november 19, 2012 | Vol. 90, No. 22
WEst REGION Specialty World of Long-Term Care Private Equity Firm Buys Confie Seguros Conditions That Brought Sandy May Stick Around
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N8 On The Cover
WEST
Inside This Issue
Special Report: Contractors & Builders Building Momentum in the Construction Market
November 19, 2012 • Vol. 90, No. 22 • West Region
14
16
N16
N22
NATIONAL COVERAGE
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Idea exchange
N8 Special Report: Contractors & Builders Building Momentum in the Construction Market
8 Calif. Broker Charged with Defrauding Tom Hanks, Ex- ‘Police’ Musician
20
N12 Closer Look: Long-Term Care N14 Spotlight: Top 50 Personal Lines Leaders N15 Risk Retention Groups’ Assets, Surplus Continue to Rise N16 E&O Insights: The Specialty World of Long-Term Care N18 Special Report: 2012 State Specialist P/C Insurers Revealed N20 Superstorm Sandy Will Test Federal Flood Insurance Program
8 Colorado Springs Wildfire Expected to Create Jobs 14 Kreidler’s 4th Term in Washington: Healthcare, Climate Change, Excess Surpluses 16 Californians Lump Props. 32 and 33; a Referendum on the ‘B’ Word 18 Climatologist: Conditions That Brought Sandy May Stick Around 22 Private Equity Firm Buys Confie Seguros from Genstar
N22 Poll: Cyber Risk Awareness Increasing
4 | INSURANCE JOURNAL-WEST REGION November 19, 2012
Legal Matters: The Duty to Indemnify: Making Your Reservation of Rights Work for You
N1 Growing Your Property Casualty Agency: Shulman N2 How to Position Yourself as an Industry Expert Online N4 The Competitive Advantage: Burand N24 Closing Quote: Insurance Coverage Gaps
DEPARTMENTS 6 9 9 10 12 N7
Opening Note Declarations Figures People Business Moves MyNewMarkets
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Opening Note
EDITORIAL
Top 10 IT challenges
I
t’s probably not news to read that many companies aren’t going far enough to assess and fix their IT risks, but a recent survey from consulting firm Protiviti is an eye-opener if you deal in the world of cyber risk. The Menlo Park, Calif., firm’s 2012 IT Audit Benchmarking Survey shows the top 10 technology challenges faced by businesses, and it notes that a large number of firms conduct no IT audit risk assessment whatsoever. Moreover, “a considerable number of companies that do conduct assessments have critical gaps in their IT audit capabilities,” the survey states. The survey asked participants about the top technology challenges that organizations face today. The top 10 were: • Information security • Cloud computing ‘…a considerable number • Social media • Risk management and govof companies that do conernance duct assessments have • Regulatory compliance critical gaps in their IT • Technology integration and audit capabilities.’ “upgradation” • Resource management • Infrastructure management • Fraud monitoring • Business continuity/disaster recovery This year’s survey showed an increased number of companies with reported revenues of between $100 million and $1 billion were conducting IT audit risk assessments. However, three in 10 firms with less than $100 million in annual revenues conduct no such assessment, the survey shows. The survey also shows that 65 percent reported they conduct their IT audit risk assessments annually. But according to Protiviti that may not be good enough. The firm recommends conducting IT risk assessments more often to keep up with the rapid pace at which technology changes. Protiviti conducted its IT Audit Benchmarking Survey in the first and second quarters of 2012 with participants comprised of chief audit executives, audit directors, and IT audit directors and managers. An added bonus from reading surveys like this is you often get introduced not only to new ideas, but to new words — whether they be real or just industry jargon. I was surprised to find that “upgradation” is a recognized word on Dictionary.com, which defines it as “upgrading; the act or process of improving the quality of something.” How this is different than the word “upgrading” is beyond me, but hey, it’s what got me to read the survey in the first place.
Don Jergler West Editor
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 Andrew Bard, Barry Koestler, William Passannante
SALES
V.P. Sales & Marketing Julie Tinney (800) 897-9965 x148 jtinney@insurancejournal.com West Dena Kaplan (800) 897-9965 x115 dkaplan@insurancejournal.com South Central Mindy Trammell (800) 897-9965 x149 mtrammell@insurancejournal.com Midwest Lauren Knapp (800) 897-9965 x161 lknapp@insurancejournal.com Southeast Howard Simkin (800) 897-9965 x162 hsimkin@insurancejournal.com East Dave Molchan (800) 897-9965 x145 dmolchan@insurancejournal.com New Markets Sales Manager Kristine Honey | khoney@insurancejournal.com Classifieds, Jobs, Agencies Wanted/For Sale (800) 897-9965 x125 Ly Nguyen | lnguyen@insurancejournal.com
MARKETING/NEW MEDIA
Marketing Administrator Gayle Wells | gwells@insurancejournal.com Advertising Coordinator Erin Burns | eburns@insurancejournal.com (619) 584-1100 x120 New Media Producer Bobbie Dodge | bdodge@insurancejournal.com Videographer/Editor Matt Tolk | mtolk@insurancejournal.com
DESIGN/WEB
Vice President/Design Guy Boccia | gboccia@insurancejournal.com Vice President/Technology Joshua Carlson | jcarlson@insurancejournal.com Design and Marketing Executive Derence Walk | dwalk@insurancejournal.com Web Developer Jeff Cardrant | jcardrant@insurancejournal.com Web Developer Chris Thompson | cthompson@insurancejournal.com
IJ ACADEMY OF INSURANCE
Director of Education Christopher J. Boggs | cboggs@ijacademy.com Online Training Coordinator Barbara Whiffen | bwhiffen@ijacademy.com
A DM I N I ST R A T I O N
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 November 19, 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.
from foundation to completion, ACE insures progress To address the risks of the construction industry, it takes the right people and a strong balance sheet. Our experienced underwriters and technical knowledge allow us to create custom and flexible solutions for your specific construction needs. We take on the responsibility of your risks, so that you can take on the responsibility of building for the future. We call this insuring progress. Visit acegroup.com/us and find out how our team can work for you.
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News & Markets Calif. Broker Charged with Defrauding Tom Hanks, Ex-’Police’ Musician Leave Of Absence
The former chief executive of Coloradobased Van Gilder Insurance Corp. who is charged with five counts of insider trading is taking an indefinite leave of absence as an employee of the company and as a member of its board of directors. Michael Van Gilder pleaded not guilty in federal court in Denver in late October after the company said he was stepping down as chief executive for personal reasons. An indictment says Van Gilder was a close friend of an executive at Denver-based Delta Petroleum. Van Gilder is accused of trading Delta stock in late 2007 and early 2008 based on nonpublic information, including information from an executive that Delta Petroleum was doing fine despite a published report expressing pessimism. The Denver Post reported Don Woods, president of Van Gilder Insurance, has assumed Van Gilder’s management responsibilities. Copyright © 2012 Associated Press.
A
Southern California insurance broker was arrested on allegations he overcharged Tom Hanks, musician ex-Police band member Andy Summers and others hundreds of thousands of dollars for insurance premiums. Broker Jerry B. Goldman was arrested at his Thousand Oaks home. A federal grand jury in Los Angeles indicted him on Oct. 30 for fraud. The indictment claims that between 1998 and last year,
Goldman overcharged Hanks, Summers and two other victims more than $800,000 on insurance policies. He sent the insurance companies the premiums and kept the overcharged amount, prosecutors claim. When clients asked him for copies of their policies, Goldman sent them altered copies that didn’t disclose the true premium “in order to lull his clients into a false sense of security” and keep
them from suing him or seeking criminal prosecution, the indictment charged. Details weren’t released but the indictment says the term “insurance policies” in the document refers to coverage for everything from cars, property and fine art to flood, fire, earthquakes, worker’s compensation and “personal employment practices liability.” Copyright © 2012 Associated Press. All rights reserved.
Oregon Developer Told to Pay $1.6M in Asbestos Case
A
developer whose plans to redevelop a sawmill in Sweet Home, Ore., has pleaded guilty to accusations that he allowed an unlicensed contractor to demolish a building, releasing asbestos
near residential neighborhoods. After the work, the U.S. Environmental Protection Agency declared it a Superfund site and spent $1.6 million cleaning up more than 4 million pounds of the cancer-causing material. Dan Desler was sentenced in federal court to pay restitution for the cleanup. Desler was reportedly managing trustee of a trust that was given the former Willamette Industries site. Plans to develop 400 to 600 acres with upscale housing and a complex for artists, hunters and anglers, and then for moderately priced housing never came to fruition.
In 2004, a fire believed started by a transient struck several buildings. Firefighters told state regulators of debris that appeared to contain asbestos, and Desler was told about the asbestos. He hired a licensed contractor to do cleanup, but work was not completed in any of the undamaged buildings. Three years later, Desler hired an unlicensed contractor, who over eight months tore down, crushed and even chipped asbestos-containing materials. The site is near a residential area and large piles of asbestos-containing materials were left uncovered. Copyright © 2012 Associated Press. All rights reserved.
Colorado Springs Wildfire Expected to Create Jobs
E
conomists say a wildfire that burned 346 homes and scorched 28 square miles in the Colorado Springs area over the summer could provide an economic boost over the next five years. Claims for the contents and homes damaged in the Waldo Canyon Fire have reached $350 million and counting. The Rocky Mountain Insurance Information Association estimated that fire, and
8 | INSURANCE JOURNAL-WEST REGION November 19, 2012
another which occurred within weeks of it, constituted the two most destructive wildfires in Colorado’s history. Economist Tom Zwirlein said rebuilding could create more than 750 new jobs over the next five years. Refurbishing new homes and businesses could create more than 320 jobs. Copyright © 2012 Associated Press. All rights reserved. www.insurancejournal.com
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Declarations No Risky Business
No Habrá El Niño
No Quacking Duck
“However, we do not think it’s good risk management to put a group of gentlemen with weapons out in the desert at night, becoming involved in human- and drugsmuggling enforcement efforts.” — Bill Hardy, executive director of the Arizona Counties Insurance Pool, explaining why the insurance pool that covers sheriff’s volunteers in 11 of Arizona’s 15 counties is changing its policies to exclude an armed volunteer posse to be deployed to scan the desert for smugglers.
“The previous El Niño watch has been discontinued as the chance of El Niño has decreased.” — Said the Climate Prediction Center two weeks into November, when it issued its monthly report. The U.S. national weather forecaster called off its El Niño watch five months after raising the alert, as it is now less likely that the much-feared phenomenon that can wreak havoc on global weather will emerge.
“Odds are against a five-year farm bill in the lame duck (session) unless it’s part of a budget agreement.” — Pat Westhoff of the think tank Food and Agricultural Policy Research, based at the University of Missouri, said referring to the likelihood that lawmakers will be unable to break their deadlock over enacting a five-year, $500 billion farm bill covering a wide range of agricultural policies from food stamps to crop subsidies and soil conservation.
No Halt Fault
Figures
“It just became blatantly obvious that you could have one rupture that goes from the next fault to the next to the next.” — Peter Haeussler, an Alaskan research geologist with the U.S. Geological Survey, said some researchers had thought an earthquake would come to a halt at the intersection of fault lines. The 2002 Denali Fault earthquake clearly broke that rule, and a decade later research connected to Denali has affected the way seismologists look at earthquakes.
$
16 Million
Is the amount of wrongful death claims that have been filed by the family of a California man shot to death in April by a Stanislaus County sheriff’s deputy.
$
13.6 Million
In insurance money was paid to the owners of the Hitching Post Inn, who its insurers say intentionally burned the landmark Wyoming hotel to collect the insurance money. Insurer National Security Corp. firm recently asked U.S. District Judge Nancy Freudenthal to delay acting on the lawsuit while criminal charges are pending.
3.4 Percent 250,000 Is how much Mercury General Corp.’s net premiums written for the third quarter rose, hitting more than $684 million, the Los Angeles, Calif.-based company reported in late October. Mercury reported third-quarter net income of $66.2 million, or $1.21 per share, compared with a net loss of $3.78 million, or 7 cents per share, a year ago. www.insurancejournal.com
That’s the number of new and used cars and trucks that may be scrapped after Superstorm Sandy flooded coastal areas in New Jersey and New York. Many of the vehicles were stored at the port of Newark when Sandy hit, and the loss could eventually lead to a spike in new auto sales, automakers and dealers said. November 19, 2012 INSURANCE JOURNAL-WEST REGION | 9
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People Susanne Sclafane
John Bolce
Merry Palmer
Susanne Sclafane has joined property/casualty insurance media company, Wells Media Group, as senior editor. In her new position, Sclafane will be in charge of improving the company’s content and services to meet the information needs of high-level property/casualty insurance company executives. Sclafane is an experienced insurance journalist who spent 16 years at National Underwriter Co., rising from staff writer to managing editor of that company’s flagship property/casualty magazine. Most recently, Sclafane was with the professional services firm, Advisen, where she had sole responsibility for several quarterly digital journals on management liability, employment practices liability and cyber insurance. Sclafane is based in New York. Prior to entering insurance journalism, Sclafane, who has a degree in Mathematics, worked for the National Council on Compensation Insurance, The Atlantic Mutual Companies and Coopers & Lybrand in actuarial consulting and supervisory positions. She is a fellow of the Casualty Actuarial Society and member of the American Academy of Actuaries. Wells Media Group is best known for its flagship Insurance Journal national and regional magazines, and website, www.InsuranceJournal.com. Wells Media Group opened its popular Academy of Insurance in 2011, relaunched its www.ClaimsJournal.com website and debuted its Claims Journal magazine in 2011, and recently unveiled a redesign of its insurance product website, www. MyNewMarkets.com. Salt Lake City, Utah-based The MGIS Companies Inc. named Matthew B. Ririe regional vice president of sales for group disability for the western region. Ririe will be responsible for strategic growth of the disability block within the western region. He joins MGIS from PricewaterhouseCoopers, where he was an associate. The MGIS sales force reports to Randall Tate, vice president of sales.
10 |ASTISH14873.indd INSURANCE JOURNAL-WEST REGION November 19, 2012 ASTISH15197.indd ASTISH5333.indd 11
MGIS is a provider of insurance products and services specifically for physicians, and its group disability policies are backed by Sun Life Financial. The MGIS medical professional liability insurance policies are backed by Freedom Specialty Insurance Co. Reno, Nev.-based L/P Insurance Services Inc. named John Bolce managing shareholder of Northern California Operations. Bolce will be responsible for developing L/P Insurance Services’ northern California division insurance operation. His responsibilities will include recruiting commercial property casualty and employee benefits professionals, identifying potential acquisitions and establishing a personal lines division. Bolce, who has 25 years’ experience in insurance, was formerly construction practice leader for Wells Fargo Insurance Services. L/P Insurance Services, which is a member of the ISU Network, also has an office in Fair Oaks, Calif., where Bolce will be based. Griffin Underwriting Services named Merry Palmer a program broker. Palmer will be responsible for program brokerage production and marketing as well as bringing depth and focus to Griffin’s Program Business. Palmer has over 32 years of insurance industry experience. Most recently, she was a senior underwriter at Canfield Insurance. She is the current Chapter Chair of Professional Liability Underwriting Society. Griffin Underwriting Services is headquartered in Bellevue, Wash., and is licensed to underwrite insurance in 48 states and the District of Columbia. G.U.S. was one of the first surplus line brokers in the region to be granted binding authority by Lloyd’s of London. Currently, more than 3,000 retail producers utilize its full portfolio of products.
www.insurancejournal.com 1/27/11 9:42 AM 6/11/11 9/6/11 2:54 8:30 PM
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Hub International, Raintree Hub International Ltd. acquired the assets of Raintree Insurance Agency Inc., a San Bernardino, Calif.-based insurance brokerage firm. Raintree will become part of the California operations of Hub International Insurance Services. The terms of the acquisition were not disclosed. Chicago, Ill.-based Hub provides property-casualty, life and health, employee benefits, investment and risk management products and services through offices in the United States, Canada, Puerto Rico and Brazil. IDP Holdings, National Specialty Underwriters IDP Holdings LLC acquired the hospitality business of National Specialty Underwriters Inc., a Bellevue, Wash.based specialty commercial insurance program manager. As part of the transaction, IDP also purchased NSU’s Certus Claims Administration, the company’s specialized hospitality claims handling division. The specialty healthcare division of NSU will continue to operate independently. 12 | INSURANCE JOURNAL-WEST REGION November 19, 2012
IDP is a joint venture acquisition vehicle of Ironshore Holdings (U.S.) Inc. and Distinguished Programs Group LLC hat focuses on the managing general underwriter and program manager segments of the commercial insurance distribution business. NSU provides a combination of hospitality-specific coverage, risk management and claims administration through Certus. Eligible classes of business include limited, full-service and luxury hotels, resorts and casinos. CBIZ, Leavitt Pacific Cleveland, Ohio-based CBIZ Inc. has acquired the employee benefit division of Leavitt Pacific Insurance Brokers Inc. of Campbell, Calif. Leavitt Pacific Insurance provides employee benefits, retirement plan services, as well as ancillary business support and services to clients in the San Jose region. The acquisition is expected to add 18 employees and roughly $2.5 million to CBIZ annualized revenue, and will be integrated into CBIZ’s current San Jose office. CBIZ Inc. provides professional business services. CBIZ also provides outsourced technology staffing and
The Doctors Co., Utah Medical Insurance Association Utah Medical Insurance Association, a provider of medical professional liability insurance for physicians, and The Doctors Co., an insurer of physician and surgeon medical professional liability, have entered into a merger agreement in which UMIA will be acquired by The Doctors Co. through its wholly owned subsidiary, Underwriter for the Professions Insurance Co. Following the merger, Underwriter for the Professions Insurance Co. will change its name to UMIA Insurance Co., a Member of the TDC Group of Companies. With the merger, The Doctors Co.’s number of physician policyholders will grow to 76,000. The UMIA board of governors unanimously approved the transaction and recommended that UMIA’s subscribers approve the merger agreement. The transaction is expected to close before the end of the first quarter of 2013. UMIA is a provider of medical professional liability insurance for physicians in Utah, Montana, and Wyoming. It is an Oregon reciprocal insurance company with principal administrative offices in Salt Lake City, Utah. It is managed by USMA Insurance Management Co., its attorney-in-fact. UMIA is owned by and operated in the interest of its policyholders, referred to as “subscribers.” As a result of the merger, the purchase price will be paid to UMIA’s subscribers, and the subscribers will continue their insurance coverage with UMIA Insurance Co. Napa, Calif.-based The Doctors Co. has 73,000 members and $4 billion in assets. www.insurancejournal.com
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News & Markets Kreidler’s 4th Term in Washington: Healthcare, Climate Change, Excess Surpluses Affordable Care Act, or Obamacare as some have called it, and said that he believes the voters’ desire for changing the nation’s healthcare system was revealed in their reelection of President Barack Obama. “I’m a strong supporter of the Affordable Care Act, and I obviously feel that by virtue of President Obama being reelected it’s a vindication of the work we’ve been doing here to implement the Affordable Care Act and I think it also is ratification that there really aren’t any alternatives to the Affordable Act care out there,” he said. Reflecting on the presidential election By Don Jergler race, he said, “I think that Obama’s reelection in fact was in part was a vindication of ashington Insurance Commissioner what was his major issue that he had put Mike Kreidler won nearly six in 10 forward successfully during his first term as votes in his re-election bid, giving him bragpresident of the United States.” ging rights as the U.S.’ longest currently Another healthcare matter will be on his serving insurance commissioner. plate when he lobbies state legislature for Kreidler won 57.7 percent of the vote, the authority to take on not-for-profit health while insurance broker John Adams, his insurers he says have built up “surpluses on Republican challenger, garnered 42.3 pertop of reserves” that are seeking large rate cent of the votes in the Nov. 6 election. increases. The Democrat now entering his fourth “Those have grown dramatically in the term said that over the next four years last decade,” Kredier said. “Two of our carriWashington’s insurance community and its ers have surpluses in excess of a billion dolconsumers can expect his top priorities to lars. And I’d like to be able to take that into include implementing the Affordable Care account when rate filings are submitted Act, tackling climate change and doing batso we can make sure that they don’t contle with not-for-profit health insurers that tinue to grow, that’s it’s used to make sure he says have built up excessive surpluses. that premiums stay as low as we possibly “Right now my No. 1 priority is the can. We want to see them hold surpluses, implementation of the Affordable Care but this whole idea of continuing to see them ‘Eleven other states have the authority grow at the same time to look at surplus when they are doing they’re asking for double-digit rate increases rate review, and I’d like to have that is unacceptable.” same authority.’ He continued, “Eleven other states have the authority to look at surplus when Act,” Kreidler said. “That’s my principal they are doing rate review, and I’d like to focus and that’s the biggest challenge that have that same authority.” we face. And there are plenty of challenges Climate change will be another of that are part of that implementation. That’s Kreidler’s focuses, he said. In September going to really take a lot of energy from my Kreidler was among those who endorsed office and from me personally.” a report that urged the insurance industry He restated his support for the
W
14 | INSURANCE JOURNAL-WEST REGION November 19, 2012
to act to protect itself and the community against the increasing frequency of extreme weather due to climate change. The report, “Stormy Future for U.S. Property/ Casualty Insurers: Mike Kreidler The Growing Costs and Risks of Extreme Weather Events,” was authored by Ceres, the non-
‘Right now my No. 1 priority is the implementation of the Affordable Care Act.’ profit that advocates for environmental leadership. The report builds on this summer’s drought and record high temperatures. Following the report Kreidler called for improving the forecasting and modeling by the insurance industry, as well as making some of that now proprietary information available to the public. Podcast: Hear the full podcast with Kreidler at www.insurancejournal.tv “I see it as a real threat to the industry, and I want to make sure that the industry we regulate is adapting to climate (change) in a positive way so that they (don’t) get blindsided or caught off guard, or more importantly that we don’t see insurance companies pulling out of markets or raising rates to the point where they’re unaffordable to people that need the insurance,” he said. He said he would also like to see the industry become an advocate of fighting climate change by coming up with products that encourage motorists to drive fewer miles and builders to construct greener developments, products he believes should become standards, which he said would be akin to what the seatbelt did for the auto industry. www.insurancejournal.com
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News & Markets
Californians Lump Props. 32 and 33; a Referendum on the ‘B’ Word The main opposition to Prop. 33 was Santa Monica, Calif.-based Consumer he “B” word may have been the most Watchdog, which waged a dogged war lethal weapon against an automobile with Prop. 33 backers, bringing charges of insurance portable persistency initiative put discrimination, allegations of dishonesty to Californians, the second such initiative in and even international politics into the camthe last two years to be defeated. paign. California’s Proposition 33, the 2012 Consumer Watchdog published campaign Automobile Insurance Discount Act, was literature that tied Prop. 32 and Prop. 33 defeated with 54.6 percent voting against it, with the words “billionaire proposition” and while it got 45.4 percent “yes” votes in the “billionaire deception.” Nov. 6 election. The night of the election as Prop. 33’s It’s possible Prop. 33, whose attackers perfate was sealed, Consumer Watchdog again sistently threw out the “B” word when talkattacked Joesph: ing about the initiative in order to associate “Insurance billionaire Joseph spent a total it with its billionaire backer, was associated $17,478,547 on Prop 33, including $423,000 in the minds of voters with another initiative in the last 10 days that was reported as with billionaire backers Independent Expenditures. Opponents, Two years ago Proposition 17, a similar porincluding Consumer Watchdog, were outtable persistency discount initiative, lost by 2 spent 70 to 1. Prop 33 is a repeat of Prop percent. Both propositions were backed large17, which voters rejected in June 2010, and ly by Mercury Insurance Chairman George Joseph’s Mercury Insurance Company spent Joseph, who said portable persistency would $16 million to pass it.” be good for consumers and create healthy Joseph personally spent the money, and competition among auto insurers. Joseph perhe has noted Prop. 33 was not backed by sonally million of dollars into the campaigns. Mercury the company. During the campaign Prop. 33 was bomA Prop. 33 campaign consultant said pollbarded with attacks, many focused on Joseph. ing they conducted showed voters may have Prop. 33 in advertisements and news reports lumped it with Prop. 32 in their minds and was often lumped with Prop. 32, another as they were casting their ballots. “We saw in the polling that those voting ‘no’ ‘Companies and billionaires that are on 32 were voting ‘no’ on putting measures on the ballot in their 33,” said Terry McHale, Prop. 33’s campaign conown self-interest should beware.’ sultant. “They tracked very similar.” ballot initiative that was attacked as being He added with some sarcasm, “Obviously backed by billionaires. Prop. 32’s backers it was not a great night for billionaires.” included among others the Koch Brothers and Consumer Watchdog’s argument on Charles Munger Jr,. and it proposed outlawProp. 33 was it would unfairly punish driving the use of automatic payroll deductions ers without prior insurance and would from union members and corporations for undermine existing consumer protections in political purposes. Prop. 32 was defeated 56.1 California law, specifically Proposition 103, percent to 43.9 percent. which Consumer Watchdog founder Harvey Prior to the election Joseph lamented Prop. Rosenfield authored. 33 going next to 32 on the ballot, and called The Prop. 33 campaign’s argument was the the numbering and placement of the two “a initiative would promote competition among curious situation.” By Don Jergler
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16 | INSURANCE JOURNAL-WEST REGION November 19, 2012
insurers, enable consumers to use their loyalty discount to shop for the best prices and it would protect military serving overseas and those who lost their jobs due to the economy from losing their discount. Many newspaper editorials came out against Prop. 33, but backers of the initiative successfully won over the support of myriad business and veterans groups. Consumer Watchdog spokeswoman Carmen Balber said Prop. 33’s defeat was a message from the voters. “Companies and billionaires that are putting measures on the ballot in their own selfinterest should beware,” she said. “The voters are smarter than that and see through even millions of dollars in deceptive campaigning.” She added, “it’s a victory for truth is what it was.” McHale said the Prop. 33 battle was about truth. “The truth is we believed very strongly in it,” McHale said. “We thought that it would create a more robust insurance market, we believed people would get insurance at a better price on this, but the voters rejected it.” www.insurancejournal.com
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News & Markets Climatologist: Conditions That Brought Sandy May Stick Around Browning Newsletter and author of several books on climate change, said during the annual Property Casualty Insurers Association resh on the heels of Hurricane Sandy’s of America meeting in Dana Point. destruction in late October historical The annual PCI meeting included several climatologist Evelyn Browning-Garriss speakers addressing global insurance issues, said the weather phenomenon that generwith an intense focus on catastrophes and the ated the nearly 1,000-mile wide storm that news making Hurricane Sandy. slammed into the East Coast is here to stay According to Browning-Garriss, this for a while. year not only was the water in the Atlantic Due to a change in climate that will keep warmer than normal, but the warm water waters in the Atlantic warmer than usual arrived about six weeks early, yielding coastal temperatures in May that We have never seen the waters were more like they are round July, she said. off the East Coast as hot as Sandy drew its energy from that they’ve been this year. warm water, and the East Coast can expect more severe weather in this winter and the next several seasons over the for the next 20 years of so, more storms for next 20 years as a long weather cycle plays the East Coast are likely, particularly late itself out, Browning-Garriss said. this winter, Browning-Garriss, editor of the
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“We have never seen the waters off the East Coast as hot as they’ve been this year,” she said, adding that going forward warm waters will magnify the size of any storm that reaches the East Coast, Evelyn Browning-Garriss and when a storm comes it will be slower to leave because of wind being brought in by a change in the historical climate cycle. “We’re going to see slow, wet storms, and a lot of them,” she said. Browning-Garriss described several occurrences that lead to the strange weather patterns the world has been experiencing in the past year, including volcanic eruptions in the Arctic, the three major oceans warming — the Atlantic, the Pacific and Indian Ocean — a rapid change from a La Niña weather pattern to El Niño conditions, and a tipping point in the PDO in 2006 that will continue creating warmer temperatures in the Atlantic Ocean for the next 20 years. The PDO, or Pacific decadal oscillation, “tipped” in 2006, leading to extreme weather that has been experienced around the globe beginning in 2007 through present time, she said, adding “Now we have seen the Pacific change and we have a new normal,” she said. But it’s not the first time people alive have seen such a weather cycle. “This is the climate we had in the 1950s and 60s,” she said. The problem is that afterward, in the 1970s, 1980s and 1990s, people went looking for property that was cheap and near the ocean, forgetting the flooding and storms on the East Coast in the 1950s and 60s. “The last time we saw these types of conditions were in the 50s and 60s,” she repeated, “but we got through them — it’s was just a different risk base.” www.insurancejournal.com
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Legal Matters
The Duty to Indemnify: Making Your Reservation of Rights Work for You
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hen is the last time someone reminded you that the duty to indemnify is narrower than the duty to defend? The corollary principle regarding the breadth of the duty to defend is reiterated so often as to be cliché. But insurance personnel and attorneys are remiss if they do not think actively about the extent of the duty to Mary Beth Sipos indemnify where they have reserved valid coverage defenses.
Early in a case, considerable resources may be devoted to assuring that potential coverage defenses are preserved when a defense is provided the insured pursuant to a reservation of rights or non-waiver agreement. The backbone of the reservation is the premise that indemnity, unlike defense, depends on proof of coverage. “The insurer’s duty to indemnify runs to claims that are actually covered, in light of the facts proved.” Buss v. Superior Court, 16 Cal.4th 35, 45, 939 P.2d 766 (Cal. 1997). Too often, however, the scope of the duty
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to indemnify is forgotten at other important junctures in the litigation when it can be of considerable use. Leverage in Settlement with the Claimant Coverage issues can and should frequently arise in settlement negotiation. Good faith does not require that an insurer accept a settlement demand requiring performance beyond that due under its policy. As one court put it, “The insurer does not . . . insure the entire range of an www.insurancejournal.com
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Legal Matters insured’s well-being, outside the scope of and unrelated to the insurance policy . . . It is an insurer, not a guardian angel.” Camelot by the Bay Condominium Owners’ Association, Inc. v. Scottsdale Ins. Co., 27 Cal.App.4th 33, 52, 32 Cal.Rptr.2d 354 (Cal. Ct. App. 1994). Thus, the reservation of rights can affect the claimant’s settlement posture. Trying a case to an eventual judgment that is not covered should not be any claimant’s Plan A. To the extent the reservation of rights is discoverable or can be disclosed to adverse parties without infringing on the rights of the insured, it may be wise to do so. Unless the claimant is absolutely certain of satisfying any judgment from a defendant’s own assets, disclosing that there is a reservation of rights can help create leverage in settlement. Of course, dynamic tension arises from the possibility that the insured will settle with an adverse party by stipulating to judgment in exchange for a covenant not to execute. There are even jurisdictions where a reservation of rights letter alone will entitle the insured to settle in such a fashion without breaching the cooperation clause. See Damron v. Sledge, 105 Ariz. 151, 460 P.2d 997 (Ariz. 1969). Thus, “Since an insurer, by reserving its right to deny coverage, loses its right to control the litigation, an insured does not breach a policy’s ‘duty to cooperate with insurer’
120, 741 P.2d 246, 249 (Ariz. 1987) citing 7 C J. Appleman, Insurance Law and Practice § 4690 at 235 (1979). If there is not going to be a duty to indemnify, that is true as against the insured or an assignee of the insured. In short, where the coverage defenses are strong, there is actually little down side to the parties “settling around” the carrier in this fashion, especially since the costs of defense are minimized by an early settlement of the underlying matter. Contribution from the Insured The reservation of rights may also affect the insured’s conduct in settlement. While a carrier does indeed rely on coverage defenses at its own peril, it is entitled to decline settlement demands that are not covered. Heredia v. Farmers Ins. Exchange, 228 Cal.App.3d 1345, 279 Cal.Rptr. 511 (Cal. Ct. App. 1991). The fact is that when the carrier has reserved rights, it may eventually be freed from satisfying a judgment that consists on only uncovered damages. Even in a “mixed” action, if the covered exposure represents only minimal damages relative to the uncovered damages, an insured should be motivated to contribute to settlement. The implied covenant of good faith and fair dealing largely prohibits a carrier from conditioning its willingness to settle on contribution from the insured. However, a
For the carrier, timely, confident assertion of legitimate coverage defenses may be the best antidote to clamor for settlement at all costs. provision by entering into an unauthorized settlement or stipulated liability, so long as such agreements are made fairly, with notice to the insurer, and without fraud or collusion on the insurer, and the settlement is reasonable and prudent. . . . .” 14 Couch on Ins. § 199.48 (3d ed. 2011). Nonetheless, “An insured’s settlement agreement should not be used to obtain coverage that the insured did not purchase,” and coverage may still be litigated. United Services Auto. Ass’n v. Morris, 154 Ariz. 113, www.insurancejournal.com
well-informed and advised insured facing uncovered exposures may well contribute to a pre-trial settlement to avoid being left with an uncovered judgment against it. Withdrawing from the Defense It is also vital to monitor discovery in litigation being defended under a reservation of rights. Keeping an eye on evidence and admissions developed through discovery and motion practice can resolve disputed facts and end the duty to defend.
If defense is provided under a reservation, later discovery of undisputed facts ends the duty to defend and makes withdrawal appropriate. See generally 14 Couch on Insurance § 198:32 (3d ed. 2011) (Effect of nonwaiver agreement); see also Buss, 16 Cal.4th at 46; General Acc. Ins. Co. of America v. Allen, 547 Pa. 693, 692 A.2d 1089 (Pa. 1997); Maxum Indemnity Co. v. Selective Ins. Co. of S.C., 971 N.E.2d 372 (Ohio Ct. App. 2012). Only staying abreast of factual developments material to the coverage defense reserved will permit swift action when withdrawal is proper. Post-Judgment Negotiations After trial, when facts and liability have been adjudicated, the opportunity to determine the extent of the duty to indemnify may have arrived. If the coverage and liability issues overlapped, the judgment may specifically reveal the extent of the duty to indemnify. Even if the coverage issues remain open, the threat of coverage litigation provides leverage for including both the plaintiff and the insured in settlement discussions. That may be heightened if the carrier seeks reimbursement of costs. 16 Couch on Ins. § 226:123 (Overview on Liability Insurer’s Right to Recover Defense Costs Associated with Uncovered Claims). Limitations on the duty to indemnify should be kept in mind throughout the case, from tender through settlement negotiations, at trial and beyond. Successful utilization of the reservation of rights at any stage of a case depends upon: •Documenting and understanding the rights reserved; •Monitoring factual development in discovery and motion practice; and •Knowing when and how to assert limitations on the duty to indemnify. For the carrier, timely, confident assertion of legitimate coverage defenses may be the best antidote to clamor for settlement at all costs. Sipos is a partner at Haight Brown & Bonesteel and a member of the Risk Management & Insurance Law Practice Group. Phone: (619) 961-4815; Email: Mbsipos@hbblaw.com.
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News & Markets Private Equity Firm Buys Confie Seguros from Genstar Florida, Washington, Oregon, New York, New Jersey and Nevada. It has onfie Seguros was acquired by Bostonplans to expand in states based private equity firm ABRY including, Illinois, Georgia Partners in a deal that closed on Nov. 9, and the Carolinas. Confie which the rapidly expanding auto insurer Seguros has reported annual focused on the U.S. Hispanic market says revenues of more than $200 will help it grow to double or triple its size million. in the next few years. Over the past year Confie ABRY Partners invested in and acquired Seguros has closed more a majority of the equity of the large perthan 20 deals for retail agensonal lines insurance broker from San cies, and the ABRY acquisiFrancisco, Calif.-based Genstar Capital. tion will help continue that ABRY focuses on business and informamomentum, said Confie tion services, media, and communications Seguros President Mordy investments. Since 1989, ABRY has completRothberg. ed more than $36 billion of leveraged trans “We got a huge pipeline actions and other private equity and mezzaand we’re expanding,” he nine investments, representing investments said. “Now we have more resources, includin approximately 450 properties. ing capital, to grow the company both ABRY Partners’ past investments in organically and externally from acquisithe insurance industry include a majoritytions.” interest acquisition of N.J.-based insur Confie Seguros CEO Joe Waked said they ance outsourcing services firm York Risk started working on the deal with ABRY in Services Group in December 2010 and an July. Waked said plans now are to accelerinvestment in NSM Insurance Group, a ate growth in states they are in, as well Penn.-based insurance program administraas into other states. What I can assure you is ABRY has made a Not only is the firm planning substantial commitment to invest in this to add to the company’s future and its growth strategy. web and call centers it has, They’re going to be committing capital. from which it sells insurance to 49 states, Waked said, “but we believe tor, in January 2012. strongly in the brick-and-mortar concept. Terms of the deal were not disclosed. J.P. Our consumers like personal relationships Morgan Securities LLC and RBC Capital and interaction, which is why we have Markets advised Confie Seguros on the 300 offices in nine states. We believe there transaction, while Alexander W. Sica of Sica are tremendous opportunities out there to Consultants Inc. advised ABRY Partners. really build upon that and double or triple RBC Capital Markets and GE Capital proour size over the next few years.” vided debt financing commitments. No Neither Rothberg nor Waked would offer management changes are expected. much about the deal, including saying how Buena Park, Calif.-based Confie Seguros much capital ABRY agreed to supply. has since its inception in 2008 built a mas “What I can assure you is ABRY has made sive portfolio of more than 300 regional a substantial commitment to invest in this auto insurance brokerages. It has market company’s future and its growth strategy,” positions in California, Arizona, Texas,
By Don Jergler and Young Ha
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Waked said. “They’re going to be committing capital.” “We are very pleased with the outcome of this investment for our investors and also for Confie Seguros’s management team and employees,” J. Ryan Clark, a managing director of Genstar, said in a statement. “Building Confie into a strong national insurance provider demonstrates the firm’s strategy of identifying key growth sectors and working with successful industry executives like John Addeo and CEO Joe Waked to build successful businesses. We want to thank John Addeo, John Klaeb, Joe Waked, Mordy Rothberg and the rest of the Confie management team for a great partnership.” Brent Stone, a partner at ABRY, said in a statement: “We are excited to be partnering with Joe Waked, Mordy Rothberg and the rest of the management of Confie Seguros. We believe strongly in the business model and the ability of management to continue to expand the company into new geographies and lines of business.” Rothberg explained the switch in equity partners. “Genstar has been great partners for us,” he said. “We partnered with them in 2008. Private equity works in five year horizons and it makes sense. We decided this would be a good time.” www.insurancejournal.com
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Growing Your Property Casualty Agency 6 Things for Independent Agents to Worry About in 2013
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he 100-plus year-old independent agency distribution system is expanding. According to Future One’s “2012 Agency Universe Study,” the number of independent agencies has recently increased to 38,500. Still, some voices claim that the agency business is past its sell-by date. Yet just because sales are made via other channels, some without agents, doesn’t mean independents are obsolete. There are countless consumers and businesses for independents, captives, and direct marketers to insure, both online and off. The bad news is that your individual agency’s survival is never assured. Here’s what to watch for in 2013. Digital Marketers Online marketing is the main reason independents worry about their future. Almost every insurance conference, publication, and vendor berates attendees, readers and prospects about the threat. Digital/mobile marketing is where commerce is headed, but it’s not a panacea for every problem facing independents. Rather, it’s a channel that grows wider every day — but not so wide that all traditional
techniques are passé. During the past presidential campaign, nearly twice as much was spent on direct mail versus Internet marketing [Oct. 12, 2012, Washington Post]. So join in the digital conversation, but recognize that online rivals aren’t your only concern. Aggressive Baby Boomers The average age of today’s independent agency owner is pushing 60. That means many principals are thinking about retirement. If these baby boomers don’t have a perpetuation plan, then selling the agency to finance their retirement is at the top of their to-do list. If your office is competing with a retirement-minded agency owner, watch out. These guys can be aggressive in building up their book before selling, making them tougher competitors. Networked Rivals Agency networks and franchises sign up new members every month. Members gain greater carrier representation and enjoy various support services. Agencies that take maximum advantage of added markets can become local powerhouses of production. A small
office can jump from white noise to a cacophony almost overnight. Retail Rivals Wholesale clubs, carmakers, and retail chains have promoted insurance sales to their customers for years — via email, direct mail, instore brochures, etc. But MetLife is now selling term life policies at 200 Wal-Mart stores in South Carolina and Georgia [Oct. 19, 2012, Bloomberg BusinessWeek]. Selling policies off the shelf is a bold move, inasmuch as it’s the exact opposite of digital marketing. If this experiment is successful, what other boxed policies are next? Multi-Channel Carriers While some carriers are dedicated to the independent agency system, others employ whichever distribution system generates the most efficient results, as long as it doesn’t overly cannibalize their agency force. Look for continued and potential competition from companies you may represent.
Recognize that online rivals aren’t your only concern.
Your Legacy The agency business is facing endless encroachment from an endless number of rivals and competitive methodologies. It’s the nature of innovative capitalism. So, be innovative back. Grow by being as aggressive and creative as your skill set and budget allows. Make 2013 your smartest, luckiest, and most successful year ever. Shulman, is the publisher of Agency Ideas, a subscription-only sales and marketing newsletter. Phone: 800-724-1435. Email: alan@ agencyideas.com. Website: www.agencyideas.
www.insurancejournal.com
November 19, 2012 INSURANCE JOURNAL-NATIONAL REGION | N1
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Marketing How to Position Yourself as an Industry Expert Online
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By Andrew Bard
hen it comes to career development, the key to improving your position lies in your ability to communicate your knowledge base and publicly establish your authority. In the digital age, the easiest way to position yourself as an industry expert is with online content built to inform and engage. As colleagues and others in the industry start to look to you for your knowledge and insight toward the current trends in insurance, your client base will steadily grow. Your focus must be on creating valuable industry-specific content, then properly leveraging various social networks to share it. Generating Good Content Ideas When beginning an online content strategy, most people question, “Where do the ideas come from?” The best place to mine great content is your own experience. Your interactions with clients and colleagues can be a terrific resource for compelling stories. It is also necessary to stay current with the industry. Read insurance journals thoroughly. The information is valuable and provides a knowledge base. Follow established insurance blogs. They will have up-to-date posts about industry trends. Talk to others in the industry about changes they see, and share what you know. The information exchange is vital to becoming an expert, and anything that makes that exchange visible (blog posts, podcasts, video interviews) will build your expertise.
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Creating the Right Content Once your ideas are solidified, determine your medium. Different channels reach different audiences, so begin by researching your current client base. Do they prefer video content or something written? Keep this in mind as you build a targeted content strategy that will benefit current customers and potential clients. Regardless of the platform, be consistent with branding and voice. It is important that any content produced is unmistakably from you. Consider written content, in a blog or journal articles. Make videos presenting information on specific topics. Host a webinar to talk specifically about trends, and produce a regular podcast for peer interviews. As others associate your face and voice with important industry information, your reputation will grow. Planning for Growth Once you have created content, share it online. Your channels will be determined by whether you are speaking to others within the industry, or to clients. An effective online strategy requires a hands-on approach, consistency, and followthrough. Think about who you want to reach. Determine where they congregate online, and which
social media tools they use most. Learn what kind of content they are most likely to share on each network. If your content resonates with them, they will share it. Also plan for organic discovery and viral sharing. This will require researching keywords and phrases to use in your content so it can be easily found by search engines. Be discoverable. Don’t put roadblocks in front of your content that make it difficult to access or share. Perhaps the most important factor is consistency. Map out a regular pattern and stick to it so your followers will know when to expect new content from you. If you abandon your pattern, your audience will abandon you to find their information elsewhere. However, if you reward your followers with a constant stream of relevant information, they will continue to support you. Remember that this is an unending process. Each sales call, client meeting, and discussion with a peer can be an opportunity for new content. Push out new information at the minimum weekly. Experiment. If blogging does not suit you, find another medium that will. If you are highly personable, webinars and podcasts can be great. Make yourself highly present via social media. Answer questions that you are asked and give timely responses. Be yourself, and be patient. If you put in the work, you will see a payoff. Bard is the vice president of sales for HCC Medical Insurance Services. Website: www.hccmis.com, www.insurancejournal.com
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The Competitive Advantage Why Do Parents Take Advantage of Their Kids?
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ery often in agencies I see, parents and their child/children make a spoken, but not formal, agreement for the child/children to buy the family’s agency when the parents decide it is time to retire. No one talks about price initially, because both parties hopefully think it will be a fair price. When the time comes to talk price, some parents By Chris Burand become convinced the agency is worth far more than it is really worth, especially today. At first it is easy to chalk this up to the owners being caught in a time warp. If they are in their 60s, or, especially if they are in their 70s, they often refer to values last seen 10 or 20 years ago. Those prices are not feasible today. But they are not always in a time warp. Instead, sometimes they are caught financially insecure. They are scared to death of running out of money; whether this is a real possibility is not important. Sometimes this manifests itself in the parents demanding compensation as if they were still working full-time in the agency, even after being partially or fully retired. Sometimes this manifests itself in the parents demanding an extremely high price for the agency. Sometimes the high price demand is just a feint because they really prefer being paid for not doing anything for as long as possible. This is not to say they are bad people. This is to say they are scared people. How else do you explain parents demanding prices so high their children will go broke? How else do you explain parents’ willingness to end their relationships with their kids if their demand for a ridiculously high price is not met? In those situations where money is a real issue, the parents often have not saved anywhere close to enough for retirement, and the only way they can retire, or at least retire and maintain their lifestyle, is
to sell the agency for a ridiculously high price. Retiring without enough money is scary enough, but just stepping down a level in lifestyle can cripple many people. Sometimes it is not even about money. Sometimes they are scared to death of losing themselves because the agency is their identity. Counseling If the situation escalates to a legal issue, hopefully both parties have big wallets because these legal battles are often far more expensive than similar non-family battles. It seems people would rather pay attorneys than deal with their deep emotional issues. If I could wave a magic wand, I would wave the wand and wish for both parties to seek competent emotional counseling. Many people begin instead with financial counseling and an agency valuation. My observation is that having an expert confirm that an agency’s value is far less than the parent believes usually just adds fuel to the fire. The parents just stick their heads in the sand deeper. Denial is a common reaction to bad news. In these situations, three valuations are usually necessary before the older party will listen. Three valuations or a combination of valuations and failed sales may take years and are expensive. If instead they begin with emotional counseling, both parties save money and heartache. The facts may not change, but the ability for both parties to deal with the facts will improve. Counseling often helps
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the family reconcile before it is too late. Kids often make the situation worse by enabling their parents. It is difficult to not enable their behavior, especially if either parent is an expert at laying on guilt trips. The agency is not going to survive though, if reality does not pay a visit. Tips for Families Here are some thoughts about dealing with reality. 1. Revenue Ruling 59-60 forbids a sale between parents and child for any value but the fair market value (as defined in the ruling). The bottom line is the fair market value is likely going to be far less in some situations than many parents desire. Furthermore, this ruling makes it clear the parties cannot, in reality, set the price themselves. An outside appraiser is effectively required. Paying an exorbitant price may be violating tax law, continued on page N6 www.insurancejournal.com
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The Competitive Advantage Continued from page N4
too. Outside guidance is essential. 2. Rarely do the kids have noncompetes or trade secret agreements. If they are not already shareholders, they can take the business and start their own agency. This step comes with steep consequences because
often the parties will not speak again. 3. The parents can try to sell the agency to someone who will pay far above market prices. If the parents succeed in this, hopefully the buyer has a special opportunity because if the buyer is willing to pay that much without bringing something special to the
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table, they likely are not intelligent enough to build an agency with a strong future. 4. If the children are already shareholders, hopefully the shareholder agreement is wellwritten. If so, that agreement will dictate much of what can and must be done. If it is not well-written, which is almost inevitably the case in these situations, praying is often a good strategy. I do not say this lightheartedly, because a bad legal agreement is usually worse than no agreement. Both sides have fodder to support their side and their attorneys’ ever growing fees. These are extremely painful situations. I have seen people wreck their physical and emotional health trying their best to find some amicable solution that does not bankrupt them. This is impossible to do when the parents insist on their price regardless of the consequences to their kids or even their grandchildren. I do not wish this upon anyone. But these situations seem to be occurring more often as parents are retiring without adequate planning. The good news that I have recently discovered for my clients is that with good emotional counseling, they can achieve the necessary closure even if the other Kids often make party does not par- the situation ticipate. worse by enabling I am also glad their parents. to report that after having gone through this with the fathers, mothers, sons and daughters of many agencies, life does go on. It is hurtful, painful and life changing. But life does go on. Agencies recover. Other relationships are restored and established. The children hopefully recognize that their parent is still a good person, however scared or unreasonable. They hopefully over time recognize and accept they did the right thing for their immediate family, employees and customers. There is more at risk than just one person’s retirement. Seeking the greater good is often the solace a child needs to seek in these situations to make these most difficult, but correct, decisions. Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719-485-3868. E-mail: chris@burand-associates.com.
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Contractors & Builders
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A
fter four years of one of the most challenging construction markets, construction insurance experts are beginning to see signs of a slow recovery with some of their contractor and builder accounts. The current opportunities are in apartment buildings, energy facilities, education, hospitals and other healthcare-related facilities. When it comes to home building or infrastructure projects, the picture is not as bright. But even there, some brokers see things improving, depending on where in the country they are. While few are predicting a construction boom, some think there is enough momentum building now that 2013 will be better than 2012. Maybe not a lot better, but better. Of course, there is also some wishful thinking out there. Mark Reagan, Marsh’s global construction practice leader who is based in Morristown, N.J., sees the three drivers for construction as education, healthcare, and energy as the market heads into 2013. “When you look at the need around infrastructure, healthcare, education, and medical research — I don’t see that there’s any doubt that the demand is building,” he says. He predicts that by the end of the second quarter 2013, and going into the third and fourth quarters, construction activity will increase. “I think construction has been bouncing along the bottom, but it will start to come up,” he says. There has been momentum in big city construction project planning — a sign that growth throughout the entire construction industry is to come, according to Reagan. “There is a lot of work — and there has been through the year — a fairly good uptick in the amount of work in the offices of engineers and architects, which is always the precursor,” Reagan says. If architects and engineers don’t have work, then there won’t be construction work going forward, he says. But that hasn’t been the case for 2012, and Reagan expects that upward trend to continue in 2013. Marsh’s Reagan also sees education trending up some. “The headlines are always the football stadiums, but beyond the stadiums there’s laboratory buildings, residential facilities, classroom buildings,” he says. One large West Coast broker thinks its www.insurancejournal.com
construction accounts are getting busier. “We are definitely seeing more work out there,” said Brian Murphy, vice president for Heffernan Insurance Brokers, North Bay branch, based in San Rafael, Calif. “For the most part our clients are increasing payroll and sales estimates upon renewal and the carriers are getting additional premium audits on expired policies.” That’s a change from the past few years, Murphy said, when return premium audits were more the norm. Even though the backlog on construction works seems to be dwindling, clients are increasingly optimistic about new projects, he says. One California broker even likes the housing market. “Housing is showing some improvement due to reduced inventory, more available financing, historically low interest rates and some return of consumer confidence,” says James Knoop, senior vice president of Lockton Construction Services who is based in Irvine, Calif. “Overall, the construction industry is improving and the insurance market remains fairly stable with ample capacity that has helped keep rates mostly in check,” Knoop says. While there seems to be more talk about projects than a few months ago, some question if it will translate into shovels in the ground. Carl Doby, vice president Hiscox Construction Property Insurance says the brokers he speaks with have even queried his insurer about possible projects — both new projects as well as projects that remain dormant for one reason or another. “People are definitely talking,” Doby says. “From a builder’s risk standpoint, I’ve seen quite a few of those (inquiries) in the past two to three months. So things are picking up; it’s just hard to tell how fast.” Doby believes people are somewhat optimistic but also worries there’s a lot of wishful thinking out there. “[I]t’s hard to tell what’s actually taking hold. Are contracts being signed? Are people actually moving forward on some of these projects?” he wonders. Not far from Marsh’s Reagan in New Jersey, Mike Mitchell, vice chairman of The Graham Co. in Philadelphia, is not as upbeat.
“I think if you speak to most contractors in this region, they are still feeling the pinch,” says Mitchell. “You constantly hear that things are getting better. I don’t know that if you speak to most contractors, they believe that. By and large, their backlog of work is down.” Construction industry employment data seems in line with Mitchell’s sober view. Total construction employment levels have changed little during the past year, according to the Associated General Contractors of America (AGC). Federal data shows that construction employers added 17,000 jobs in October and the industry’s unemployment rate fell to 11.4 percent. However the AGC reports that the drop in unemployment rates stems mostly from former workers leaving the construction industry. “Despite five consecutive months of construction employment gains, the overall employment picture is essentially unchanged from a year ago,” said Ken Simonson, the AGC’s chief economist. “Construction employment appears stuck in a state of mild monthly flux with little change to the overall number of jobs.” There are fewer construction projects, especially fewer larger projects, today, Mitchell says. Also, it can be difficult to make any money on the ones that do make it to build. “For the projects that do come out, there are 20 bidders (on one project) when at one time there might have been five. The competition is stiff, and the margins are razor thin,” Mitchell says.
‘Contractors are still feeling the pinch.’
Major Projects One of the reasons some are hopeful is that this year Congress passed a transportation bill that includes $1.75 billion in funding for transportation. Industry watchers expect that the funds will mean both public and private organizations should be able to secure additional funding for surface transportation projects. While states and local governments have postponed infrastructure projects due to budget shortfalls for the past several years, they still need to build and repair. According to Marsh’s Reagan, this need should spur additional infrastructure con-
continued on page N10
November 19, 2012 INSURANCE JOURNAL-NATIONAL REGION | N9
NATIONAL COVERAGE
Contractors & Builders Continued from page N9
struction for 2013. “All of the erosion of infrastructure that everyone has written about hasn’t gone away,” Reagan says. “The need in the country to build, and the need to find the money for that build is clear. For a lot of the country, the window for it (infrastructure construction) being an optional spend, that window closed or is closing.” Today it’s more of a must spend in many areas, he says. Others may agree that the need is there but question whether the funds will be. The Graham Co.’s Mitchell says that while he saw an uptick in infrastructure work a year and a half ago, he sees the remainder of 2012, and going into 2013, slowing down in that sector. “There are not many people that are too bullish on infrastructure work. It’s just not there. The state and local governments don’t have the money. The federal government doesn’t have the money,” he says. When infrastructure projects do take off, Mitchell says he sees more construction companies, which typically stay regional, willing to go out of state just for the work. “Most construction companies are regional. They don’t venture too far, but in this marketplace, we do see companies coming in from other states to bid on larger projects in our region. That’s just because there’s not a whole lot of work everywhere.” Lockton’s Knoop says right now there are just 10 high-profile infrastructure projects underway. Five of those are making progress while the other five are facing serious challenges. One high profile project that is in limbo is the California high-speed rail. “The visionary plan was for 800 miles of high-speed rail lines connecting Los Angeles to San Francisco in less than three hours,” says Knoop. Unfortunately, the price tag was way underestimated. Cost estimates now have grown from $43 billion to at least $98 billion. A state auditor’s report noted that the largest
potential funding source for the project is the federal government, and if that funding is not secured it may jeopardize the project.” Hiscox’s Doby is one of the optimists. While infrastructure projects have slowed down in the second half of 2012, he expects a change after January. “I think we are going to see infrastructure pick up again at that time,” he says. Apartment Building Apartment building has continued to grow. “One wholesale broker commented that eight out of 10 submissions are apartments,” says Lockton’s Knoop. Apartment-condo conversions are another hot spot, he says. “Most are buying as condos up front while the rates remain competitive and for long term coverage reasons.” Hiscox’s Doby says that apartment building where there’s a heavy focus on retail offers the best opportunity for brokers in construction. “The lenders are looking for a sure thing; something that they know will generate the revenues they need to support the financing,” Doby says. “The lenders are only going for the best deals.” In his view that means mixed-use projects with a strong retail component. “We are seeing apartments and we are seeing some office space (projects), especially if it has really strong retail associated with it in a great location.” Doby describes the current construction market as “cautious” where lenders are only moving on the deals that make sense. “I think that’s part of why things are so slow because only so many deals make the cut,” he says. And that’s a good thing. “It will mean a healthier market in the long-run.” Another area where construction insurance specialists see opportunity is in healthcare. Hospital upgrades and even new hospital building have surged recently. “I don’t know of a hospital of any stature that isn’t upgrading, expanding or rebuild-
‘Construction has been bouncing along the bottom, but it will start to come up.’
N10 | INSURANCE JOURNAL-NATIONAL REGION November 19, 2012
ing,” says Marsh’s Reagan. Parkland Hospital in Dallas — the same hospital where President John F. Kennedy was taken after the fatal shooting incident in 1963 — is spending more than $1 billion on new facility today, he says. The majority of healthcare systems nationwide are looking at how to spend on upgrades or expansions. As hospitals expand so will the pharmaceutical industry. “Medical research is upticking as well,” he says. In the west, Heffernan’s Murphy still sees money flowing into apartment projects, hospitals and healthcare, but he also has his eye on IT construction projects. “In San Francisco and the Silicon Valley we’re seeing commercial construction absolutely booming, particularly in IT-type work,” he says. Mitchell also believes the housing construction market is slightly upticking, but nowhere near where it used to be. “A lot of people are not so sure that it’ll ever be back to where it was,” he says. Up until now, Doby says he hasn’t heard a lot of opportunity from home builders. But even that’s beginning to change and he thinks brokers have become more optimistic about housing. “These guys are saying there is something out there. So we’ll see.” Knoop sees new residential wrap up markets for small to large projects as a bright spot. “Most significant features include warranty coverage, low deductible and low aggregate stop loss protection,” he says. Going Forward Wherever construction takes place, the insurance construction market is ready. Rates, terms and conditions remain good but carriers are cautious, especially around catastrophe risks. “The construction insurance market is healthy,” Lockton’s Knoop says. “The first half of 2012 proved to be more profitable in almost all aspects of U.S. property and casualty insurers. After a difficult 2011, catastrophe losses fell by almost half in the first six months of 2012, resulting in a profit for insurers and a much improved underwriting environment.” “What we are seeing in both construction www.insurancejournal.com
and property now is that companies are a little bit tighter and more sophisticated in how they are handling their catastrophe capacity,” Hiscox’s Doby says. How the most recent natural disaster, Superstorm Sandy, may impact the property market, and ultimately the construction insurance market, remains to be seen, Doby says. “People are really analyzing their books to see where they are, to see what position they are in, what position their reinsurers will be in,” Doby says. “So there’s a lot of numbers to shake out over the next six to eight months.” Prior to Superstorm Sandy, rates were trending up for catastrophe exposed risks and mostly flat for non-catastrophe risks, he says. “Now that there’s been this big event a lot of underwriters are hoping it will improve rates and a lot of clients are hoping rates won’t change but the reality is we don’t know and we won’t know for a while.” The Graham Co.’s Mitchell doesn’t see much changing in 2013 for construction. “I don’t want to be completely doom-andgloom, but construction is not real healthy right now,” he says. “There are some sectors where you see some work. You see more apartment building going on. We see some work in higher education, some in healthcare, some in pharmaceuticals.” But that’s not enough to change the outlook for construction, he says. “Most people don’t see anything that’s going to change it. … some people feel that, just in terms of the construction business, their own businesses in 2013 could be worse than 2012,” he says. Construction clients’ backlog of work is down from a year ago and competition keeps getting tougher and tougher. Still, Knoop remains hopeful about 2013. “I am optimistic because of the construction industry’s perseverance in one of the worst economies on record. And the insurance industry has weathered it despite a protracted soft market and mediocre investment returns. Reality reveals that with increased construction in the residential, habitational and alternative energy sectors, the economy will continue to improve.” www.insurancejournal.com
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November 19, 2012 INSURANCE JOURNAL-NATIONAL REGION N11 11/5/12 10:06 |AM
Closer Look
Long Term Care Long-Term Care Liability Loss Rate Expected to Grow: Aon
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ong-term care liability loss rates and claim severity have reached an eightyear high and are expected to grow steadily in 2013 against a backdrop of health care provider budget constraints and uncertainty about health care reform, according to Aon Risk Solutions. This conclusion comes from the “2012 Aon Long Term Care General Liability and Professional Liability Actuarial Analysis,” released in partnership with the American Health Care Association. Since 2005, the annual loss rate (liability costs relative to occupied long-term care beds) has grown from $1,040 to a projected $1,480 in 2012, and is expected to increase again in 2013 to $1,540, according to the report based on 19,500 individual claims from long-term care facilities. Claim severity (claim size) also has grown from a low of $109,000 per claim in 2005
to a projected $168,000 per claim in 2012, and $175,000 in 2013. Claim severity and loss rates have been growing consistently since 2009, at a rate of 4 percent annually, although claim frequency has been stable since 2008. “Long-term care and skilled nursing centers strive to provide quality care each day, but they also must find ways to cope with the ever-increasing cost of doing business and multiple rounds of funding reductions at the state and federal level. This report underscores the need to continue to utilize tools like voluntary arbitration agreements, a cost-effective option for long-term care providers and their residents to resolve legal disputes,” said Mark Parkinson, president and CEO of AHCA/NCAL. Liability and the Profession Long-term care providers faced high
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Loss Rates by State The report said state laws and the state judiciary have a “tremendous influence” on liability costs and, as a result state loss rates vary considerably. For example, tort limits on awards are constitutionally prohibited in Kentucky, which had the highest loss rate in the study ($5,120 per bed for 2012). In contrast, Texas amended its constitution
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loss rates in the late 1990s and early 2000s. Over the years, they answered this challenge by reinvesting in patient safety, developing liability defenses, advocating for limits on tort damages and implementing arbitration, according to the report. While these efforts helped providers control the growth of liability costs, reductions in Medicare reimbursement rates and health care reform have affected long-term care provider revenue and budgets, the report said. “With reduced revenue, providers may have difficulties funding expansion and improvements, maintaining facilities and hiring and training qualified caregivers,” said Christian Coleianne, associate director and actuary at Aon Global Risk Consulting. “These competing priorities have the potential to impact liability costs. By providing access to this invaluable data, we are enhancing our clients’ ability to better understand and more effectively manage these risks.” The Patient Protection and Affordable Care Act encourages closer coordination of care with additional health care providers with the expectation of reduced costs. Interaction between long-term care providers and dependence on other health care providers may increase exposure, as the new system is expected to operate at a lower cost, the report said.
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to protect its tort limits and had the lowest projected loss rate ($320 per bed for 2012). “Malpractice costs and the tort environment are often major considerations in the decision to locate and invest in long-term care beds and services in a specific state,” said Dom Colaizzo, chairman of the National Health Care Practice for Aon Risk Solutions. “This ultimately affects the supply of beds and cost to seniors and their families in a marketplace where demand is growing for senior care and constrained by reduced reimbursements.” For example, Kentucky’s loss rate has increased dramatically in the past eight years. The 2012 projected loss rate of $5,120 is
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the highest projection of any of the profiled states. Kentucky’s constitution prevents limitations on tort awards, which makes the state an attractive venue for torts. According to the report, providers become more willing to settle for higher amounts to avoid trials when the potential for unlimited judgments exists. The projected 2012 claim frequency of 1.64 percent has been increasing since 2007. Claim severity in Kentucky, projected at $313,000 for 2012, is twice that of the overall average claim severity in the study and the second-highest of the profiled states. West Virginia’s loss rate exhibits a strong upward trend. The 2012 forecast of $4,430 per occupied bed is the second-highest of the profiled states. West Virginia had the thirdhighest claim frequency among the profiled states, with a 2012 forecast of 1.36 percent. The state has the highest projected claim severity at $326,000, showing persistent growth since 2005. Tennessee’s loss rate has increased in recent years from $1,560 in 2008 to a project-
ed $3,380 in 2012. Tort limits were recently enacted, but Aon’s study showed an increase in claim frequency as claimants move to assert their claims before the limits become effective. This pattern is typically followed by a decrease in claim frequency as the caps reduce the upper bound of claim sizes and lessen the incentive to pursue claims, the report said. Claim frequency in Tennessee is projected at 1.13 percent in 2012. Claim severity drives Tennessee’s loss rates relative to other states. At $300,000, Tennessee’s 2012 claim severity forecast is the third-highest among the profiled states. Texas’ loss rate, projected at $320 per bed in 2012, is the lowest loss rate of the profiled states, as are its claim frequency and claim severity. Texas enacted tort reform in 2003 and shortly thereafter saw reductions in loss rates, from an estimated $5,500 per occupied bed before the tort reform to under $1,000 in 2004. The 2012 claim frequency forecast is 0.43 percent, and the 2012 claim severity forecast is $73,000.
11/5/12 9:29 AM November 19, 2012 INSURANCE JOURNAL-NATIONAL REGION | N13
Spotlight
Top 50 Personal Lines Leaders
Personal
Lines Leaders
About the Personal Lines Leaders: The 2012 Personal Lines Leaders in this special feature are taken from Insurance Journal’s Top 100 Property/Casualty Independent Agencies as reported in August. This list utilizes only the 2011 personal lines numbers of the privately owned agencies and brokerages that submitted data to the Top 100 agencies report. For more information on Insurance Journal’s Top 100 Property/Casualty Independent Agencies list, contact awells@insurancejournal.com.
Top 50 Personal Lines Agencies
Ranked by Total 2011 Personal Lines Premium Written 2012 Rank Agency Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50
2011 Personal Lines P/C Premium
2011 Total P/C Premiums Written
2011 Other than P/C Premium
2011 Total P/C Revenue
No. of Employees
Main Office
Web site
HUB International Ltd. $1,338,955,286 $4,875,399,819 $2,710,591,696 $738,013,000 5,703 Chicago, Ill. Keystone Insurers Group Inc.* $713,967,457 $1,784,918,649 $275,307,740 $214,190,237 2,320 Northumberland, Pa. ISU Agency Network* $698,000,000 $1,619,000,000 $266,000,000 $214,950,000 1,446 San Francisco, Calif. USI Holdings Corp. $492,000,000 $2,472,000,000 $6,732,000,000 $301,000,000 2,857 Briarcliff Manor, N.Y. Confie Seguros Holding Co. $450,000,000 $450,000,000 $0 $180,000,000 1,700 Buena Park, Calif. Satellite Agency Network Group Inc. (SAN Group)* $346,223,993 $465,185,241 $0 $60,201,520 50 Hampton, N.H. AssuredPartners LLC $307,036,742 $1,411,162,772 $940,953,500 $124,706,871 955 Lake Mary, Fla. GreatFlorida Insurance* $300,643,000 $317,000,000 $382,000 $41,210,000 268 Stuart, Fla. Smart Choice* $293,633,791 $308,617,862 $1,581,696 $38,850,886 46 High Point, N.C. Leavitt Group Enterprises Inc. $230,728,000 $1,112,285,000 $906,108,000 $141,000,000 1,410 Cedar City, Utah Brightway Insurance $190,000,000 $199,500,000 $1,500,000 $25,735,500 503 Jacksonville, Fla. Parker Smith and Feek Inc. $185,695,152 $199,774,940 $129,325,363 $24,293,816 168 Bellevue, Wash. TWFG Insurance Services $166,845,986 $208,751,093 $4,758,803 $31,312,664 72 The Woodlands, Texas Combined Agents of America LLC* $148,118,992 $511,193,620 $58,085,446 $67,084,631 646 Austin, Texas Bollinger Inc. $128,000,000 $525,000,000 $635,000,000 $69,570,000 524 Short Hills, N.J. North Florida Agents Network* $114,106,564 $168,089,851 $0 $12,164,198 6 Tallahassee, Fla. Pacific Interstate Insurance Brokers* $103,035,414 $232,087,444 $0 $38,364,867 7 El Dorado Hills, Calif. United Valley Insurance Services Inc.* $97,192,974 $441,786,241 $77,087,905 $69,279,709 98 Fresno, Calif. Estrella Insurance* $96,745,000 $96,745,000 $0 $12,376,000 170 Miami, Fla. SAN of Florida/Comegys Insurance Agency* $93,646,363 $149,038,259 $178,780 $16,305,181 43 St. Petersburg, Fla. Celedinas Insurance Group $89,739,301 $106,549,370 $3,189,972 $14,869,950 115 Palm Beach Gardens, Fla. Agents Helping Agents* $83,222,180 $138,927,509 $17,455,000 $19,339,125 23 Louisville, Ky. SIA of the Great Lakes* $79,498,192 $115,438,703 $1,300,000 $17,600,000 32 Green Bay, Wis. Oklahoma Agents Alliance* $76,624,249 $119,088,156 $0 $16,392,772 9 Oklahoma City, Okla. Glenwood Ins. /Continental Ins. Agency Alliance* $73,015,113 $132,796,431 $11,335,158 $4,470,606 29 Glenwood Springs, Colo. Assure Alliance* $71,000,000 $135,000,000 $7,500,000 $6,000,000 25 Spartanburg, S.C. Momentous Insurance Brokerage $70,000,000 $133,000,000 $45,000,000 $20,500,000 129 Van Nuys, Calif. Gowrie Group $68,800,000 $173,100,000 $40,000,000 $16,988,000 124 Westbrook, Conn. Midwest Insurance Agency Alliance Inc. $68,434,365 $92,434,365 $0 $13,665,353 21 Lincoln, Neb. Marshall & Sterling Enterprises Inc. $68,391,178 $272,948,355 $117,171,254 $42,546,739 351 Popughkeepsie, N.Y. The Advantage Group LLC* $64,753,920 $99,475,200 $10,840,000 $11,997,782 103 Edmonds, Wash. Insurors Group LLC $62,014,824 $278,065,943 $130,301,827 $42,447,192 235 College Station, Texas J. Smith Lanier & Co. $60,933,707 $562,013,900 $470,241,523 $69,202,231 550 West Point, Ga. Professional Insurance Associates Inc. $60,000,000 $197,000,000 $0 $27,500,000 50 San Carlos, Calif. Fiesta Auto Insurance* $59,400,000 $61,250,000 $0 $6,295,000 22 Huntington Beach, Calif. PacWest Alliance Insurance Services Inc.* $57,457,631 $136,803,885 $20,870,052 $16,826,878 Fresno, Calif. SIA Group* $54,673,377 $184,431,230 $19,311,646 $22,975,309 98 Jacksonville, N.C. Vanguard Risk Managers Inc.* $52,619,008 $201,429,000 $175,000,000 $26,000,000 75 Marcellus, N.Y. John M. Glover Agency $51,742,000 $114,984,620 $9,000,000 $15,945,800 150 Norwalk, Conn. INSURICA Insurance Management Network* $51,596,340 $461,460,167 $117,455,623 $59,467,489 453 Oklahoma City, Okla. Starkweather & Shepley Insurance Brokerage Inc. $50,000,000 $204,000,000 $147,000,000 $28,600,000 165 East Providence, R.I. TWG Insurance $49,854,598 $52,640,448 $0 $9,502,209 93 Dallas, Texas Northlake Insurance Group Ltd.* $49,500,500 $127,501,000 $37,550,000 $14,380,000 149 Baton Rouge, La. Lockton Cos. $47,718,189 $9,543,637,740 $8,049,945,280 $680,030,000 4,450 Kansas City, Mo. Higginbotham $45,771,000 $394,361,000 $755,249,000 $44,753,000 517 Ft. Worth,Texas Rogers and Gray Insurance Agency Inc. $45,000,000 $75,000,000 $32,000,000 $10,750,000 107 South Dennis, Mass. Lawley Insurance $42,767,173 $199,235,262 $402,087,714 $30,014,093 300 Buffalo, N.Y. Moreton & Co. $41,110,000 $231,110,000 $444,435,000 $23,902,319 175 Salt Lake City, Utah Alliant Insurance Services Inc. $40,231,000 $2,428,240,000 $2,645,960,000 $296,199,600 1,456 Newport Beach, Calif. Advanced Insurance Underwriters LLC $38,780,000 $214,000,000 $5,000,000 $21,425,000 155 Hollywood, Fla. * Affiliated with a network, cluster or franchise group. Employee count for these groups does not necessarily include all affiliates responsible for total premium written.
N14 | INSURANCE JOURNAL-NATIONAL REGION November 19, 2012
www.hubinternational.com www.keystoneinsgrp.com www.joinISU.com www.usi.biz www.confieseguros.com www.sangroup.com www.assuredptr.com www.greatflorida.com www.smartchoiceagents.com www.leavitt.com www.brightway.com www.psfinc.com www.twfg.com www.combinedagents.com www.bollingerinsurance.com www.nfanflorida.com www.piib.com www.unitedvalley.com www.estrellainsurance.com www.sanflorida.com www.celedinas.com www.ahainsurancenetwork.com www.siagl.com www.oaaonline.net www.glenwoodinsurance.com www.assurealliance.com www.momentousins.com www.gowrie.com www.miaainsurance.com www.marshallsterling.com www.theadvantagegroupllc.com www.insurorsgroup.com www.jsmithlanier.com www.piainc.com www.fiestainsurance.com www.pacwestalliance.com www.siagroup.net www.vanguardriskmanagers.net www.johnmglover.com www.insurica.com www.starshep.com www.twginsurance.com www.northlakeins.net www.lockton.com www.higginbotham.net www.rogersgray.com www.lawleyinsurance.com www.moreton.com www.alliantinsurance.com www.advancedins.com
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NATIONAL COVERAGE
News & Markets Risk Retention Groups’ Assets, Surplus Continue to Rise
R
isk retention groups (RRG) reported an underwriting loss but a net income gain in the first half of 2012, according to a review of their financial data by the Ohiobased actuarial firm Demotech Inc. RRGs continued to grow and improved their combined ratio in the second quarter. Assets and policyholder surplus continued to increase at a quicker rate than liabilities. Since second quarter 2008, short-term assets have increased 35.7 percent and total admitted assets have increased 28 percent. Also, Demotech said, policyholders surplus increased 64.2 percent, while total liabilities only increased 10.5 percent. In its report on RRGs, Demotech noted: •A $7.6 million net underwriting loss was reported by RRGs collectively through second quarter 2012. However, RRGs did collectively report $108.2 million net income for the first six months of 2012.
Prot e c t i n g C er t if ie d
R isk
•Liquidity, as measured by liabilities to cash and invested assets, for Q2 2012 was approximately 71.5 percent. A value less than 100 percent is considered favorable, as it indicates that there is more than $1 of net liquid assets for each $1 of total liabilities. This also indicates an improvement for RRGs collectively over second quarter 2011, as liquidity was reported at 75.7 percent. •Leverage, as measured by total liabilities to policyholders surplus, for second quarter 2012 was approximately 150 percent. Demotech said it prefers companies report leverage of less than 300 percent. This indicates an improvement for RRGs collectively over second quarter 2011, as leverage was reported over 161 percent. •The combined ratio, as measured by loss ratio plus expense ratio, for second quarter 2012 was 88.1 percent. This indicates an improvement for RRGs collectively over sec-
t h e
Managers
Wor l d
ond quarter 2011, as the combined ratio was reported at 90.6 percent. “The financial ratios calculated based on the second-quarter results of the various lines of business for RRGs appear to be reasonable. It is typical for insurers’ financial ratios to increase and decrease period over period. Moreover, the reported underwriting losses are not indicative of a continuing trend. Equally as important, RRGs have collectively reported a net income at yearend each year since 1996. The second-quarter results of RRGs indicate that these specialty insurers continue to exhibit financial stability,” said Douglas A. Powell, senior financial analyst with Demotech. The report, “Analysis of Risk Retention Groups – Second Quarter 2012,” which contains commentary pertaining to the financial stability of RRGs, is available at www. demotech.com.
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11/5/12 10:01 AM November 19, 2012 INSURANCE JOURNAL-NATIONAL REGION | N15
Closer Look
Long Term Care
E&O Insights: The Specialty World of Long-Term Care Insurance
By Curtis M. Pearsall
A
s Americans do their best to plan for retirement, all it takes is a visit to a financial planner to realize the importance and value of long-term care insurance. The goal of purchasing it is two-fold: retaining as much of one’s assets as possible and getting the proper care when it’s needed. While securing long-term care insurance (LTCi) is not difficult, consumers who do so without
the assistance and expertise of a long-term care insurance specialist could find that the coverage they purchased is inadequate for their specific situation. When will they find this out? Most likely, when the insured needs to use their coverage. Unfortunately, by then it’s too late. Long-term care insurance is a unique product, unlike other kinds of health insurance. It requires dealing with a specialist who takes the time to know the client and truly understand the client’s issues and objectives. A variety of coverage options are available with long-term care insurance, and a specialist is better equipped to provide a custom fit for each client. A discussion between the specialist and the prospective client allows an important conversation to take
N16 | INSURANCE JOURNAL-NATIONAL REGION November 19, 2012
place, so that the prospective client can truly understand the product, and how it does — and doesn’t — work. Uncovering misunderstandings or misperceptions will help the consumer make an educated decision. The Best Option One common misperceptions is that long-term care insurance only provides benefits when the policyholder is in a nursing home or assisted living facility. In actuality, services can be delivered in one’s home, an assisted living facility, an adult day care center, a nursing home or in a variety of other settings. Is long-term care insurance right for everyone? Probably not. Based on the size of the client’s assets, Medicaid or other community-based programs may be better suited to meet an individual’s
needs. Medicare covers little of the cost for long-term care, and the benefits could be limited to short periods and restricted to specific illnesses or injuries. The bottom line is that if there are significant assets to protect, then LTCi is probably the best option to pursue. What to Do From an errors and omissions (E&O) perspective, the following suggestions are recommended. Meet with the client and spend as much time as necessary talking though their specifics. Ask questions and listen. Determine what they are looking to accomplish via the purchase of long-term care insurance. It is likely you will deal with both members of a couple. In 2011, just short of 80 percent of LTCi purchases involved couples/partwww.insurancejournal.com
ners. Many details are involved, so be sure to deductible). This is measured in days and can be as few as zero and as many as 365. document these discussions. The lower the elimination period, the higher The client is counting on your expertise the premium. In 2011, the and knowledge as a specialist. Don’t assume you An E&O claim is more majority of purchasers know the answer to any of likely to happen to an selected 90 or 100 days. Since “one size” does not the client’s questions. For agent that sells just fit all, educate your cliexample, while you may one or two long-term ents, and then look for be meeting in New York, them to make this imporwill the client retire in care policies a year. tant decision. New York? If they retire • Length of Benefit Period. While lifetime to Hilton Head, S.C., or Scottsdale, Ariz., is benefits are possible, the majority of purchasthe cost of long-term care in those areas difers selected between a three- and five-year ferent? This is an important issue to uncover benefit period. Once again, educating the and discuss to properly counsel the client. consumer is extremely important. This will Make it a priority to determine that proprovide them with the information they spective clients fully understand the coverneed to decide. age they are considering, including what it • Inflation component. In most situations, covers and what it doesn’t. Ask the prospect this is not a standard part of the contract, questions, or ask them to repeat what you but should be discussed at length. There are have verbally communicated. Doing so may help them realize that they don’t understand a number of options for your client to consider. The most common options are 5 percent the LTCi product as well as they thought. compound and 3 percent compound, but Use the carrier’s promotional material there are newer options available that are detailing the coverage and available options. integrated with the Consumer Price Index as Chances are you will discuss the LTCi offerwell as other factors. As mentioned above, ings of several carriers. Because of potential provide prospective clients with the informadifferences among the products, provide the tion they need to make the proper decision. promotional material for each of those companies. A Strong Focus Tobe Gerard, an LTCi specialist and Options owner of Tobe Gerard Insurance LLC in Make sure the client knows the various Natick, Mass., (tgerard@tobegerard options available and understands how they work. Options include but are not limited to: insurance.com), said writing this type of business requires a strong focus. • The Daily Benefit. In 2011, more than “When I think of the potential for having 70 percent of purchasers selected a benefit an E&O claim, I’m not saying that it can’t between $100 and $199. Is this benefit what happen to those of us who are LTCi specialyour client is looking for? ists, but I believe it’s more likely to happen • The Elimination Period (similar to a
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to the agent who sells one or two policies a year,” Gerard said. “That’s because you need to stay abreast of so many things including, but not limited to, which carriers you should be placing your LTCi business with, what are the nuances of coverage from one company’s product to another, which companies have had aggressive rate increases, who has been in and out of the market, who has the highest Comdex, etc. Those of us who are LTCi specialists eat, sleep and breathe this stuff on a daily basis!” Claims of more than $1 million can and do occur. For customers now receiving the benefits, purchasing this coverage was a wise decision. Customers who purchased the coverage only for it to not respond as they thought could become your worst nightmare. This is not an insurance product to be taken lightly — it is truly a specialist product. Unless you dedicate the time to really understand this product and the various issues associated with it, it might be best to let a specialist take over. Pearsall is president of Pearsall Associates Inc., a risk management consulting firm specializing 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. Blog: www.agentseotips. com.
November 19, 2012 INSURANCE JOURNAL-NATIONAL REGION | N17
SPECIAL REPORT
State Specialists 2012 State Specialist P/C Insurers Revealed 2012 State Specialist Property/Casualty Insurers Company Name
T
he Demotech Company Classification System categorizes insurers into one of 11 categories based on an analysis of data reported by the companies to the National Association of Insurance Commissioners (NAIC). The 11 categories that comprise the system are Nationals, Near Nationals, Super Regionals, By Barry J. Koestler II Regionals, State Specialists, Coverage Specialists, Strategic Subsidiaries, Risk Retention Groups, Surplus Lines Carriers, Reinsurers and Companies with less than $1 million in direct written premium. To be categorized as a State Specialist, a carrier ‘State must be an Specialists individual, are often an active independent company agent’s most reporting data to reliable and the NAIC consistent using the property/ market.’
Texas Mutual Insurance Co. Medical Liability Mutual Insurance Co. Old American County Mutual Fire Insurance Co. SAIF Corp. St. Johns Insurance Co. Inc. Farm Bureau Mutual Insurance Co. of Arkansas Inc. Hospitals Insurance Co. Inc. United Property & Casualty Insurance Co. Security First Insurance Co. Florida Peninsula Insurance Co. Pioneer State Mutual Insurance Co. Louisiana Workers’ Compensation Corp. Indiana Farmers Mutual Insurance Co. Rural Mutual Insurance Co. Louisiana Farm Bureau Mutual Insurance Co. Missouri Employers Mutual Insurance Co. Country-Wide Insurance Co. American Transit Insurance Co. Mutual Insurance Co. of Arizona Homeowners Choice Property and Casualty Insurance Co. American Integrity Insurance Co. of Florida Kentucky Employers’ Mutual Insurance Authority American Steamship Owners Mutual Protection and Indemnity Association Inc. First Protective Insurance Co. Alliance United Insurance Co. Federated National Insurance Co. Olympus Insurance Co. COPIC Insurance Co. Bear River Mutual Insurance Co. Southern Oak Insurance Co. New York Schools Insurance Reciprocal LUBA Casualty Insurance Co. Ark Royal Insurance Co. Wisconsin Mutual Insurance Co. Underwriters at Lloyd’s, London (IL) Underwriters at Lloyd’s, London (KY) MDAdvantage Insurance Co. of New Jersey Colorado Farm Bureau Mutual Insurance Co. Erie and Niagara Insurance Association Louisiana Medical Mutual Insurance Co. Windhaven Insurance Co. Interboro Insurance Co. Sterling Insurance Co. Fiduciary Insurance Co. of America Inc. Citizens United Reciprocal Exchange Homeowners of America Insurance Co. Dryden Mutual Insurance Co. Farmers Union Mutual Insurance Kingstone Insurance Co. Lawyers’ Mutual Insurance Co. IFA Insurance Co. School Boards Insurance Co. of Pennsylvania Inc. New York Municipal Insurance Reciprocal Alabama Municipal Insurance Corp. Germantown Mutual Insurance Co. Security Mutual Insurance Co. Tri-State Consumer Insurance Co. People’s Trust Insurance Co. Lighthouse Property Insurance Corp. RAM Mutual Insurance Co. Wellington Insurance Co. Madison Mutual Insurance Co. Florida Doctors Insurance Co. CIFG Assurance North America Inc. Farmers Mutual Fire Insurance Co. of Salem County Hawaii Employers’ Mutual Insurance Co. Inc. Prepared Insurance Co. Ascendant Commercial Insurance Inc. West Virginia Mutual Insurance Co. Crusader Insurance Co. Missouri Professionals Mutual Insurance Co. German Mutual Insurance Co. Kansas Medical Mutual Insurance Co. Farmers Insurance Co. of Flemington Queen City Assurance Inc. Global Liberty Insurance Co. of New York Care West Insurance Co. Discovery Insurance Co. Sawgrass Mutual Insurance Co. Sterling Casualty Insurance Co. Granada Insurance Co.
N18 | INSURANCE JOURNAL-NATIONAL REGION November 19, 2012
State of 2011 Speciality TOTAL DPW TX NY TX OR FL AR NY FL FL FL MI LA IN WI LA MO NY NY AZ FL FL KY
729,912 567,136 552,380 365,196 263,509 231,837 221,746 202,061 189,823 189,236 173,356 159,159 158,483 145,337 144,086 138,736 137,108 130,645 126,620 126,583 120,201 114,334
NY FL CA FL FL CO UT FL NY LA FL WI IL KY NJ CO NY LA FL NY NY NY NJ TX NY ND NY CA NJ PA NY AL WI NY NY FL LA MN TX IL FL NY NJ HI FL FL WV CA MO OH KS NJ VT NY CA NC FL CA FL
109,952 107,452 105,220 99,623 99,302 94,213 91,447 84,661 79,559 74,420 73,042 65,305 62,183 60,416 57,479 54,873 54,348 53,563 53,475 52,657 48,953 46,953 46,527 44,374 44,284 43,802 40,735 40,614 40,597 40,566 39,864 38,523 38,411 37,819 37,479 37,472 37,109 36,670 35,964 35,910 35,665 35,219 34,416 33,858 33,680 33,543 32,770 32,055 31,105 30,687 29,072 28,944 28,893 28,475 28,354 27,626 27,311 26,356 22,889
Company Name
State of Speciality
Texas Lawyers’ Insurance Exchange Bremen Farmers Mutual Insurance Co. Center Mutual Insurance Co. League of Wisconsin Municipalities Mutual Insurance Eveready Insurance Co. Housing and Redevelopment Insurance Exchange NHRMA Mutual Insurance Co. N.C. Grange Mutual Insurance Co. Conventus Inter-Insurance Exchange Idaho Counties Risk Management Program Park Insurance Co. National Automotive Insurance Co. Marysville Mutual Insurance Co. Star & Shield Insurance Exchange Seven Seas Insurance Co. Inc. Mt. Morris Mutual Insurance Co. American Risk Insurance Co. Inc. Peachtree Casualty Insurance Co. Carolina Mutual Insurance Inc. Upland Mutual Insurance Inc. Illinois State Bar Association Mutual Insurance Co. Otsego Mutual Fire Insurance Co. Samsung Fire & Marine Insurance Co. Ltd. (US Branch) Farmers Union Mutual Insurance Co. Harbor Insurance Co. Nations Insurance Co. Professional Casualty Association Maya Assurance Co. US Lloyds Insurance Co. Northern Mutual Insurance Co. Michigan Professional Insurance Exchange Midstate Mutual Insurance Co. Southern Mutual Insurance Co. Interstate Bankers Casualty Co. Farm Credit System Association Captive Insurance Co. Mennonite Mutual Insurance Co. New Jersey Physicians United Reciprocal Exchange Allegany Co-op Insurance Co. Wayne Cooperative Insurance Co. Farmers Fire Insurance Co. Fairmont Farmers Mutual Insurance Co. Independent Nevada Doctors Insurance Exchange West Virginia Insurance Co. Responsive Auto Insurance Co. Avatar Property & Casualty Insurance Co. Manufacturing Technology Mutual Insurance Co. USPlate Glass Insurance Co. German American Farm Mutual Medical Alliance Insurance Co. Florida Lawyers Mutual Insurance Co. Normandy Harbor Insurance Co. Inc. USA Insurance Co. Farmers Mutual Fire Insurance Co. of Marble, Pennsylvania Cities and Villages Mutual Insurance Co. AGIC Inc. Members Insurance Co. Nevada Mutual Insurance Co. Inc. American Alliance Casualty Co. OHA Insurance Solutions Inc. Capitol Insurance Co. Finger Lakes Fire and Casualty Co. Paramount Insurance Co. Farmers Union Mutual Insurance Co. American Fellowship Mutual Insurance Co. Oklahoma Attorneys Mutual Insurance Co. McMillan Warner Mutual Insurance Co. Bell United Insurance Co. Positive Physicians Insurance Exchange Farmers Mutual Fire Insurance Co. Casualty Corp. of America Inc. Delta Lloyds Insurance Co. of Houston Texas Dealers Choice Mutual Insurance Inc. North Country Insurance Co. Insurance Placement Facility of Pennsylvania Kensington Insurance Co. Chautauqua Patrons Insurance Co. Healthcare Underwriters Group of Florida Pennsylvania Physicians’ Reciprocal Insurers Capacity Insurance Co. Direct Auto Insurance Co. Halifax Mutual Insurance Co. Physicians Insurance Co.
TX KS ND WI NY PA IL NC NJ ID NY LA KS FL FL WI TX FL NC KS IL NY NY MT OK CA PA NY TX MI MI NY GA IL CO OH NJ NY NY PA MN NV WV FL FL MI FL TX IL FL FL MS PA WI FL NC NV IL OH PA NY MD AR MI OK WI NV PA OK OK TX NC NY PA NY NY FL PA FL IL NC FL
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2011 TOTAL DPW 22,304 22,263 21,924 21,850 21,720 21,287 20,449 20,412 20,136 19,875 19,190 19,131 19,006 18,699 18,490 17,996 17,990 17,515 17,473 17,456 17,062 17,042 16,478 16,421 15,947 15,853 15,443 15,381 15,317 15,198 14,700 14,043 13,878 13,854 13,844 13,367 13,268 12,757 12,421 12,243 12,187 12,073 12,019 11,816 11,783 11,776 11,771 11,719 11,270 11,203 11,001 10,886 10,858 10,841 10,760 10,707 10,518 10,481 10,414 10,315 9,870 9,748 9,525 9,472 9,195 9,089 8,831 8,717 8,706 8,618 8,605 8,474 8,419 8,393 8,384 8,360 8,078 8,061 8,007 7,862 7,697 7,659
casualty annual statement format at Dec. 31, 2011. It must report at least $1 million in direct written premium at Dec. 31, 2011 with 90 percent or more in one state. Further, it cannot be a surplus lines company, risk retention group or reinsurance company. In total, 768 companies were categorized
as State Specialists for 2012. This is approximately 28.5 percent of the nearly 2,700 companies that reported data at Dec. 31, 2011. This group wrote nearly 15 percent of the industry’s direct written premium in 2011. “State Specialists are often an independent agent’s most reliable and consistent market.
Company Name
2011 TOTAL DPW
State of Speciality
Union Mutual Insurance Co. OK Kansas Mutual Insurance Co. KS CEM Insurance Co. TX Farmers Mutual of Tennessee TN Texas Hospital Insurance Exchange TX Physicians’ Insurance Program Exchange PA Associated Mutual Insurance Cooperative NY Reamstown Mutual Insurance Co. PA Physicians Professional Indemnity Association MO Nazareth Mutual Insurance Co. PA Leatherstocking Cooperative Insurance Co. NY ARECA Insurance Exchange AK First Benefits Insurance Mutual Inc. NC Mid-Hudson Co-Operative Insurance Co. NY Lawyers Mutual Insurance Co. of Kentucky KY American Millennium Insurance Co. NJ Healthcare Underwriters Group Mutual of Ohio OH Healthcare Underwriters Group of Kentucky KY Ohio Bar Liability Insurance Co. OH Callicoon Co-operative Insurance Co. NY Districts Mutual Insurance WI Broome Co-operative Insurance Co. NY Oswego County Mutual Insurance Co. NY Alaska Timber Insurance Exchange AK Farmers Mutual Insurance Co. WV Georgia Dealers Insurance Co. GA Central Co-operative Insurance Co. NY CompTrust AGC Mutual Captive Insurance Co. GA Fulmont Mutual Insurance Co. NY Arrow Mutual Liability Insurance Co. MA Maple Valley Mutual Insurance Co. WI Hartland Mutual Insurance Co. ND Wisconsin Lawyers Mutual Insurance Co. WI American Inter-Fidelity Exchange IN Waco Fire & Casualty Insurance Co. GA Juniata Mutual Insurance Co. PA Health Care Insurance Reciprocal MN Business Alliance Insurance Co. CA Victory Insurance Co. Inc. MT Bedford Grange Mutual Insurance Co. PA Laundry Owners Mutual Liability Insurance Association PA Missouri Doctors Mutual Insurance Co. MO Workers Compensation Exchange ID First Mutual Insurance Co. NC Health Care Mutual Captive Insurance Co. GA Genesee Patrons Cooperative Insurance Co. NY Texas Medical Insurance Co. TX Farmers Mutual Fire Insurance Co. of McCandless Township PA Merced Mutual Insurance Co. CA Ontario Insurance Co. NY Preferred Auto Insurance Co. Inc. TN Interstate Auto Insurance Co. Inc. MD Financial American Property and Casualty Insurance Co. CA Freedom Advantage Insurance Co. PA Access Home Insurance Co. LA Agents Mutual Insurance Co. AR Briar Creek Mutual Insurance Co. PA Wisconsin Municipal Mutual Insurance Co. WI Missouri Valley Mutual Insurance Co. SD U.S. Insurance Co. of America IL Synergy Comp Insurance Co. PA Midrox Insurance Co. NY Farmers and Merchants Mutual Fire Insurance Co. MI Sunderland Marine Mutual Insurance Co. Ltd. US Branch AK Great Lakes Mutual Insurance Co. MI Transit General Insurance Co. IL Madison Mutual Insurance Co. NY Gem State Insurance Co. ID Sheffield Insurance Co. TN MedMal Direct Insurance Co. FL CBIA Comp. Services Inc. CT Retailers Mutual Insurance Co. MI Tank Owner Members Insurance Co. TX Community Mutual Insurance Co. NY
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7,553 7,553 7,497 7,344 7,164 7,146 7,127 7,120 7,015 6,997 6,947 6,837 6,761 6,742 6,681 6,291 6,168 6,158 6,067 5,982 5,906 5,709 5,680 5,632 5,619 5,587 5,375 5,357 5,347 5,222 5,213 5,154 5,069 4,935 4,908 4,808 4,803 4,753 4,751 4,736 4,660 4,613 4,545 4,499 4,488 4,486 4,455 4,445 4,433 4,398 4,390 4,357 4,215 4,196 4,183 4,162 4,112 4,098 4,088 4,027 3,981 3,951 3,862 3,858 3,857 3,820 3,819 3,791 3,710 3,667 3,651 3,604 3,515 3,491
Company Name
These companies are dedicated to a geographic area, understand it and consistently strive to serve it. Demotech is pleased to provide State Specialists with the recognition they deserve,” said Joseph Petrelli, president of Demotech Inc., which also serves as Insurance Journal’s official research partner. As space limitations precluded an enumeraState of 2011 Speciality TOTAL tion of each of the 768 DPW State Specialists, the SD 3,478 KY 3,452 accompanying list WI 3,427 IL 3,388 includes the 310 State MN 3,375 WI 3,307 Specialists not affiliated TN 3,273 IA 3,268 with a group. NC 3,268 WV 3,226 A full list of State GA 3,224 Specialists is available IL 3,207 PA 3,126 by contacting Barry IL 3,071 MN 3,047 Koestler at: bkoestler@ IL 3,028 NC 2,992 demotech.com. UT 2,977
Northern Plains Insurance Co. Inc. Indemnity National Insurance Co. Little Black Mutual Insurance Co. Specialty Risk of America Whitecap Surety Co. Transit Mutual Insurance Corp. of Wisconsin Road Contractors Mutual Insurance Co. Petroleum Marketers Management Insurance Co. Carolina Farmers Mutual Insurance Co. Safe Insurance Co. Ethio-American Insurance Co. Inc. Doctors Direct Insurance Inc. Friends Cove Mutual Insurance Co. Mount Carroll Mutual Insurance Co. Hay Creek Mutual Insurance Co. National Heritage Insurance Co. Piedmont Mutual Insurance Co. Utah Business Insurance Co. Inc. National Direct Insurance Co. United Frontier Mutual Insurance Co. California Mutual Insurance Co. United Business Insurance Co. (A Mutual Captive) Wilmington Insurance Co. Northstone Insurance Co. Mound Prairie Mutual Insurance Co. Bloomfield Mutual Insurance Co. National Home Warranty Inc. PrimeOne Insurance Co. United Casualty and Surety Insurance Co. Vasa-Spring Garden Mutual Insurance Co. Heartland Mutual Insurance Co. Washington County Co-op Insurance Co. Great Plains Casualty Inc. Century Mutual Insurance Co. Pan Handle Farmers Mutual Insurance Co. of West Virginia Farmers Mutual Insurance Co. Conemaugh Valley Mutual Insurance Co. Alamance Farmers’ Mutual Insurance Co. Ellington Mutual Insurance Co. Western Mutual Fire Insurance Co. Integra Insurance Inc. New Mexico Property and Casualty Co. Mutual Insurance Co. of Lehigh County Geneva Insurance Co. British American Insurance Co. Centre County Mutual Fire Insurance Co. American Colonial Insurance Co. Inc. Hannahstown Mutual Insurance Co. Otsego County Patrons Co-Operative Fire Relief Association Arkansas Mutual Insurance Co. Farmington Mutual Insurance Co. Benefit Security Insurance Co. Great Falls Insurance Co. Professional Insurance Exchange Mower County Farmers Mutual Insurance Co. First Surety Corp. Slavonic Mutual Fire Insurance Association Lincoln Mutual Insurance Co. Wall Rose Mutual Insurance Co. Club Insurance Co. Commonwealth Mutual Insurance Co. of America Bondex Insurance Co. Farmers & Mechanics Mutual Insurance Association of Cecil County Inc. Yel Co. Insurance Farmers Mutual Fire Insurance Co. of Branch County Black Diamond Insurance Co. Indiana Old National Insurance Co. Clearfield County Grange Mutual Fire Insurance Co. Peninsular Surety Co. Keystone Mutual Insurance Co. Grange Mutual Fire Insurance Co. Physicians Insurance Mutual Columbia Federal Insurance Co.
NV NY CA GA DE PA MN MN NV MI MA MN MN NY IA NC WV KS PA NC WI MN MN NM PA IN TX PA FL PA NY AR WI IL ME UT MN WV TX NC PA OH MD NJ
2,923 2,923 2,897 2,873 2,844 2,794 2,788 2,788 2,779 2,766 2,707 2,620 2,604 2,583 2,548 2,541 2,501 2,477 2,465 2,369 2,332 2,288 2,272 2,239 2,228 2,183 2,142 2,135 1,967 1,676 1,646 1,595 1,575 1,541 1,534 1,487 1,462 1,447 1,416 1,416 1,415 1,401 1,291 1,284
MD FL MI NV IN PA FL MO PA MO DC
1,269 1,198 1,163 1,150 1,134 1,132 1,074 1,059 1,052 1,019 1,019
Koestler II is the chief ratings officer of Demotech Inc., a financial analysis firm specializing in evaluating the financial stability of regional and specialty insurers. Since 1985, Demotech has served the insurance industry by assigning accurate, reliable and proven Financial Stability Ratings® (FSRs) for property/ casualty insurers and title underwriters. FSRs are a leading indicator of financial stability, providing an objective baseline of the future solvency of an insurer. Demotech’s philosophy is to review and evaluate insurers based on their area of focus and execution of their business model, rather than solely on financial size. This philosophy was the catalyst for the Demotech Company Classification System, which was developed and published in Insurance Journal, in order to stratify and categorize insurers into operational categories. Website: www.demotech.com.
November 19, 2012 INSURANCE JOURNAL-NATIONAL REGION | N19
NATIONAL COVERAGE
News & Markets Superstorm Sandy Will Test Federal Flood Insurance Program By Roberta Rampton and Ben Berkowitz
S
uperstorm Sandy is threatening to drag the U.S. government’s debt-ridden flood insurance program back into the political crosshairs just months after Congress attempted to put the controversial program on a sound financial footing. It is unclear if claims from Sandy, which delivered a wallop to the Northeast, will exceed the $3.7 billion the National Flood Insurance Program can spend before Congress needs to authorize more funds. The largest private provider of NFIP policies, Wright Flood, said it expects Sandy will be the second-worst insured flood loss in U.S. history, behind 2005’s Hurricane Katrina. That disaster, with $17.7 billion in claims, plunged NFIP into debt that the government has said may never be fully repaid from premiums. “It had become crystal clear, and it will probably become a little bit more clear post-Sandy, that the premium structure was woefully inadequate,” said Tom Santos, vicepresident for federal affairs at the American Insurance Association, a trade group. Santos noted that changes included in
legislation passed in July will address some long-standing issues. Critics complain the NFIP subsidizes people who live and build in dangerous and environmentally sensitive flood zones from the coasts to the Midwest. So far budget-focused lawmakers have been careful to not openly attack the program. But once Sandy’s flood damage is tallied, there could be renewed calls for subsidy cuts if the Federal Emergency Management Agency has to ask for permission to borrow more money to run the program, which would add to its debt of close to $18 billion. In July, Congress passed a five-year funding plan that will update risk maps, phase-in higher premiums for more riskprone areas, cut subsidies for flood insurance for vacation homes, and make changes to encourage private sector competition and gradually reduce the program’s debt. Knowing the changes are coming may give lawmakers more comfort in agreeing to raise its borrowing cap, due to the extraordinary circumstances of the October storm, said a House Republican aide on background. Lawmakers will watch to ensure the reforms take hold, but would be reluctant to
N20 CIMA | INSURANCE Ad.indd 1JOURNAL-NATIONAL REGION November 19, 2012
start another battle over the program’s future so soon after coming to a five-year deal. “This was a very solid bill, and we’re going to want to see it have a chance to take effect before we reopen that debate, I think,” the Republican aide said. Smaller Claims Than Katrina It is too early to tell whether Sandy’s flood damages will exceed the program’s resources. Wright Flood is receiving about 3,000 claims a day, said Patty TempletonJones, chief operating officer. That will rise as people return to their houses. In total, she said FEMA is expecting claims on at least 80,000 policies after Sandy; Wright will handle about a quarter. But the claims may be smaller than usual. Like Hurricane Irene last year, many of the affected homes have basements, which receive only limited insurance coverage and take on most of the water that would otherwise flood the rest of the house. The average payout on Irene claims was just under $30,000. Multiplied by 80,000 policies, that would imply a payout for Sandy of around $2.4 billion — well within the program’s $3.7 billion cushion. “It is a contract between the insured and the federal government and I just don’t see that ever not being honored,” TempletonJones said. Copyright 2012 Reuters
www.insurancejournal.com 10/22/12 8:40 AM
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NATIONAL COVERAGE
News & Markets Zurich/Advisen Poll Finds Cyber Risk Awareness Increasing
T
he “vast majority of risk professionals say information security and other cyber risks are at least a moderate threat to their organizations,” according to a new survey sponsored by Zurich Insurance and administered by Advisen. Most of the risk managers said in the survey that “cyber exposures are the focus of specific risk management activities within their organizations. The level of sophistication in addressing these risks varies widely, although a growing number of organizations are adopting an enterprise-wide — or at least a multidepartmental — approach to information
security and cyber risk management. “A New Era In Information Security and Cyber Liability Risk Management: A Survey on Enterprise-wide Cyber Risk Management Practices” pointed out that “many organizations now recognize that cyber security extends well beyond the IT department. A wide range of issues such as lost or stolen data, violation of privacy laws, intellectual property infringement and social media-related risks such as cyber-bullying and textual harassment constitute a much broader scope of cyber exposures.” To gain insight into the current state of
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ACE Insurance
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Monarch E & S Insurance Services
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W7; SC7; SE7; E7; M7
American Reliable
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W11
National Alliance for Insurance Education & Research
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N3
Applied Underwriters
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N15
NBIS - NationsBuilders Insurance Services, Inc.
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W2, W48; SC2, SC40; SE2, SE40; E2, E40; M2, M40
Arrowhead General Insurance Agency www.arrowheadgrp.com
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N13
PersonalUmbrella.Com www.personalumbrella.com
W15
W5; SC5; SE5; E5; M5
SIAA
Astonish Results
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www.astonishresults.com N5; W10; SC10; SE10; E10 M10
Texas Mutual Insurance Company
Atlass Insurance Group
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SE12
Builders & Tradesmen’s Insurance www.btisinc.com
M.J. Hall & Company, Inc. www.mjhallandcompany.com McClelland & Hine www.mhi-tx.com
N11
Westrope www.westrope.com
W18
N20
Webcetera www.webcetera.com
N6
N17
Volunteers Insurance Services Association, Inc. www.cimaworld.com
W13
Insurbanc www.insurbanc.com
SC11
United Contractors Insurance Agency www.ucisg.com
W17; SC3
Century National www.cnico.com
W3; SC13; SE3; E3; M3
N7
Zurich Insurance Company www.zurichna.com
SC14
N22 | INSURANCE JOURNAL-NATIONAL REGION November 19, 2012
W47; SC39; SE39; E39; M39
enterprise-wide information security and cyber liability risk management, Zurich sponsored a survey of 511 risk managers. It said the resulting report “not only offers insights into best practices in information security and cyber risk management, it also provides a useful framework for risk managers and others to benchmark Many organizations their own pronow recognize that grams.” Zurich also cyber security extends participated in well beyond the IT a “cyber liabildepartment. ity insights” conference in New York in October, which highlighted the “risk managers’ perspective on cyber risk management and insurance,” as companies “increasingly recognize that data security and reputation risk management are enterprise-wide activities.” As a result, Zurich said, “Many have formed interdepartmental teams in which risk managers often play a key role.” Among the participants were Zurich’s Catherine Mulligan, Bluewater International’s Gary Gordon, and Time Warner’s David Conca, who discussed the survey results on data security, social media and reputation risk issues during the morning panel session of Advisen’s Cyber Liability Insights Conference. The report is available for download from Zurich. www.insurancejournal.com
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Closing Quote the other insurer’s loss. When definitions in insurance policies of terms such as “loss” or “claim” are changed, mischief often ensues, as creative claims departments exploit “gaps” in the definitions in an attempt to avoid paying rightfully covered claims. Finally, the proliferation of specialty policies such as fiduciary liability, cyber risk, intellectual property and many others gives rise to potential arguments by insurers that an event is outside the scope of their particular specialty policy and falls in a “gap.”
Monsters Under the Bed: Insurance Coverage Gaps and Other Invisible Exclusions
N
By William G. Passannante
either insurance policyholders nor courts look kindly upon exclusions from the broad coverage provided by insurance policies. Policyholders often balk at exclusions when preparing to pay their hard-earned dollars to buy insurance policies, and courts apply favorable rules of insurance policy interpretation to prevent the improper overuse of exclusions from the coverage provided by insurance policies. Perhaps these two dynamics partly explain the growth in “invisible exclusions.” Because a policy with clear exclusions will not sell to the public, and because courts will not enforce exclusions that are not clear, invisible trapdoors are placed into the policy to allow an insurer to avoid a claim payment. There are many improper attempts by insurance companies to avoid paying covered claims. Recent tactics include improper assertion of coverage gaps, assertions that underlying policy limits are not exhausted, and allocation. The Dreaded Coverage Gap No insurance policyholder would intentionally accept a “coverage gap.” Yet insurance companies regularly argue that coverage gaps are created by the change of an incumbent primary insurance company, change in definitions in insurance policies, or supposed “gaps” in purportedly seamless coverage between specialty insurance policies. When a covered loss happens after the policyholder has changed its incumbent insurance company, both the incumbent and replacement often argue that the loss event is
N24 | INSURANCE JOURNAL-NATIONAL REGION November 19, 2012
The Ridiculous Exhaustion Charade Another coverage defense is the “exhaustion” argument. Policyholders seeking sufficient levels of protection often buy insurance programs structured in multiple layers. For example, each layer might provide $5 million or $10 million or more protection. Policyholders expect each excess layer to respond when the appropriate level of potential liability is reached. Today, however, the following sequence plays out too often: 1) The policyholder files a significant claim; 2) A primary level insurance company asserts potential defenses to insurance coverage; 3) The policyholder, seeking to resolve the matter quickly, compromises by, say, accepting $4.9 million of a $5 million limit absorbing the difference; and 4) The next layer excess insurance company unreasonably and improperly argues that its supplier of insurance is not triggered because the prior layer of coverage was not fully “exhausted.” A number of courts have accepted insurers’ unreasonable and frankly outrageous arguments along these lines. This line of argument has improperly eliminated scores of millions of dollars of paid-for insurance coverage. The Unfounded Allocation Dodge When no exclusion is available to avoid coverage, and no other valid argu- Gaps, exhaustion and allocation may ment exists to minimize claim exposure, insurers have often turned to the lead to denied “allocation” argument. claims. Although full coverage is available under a single policy, the possibility that another insurance policy might apply provokes the selfinterested argument that the insurer is only responsible for its “allocated share” of the covered loss. Bizarrely, buyers who purchase extra insurance may be subject to this often baseless argument with higher frequency than those who purchase less. Gaps, exhaustion and allocation; to anyone but an insurance wonk, these dogs don’t bark. Yet they may bite. The fundamental promise of insurance — to provide peace of mind and seamless protection — is eroded when invisible attempts to avoid coverage are given credence. Insurance recovery attorneys fight these fights every day and hope to continue to restore the insurance promise to what policyholders are entitled to expect. Passannante is a shareholder in Anderson Kill & Olick’s New York office, and cochair of the firm’s insurance recovery group. Email wpassannante@andersonkill.com. www.insurancejournal.com
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