afford an umbrella. coverage. Unfortunately, none of The proposal should include umbrella coverage so the insured alleged conversations between the agent and the client were can make the decision. While the client will obviously documented in writing. The claim was settled for the limit of secure general liability, workers’ the agency’s policy, $1 million. compensation and property coverages, he or she might want to Coverage Gaps hold off securing the umbrella, This may sound fairly basic, choosing instead to “think about it.” That can be dangerous. Make but errors and omissions (E&O) claims do arise from gaps sure the conversation/decision between the underlying and the is documented not only in your umbrella. Ensure the necessary systems, but also with a letter/ email back to the client advising underlying limits are secured to satisfy the requirement of the that umbrella coverage has not mbrellas are apparently not as simple as many would like to believe because various issues involving umbrellas cause more than their fair share of errors and omissions By Curtis M. claims. Due to Pearsall the nature of umbrella coverage, the exposure can be significant when a problem develops. What are those issues?
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umbrella carriers. It seems this is caused when the umbrella and some of the underlying coverages don’t have the same expiration date. If the underlying coverages were to get moved during the year, it is possible different underlying limits were secured, potentially causing a gap. For this reason, it is best that the umbrella and various underlying coverages have the same expiration date. A great way to address this issue is to make sure the underlying and the umbrella are written with the same agency. Limits When you provide a proposal that includes umbrella coverage for a client, the proposal must include various limit options with a statement that “higher limits are available.” What if an agent were to “recommend” that the client secure a $1 million umbrella and then the client suffers a loss where the limit was not sufficient? Chances are the agent would be faced with
some type of litigation alleging “improper advice” for “recommending” a limit. If you were to ask any of your carriers, they could undoubtedly advise you of some very significant umbrella losses. If the client currently has a $1 million limit, don’t just duplicate it. Provide options for higher limits and then get the client’s sign-off on the limits not taken. Claims E&O claims arising out of alleged errors or omissions by agency claims staff are occurring at an alarming rate. One of the issues involves umbrella carriers not being put on notice when an underlying claim occurs. Why would an agency not put a carrier on notice? Probably because the agency (and client, too) does not believe the claim has even the remotest chance of penetrating the underlying coverage limit. If the umbrella carrier was not put on notice and the claim adversely develops, the umbrella www.insurancejournal.com
NATIONAL COVERAGE
News & Markets carrier may look to “deny for late reporting” when it is finally put on notice. When an underlying claim occurs, putting the umbrella carrier on notice is highly recommended — even if it’s for record purposes only. This will give the carrier the opportunity to practice due diligence in investigating/monitoring the matter. Placing the umbrella with the same carrier as the underlying would seem to alleviate this issue. Claims-Made Basis Are any of the underlying policies written on a claims-made basis? How well does the umbrella address that exposure (underlying policies written on both a claims-made and occurrence basis)? If one of the coverages is on a claims-made basis, is full prior-acts being afforded or is there a retro date? There is a critical distinction you, as the agent, must bring to the client’s attention. Review Forms Not all umbrella forms are the same. When getting proposals from multiple carriers, review the forms to identify any distinctions. This can be a daunting task, but there are resources available such as FC&S Umbrella. This service not only provides a summary of the coverages afforded by an umbrella policy and how an umbrella policy functions, but also offers an analysis of various umbrella forms with policy comparison worksheets. Check, too, if there are any exclusions in the excess policy, not in the primary. Both you and your client need to know.
Commercial Insurance Prices Continue to Rise: Towers Watson
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ommercial insurance prices in aggregate increased by nearly 5 percent during the first quarter of 2012, the fifth consecutive quarter that prices rose. In addition, commercial insurers’ loss ratios stabilized for most insurance lines and improved in lines with the largest price increases, according to the Commercial Lines Insurance Pricing Survey (CLIPS) by Towers Watson. The survey compared prices charged on policies underwritten during the first quarter of 2012 to those charged for the same coverage during the same quarter in 2011. The largest price increases were once again in workers’ compensation and commercial property, the survey revealed. Workers’ comp prices increased for the fifth consecutive quarter, after flat pricing in all of 2010; commercial property prices rose for the fourth consecutive quarter. “We are seeing a continuing trend of pricelevel increases in the commercial insurance marketplace,” said Thomas Hettinger, property/casualty sales and practice leader for the Americas at 1/4/08 Towers Watson. “ThisPage USA12043.qxd 2:26 PM quarter, the industry reached a significant
threshold — an aggregate price increase of nearly 5 percent — the largest quarterly increase we’ve seen since 2004.” Price increases were observed across all account sizes for standard commercial lines, with the most significant increases in mid-market accounts. Specialty lines lagged, with much more modest increases of less than 2 percent. Historical loss cost information reported points to a deterioration of less than 1 percent in loss ratios for accident-year 2012 compared with 2011, a more favorable indication than the estimated 3 percent deterioration between 2010 and 2011. Towers Watson said data in lines with the largest price increases — workers’ comp, commercial property and general/products liability — indicate improving loss ratios. “We are likely to see improving loss ratios in the near future if this level of price 1increases and loss trends continues,” said Hettinger.
Additional Sales, Solid Protection With the current economy, many customers are looking to reduce expenses. While an umbrella may be “optional” in your client’s mind, offer a variety of umbrella limits on all proposals — whether the customer is new to your agency or is a long-time client. This will no doubt lead to additional sales and will serve as solid protection against an E&O claim. Pearsall, CPCU, ARM, is president of Pearsall Associates Inc., a risk management consulting firm specializing in helping agents protect themselves. He is also a special consultant to the Utica National Agents E&O program. Phone: 315-768- 1534. Email: curtis@pearsallassociates.com. www.insurancejournal.com
June 18, 2012 INSURANCE JOURNAL-NATIONAL REGION | N17
NATIONAL COVERAGE
MyNewMarkets Equine Insurance Market Detail: Momentous Insurance Brokerage Inc.’s (www.momentousins.com) equine division provides insurance products for private horse owners and horse-related businesses, including private equine liability, equine mortality, commercial equine liability, farm and ranch protection, and more. Specialists are insurance brokers as well as accomplished equestrians. Available limits: As needed Carrier: Unable to disclose States: All states Contact: Terri Peters at 818-933-2700 or email: Practice Leader tpeters@mmibi.com
Artisan Contractors E&O Market Detail: Victor O. Schinnerer’s (www.schinnerer.com) contractor program has a new errors & omissions and pollution policy for artisan contractors. Artisan contractors E&O provides coverage for
wrongful acts arising out of the insured’s faulty workmanship and design services performed on their behalf. Minimum premium: $3,200. Available limits: As needed Carrier: Columbia Casualty, CNA States: All states Contact: Cady Sinks at 301-951-6939 or email: Cady.M.Sinks@Schinnerer.com
Dwellings & Apartment Buildings Market Detail: Keller & Co. (www. kellerandco.com) has coverage for one to four standard and non-standard family dwellings. Five or more family and apartment buildings are also accepted. Package policies, BOP policies and monoline coverages are available. Available limits: As needed Carrier: Unable to disclose, admitted States: N.Y. and Pa. Contact: John Barton at 800-424-2202 or e-mail: jbarton@kellerandco.com
Inland Marine Target Classes • • • • • • • •
Builders Risk / Installation Floaters Contractors Equipment Customer Property / Bailees Medical Diagnostic Equipment - Covered Property Motor Truck Cargo - Primary, Excess & Contingent Oil Lease Property Miscellaneous Property Floater Equipment Dealer Building Newly Acquired Locations Personal Property at unnamed locations Fire Protection Device Recharging
• • • •
Hotels/Motels Market Detail: Cochrane & Co. (www. cochraneco.com) offers property and liability coverages available on monoline or package basis. A list of eligible accounts include, but are not limited to: hotels, motels, motor inns, resorts, tourist cabins, tourist courts, and dude ranches. Available limits: As needed Carrier: Unable to disclose, non-admitted States: Alaska, Ariz., Calif., Colo., Idaho, Mont., N.D., N.M., Ore., Wash., and Wyo. Contact: Veronica Stevens at 509-838-0655 or email: vstevens@cochraneco.com
Market Detail: Intellectual Property Insurance Services Corp.’s (IPISC) (www. patentinsurance.com) insurance products are designed to help safeguard a company’s intellectual property (IP) and their right to sell products. This insurance is valuable to any company that has rights in patents, trademarks copyright and/or trade secrets; and to any company who makes, uses, sells, offers for sale or imports a product. Available limits: Minimum $100,000, maximum $10 million Carrier: Lloyd’s of London and AmTrust International Underwriter’s Ltd. States: All states Contact: Karrie Lewis at 502-855-5310 or email: klewis@patentinsurance.com
Personal Property Signs Glass Debris Removal
Multiple Optional Coverage for all lines of Inland Marine & Property is also available, please contact Midlands for additional information. For additional information, please contact: Phone: 800.800.4007 InlandMarine@midman.com • Submissions: Submit@midman.com midlandsmgt.com Member of Old Republic Companies
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Market Detail: King Insurance Support Systems (www.kinginsuranceca.com) provides mobile home park and RV park insurance placement. The program offers property, liability, inland marine, crime, automobile, tenant discrimination, garagekeepers liability and umbrella. Park-owned mobile rental exposures are acceptable. Umbrella limits up to $20 million available. Available limits: As needed Carrier: Various, admitted and non-admitted States: Ariz., Calif., Colo., Idaho, Nev., N.M., Ore., Texas, Utah, and Wash. Contact: Erik Toberman at 949-488-2255 or email: Erik@kinginsuranceca.com
Intellectual Property Insurance
Covered Property • • • •
Mobile Home Parks & RV Parks
5/21/12 1:12 PM
www.insurancejournal.com
SPECIAL REPORT
Construction Construction, continued from page N9
the eye of insurers and brokers. development so far,” he says. Large multifamily projects that reached Higher-end, luxury apartment living is groundbreaking in April included a $100 growing in popularity. million addition to an apartment building in “The trend for luxury, apartment comNew York, N.Y., an $89 million apartment munities is very big in Southern California, building in Brooklyn, N.Y., and a $75 million along the whole West coast,” he says. Pilla conversion of a hotel also sees pockets The mixed use, multifamily of growth elseinto a condominium housing trend is what will where including building in New York, N.Y. Austin and Dallas, really revive the “We are seeing uptick as well as parts of construction industry. in multifamily residenthe Southeast. tial, mainly around apartments,” Zurich’s Some of the big developers that have held Rasor says. off the last few years seem to be gearing up TRU’s Pilla says the building of apartfor more growth in the coming year, he says. ment communities that include mixed-use Alliant’s Arkley believes that the mixed properties with both retail and housing is use, multifamily housing trend is what will a growing trend. In response, his firm has really revive the construction industry. developed a new master program product to “Mixed use— I think that’s what’s going to target large developers of apartment commu- lead us back,” Arkley says. “Rental properties nity building. are the hot commodity. The mixed use, and “We have attracted some of the larger the private sector, is what will pull us out high-end developers in multifamily type and keep us going and it’s the larger develop-
ers really driving the process.” Willis’ DeLaRue views the trend as a renaissance in the residential construction market. “That particular area has been very quiet for a long time and we are starting to see an increase in apartment and condo construction, which is a big change over the past couple of years,” DeLaRue says. It’s been so long since carriers wrote new construction coverage for condos that DeLaRue says the markets had some reconsidering to do. “We had to actually go out and talk to some of the carriers about how they might look at condominium construction,” he says “While they’ve been dealing with losses in residential construction during the boom they hadn’t seen much new stuff come in,” DeLaRue says. “So they have to figure out how they will address the risk now that they have a little bit more experience with construction defects than in the past.”
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June 18, 2012 INSURANCE JOURNAL-NATIONAL REGION | N19
NATIONAL COVERAGE
News & Markets
Looming Agent Retirements: Carriers Face Major Turnover
M
ore than 25 percent of independent agency owners and principals are planning to retire or change careers, and sell their firms sometime in the next five years, according to a new survey that explores agent attitudes about insurance companies. The survey of independent agents on their attitudes regarding carriers — on a wide range of issues — was conducted by Channel Harvest Research and sponsored by Insurance Journal. Respondents who identified themselves as a principal or owner of an agency were asked about long-term plans for owning their firms. Those questions included when they expect to leave the agency and what they plan to do with it, the challenges they anticipate, and to where they would turn for advice and other forms of help. When asked what would lead them to some day sell their firms, two out of three owners said retirement. About one-third of agents hope to sell to family members. The remainder is anticipating a sale to employees, partners or other agencies, although many had not yet identified a prospective buyer.
Carrier Support Regardless of who they imagined buying them out, most respondents discussed a wide range of challenges that would need to be overcome. “Agents clearly are asking carriers to help them in several different ways. And given the potential to lose large numbers of established appointed agencies, carriers should consider how they can support these would-be retirees,” said Steve Craig, project director for Channel Harvest. “Helping these agents will help provide carriers qualified sales reps in the future.” Carriers are well positioned to offer advice, respondents said. A sizable number of agency owners appear willing to listen to carriers for suggestions on how best to approach their perpetuation challenges. There were several types of answers that went beyond providing advice: Agents not
N20NSPTD15934.indd | INSURANCE JOURNAL-NATIONAL REGION June 18, 2012 1
6/6/12 3:43 PM
interested in family transfers would like help finding prospective buyers. Several owners speculated about the carriers’ ability to provide some form of financing. Another set of suggestions focused on ways carriers could support a smooth and successful transition from one owner to another. The responses included several specific suggestions for ways carriers could help. About the Survey The study, “2012 Survey of Agent-Carrier Relationships,” is the fifth in a series examining independent agents’ views on marketplace issues. The survey was sponsored by Insurance Journal and conducted by Channel Harvest Research — a partnership between Campbell Communications and Aartrijk. The survey instrument covered more than 90 questions. More than 1,500 agents responded to the survey and passed validation criteria. Quantitative survey results are presented in a variety of formats, including importance rankings of specific carrier attributes, ratings of specific companies on attributes, industry issues, and open-ended agency comments about what breaks out superior carriers from the pack. Information quoted in this article and the included graph is based on preliminary data, and final survey findings could differ slightly. For information on obtaining the survey report, contact John Campbell at john@ channelharvest.com or 202-363-2069. www.insurancejournal.com
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NATIONAL COVERAGE
Web Exchange
IJ Video Highlights
Foreign Exposures to U.S. Firms in D&O http://www.insurancejournal.tv/videos/7328/ U.S. companies face many exposures around the globe. Increasingly, they are traced to a crackdown against corporate bribery. Ann Longmore is an executive vice president of Willis and an expert in foreign exposures for U.S. firms. In this interview, Longmore discusses how this translates into concerns for D&O carriers.
Blog Highlights On the ‘Right Street’ http://www.insurancejournal.com/blogs/right-street/ The R Street Institute (www.rstreet.org), a new insurance free market think tank, has launched an insurance issue-oriented blog on InsuranceJournal.com. The blog,”Right Street Blog,” is being authored by Eli Lehrer, president of R Street Institute, and Ray Lehmann, deputy director, from the group’s office in
Washington, D.C. Other members of the conservative-minded team including Alan Smith, Julie Brenner and Christian Cameron, who have experience on insurance issues in several states, also will contribute to the blog. R Street was organized by Lehrer and others formerly with the Center for Finance, Insurance, and Real Estate at the Heartland Institute. The insurance team split from Heartland over a disagreement about an anti-global warming campaign. Check Out: ‘Burand’s Agency E&O’ http://www.insurancejournal.com/blogs/agency-e-o/ Insurance agency consultant Chris Burand has launched a new blog on insurance agency errors and omissions (E&O) issues found only on InsuranceJournal.com. In Burand’s Agency E&O Blog, the consultant will share E&O situations and solutions facing property/casualty insurance agencies. The blog, launched on May 30. “I want to share my experience from more than 20 years helping agencies deal with and prevent many of the E&O situations they find themselves in,” Burand said. He said he hopes readers will comment and participate in a conversation about E&O concerns. Burand is president and owner of Burand & Associates LLC, a management consulting firm that has been specializing in the property/casualty insurance industry since 1992.
Advertisers Index Readers, browse, contact, or do product searches on any of our full page advertisers at: http://www.insurancejournal.com/adshowcase/ E: East, M: Midwest, N: National, SC: South Central, SE: Southest, W: West Abram Interstate www.abraminterstate.com
W14
ACE Insurance www.acelimited.com
SC19, SE19, E19, M19, W17
Gateway Specialty Insurance
PIA of Georgia
www.gatewayspecialty.com W16, SC21, SE16, E16, M16
www.piaga.com
Insurance Technologies Corp.
Preferred Property Program
www.insurancewebsitebuilder.com
American Safety Insurance Service, Inc.
M.J. Hall & Company, Inc.
www.amsafety.com
www.mjhallandcompany.com
SC7, SE7, E7, M7, W7
www.andersonmurison.com
N10
W18
W13 & W64, SC13 & SC48,
SE13 & SE48, E13 & E48, M11 & M44
www.mhi-tx.com
SC18
www.midlandsmgmt.com
N18
www.monarchexcess.com
www.astonishresults.com SC14, SE14, E14, M14, W10
Navigators Management Company, Inc.
Burnett & Company
www.navg.com SC22
www.calquake.com
W2
www.cnico.com
W19
N5
W21, SC2, SE15, E15, M15
www.taga1.com
SC3
www.texasmutual.com
SC15
www.universalbonds.com
N17
Westrope N20
www.westrope.com
N13
Zurich Insurance Company
Pacific Gateway Insurance Services W22
www.zurichna.com
W63, SC47, SE47, E47, M43
Partners Specialty Group
Chartis
www.psgins.com
www.chartisinsurance.com SC17, SE17, E17, M17, W15
PersonalUmbrella.Com
Chubb Corporate
www.personalumbrella.com
www.chubb.com
www.siaa.net
Universal Service Agency, Inc
Norman-Spencer
www.pgiainsurance.com
Century National
N3
Texas Mutual Insurance Company W3
www.norman-spencer.com
California Earthquake Authority
www.riskmeter.com
Tejas American General Agency
Monarch E & S Insurance Services
Astonish Results
www.bcoinc.com
N15
SIAA
Midlands Management Corporation
Applied Underwriters
www.umbrellaprogram.com RiskMeter.com
McClelland & Hine
Anderson & Murison, Inc.
www.applieduw.com
N7
SE21
N11 SC5, SE5, E5, M5, W5
SC9, SE9, E9, M9, W11
N22 | INSURANCE JOURNAL-NATIONAL REGION June 18, 2012
www.insurancejournal.com
Laugh! IJ’s Satire Issue Is Back. Readers, Submit Your Anecdotes! Insurance Journal’s famous “Satire Issue” is back again. The August 20th issue will be packed with hilarious editorial content, wacky ads from our partners and lots of lighthearted surprises. And just for fun, the most amusing-est reader-submitted content will be published in the magazine! Submit your funny stories, insurance jokes or weird claims by August 3rd at www.insurancejournal.com/satire
Let’s have some fun with this!
IDEA EXCHANGE
Closing Quote
Good Brokers to Great Brokers Specialization Differentiates and Keeps Brokers Ahead of the Competition
I By Sahil Akbarali
n his best-selling business management book “Good to Great,” Jim Collins discusses the hedgehog concept — what a company can be the best in the world at, what drives the economic engine of a business and what a company is passionate about. The hedgehog concept, Collins says, shows how good companies become great companies through specialization. Wells Fargo outperformed its competitor Bank of America through specialization in offering products and services in specific regions of the world where it could be the best, instead of trying to become a global bank. Abbott Laboratories realized it could not be the best in the pharmaceutical industry. So, it surpassed its competitor Upjohn Co. by specializing and being the best at providing nutritional products and diagnostic devices. If the banking industry and consumer products industry have clear examples of good companies becoming great companies, why shouldn’t insurance broking firms strive for the same through specialization? The insurance industry is transforming rapidly — and for the most part the change is good. Historically, the industry has developed innovative products and services that have allowed clients to conduct business in regions of the world with greater insecurity and opportunity to meet their evergrowing appetite for growth. Still, insurance has played a catch-up game with clients by creating new financial instruments that simultaneously incorporate conventional insurance principles and represent
N24 | INSURANCE JOURNAL-NATIONAL REGION June 18, 2012
contemporary risks. However, there is a refreshing revolution happening within the broking industry that addresses client needs and continuously improves on the ability to meet those needs — specialization. How does an insurance firm go from being good to great through specialization? Traditionally, insurance brokers specialized in a particular line of business such as property, casualty, excess, etc. But now we see larger brokerage firms, such as Aon, Marsh and Gallagher positioning themselves to become experts not only in particular lines of business, but in particular industries. Specialization within an industry allows brokerage firms to offer programs that deliver cost savings and better financial planning while effectively protecting property. An insurance brokerage firm that employs individuals with targeted industry expertise allows it to focus and better understand the industry in which a client operates. A clear example of this is in hospitality insurance programs. Hotels now are offered bed bug coverage in addition to traditional coverages because brokers identified the increasing time, costs and negative publicity to hotel and lodging businesses that can result from a simple exposure that previously was overlooked in hospitality programs. Cyber technology and the risks associated with it offer another example of how specialization can help a firm outperform the competition by focusing on an industry that has previously been under-serviced or never considered. Cyber threat is one of the most serious economic and security challenges that companies and governments face around the world. Hackers can breach into corporate networks and embezzle sensitive corporate information, personal records and other data that can later be monetized. The Federal Bureaus of Investigations says such acts have cost the financial service industry hundreds of millions of dollars, placed them at a competitive disadvantage, and increased the cost of doing business. New, emerging risks such as cyber threats pose as opportunities for brokerage firms to have teams of professionals who understand how a company can overcome the qualitative and quantitative obstacles that it may face in the event of a cyber attack. To keep clients engaged and loyal, a brokerage firm should try to offer something more than new products; it has to assure clients that it can offer the expertise and knowledge of their particular industry. Any insurance brokerage firm can boast to have the strong institutional relationships. But in the long-term, the specialized knowledge of industries allows an insurance broker to outperform its competitors because it understands the coverages that are needed by the client. Only time will tell which insurance firms take into consideration the hedgehog concept and truly transition from good companies to great companies. Akbarali is a property/casualty energy broker for Aon Risk Services Southwest Inc. based in Houston. www.insurancejournal.com
Why insure people who would scale 100-story structures? Because they’re building the country’s future. When Zurich arrived in the US in late 1912, our goal was simple: to help a growing country grow more. We offered workers’ compensation insurance, enabling industry to grow exponentially. We insured the 1933 Chicago World’s Fair, which in turn brought fresh capital into the city during the Great Depression. And we provided insurance coverage to factories at the dawn of the assembly line, helping local companies to become global companies. The past 100 years have been nothing short of extraordinary. And we can’t wait to see what the next 100 will bring. Insuring success since 1912. Visit zurichna.com/100
In the United States, insurance coverages are underwritten by individual member companies of Zurich in North America, including Zurich American Insurance Company. Certain coverages are not available in all states. Some coverages may be written on a non-admitted basis through licensed surplus lines brokers. Prior results do not guarantee a similar outcome. Risk engineering services are provided by Zurich Services Corporation.
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