Hospitality Risks Directory; Homeowners & Auto; Public Entities

FEBRUARY 25, 2013 | Vol. 91, No. 4

WEst REGION

Swett

Gala

Aging Electrical Systems Insuring Personal Watercraft

U

niquely Scottsdale

Scottsdale Insurance Company and design is a federally registered service mark of Scottsdale Insurance Company.

We know you have a choice. That’s why at Scottsdale Insurance Company, we work to set ourselves apart from the rest with consistently profitable results, an A.M. Best rating of A+XV, and financial stability. Add to that a steadfast commitment to our customers and inspired leadership, and you have an experience that is uniquely mutual, uniquely strong, and

uniquely Scottsdale.

a Nationwide InsuranceÂŽ company

A.M. Best Rating of A+ XV (Superior)

www.scottsdaleins.com

We help you get your name out.

You help us get our message out.

Let the back-scratching begin!

Working together, we’ll provide your policyholders with the Strength to Rebuild ® after California’s next damaging earthquake.

CEA’s Marketing Value Program (MVP) offers FREE marketing tools to help you connect with clients.

Simply put, it’s back-scratching all around.

• Get postage-paid direct mail printed with your name and address.

• Register early and get a FREE go-bag and gas-valve shutoff wrench.

• Send FREE preparedness starter kits to your new CEA policyholders.

• Distribute your direct mail with FREE statewide advertising support.

The MVP helps CEA get its message out about earthquake insurance, and it helps your business in a way that says “I care.”

All California-licensed agents employed or appointed by CEA’s participating insurance companies can join the MVP. Sign up today at EarthquakeAuthority.com/MVP

N14 On The Cover

WEST

Inside This Issue

Special Report: Agency Salary Survey The Agency Compensation Playbook–Who’s Worth What?

February 25, 2013 • Vol. 91, No. 4 • West Region

16

20

N1

28

NATIONAL COVERAGE

WEst COVERAGE

Idea exchange

N10 Closer Look: Yacht Fires Pose

Challenges for Firefighters,

Insurers

8

22 Property Focus: Building

Updates: Aging Electrical Systems

N14 Special Report: Salary Survey

The Agency Compensation

Playbook – Who’s Worth What?

N21 Mobile Technology Gaining

with Insurers: Survey N22 Closer Look: Insuring Personal

Watercraft N24 Employers Underestimate True

Cost of Complying

with Healthcare Reform

Former Utah Agent Pleads Guilty to Insurance Fraud

8 Study: Agriculture Plays

Important Role in Utah Economy 16 Report Suggests Compounders

Adapted to California Price Controls

N1 Growing Your Property Casualty Agency: Shulman N2 The Competitive Advantage:

Burand

20 California Commissioner Fingers

Insurers for Iran Investments

N6 5 Resolutions Insurance Marketers Should Make in 2013

28 Swett Gala: Celebrities, Industry Honor Wounded Warriors

N28 Closing Quote: Local Agents

N25 Insurers Begin Employing IBM’s

Supercomputer Watson N26 Spotlight: Farm & Ranch

DEPARTMENTS 6 10 10 12 14 N12

4 | INSURANCE JOURNAL-WEST REGION February 25, 2013

Opening Note Figures Declarations Business Moves People MyNewMarkets

www.insurancejournal.com

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Opening Note Property Focus

S

elf-promotion is not a trait a lot of people respect, but when you think you really have something to offer, there’s no harm telling folks about it.

Is there?

Starting on page 22 guest columnist Carl Morello, vice president of loss control at Sequoia Insurance Co. in Monterey, Calif., launches a three-part series to explain insurers’ requirements for building updates and to help agents advise clients on mitigating risks inherent in older buildings.

Later articles in the series will address plumbing systems, and HVAC and roofing systems, but the first column addresses electrical systems, and it reveals just how many buildings in the West are aging and may require repairs and upgrades.

Morello notes: “Whether providing with insurance for habitational, commercial, or industrial occupancies, an agent who is knowledgeable about older buildings and the risks they present can offer a valuable service. Helping clients manage risk and protect their assets is much easier than trying to assist them ‘The primary concern in with recovery after a devastating loss, a loss that could have been an older building is the prevented by understanding and electrical system.’ addressing the risks covered in this series of articles.”

According to the column, 59 percent of the buildings in the Los Angeles area were constructed prior to 1970, and the same goes for Portland in the Pacific Northwest, where 26 percent of the buildings were constructed in the 1930s or earlier. In San Francisco 72 percent of the city’s buildings went up prior to 1970, with 22 percent of them built in the 1950s or 1960s.

A resourceful and helpful agent can, among other things, help clients and the insurer by understanding the risks associated with older buildings, educating policyholders about the hazards, helping gather pertinent information and identifying areas of concern, and counseling and assisting policyholders in making smart risk management decisions.

“The primary concern in an older building is the electrical system,” Morello writes. “Many fires begin in electrical systems, not due to deficiency in the design or quality of electrical components, but because the systems, which generally function quietly and efficiently without apparent need for maintenance, are rarely inspected and often poorly maintained.”

Don Jergler

E D I TO R I A L

Editor-in-Chief Andrea 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 Senior Editor Susanne Sclafane | ssclafane@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 Dave Coons, Andrew C. Harris, Bryant Tutterow

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: 855-814-9547 or you may subscribe or change your address online at: insurancejournal.com/subscribe

West Editor

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 2013 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 3618, Northbrook, IL 60065-3618

6 | INSURANCE JOURNAL-WEST REGION February 25, 2013

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.

PERSONAL

I NSU RANCE

When it comes to placing personal insurance for high-net-worth clients, your success is our success.

Grow your business by partnering with Burns & Wilcox. By working with our Elite Client Solutions team, you do not have to turn away clients: We have the products to cover all their needs. Our high-net-worth specialists have the expertise to create personalized solutions. Plus, our unrivaled access to markets allows us to create solutions with speed and diligence. Making personal insurance even more personal is what Burns & Wilcox does best as the largest independent wholesale broker.

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News & Markets California Commissioner: $160M in Homeowner’s Rate Reductions

A

n average of a 12.6 percent insurance rate reduction is in store for California homeowners insured with State Farm General Insurance Co., according to an announcement from California Insurance Commissioner Dave Jones earlier this month.

The reduction will result in an average annual savings of $100 for homeowners statewide.

“As a major homeowner insurer in California, State Farm is demonstrating that insurers can serve customers well and operate profitably at the same time,” Jones

said in a statement.

“As the economy continues to recover, this rate reduction will no doubt alleviate some of the financial burden many homeowners are experiencing.”

According to State Farm, 85 percent of policyholder premiums statewide will either decrease or remain the same under the new rates. The rate reduction is effective for policy renewals beginning April 15.

Bill Would Expand Definition of DUI in Oregon

O

regon lawmakers are considering a bill that would expand the definition of drunken driving to include prescription drugs and synthetic substances that mimic drugs.

Currently “intoxicants” cover only alcohol, controlled substances and inhalants.

The Statesman Journal reported the House Judiciary Committee held a hearing on the bill that would include any drug that affects a driver’s mental or physical faculties.

Drivers could claim they had an adverse reaction to medicine, but they’d have to disclose medical records to the prosecutor. ©

2013 Associated Press. All Rights Reserved.

Former Utah Agent Pleads Guilty to Insurance Fraud

F

ormer insurance agent Mitch Kelling has pled guilty to insurance fraud.

Kelling plead guilty to felony charges in Utah Seventh District Court on Jan. 29.

Kelling had been operating under the name “Kelling Insurance.” Charges against Kelling were filed by the Attorney General’s office on behalf of the Utah Insurance Department’s fraud division, which allegedly received a complaint from a local business owner in Moab who had purchased a business insurance policy from Kelling.

When the businessman did not receive a policy he contacted the insurance company through whom Kelling had supposedly purchased his policy and discovered that the company had no record of a policy in his or his business’s name. Subsequently, two others contacted the fraud division in similar situations, having purchased auto and business coverage through Kelling. It is alleged that Kelling had been pocketing premiums for personal use. ©

8 | INSURANCE JOURNAL-WEST REGION February 25, 2013

2013 Associated Press. All Rights Reserved.

Study: Agriculture Plays Important Role in Utah Economy

A

griculture continues to play an important role in Utah’s economy, according to a Utah State University study.

The study found that when taking into account related industries such as food processing, agriculture contributed $17.5 billion to the state’s economy in 2011, or 14.1 percent of the total. It also found that agricultural production and processing directly and indirectly generated about 78,000 jobs and $2.7 billion in compensation.

The study, released by the Utah Department of Agriculture and Food offices, took a broader view of agriculture’s impact than previous studies by examining all related sectors.

According to study co-author Paul Jakus, an economics professor at USU, most people overlook the processing sector, which includes plants where dairy and meat products are made. The food processing sector accounts for 15 percent of all manufacturing jobs in Utah, with the jobs averaging more than $18 per hour.

The strongest sector in Utah’s agricultural market is dairy farming, accounting for 22.5 percent of the cash receipts in 2011. Cattle comes next at 19.4 percent, followed by hay at 15.4 percent.

©

2013 Associated Press. All Rights Reserved. www.insurancejournal.com

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Declarations Nuclear Safety

Serial Violators

Faster the Better

“Nothing is more important to us than the safe design and manufacturing of nuclearenergy facilities.”

— A statement from Mitsubishi, which said design decisions on the troubled San Onofre nuclear power plant on the California coast were made in accordance with industry standards, defends equipment problems linked to a 2012 tube break that released a trace of radiation.

“We count on state and local agencies to continue their collective efforts by focusing on the serial violators, including those who hire them.”

— Brad Diede, executive director of the California Professional Association of Specialty Contractors, hailed an announcement by the Riverside County District Attorney’s Office that it’s bringing criminal charges that include workers’ compensation fraud against a Southern California pool contractor.

“When people have insurance problems, they want information fast. They have limited time, and they may be on a smartphone or other device. We want to make it easy for them.”

— Washington Insurance Commissioner Mike Kreidler commenting on a revamped insurance department website designed to be easier to use for consumers and industry professionals.

Gas Sense “Safe storage of gasoline is not only common sense, it is essential to protecting the integrity of California’s groundwater resources.”

— California Attorney General Kamala D. Harris commenting on a civil suit she filed against BP and Atlantic Richfield Company for allegedly violating hazardous materials and hazardous waste laws at more than 780 gas stations in California.

Figures $30B

Is how much damage a state commission says a magnitude 9 earthquake off the Oregon coast and tsunami could cause to the state economy. Such a quake also could kill as many as 10,000 people in the state, but the report from the Earthquake Commission focuses on survival and recovery.

21%

Of New Mexico’s roads need upgrading because they are in poor or mediocre condition, according to a report issued by a Washington, D.C-based group called TRIP, which said the state’s economy would receive a boost if roads and bridges were improved.

10 | INSURANCE JOURNAL-WEST REGION February 25, 2013

$200M

Is what California taxpayers have spent for inmates’ attorneys and court-appointed authorities over the past 15 years. The payments cover a dozen lawsuits filed over the treatment of state prisoners, parolees and incarcerated juveniles, some of which have been settled, as well as the state’s own legal costs, according to a tally by The Associated Press compiled from three state agencies.

$1M

Is how much California workplace safety officials have fined Chevron Corp. in connection with a fire last year at the company’s San Francisco Bay area refinery that sent a cloud of gas and black smoke over residential areas. www.insurancejournal.com

Who insures you doesn’t matter. Until it does.

Financial Strength and Exceptional Claim Service Property | Liability | Executive Protection | Workers Compensation | Marine | Surety Homeowners | Auto | Yacht | Jewelry | Antiques | Accident & Health

Chubb Group of Insurance Companies (“Chubb”) is the marketing name used to refer to the insurance subsidiaries of The Chubb Corporation.

For a list of these subsidiaries, please visit our website at www.chubb.com. Actual coverage is subject to the language of the policies as issued.

Chubb, Box 1615, Warren, NJ 07061-1615. ©2012 Chubb & Son, a division of Federal Insurance Company.

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Business Moves

Shea, Leavitt Shea Insurance in Las Vegas, Nev. has been acquired by the Leavitt Group.

Terms of the deal were not made available.

With the acquisition Scott Villamor, who owned Shea Insurance, joins Leavitt Group’s Las Vegas benefits office. Jeff Allen and Deb Egler have also joined the Leavitt Group.

Allen is an account executive servicing benefits accounts. Egler is a client service representative, and prior to Shea Insurance she worked for Health Plan of Nevada and Brown and Brown.

Prior to owning his own business, Villamor worked for a national commercial broker.

Privately-held Leavitt Group offers clients property/casualty insurance, risk management, employee benefits and other services.

MMIC, Utah Medical Insurance Association MMIC, a large Midwest medical professional liability firm, has entered into an agreement to acquire Utah Medical Insurance Association, a provider of medical professional liability insurance for physicians in Utah, Montana, Idaho and Wyoming.

After the acquisition, UMIA will become a wholly-owned subsidiary of MMIC, but will retain its brand and board of directors.

Terms of the deal were not disclosed.

Following the transaction, the combined

companies will have nearly 20,000 policyholders in 14 states.

The organizations will serve the entire health care spectrum.

The transaction is expected to close in the first half of 2013 and is subject to customary due diligence, regulatory approvals and UMIA policyholder approval.

UMIA is an Oregon reciprocal insurance company with its principal administrative offices in Salt Lake City, Utah, that is managed by USMA Insurance Management Co., its attorneyin-fact.

Minneapolis, Minn.-based MMIC’s clients include small practices, hospitals, outpatient and long-term care facilities.

Arch, CMG Mortgage, PMI Arch Capital Group Ltd., through its U.S.-based subsidiaries (Arch U.S. MI), will acquire all outstanding equity interests in San Francisco, Calif.-based CMG Mortgage Insurance Co. from bankrupt Arizona-based PMI Mortgage Insurance Co. and CUNA Mutual Group.

The deal is estimated to be for $300 million.

CMG MI is jointly owned by PMI and CUNA Mutual Group. The PMI Group Inc. in late 2011 filed for voluntary relief under chapter 11 of the United States Bankruptcy Code.

The transactions with Arch U.S. MI are expected to close within one year subject to approval and satisfying other closing conditions.

CMG MI is a monoline insurer focused on mortgage insurance. The assets that Arch purchased were core operating assets of PMI, but it will continue to exist as a distinct legal entity, and the old legacy portfolios will stay with PMI and will be runoff.

CUNA Mutual Group mortgage insurance sales staff will continue to serve credit union customers on behalf of CMG MI. Arch, a Bermuda-based company with a reported $5.75 billion in capital, provides

12 | INSURANCE JOURNAL-WEST REGION February 25, 2013

insurance and reinsurance worldwide through wholly owned subsidiaries.

CMG MI is a national provider of mortgage insurance products and serves more than 800 credit unions.

Madison, Wis.-based CUNA focuses on insurance, retirement and investment products that provide financial security and protection to credit unions worldwide.

IICF Arizona Chapter The Insurance Industry Charitable Foundation Western Division announced the establishment of an Arizona Chapter.

It’s the second chapter and third operating state for the IICF Western Division, alongside California and Colorado.

The inaugural IICF Arizona Board is comprised of senior leaders from the Arizona Insurance Council, Brown & Brown Insurance of Arizona Inc., Chubb Insurance Group, Laurel Insurance Brokers, Meridian Financial Holdings, Scottsdale Insurance, SCF Arizona and Seneca Insurance.

IICF combines the resources and abilities of the insurance industry to give back to communities through grants, volunteer service and leadership.

IICF operates four regional divisions serving the Midwest, Northeast, TexasSoutheast and the Western United States.

Since 1994 IICF has provided over $19 million in community grants and over 166,000 volunteer service hours to local community organizations.

ACES ACES Commercial Insurance Services Inc., a managing general agency offering specialty commercial insurance products, now has in-house binding authority for small artisan contractors in California.

The program is non-admitted with an AM Best Rated AX carrier, the program is designed for artisan contractors with receipts of up to $1 million annually.

More than 40 classes are available and new custom residential home builders are acceptable.

Aces offers up to 12.5 percent commission to appointed agents in this new program. www.insurancejournal.com

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weST COVERAGE

People Morgan West

Kelli Schulhofer

Jennifer Haley

Oakland, Calif.-based Dealey, Renton & Associates named Morgan West president.

Al Chinn remains the company’s CEO. West joins DRA from Kibble & Prentice, a USI company, in Seattle, Wash., where he was president of property/casualty. West began his insurance career as a life agent in 1985, transitioning to personal lines and eventually into commercial property and casualty. In the mid-90s he managed the lawyers professional liability insurance program at Hurley, Atkins & Stewart in Seattle.

Serving firms with offices throughout the country, DRA partners with over 4,000 clients. DRA specializes in professional liability for architects, engineers, environmental consultants and other design professionals as an extension from the company’s origins.

DRA is employee-owned and has offices in Oakland, Pasadena and Santa Ana. The board of directors of CSE Insurance Group approved the promotion of Kelli Schulhofer to senior vice president of field operations and market development.

Schulhofer’s promotion was effective Feb 1.

She began her career with CSE Insurance in 1998.

Schulhofer’s job responsibilities will not change with her new title.

Walnut Creek, Calif.-based CSE Insurance is a regional carrier with a focus on the Western United States.

Edgewood Partners Insurance Center named Jennifer Haley as an employee benefits consultant in its Northern California employee benefits division.

Haley’s responsibilities with EPIC will include the acquisition of new clients as well as the design, placement and management of employee and executive benefit programs.

She will be based in San Francisco and report to Steve Vilas, chief operating officer of EPIC’s employee benefits division.

Haley has 12 years of experience in employee benefits, including fully insured and limited self-funding medical products. Before EPIC, Haley held a range of management, production and client service positions at both insurance

ASTISH14873.indd ASTISH15197.indd 11 ASTISH5333.indd

14 | INSURANCE JOURNAL-WEST REGION February 25, 2013

companies and other benefits consulting firms. She was most recently a sales executive with BenefitMall in Concord.

EPIC operates from nine offices across California: Los Angeles, Irvine, Ontario, Fresno, Folsom, San Francisco, San Mateo, Petaluma and San Ramon.

Crum & Forster hired George Burr as vice president of California workers’ compensation claims.

Burr will manage C&F’s West Coast workers’ compensation claims office located in Orange County, Calif. Burr reports to Stephen Eisenmann, senior vice president of claims.

Burr has extensive workers’ compensation claims experience, most recently serving as vice president of claims operations for Seabright Insurance Co. with responsibility for its Western claims division. Burr began his insurance career as a workers’ compensation claims adjuster with Safeco Insurance, and subsequently held a number of management roles at Safeco.

Crum & Forster is part of Fairfax Financial Holdings Limited. Crum & Forster is a registered trademark of United States Fire Insurance Co. Encino, Calif.-based NAS Insurance Services has added two senior executives to its team of underwriters. Chris Reese joins as vice president and Brook Dutcher as assistant vice president.

Reese returns to NAS to take a leadership role on the healthcare solutions team, driving the new program for Accountable Care Organizations (ACOs).

Reese was most recently vice president at Chivaroli & Associates and had previously worked at NAS. Dutcher joins as a product specialist for the cyber liability team. Dutcher was most recently with AXIS and ACE, where he specialized in tech and cyber risks.

NAS is an independent underwriting manager of specialty insurance with full binding authority to underwrite on behalf of Lloyd’s of London and other carriers.

Willis North America, a unit of Willis Group Holdings, named Andrew R. Daniels as managing partner of continued on page 16

1/27/11 9:42 AM 6/11/11 9/6/11 2:54 8:30 PM

www.insurancejournal.com

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People People, continued from page 14

Northern California.

The appointment is effective March 18.

Daniels will be will be based in San Francisco and will lead Willis’ Northern California operations and be responsible for business development across the region. His focus will include: client satisfaction; service and retention; staff development; and business operations.

He will report to Bill Creedon, national partner of Willis’ West region of Willis North America.

Daniels has 30 years of experience. He joined Willis in 2008 and most recently served as growth and business development leader for Willis North America. Prior to Willis, he held leadership roles at Concentra Inc., Marsh USA and Crawford & Cos.’s risk management services and risk sciences group consulting units.

Through its subsidiaries, Willis Group Holdings plc develops and delivers insurance, reinsurance, risk management, financial and human resource consulting and actuarial services to corporations, public entities and institutions.

Reno, Nev.-based EMPLOYERS named Dr. Dwight L. Robertson medical director.

Robertson will provide physician oversight for the clini-

cal direction of medical services for EMPLOYERS, as well as medical expertise with respect to the company’s clinical policies, procedures and programs. He will work with the claims leadership team in the management and development of EMPLOYERS workers’ compensation provider networks.

Robertson most recently served as the chief medical officer for MSC Care Management and NextImage Medical, and he has experience working for insurance carriers, previously working at Zenith National Insurance Co., The Travelers Insurance Company and AIG. EMPLOYERS is a holding company with subsidiaries that are specialty providers of workers’ comp insurance and services focused on small businesses engaged in low-to-medium hazard industries.

Ron McQuillin joined Navion Insurance Associates as a commercial lines producer.

McQuillin will be working out of Navion’s Mission Viejo, Calif., office.

McQuillin has been an independent broker since 2006, and he has been in the insurance industry for 26 years.

Navion is an independent insurance brokerage offering a wide range of insurance products, as well as financial and business management services, including commercial, personal, employee benefits and risk management programs.

Join Your Industry’s Leaders Register Today

IICF16405.indd 1

16 | INSURANCE JOURNAL-WEST REGION February 25, 2013

2/11/13 12:34 PM

www.insurancejournal.com

Beyond Security®

“Safety First”

Preston Gough President Southern Cross Underwriters Motorcycle Enthusiast General Star Broker

“I love the thrill of cruising down the highway on my Harley, but I always put safety first. It takes more than a quality machine to be secure on the road. It requires driving skill and expertise.

“In the office, I turn to General Star for the financial safety I demand for my clients. Their A++ rating and Berkshire Hathaway backing is important, but it’s their underwriting skill and E&S expertise that puts them ahead of the pack!

“Whether I’m exploring the open road or working on a challenging account, I always feel secure with General Star behind my clients and me.”

To locate the General Star broker nearest you, visit our website at www.generalstar.com. © 2013 General Star National Insurance Company is licensed in all states, the District of Columbia and Puerto Rico. General Star National Insurance Company has its principal place of business in Stamford, CT and operates under NAIC Number 0031-11967. General Star Indemnity Company is an eligible surplus lines insurer in all states, the District of Columbia, Puerto Rico, and the Virgin Islands. It has the status as an unlicensed insurer in California and operates under NAIC Number 0031-34991.

Insurance is placed with the General Star companies by licensed producers and, for risks that qualify, by licensed surplus lines brokers.

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weST COVERAGE

News & Markets Report Suggests Compounders Adapted to California Price Controls The study shows that not only did the mix of ingredients used in compounded drugs change, but the average number of hink California’s new workers’ comingredients, the average quantity of each pensation reform law addressed just ingredient, and the average payment per about every aspect of an unwieldy system ingredient increased, driving the average which, few would argue, desperately needs reimbursement for these prescriptions up fixing? Think again.

68 percent.

A report on compounding drugs reveals Following the price controls at the start the effects of another workers’ compof 2012 the average amount paid for comrelated law enacted at the beginning of pounded drug prescriptions rose to $774.21.

2012. According to the report issued earlier The average was $460.42 a year earlier. this month by the California Workers’ Those price controls were created by Compensation Institute, compounded drug Assembly Bill 378, authored by lawmaker prescriptions fell in 2012 to 2 percent of Jose Solorio, D-Santa Ana, to address a rise California workers’ comp prescriptions in the utilization and cost of compounded after the state enacted unit price controls drugs in workers’ comp. on these medications last year.

The law, which took effect at the begin That figure in 2012 fell from 3.1 percent ning of 2012, had several requirements, in 2011. However, compounded drugs including that any compounded drug disconsumed a much larger share of workers’ pensed to compensaan injured tion prescrip‘It was a rather sudden and dramat- worker be tion dollars billed at the in 2012, and ic shift in the composition of the ingredient more than compounds and the pricing of the level by the made up for compounds.’ compoundthe impacts ing pharmaof the price cy or dispensing physician, drug bills idencontrols, according to the CWCI report. tify ingredients by its National Drug Code, Drug compounding was not directly compounded drug payments to physicianaddressed by Senate Bill 863, the massive dispensers be set at 300 percent of the phyworkers’ comp overhaul bill that took effect sician’s paid cost, compounded drugs and at the beginning of 2013. And if they want other pharmacy goods be added to the list to address the rising costs, lawmakers of products that workers’ comp physicians would likely be faced with coming up with are prohibited from self-referring. another legislative fix this year, an author of It was estimated that AB 378 would save the CWCI study suggested. about $50 million a year, and some of that savings would come from a provision in the

By Don Jergler

T

bill on compound drugs.

So far there has been no direct tie made to show compounders are intentionally raising prices to make up for the restrictions of the new pricing law, but no other good explanation came to mind for Alex Swedlow, CWCI’s executive vice president of research and co-author of the report.

“We can’t say in terms of cause and effect,” Swedlow said. “We can say that the change is clearly associated with the implementation of AB 378. It was a rather sudden and dramatic shift in the composition of the compounds and the pricing of the compounds.”

The effects of the bill were “very quickly and efficiently compensated for by the average overall price of compound drugs,” he added.

It’s common in the healthcare services industry that price suppression is dealt with by increasing the units sold of that healthcare service, according to Swedlow.

“What tends to happen is utilization changes,” he said.

According to CWCI research published in 2010, there was a spike in the use of compounded drugs, medical foods and copacks, which combine medical foods with prescription drugs, in California workers’ comp after the state adopted stricter price controls on repackaged drugs dispensed through physician offices.

Compounded drugs, which are created by combining, mixing, or altering two or more ingredients into a customized medication, are not evaluated for safety or efficacy by the Food and Drug Administration. In workers’ comp, most compounded drugs involve pain medications mixed into topical creams.

In fact the single fastest rising component in compounding, according to the report, was dextromethorphan, a cough suppressant.

“It’s an interesting ingredient to find in compound drugs,” Swedlow said. According to him it’s being mixed with antidepressants, and pharmacists that CWCI has concontinued on page 24

18 | INSURANCE JOURNAL-WEST REGION February 25, 2013

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News & Markets California Commissioner Fingers Insurers for Iran Investments

By Don Jergler

C

alifornia Insurance Commissioner Dave Jones in mid-February singled out eight insurers licensed to do business in the state that continue to have investments tied to Iran’s energy, military and nuclear sectors.

During a press conference in Los Angeles Jones called out the insurers for not divesting their holdings in multinational companies doing business in Iran under the Department of Insurance’s Iran Divestment Program launched in 2009 by then Insurance Commissioner Steve Poizner.

In tying the insurers, all but one of which are life insurance companies, to Iranian investments, Jones noted that the nation itself has been tied with terrorism and he referred to Iran’s efforts to become a nuclear nation.

Around the same time that Jones was making his remarks it was being reported that Iran had started installing a new generation of machines for enriching uranium, a move countries like the United States fear is an effort to speed up Iran’s alleged efforts to create a nuclear weapon despite Iran’s stated intent that its goal is to generate nuclear power and not weapons of mass destruction.

Jones stood with several members of Los Angeles’ Jewish community when he made the announcement, and he also used the occasion to praise the program’s results over the last four years.

From the roughly 1,300 insurers doing business in California the total amount of investments in companies doing business in the Iranian military, energy and nuclear sectors was roughly $6 billion at the beginning of the program. Currently insurer

‘Iran poses a national security risk for the United States and its allies.’ investments in companies doing business with the Iranian energy, military, and

nuclear sectors total just under $200 million, a 97 percent reduction, according to Jones.

And the list of insurers declining to divest has been reduced to eight from 341 in 2009.

Those eight insurance companies are: State Farm Mutual Automobile Insurance Co., Connecticut General Life Insurance Co., ING USA Annuity and Life Insurance Co., The Ohio National Life Insurance Co., Ohio National Life Assurance executives at the insurance companies in an Corp., Life Insurance Company of North effort to get them to adhere to the departAmerica, National Guardian Life Insurance ment’s divestment program, but he didn’t Co., Assurity Life Insurance Co. elaborate on any resonses he received.

“Iran poses a national security risk for Jones justified his involvement by saying the United States and its allies,” Jones said, that insurance investments in companies adding that the nation bankrolls terrorists doing business in Iran put those insurers’ and that the United States, its allies and a investments at financial risk because that host of international nation is unstable, organizations have at risk for conflict ‘State Farm cares deeply posed numerous about America’s security.’ and further sanctions sanctions against the against Iran by other Iranian regime. Aside countries and groups from the U.S. federal government’s actions, are a strong possibility. several states have launched Iran divest The department describes the proment campaigns, including California. gram on its website: “The Department of The department also has a list of those Insurance recognizes that businesses supcompanies doing business in Iran, many porting Iran’s nuclear, military and energy of which are based in China, India, Russia sectors are exposed to potentially volatile and South Korea. That list, which numbers reductions in the value of their stock.

37, none of which are U.S.-based compaBecause of the asymmetric risk associated nies, includes names like China National with investments in these businesses, the Petroleum Corp., GS Holdings Corp., Commissioner encourages all insurers to Hyundai E&C Co. Ltd. and Hyundai Heavy refrain from investing in multinational corIndustries, and Indian Oil Corporation Ltd. porations with significant connections to A settlement from previous lawsuit these sectors of Iran.” involving insurance groups and the depart However, a State Farm spokesman, who ment related to the department’s program said the company’s investments are in full prevents Jones from taking any significant compliance with all applicable laws and action against the insurers, other than regulations, doesn’t think Jones and the divulging the names of the companies.

Jones said he’s talked to and emailed continued on page 24

20 | INSURANCE JOURNAL-WEST REGION February 25, 2013

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Property Focus Building Updates: Aging Electrical Systems The Agent’s Role as Advisor and Risk Manager Editor’s note: This is the first of a three-part series to explain insurers’ requirements for building updates and to help agents advise clients on mitigating risks inherent in older buildings.

Later articles in the series will address plumbing systems, and HVAC and roofing systems.

W

hile some items — wines, fine arts and antique furnishings — improve with age, most buildings do not. In fact, the older a building, the more likely it is to have serious defects, particularly in critical building systems such as electrical, plumbing, HVAC and roofing. Older buildings generate more claims than younger properties, especially if they have not been well-maintained or if their building systems have not been updated.

Among the most important questions a property

By S. Carl Morello insurer will ask an agent is the age of the original building, the age of any renovations or additions, and the age and condition of critical building systems: electrical; plumbing; heating, ventilation, and air conditioning (HVAC); and roofing.

Whether providing with insurance for habitational, commercial, or industrial occupancies, an agent who is knowledgeable about older buildings and the risks they present can offer a valuable service.

Helping clients manage risk and protect their assets is much easier than trying to

assist them with recovery after a devastating loss, a loss that could have been prevented by understanding and addressing the risks covered in this series of articles.

Because older buildings tend to generate more claims, it makes sense that a property insurer will ask a prospective or renewing policyholder for information about building systems in older properties. These questions are found in the building improvements section under Additional Coverages of the Acord 140 Property Section of the insurance application. This information helps the insurer price the coverage fairly,

‘Helping clients manage risk and protect their assets is much easier than trying to assist them with recovery after a devastating loss…’ and brings to light serious defects in the building systems so they may be corrected.

In the case of serious defects, such as a leaking roof, or when a major update is needed, such as to an obsolete electrical system, the insurer may ask the prospective policyholder to undertake the renovations as a condition of coverage.

The “age of building” issue is especially important in more “mature” cities, where older buildings are more common. In some Western cities, such as Los Angeles, Portland, and San Francisco, the proportion of owner and tenant occupied housing

Housing Statistics Built 1930s Total Built Built 1960s Built 1950s Built 1940s Year Built and earlier prior to 1970 Los Angeles

15%

18%

12%

14%

59%

Portland

10%

13%

9%

26%

58%

Las Vegas

7%

4%

1%

1%

13%

10%

9%

3%

2%

24%

San Francisco

8%

10%

12%

42%

72%

United States

11%

11%

6%

12%

40%

Phoenix

structures older than 40 years is significantly higher than the national average.

If a property is more than 20 years old, the insurer may ask about the year of construction, including the dates of the original building and any additions, renovations, modernizations and occupancies. If the building is older than a certain age, generally 20 to 40 years, the insurer may require the property owner to undertake certain updates, or upgrades, to critical building systems or show proof that updates were done recently, typically within the past 10 to 20 years. The insurer may ask the client

22 | INSURANCE JOURNAL-WEST REGION February 25, 2013

to demonstrate that the critical building systems meet current codes and have been maintained properly and continuously.

Without these guarantees, the insurer may decline coverage, or may offer coverage at a higher premium or with higher deductibles.

Understandably, property owners may balk at providing the information, and may resist an insurer’s requirement to undertake potentially costly repairs or renovations.

At this point, the response of the agent is critical.

It may be tempting to soothe the client by “pushing back” at the underwriter who has requested the information. However, an agent can better serve the policyholder, the insurer, and the agency by seizing the opportunity to serve in an advisory, rather than adversarial, capacity.

A resourceful and helpful agent will: • Understand the risks associated with older buildings; • Educate policyholders about the hazards associated with older buildings and the reasons underwriters request information about older properties; • Collaborate with policyholders and www.insurancejournal.com

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Property Focus ‘Whether providing with insurance for habitational, commercial, or industrial occupancies, an agent who is knowledgeable about older buildings and the risks they present can offer a valuable service.’ underwriters to gather pertinent information and identify areas of concern; • Communicate the condition, suitability, safety and reliability of the policyholder’s building systems to the underwriter; • Counsel and assist policyholders in making smart risk management decisions about their properties, including necessary upgrades and appropriate insurance; • Follow up to ensure that agreed-upon upgrades are completed and maintenance programs are in place.

Most property owners understand that buildings from the 1920s, 1930s and 1940s will need upgrades. Yet, in dealing with properties dating from 1950s through the 1980s, it can be a challenge to convince owners these, too, are “older buildings.”

Buildings in the 30- to 60 year-range present unique hazards, particularly due to the prevalence of building components known to be likely to fail, such as obsolete electrical components and polybutylene water piping. In such cases, an agent can play a critical role by providing information and guiding good risk management choices.

Each insurer establishes its own standards for age of building, updates required, and conditions that must be met before a policy will go into effect. An insurer may have different requirements for different types of buildings, or for properties in regions where weather conditions are a factor in aging and deterioration. There is no industry-wide standard or requirement.

While aging and deterioration affect all building systems, defects in the electrical system pose the greatest immediate risk.

Electrical Systems The primary concern in an older building is the electrical system. Many fires begin in electrical systems, not due to deficiency in the design or quality of electrical components, but because the systems, which generally function quietly and efficiently www.insurancejournal.com

without apparent need for maintenance, are rarely inspected and often poorly maintained.

A building’s electrical system is usually taken for granted because it operates behind the scenes until a failure occurs.

In most cases, fires caused by electrical deficiencies could have been prevented by effective electrical maintenance programs.

Electrical engineering and safety standards have advanced considerably in recent decades, making newer technologies the better choice for every building, in terms of safety, effectiveness and cost. Additionally, failure rates of older electrical technologies are high, making it important that older buildings be retrofitted to replace old, unsafe wiring safer technologies (Figure 1). Aluminum wiring, “knob and tube” wiring, and certain brands of circuit breakers, all commonly found in older buildings that have not been updated, are known fire hazards.

If the property is more than 30 years old, expect the insurance underwriter to ask: • What type of wiring is present in each part of the building?

• When was the wiring installed? What is its condition?

• Does any part of the building have aluminum wiring, BX (“armored”) wiring, or “knob and tube” wiring? (Figure 2) • Has the wiring been updated in any part of the building? When? What updates were made (full, or partial)? Was this done by a licensed electrical contractor?

• Is the system protected by circuit breakers or by fuses? What overload protection is in place?

Fig. 1

Fig. 2

Fig. 3

• Have there been any problems or failures of the electrical system? If so, describe the problem and how it was addressed.

• How is maintenance of the electrical system handled?

For every building, underwriters must verify that the electrical system meets current building codes for each occupancy present in the building, and has been updated to meet code for each change in occupancy.

Once a building reaches a certain age, typically 30 years, the insurer will request documentation that the wiring has been upgraded, updated or replaced — such as continued on page 26

February 25, 2013 INSURANCE JOURNAL-WEST REGION | 23

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News & Markets Price Controls, continued from page 18

for such prescriptions rose 68.2 percent.

The average number of NDC ingredients sulted with have stated the combination is per compounded prescription rose 13.1 perbeing used for treating chronic pain. cent from 3.4 in the first half of 2011 to 3.8 CWCI analyzed data from a sample of in the first half of 2012.

586,575 prescriptions dispensed to injured The average amount paid per NDC ingreworkers in either the first half of 2011 or in dient used in workers’ comp compounded the first half prescriptions of 2012, before rose 48.7 perand after the ‘It’s an interesting ingredient to cent, from changes took find in compound drugs.’ $135.63 in 2011 effect. to $201.67 in Using that 2012. data the authors traced the increase in total The average quantity per NDC ingredicompounded drug payments to several facent increased 25.5 percent, while the avertors: age days’ supply showed only a nominal While the average amount paid for workdecline, down 3.5 percent.

ers’ compensation prescriptions for non This last finding suggests that the potencompounded drugs fell 4.6 percent in the cy of workers’ comp compounded drugs first half of 2012, the average amount paid rose significantly between the first half of Iran Investments, continued from page 20

department should be involved in international affairs.

“State Farm cares deeply about America’s security,” Bob Devereux, manager of media relations for State Farm, wrote in statement addressing Jones’ speech. “And while we respect the California Department of Insurance’s interest, we believe foreign policy and rules on foreign investments can be most effectively addressed by the federal government which regularly deals with matters of foreign policy. In addition, it is our understanding that domestic insurance regulators take the lead in prudential regulation of their companies. In State Farm’s case, its domestic regulator is the Illinois Department of Insurance.”

Devereux declined to state how much State Farm’s investments may total, referring to his statement to answer all follow up questions.

All seven life insurance carriers, or their holding companies or parent companies, were contacted for this story, but only one was available to provide a response.

Madison, Wis.-based National Guardian Life Insurance Co. Chief Counsel Matthew Dew and Chief Financial Officer Brian Hogan said they have communicated with

2011 and the first half of 2012.

The report’s bottom line: Without more oversight of drug compounding, or requirements mandating clinical trials to verify the efficacy of compounded drugs, relying on unit price controls without stricter utilization controls is not enough to contain the growth in compounded drug costs in workers’ comp.

To address the issue would require a new workers’ comp law, Swedlow said.

Swedlow pointed out that Medicare has a straightforward fix: It only pays for medications that are FDA approved.

It is possible the problem could also be dealt with in part through the extensive independent medical review language that was in SB 863, Swedlow said, adding “but this was not contemplated as standalone issue.”

Joining Jones at his conference was Jones and tried to explain that their investRWR Advisory Group President and CEO ment in Indian Oil was small, not easy to Roger W. Robinson, Jr., a national security quickly get rid of and should be considered risk expert who served as senior direcan exception because of a temporary waiver tor of international economic affairs at from sanctions granted by the U.S. to India the National Security Council during the for financial reasons while that country Reagan Administration. undertakes efforts to curb investing in Iran.

RWR is a Washington, D.C.-based risk National Guardian in 2007 invested $2 management and consulting firm, which million in Indian Oil, which Dew described describes its a core focus as being on the as “a private placement thing” with no ongointersection of global finance and internaing market in which to dump the investtional security concerns. ment.

Robinson said even indirect investments “It’s hard to sell it, and we told him that,” in Iran Dew said of his risk loss communications ‘This is a genuine risk, this is not of busiwith Jones and the ness department. a politicized matter.’ opportuni According to ties due Dew, Jones and the to possible exclusion from procurement department wanted the company to sell off contracts, as well as class-action lawsuits by its investment by Oct. 28. “And of course we victims of any abuse or harm done by the would have reported a loss if we tried to do regime in Iran. it that quickly,” he added.

“It can have a debilitating impact on their He said that matter “really belongs at the bottom lines,” Robinson said, adding that federal level,” and he believes to take a $2 aside from the obvious risks with being million loss would be unfair to policyholdassociated with Iran, “there are a number of ers. more hidden tripwires.”

According to Hogan, the company has $3 He added, “This is a genuine risk, this is billion in assets and $500 million in preminot a politicized matter.” ums nationally, with a “significant amount of business in California.”

24 | INSURANCE JOURNAL-WEST REGION February 25, 2013

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Property Focus Building Updates, continued from page 23

during a renovation — or has been inspected and validated by a licensed electrical contractor.

A leading cause of building fires is poor maintenance of the electrical system.

Maintenance quality can be assessed during a visual inspection by a trained professional.

However, some electricians have the capabil-

or faulty equipment, or simple problems like a missing knock-out or chafed wires, two conditions that can increase fire risk (Figure 3).

To be considered “updated” or “upgraded,” the electrical system must meet current codes for the present occupancies. If there has been a change in occupancy, a qualified electrical contractor must verify that the sys-

‘…by assisting with gathering and communicating accurate information to the underwriter, the agent fosters a mutually beneficial relationship between the insurer and the policyholder.’ ity to conduct ultrasonic and thermographic evaluations to identify hazards a visual inspection cannot. A professional electrician is trained to identify electrical risk conditions like poor housekeeping, inadequate maintenance, transient voltages, non-compliance with electrical codes and outdated

tem is adequate for the new occupancy. The system must have been fully inspected and updated to meet current codes for the present occupancy within a time period specified by the insurer. Verification of updates and system adequacy can be obtained through a certificate or other acceptable form of docu-

mentation from a qualified electrical contractor.

For example, an old knob and tube system may be “upgraded” by the installation of a new panel box and breakers. However, a true assessment of the system must include the condition and reliability of the wiring, switches and receptacles that may remain as original equipment. (Figs. 1 and 2) From the physical perspective, “updated” or “upgraded” means that the electrical wiring has been changed, improved or replaced to accommodate the electrical requirements of a new occupancy or a change in operations of an existing occupancy. From the inspection perspective, “updated” or “upgraded” means that the system has been evaluated by a qualified electrical contractor who has verified that the building’s electrical system is adequate for the current occupancy.

Any change in occupancy or operations that appears to have increased demand on the electrical system should be evaluated by a qualified electrical engineer to ensure proper configuration, adequate load capacity, proper distribution of load and proper coordination of protection devices.

The idea of “building updates” may be unappealing to some prospective and renewing policyholders if they think that upgrades are solely to satisfy an insurer.

Yet, without upgrades and ongoing maintenance, critical building systems will eventually begin to deteriorate. Failure is inevitable. The cost of upgrades are typically less than the costs of an electrical fire.

By helping the policyholder to understand the reasons behind the “age of building” and “update” questions that appear on most insurance applications, and by assisting with gathering and communicating accurate information for the underwriter, the agent fosters a mutually beneficial relationship between the insurer and the policyholder. By serving as an informed advisor and advocate, the agent can help the policyholder to reduce risk, increase safety, and save money over the long term.

S. Carl Morello, PE, ARM, ALCM, AFIS, is vice president for loss control at Sequoia Insurance Co. in Monterey, Calif. Phone: (831) 657-4507. Email: carlm@sequoiains.com

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26 | INSURANCE JOURNAL-WEST REGION February 25, 2013

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News & Markets Swett Gala: Celebrities, Industry Honor Wounded Warriors

G

ary Sinise, insurance professionals and military veterans headed to the Cosmopolitan of Las Vegas in late January to support the “Swett Warriors” organization to raise funds and awareness for injured veterans in conjunction with Creech Air Force Base. One hundred wounded veterans and more than 700 industry professionals were there. Sinise played with his Gary Sinise & the Lt. Dan Band, named after his character in the film “Forrest Gump.” Also there was John Ratzenberger (“Cheers,” Pixar films).

The family of U.S. Marine Cpl. Christopher Scherer, killed in action in Iraq, were presented a portrait, and wounded veteran Gary Linfoot walked in an Elko Bionics exoskeleton.

Artist Phil Taylor and the Scherer family

Read full story on InsuranceJournal.com.

Ratzenberger and Medal of Honor recipients

Actor Gary Sinise plays with his Lt. Dan Band

28 | INSURANCE JOURNAL-WEST REGION February 25, 2013

Actor John Ratzenberger draws laughs

Wounded veteran Gary Linfoot

Ventriloquist, Vegas headliner Terry Fator

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Growing Your Property Casualty Agency Grow By Asking and Answering the Right Questions

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ne of the “secrets” to building an agency, or any business for that matter, is to ask introspective questions and to answer them thoughtfully. For an operation that sells contractual promises, written by others, these queries cover a lot of ground. Buyers and suppliers make inquiries from the outside, but the most vital questions are those posed from within.

By Alan Shulman This column asks but three of them, and each deals with an aspect of selling. Sales self-analysis is essential to the survival and growth of any agency. The first inquiry was inspired by last year’s horrendous hurricane season.

The other two are more generic.

How soon is too soon? In addition to all of the wonderful things that Mother Nature does, she is incredibly destructive. Hurricanes, tornados, earthquakes and other natural causes of devastation all appear in her column, the results of which suggest this query: How long should you wait to show respect for the physical and financial victims of a natural disaster before attempting to help others avoid the same fate?

For example, when is it socially acceptable, time wise, to promote the virtues of flood insurance following a major flood? If you act too soon, you may be seen as a profiteer. If you wait too long, concern fades, and you may miss out on an opportunity to provide this vital protection to personal and commercial property owners. The timing is difficult, requiring your best judgment. Make certain that what you select is consistent throughout your office; don’t leave it up to individual staffers.

What do you learn when a commercial prospect says no? The agency business is fraught with “failure” because it’s impossible to close every policy you www.insurancejournal.com

solicit. This is to be expected. And it’s visit or survey) why he or she declined not a bad thing, as long as each declined your offer. They likely expect you to ask. offer is evaluated for cause. However, if it Simultaneously, complete a detailed prois simply written-off to ducer self-survey that itempricing, then the agency Sales self-analysis izes possible causes for the misses a learning opporis essential to the unsuccessful solicitation. tunity. Pricing is seldom The resulting data, gathered survival and growth from both the non-buyer the exclusive reason why of any agency. a new prospect says no; and non-seller, generates other factors typically practical information that come into play. These might include comguides future sales success, particularly peting against a special program, a late when similar problems repeatedly appear. quote from a carrier, incorrect premium bases, a weak proposal document or pre Do your personal lines CSRs service sentation, etc. more than sell? Too many CSRs believe After hearing a final no, ask each that service is their primary duty. It’s a prospect specifically (by phone call, major misunderstanding of their job function, and it’s contrary to why independent agencies exist. Agencies were created to sell policies, with service as a by-product, albeit an important one.

Still, the “service side effect” can generate myriad selling opportunities if the front-line staff is trained for it. Due to their close client contact, reps can spot otherwise unseen revenue openings.

For instance, ordinary life changes such as marriage, divorce, a new child, a new job, retirement, opening a home-based business, etc., frequently result in additional premiums.

Stimulate staffers to convert routine client contact into coverage improvement opportunities, when it’s warranted.

Encourage cross-selling, upselling, referral and retention building by setting attainable goals, providing in-house sales training, and maintaining continuous oversight. Praise serious efforts and reward bankable results with such awards as cash, time-off, preferred parking, representing the agency at industry functions, etc.

Shulman is the publisher of Agency Ideas, a subscriptiononly sales and marketing newsletter. He is also the author of the many tools posted on the Agency Ideas Instant Download store. Phone: 800-724-1435. Email: alan@ agencyideas.com. Website: www.agencyideas.com.

February 25, 2013 INSURANCE JOURNAL-NATIONAL REGION | N1

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The Competitive Advantage Reasonable Compensation

I

f you haven’t heard the news, the federal government is a little short of money after racking up multiple annual trilliondollar deficits. A trillion here and there, and after a while, someone might figure out the government may have to become financially more responsible. I am not sure if it is a direct result of the government’s inability to spend within its capacity, but

By Chris Burand in the past year or so, I have noticed the IRS and Department of Labor (DOL) pursuing the owners of independent insurance agencies more often for not complying, in their opinion, with the reasonable compensation rules.

The rules are difficult to summarize because the IRS has not published specific mized by taxable wages being too high and, guidelines in the Code of Regulations. in some situations, taxes can be minimized Instead, each case is determined on the by taxable wages being too low. The regulafacts and circumstances of each case. In tors’ goal is to assure that business owners’ general, these two regulatory bodies have compensation is “reasonable.” This means the right to determine how much the busithat wages must be appropriate for the serness owner should be paid. That is correct. vices performed.

They have a right to determine your com For example, if you own an agency with pensation. $1 million in revenue, Does the government personally service a The reason they have this right is because they book of $300,000 in have the right to have the right to enforce and have determine how much commissions tax collection and both most management a business owner want to prevent busiresponsibilities, and are should be paid? ness owners from moving paid $300,000 in wages, compensation to different some would consider buckets in ways that unrightfully decrease you to be overpaid. It is not that $300,000 the taxes owed. These rules have been in and of itself is wrong. It is that $300,000 in place for some time but seem to be in wages might not be acceptable because enforced more frequently now. The IRS and without being an owner, the person likely DOL are involved because the IRS wants all would not be paid close to $300,000 for this its income taxes, and the DOL wants all the scenario. So the owner’s compensation in appropriate employment taxes, especially this case should be divided between “reanow under healthcare reform. sonable” compensation for sales and management, with the remainder being some Too Much or Too Little kind of distribution or dividend.

It does not matter whether the owner is On the other hand, in this same situapaid too much or too little. tion, if the person is paid $50,000 and the In some situations, taxes can be minirest is paid in distributions, some would N2 | INSURANCE JOURNAL-NATIONAL REGION February 25, 2013

conclude the agency owner is underpaid and that “reasonable” compensation would be much higher.

I am sure the reader can see how these two examples would shift taxes. The prosecution by these regulatory bodies of business owners to pay themselves a “reasonable” wage has significant strategic, tactical, and tax planning impact.

Beginning with the tax aspect, agency owners that care to take precautions should develop an executive compensation strategy for the principals. Agency owners should do this by working with their CPAs, but keep in mind that CPAs are not going to have the compensation data necessary to develop a proper plan on their own. For this, the agency will need an industry consultant highly familiar with industry compensation norms. The plan, in my opinion, should then be memorialized and followed.

Regulatory bodies have some rights to set your compensation at the level they see fit if you do not do this, or if they do not agree, and then you have to prove they are wrong. Building a reasonable plan, based on the facts and circumstances specific to your situation, not your buddy’s situation, can continued on page N4 www.insurancejournal.com

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The Competitive Advantage Compensation, continued from page N2

help protect you and your agency.

Keep in mind too — they may be able to ask for back taxes and penalties.

On a tactical basis, historically agencies have “bonused” extra compensation to principals or key employees for taxes, life insurance premiums, and other expenses and perks. If the bonus is not specific to the job and services performed, a chance exists now that the regulators will determine the compensation is not reasonable.

On a strategic basis, especially for internal perpetuation planning, the need to comply with reasonable compensation rules can drastically change an agency owner’s plans.

Often, owners will take much less than normal pay so their successors, particularly their kids, can afford to purchase the agency. This strategy may not pass the regulators’ tests. Other times agency owners demand wages far above the fair value of services provided as a way of being paid for

the agency. This strategy is unlikely in my opinion to be upheld.

From a pure business perspective, following reasonable compensation rules may actually cause your business to become more successful.

Pay and Perpetuation When perpetuating an agency, it boils down to everyone involved must be paid a reasonable wage relative to the services they provide. Some considerations are: • The duties performed by the employee.

• The volume of business handled.

• The character and amount of responsibility.

• The complexities of your business.

• The amount of time required.

• The cost of living in the locality.

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Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719-485-3868. Email: chris@burand-associates.com.

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N4 | INSURANCE JOURNAL-NATIONAL REGION February 25, 2013

• The ability and achievements of the individual employee performing the service.

• The pay compared with the gross and net income of the business, as well as with distributions to shareholders if the business is a corporation.

• Your policy regarding pay for all your employees.

• The history of pay for each employee.

I find some agency consulting firms and other professional advisors are not keeping up with these rulings. As a result, some agency owners are getting bad advice. And reasonable compensation is not just important relative to these regulators. Reasonable compensation is becoming a test in divorces and divorce valuations, and in minority shareholder lawsuits, too.

From a pure business perspective, following reasonable compensation rules may actually cause your business to become more successful too.

Management will likely operate the agency more as a business. Management will likely stop and think before taking all the money out at year-end and consider whether continuing to subsidize unprofitable producers really makes sense if one of the potential risks is an audit. (Many agency owners are paid less than what some would consider reasonable compensation simply because they cannot afford to pay themselves a normal wage while paying underperforming producers what they are paid).

I am not an accountant or an attorney, so nothing within this article should be considered tax or legal advice. It is simply my opinion based on reading various cases, educational material, and experiencing what happens to agencies when a regulatory body decides the agency owners are not paid a reasonable wage.

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Marketing 5 Resolutions Insurance Marketers Should Make in 2013

T

he New Year finds people across the world making resolutions to better their lifestyles, by crowding gyms and dieting, breaking bad habits, and saving more money. Resolutions are not simply for personal lives; marketers can and should make resolutions for their businesses as well. These resolutions can make your business practices more efficient

By Bryant Tutterow and effective. The following resolutions correspond specifically with the AIDA sales funnel.

If you are unfamiliar: E. St. Elmo Lewis developed the AIDA funnel in 1898 as a sales tool. It is based on a hierarchical process that uses four layers to track the behavior of consumers, from brand awareness to purchase of a product or service.

These layers are: awareness, interest, desire and action (AIDA). In an ecommerce world, I like to add a fifth layer: referral.

Awareness – Reviewing Your Marketing Mix A plan is the key to awareness, and you must have a marketing plan for your business. This may mean newspaper ads, radio spots and television commercials. However, what has worked in the past may not be working now. The beginning of the year is the prime opportunity to review your entire marketing mix.

Look at your print materials, billboards, television, radio and any other channels through which you project messages and evaluate them. Determine your ROI on each channel, and determine which channels are performing best for you. Analyze trend data as well, which will give you a good idea of where you can find your customer base. Make sure that you are spending the appropriate amount of time with each channel.

If you find that a channel is no

comes down to knowing your competitor.

It may be easy to believe that ignorance is bliss, but not knowing what your competition is doing can result in being left behind.

Use the beginning of your year to do an analysis of all competitors in your market.

Some of your competitors will do things Interest – Materials better than you, and others will do things Just like cleaning the garage, looking you have never through all of Just like cleaning the garage, done and may not your marketing materials can clearing out outdated marketing have any intention of doing. Study be a daunting materials is very important. these things, and task, but it is learn how you can compete in those areas. very important. A year has a way of outdat Make your efforts your own, and make ing many of your printed materials. certain they have your mark on them.

Making sure that your materials reflect Simply: do better than your competitors. the interests of your customer base is imperative. Look for industry changes that Action – Reallocation have occurred in the past year, and see Over the past year, you have likely run if your materials reflect those changes. If multiple promotions and enacted incentives there are new buzzwords or terminology and other programs to help drive traffic. used frequently in your field or that your Here, too, you should review all of the coucustomers may use, update your materials pons and other promotions you ran, and to reflect these changes.

This may also mean changing your matecontinued on page N8 rials to a more intriguing form, like infographics, for example. longer yielding results, do not be afraid to retire it. Losing time and money on marketing channels that no longer provide a good return on investment are just that: a loss.

Desire – Competitive Analysis Making your customers desire your product over a competitor’s product is important. You have to continually come up with ways to answer, “Why should I buy your product over another company’s?” It all

N6 | INSURANCE JOURNAL-NATIONAL REGION February 25, 2013

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Marketing 5 Resolutions, continued from page N6

determine which ones resulted in the most clearly see which programs work best for action from your customers. you.

For example, if your rewards program is Get rid of the programs and coupons being used by 30 percent of your customer that do not work, and reallocate the fundbase, but a two-for-one promotion you ran ing and time to the programs that create R2_I J_Half_Ins Journal 1/10/13 was used by a paltry 3 percent, you12:45 can PM Pagea1reaction. Use your effort and money to

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make those programs even better.

Like I mentioned, the original AIDA sales funnel ends here, but referrals are what really drive business. Referrals may be the strongest sales tool you can find in a business’s arsenal. With one happy customer referring many others in your direction, it is possible to harness that power in your marketing plans, which can create an environment that allows you to work with your customers to bring in more business.

Referral – Build a Brand Advocate Take a good look at your customer base through your marketing outlets, including social media. Review those who are already your brand advocates, and determine what you can do to turn others that are already good customers into advocates as well.

Many metric tools can help here, and in some cases, you can use surveys and focus groups to learn exactly what your customers think about your brand.

Social media is perhaps the prime way to reach your customers on their own ground.

Using real communication, build a relationship with your most influential customers.

On any given day, a brand advocate can generate a number of leads and turn a slow sales day around.

There is always room for improvement in some facet of our personal lives, and the same goes for businesses. Making resolutions to improve every year will make you better at your job, and make your business grow faster.

In following the AIDA (plus R) funnel and doing a total review of your marketing mix, you can nix the outlets that simply do not work for you. Keep your materials up to date, and keep a close watch on what your competitors do well. Reallocate any time and funds from unsuccessful programs into the programs that do work, and continue to improve them. Let a brand advocate make your job easier.

You can start an amazing year of business just by making conscious decisions to improve.

Tutterow is the vice president of marketing for HCC Medical Insurance Services.

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N8 | INSURANCE JOURNAL-NATIONAL REGION February 25, 2013

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Closer Look

On The Water Yacht Fires Pose Challenge to Firefighters and Insurers

By Denise Johnson

D

ifficult to access and usually within confined spaces, yacht fires can grow into big losses quickly, posing challenges to both firefighters and insurers.

Severity, a concern for high-end watercraft insurers led to the creation of AIG Private Client Group’s, loss prevention services, said Sean Blue, head of Global Watercraft.

AIG, an insurer that specializes in insuring the ultra-high net worth segment like high-end homes, autos, collections, airplanes and yachts, insures more than 200 80-plus foot yachts worldwide, including mega-yachts larger than 500 feet and worth hundreds of millions of dollars.

“Yacht fires have both a severity issue for us, in terms of the values of the yachts that we insure, and we also have concerns with aggregation,” Blue said.

Late last year, AIG conducted a special training program for several firefighters from West Palm Beach Fire Rescue at locations in West Palm Beach and Ft. Lauderdale, Fla. The company teamed up with Resolve Maritime Academy, a company that specializes in training shipboard firefighting for cruise lines, container ships and bulk carriers around the world, and Rybovich Yacht

Yard in West Palm Beach to conduct the program.

The three-day program focused on fighting fires in marinas, boat basins, yacht yards and onboard yachts.

Led by retired U.S. Navy Firefighter Tom Jones, the training included both classroom instruction and a fire simulation exercise.

The Rybovich Yacht Yard is one of the larger mega-yacht and superyacht yards in the United States. The firefighters toured several yachts led by captains, engineers and first officers so that they could get a true sense of what they would face in the event of a fire, said Carl Lessard, yacht loss prevention specialist for AIG. The training was held because yacht fires at marinas and boatyards are typically fought by firefighters using land-based techniques, trained only to fight building fires.

In fact, a large yacht fire precipitated the training, said Ron Lauth, battalion chief at the West Palm Beach Fire Rescue.

“The boat came into the dock on fire. It was really difficult to access the boat, to get equipment down the dock. It was just kind of a challenge from start to finish. By the time that thing hit the dock, it was already decided. Apparently, they had trouble at sea and made it into the intercoastal and up to the dock. But by the time they actually tied up, I think the fire was probably going to the point that it was going to be difficult, if not impossible, to save the boat at that time,” Lauth said.

Yacht fires have unique characteristics with a tendency to rapidly spread to adjacent vessels in high-concentration facilities.

There are inherent problems fighting yacht fires with water, so specialized techniques are required. A sinking yacht could also cause potentially higher losses and pollution-related expenses.

N10 | INSURANCE JOURNAL-NATIONAL REGION February 25, 2013

The firefighters also learned about foam application, rapid response, search and rescue, pollution mitigation, and the removal of adjacent vessels.

Unique Characteristics According to Carl Lessard, one difference between fighting a structure fire and a ship fire is the extremely confined spaces. He said that creates a limited ability to exhaust heat and smoke, which could cause the fire to spread rapidly.

The confined space creates issues with communication, another problem in fighting onboard ship fires.

“They’re quite a bit smaller than a fullsized cargo ship. Therefore, access to below deck areas is generally a little more difficult. There’s a lot of really tight space, even on a 100-, or 150-foot yacht,” Lauth said.

Another issue is pollution, the result of some larger yachts having jet fuel onboard for helicopters. Mega-yachts may carry as much as 80,000 gallons of fuel.

“You can get a tremendous amount of collateral damage because of the amount of fuel that some of these yachts will carry onboard,” Lessard said.

One of the differences between a building fire and a yacht fire is that a building is unlikely to sink, whereas a yacht could.

“Once you lose stability of the vessel, meaning if it sinks, then you have a very high likelihood that you’re going to have pollution problems,” Lessard said.

He said a key to pollution mitigation is to try and save the vessel from sinking so that all of the fuel is contained within its own tanks.

The risk of damaging neighboring vessels is also a concern. In tight marinas, it is not uncommon for fires to spread to other boats.

Maritime fires often become multiple class fires creating a hazardous situation for firefighters.

“Another issue is that a yacht fire may start off as a Class A, which would be wood or paper or anything that would create ash, www.insurancejournal.com

or Class C, which is electrical, typically a major cause of yacht fires. They end up being a multiple class fire because of the chemicals and the fuels onboard, so they burn very hot,” Lessard said.

Going below deck is another safety issue for firefighters.

“Most buildings that are above grade, you can attack from different levels, you can attack a building fire from outside by sticking a nozzle in the window. You can access a building from the unburned side; you have options. But when you’re going below grade, you’re kind of limited in how you get to where the fire is. That creates a problem in and of itself,” Lauth said.

Helpful Tools Foam retardant and thermal imaging devices are helpful when fighting boat fires, according to Lessard.

“Thermal imaging devices — that’s a critical tool to be able to locate a fire, particu-

larly if the fire begins in the void of a vessel. A lot of the electricity and panels and wiring are behind the decorative walls within the vessel. Between the decorative walls and the superstructure can be void spaces, and that’s typically where the electrical services are run. You might have heat and smoke, but you may not see the flames, so the thermal imaging helps the firefighters and also yacht crews to be able to locate the fire,” Lessard said.

Although water is a helpful cooling agent, experts said it does little to put a blanket between the liquid and the source of ignition. Foam is what’s needed to separate the two.

According to Lauth, the three primary things that firefighters attempt to address

when fighting a fire is to remove heat, fuel and air.

“In other words, you seal the engine compartment and you activate the suppression system, it smothers the fire,” said Lauth. “Then you wait for it to cool.”

Directions given to ships’ crews in the event of a fire need to be heeded by firefighters, as well.

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N14 | INSURANCE JOURNAL-NATIONAL REGION February 25, 2013

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M

anaging sales in an independent agency is a team sport.

From top level managers to office and support staff — every person in an agency has a role to play in helping the agency win the sales game.

When one person fails to make the play, the whole agency team suffers. And when an agency suffers, so does employee compensation. Or at least it should, say the experts.

Producer compensation in particular suffers when sales are down, but the compensation of everyone in an agency should be affected when sales don’t happen, says Al Diamond, president of the Cherry Hill, N.J.-based Agency Consulting Group, an independent agency valuation and consulting firm serving firms nationwide.

“Employees need to realize that if an agency is going backward, for whatever reason — lost business, soft rates, no growth — it’s very difficult to give more money [to salaries] because you are literally taking it out of whatever profit is left, if there is any,” Diamond says.

Diamond says he witnesses the vast majority of agencies — 95 percent by his estimate — continuing to give salary increases based solely on the longevity of the employee, with average raises ranging from 2 percent to 3 percent. Traditional compensation models that reward employees based on years of service is a horrible way of rewarding good employees, he says,

because “agencies end up rewarding mediocre employees, right along with the good ones.”

Agency compensation should be sensitive to the growth and profitability of the agency. That’s why Diamond advocates incentivebased compensation for all employees, not just producers. “We are spending a lot of time doing incentive compensation programs for agencies to get them out of the process of giving raises based on longevity,” he says.

‘Agency compensation should be sensitive to the growth and profitability of the agency.’

Justin Berry, vice president, sales management for MarshBerry, a national consulting services organization for independent agencies and brokerages, hears a lot of talk about incentive-based compensation for employees outside of sales. But, he agrees, it’s mostly just talk. “I wouldn’t say it’s the norm,” Berry says. “It’s the norm for a conversation but not all agency owners have gone to incentive-based compensation yet.”

Agency compensation models have to move in that direction, according to Berry.

“It has to go to where they [owners] can have control over certain metrics. It’s not the entire salary or base, but we’d like to see a standardized renewal expectation of at least 90 percent for someone in the account executive role. If they are not meet-

ing that level then there will be negative consequences that apply. If they are above that threshold they stay static on their salary. If they exceed the standards of using that 90 percent they are getting some type of bonus,” Berry says. The bonus could be a cash reward or other incentive such as increased vacation time.

Brian Burke, chairman of B.H. Burke & Co. Inc., a Westbrook, Conn.-based organization that advises individuals and firms on the sale, purchase and management of independent insurance agencies, says many of the agencies he works with understand the need to improve the compensation system. He says the recession and the challenging insurance market of recent years convinced a number of agency owners to finally change their agency compensation playbook, especially as it deals with sales.

“Most agencies know that there’s some improvement to be made on the sales compensation line,” Burke says. “So this period of a few years spurred a number of them to finally do what they know they should be doing there.”

One of the biggest changes he’s seen to producer compensation has been the elimination of renewal commissions on small accounts. This compensation play is nothing new, Burke adds. But tough times brought more buy-in from latecomers in the industry.

“Almost all agencies are realizing that

continued on page N16

CSR S

Agencies' Average Salaries by Premium Volume (Management) P/C Premium Volume

Owners/Principals President/CEO

Office Manager

Sales Manager

Accounting Manager

Personal Lines Mgr.

Commercial Lines Mgr.

Marketing Manager

Under $1 million $1 million - $5 million $5 million- $10 million $10 million - $25 million $25 million - $50 million $50 million - $100 million $100 million or more

$51,500 $75,259 $101,853 $155,257 $181,424 $244,095 $312,500

$45,179 $45,631 $63,917 $77,537 $89,143 $95,804 $97,031

$42,000 $53,580 $92,593 $99,813 $168,750 $145,441 $229,643

$31,000 $35,918 $50,774 $55,303 $81,875 $88,889 $94,342

$30,750 $36,500 $47,656 $60,861 $110,161 $77,500 $108,750

$43,750 $45,602 $61,198 $69,194 $106,908 $89,808 $142,647

$55,000 $102,813 $54,250 $68,143 $108,810 $85,476 $118,269

Average Agency Salary Adjustment Management/Agency Owner/Agency Principal Producer/Sales Support Staff/CSR/Account Executive

2012 2.8% 2.9% 2.2%

2011 1.1% 1.6% 2.1%

Average Agency Total Income Change*

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2012

2011

2010 -0.6% -0.2% 0.6%

2009 -1.2% -0.8% -0.1%

2008 2.2% 2.3% 2.7%

2007 2.9% 2.7% 3.2%

Commerci Personal l Support s

CSR A

East Midwest South Cen Southeast West

What S or Plan

Cut benefit February 25, 2013 INSURANCE JOURNAL-NATIONAL REGION | N15 Shift healt Increase be

SPECIAL REPORT

Agency Salary Survey Playbook, continued from page N15

• Agency owners/principals/managers you really can’t afford to pay the service no increase at all,” Burke says. reported a 4.5 percent bump in total staff and the producer on small accounts,” But things have gotten better. “People are income for 2012 compared to a 3.9 perhe says. a little less worried that we are going to go cent increase in 2011.

The transition has been slow — it’s over the edge of the cliff,” he says.

• Producers/sales said their total income been happening for decades — and it has Even though the economy is not roarincreased by 5.5 percent in 2012, combeen hard psychologically for many agency ing back, the property/casualty industry Agencies' Average Salaries

by Premium Volume (Manage pared to a 3.3 percent increase in 2011. owners and producers. “But when you have is experiencing a modest lift in income Owners/Principals Office Sales Person • Support staff reported a 2.3 percent tough times and you have the opportunity thanks to a gradual hard market inAccounting comP/C Premium Volume President/CEO Manager Manager Manager Lines increase in total income compared to a to say, ‘hey we have to tighten our belts mercial lines.

2.2 Under increase in 2011. here,’ it tends to be a time when changes “So salary increases $42,000 are not only $31,000 hoped $1 million $51,500 $45,179 $30,75 While compensation in $1 million - $5 million $75,259 $45,631 $35,918 $36,50 are stepped up,” Burke says. for and expected, but $53,580 also affordable,” says million-agencies $10 million $101,853 $63,917 nothing $92,593 $50,774 $47,65 appears to be on For Chris Burand, found- ‘Salary increases$5are Burke. “There’s dramatic happen$10 million - $25 million $155,257 $77,537 $99,813 $55,303 $60,86 not only hoped for the rise, the increases are er and owner of Burand & ing but for agencies that are reasonably $25 million - $50 million $181,424 $89,143 $168,750 $81,875 $110,1 in most regions Associates LLC based in well-run$95,804 and have enough new business and expected, but$50 millionmodest - $100 million $244,095 $145,441 $88,889 $77,50 across the country. $312,500 Pueblo, Colo., the issue is production to grow a little” agency$94,342 compen$100 million or more $97,031 $229,643 $108,7 also affordable.’

According to Burke, alignment. sation is looking better. following the financial crisis of 2008, the “It pays to be pound wise and penny Burand is also seeing salaries rise in the Adjustment Salary prevailing message of insurance agencies to foolish when it comes to compensation,” agencies he works with but he sees the Agency Average their employees was that times were uncersays Burand. “A good compensation plan is increased pay coming of need 2010 2012 more out 2011 2 tain — and so was compensation. a plan that aligns the agency’s interest and rather than agency profits.

“Staff Management/Agency Owner/Agency Principal 2.8% 1.1% salary -0.6% -1 “For aProducer/Sales couple of years many people had the producer’s interests. This means the increases are minimal out-0.2% of 2.9% but increasing 1.6% -0 producer is only paid for sales that increase Support Staff/CSR/Account Executive 2.2% 2.1% 0.6% -0 the agency’s value and income.”

Salaries Up Overall There is some good news in the area of agency compensation: In the past year, agents’ pay has rebounded, growing about 2 to 4 percent on average. As a result, salaries for everyone else in agencies have been on the up as well.

According to Insurance Journal’s annual Agency Salary Survey 2013, average salary adjustments for 2012 came in a full percentage point higher for all three employment sectors: • Agency owners, principals and management reported salary increases of 2.8 percent in 2012, compared to a 1.1 percent increase in 2011.

• Producers/sales reported average increases of 2.9 percent in 2012, compared to a 1.6 percent increase in 2011.

• Agency support staff reported a 2.2 percent increase in salary in 2012, compared to a 1.1 percent increase in 2011.

Average Agency Total Income Change* Management/Owner/Principal Producer/Sales Support Staff/CSR/Account Executive

2012 4.5% 5.5% 2.3%

2011 3.9% 3.3% 2.2%

*Includes all income changes in year

How Agencies Base Compensation Incentive Plans Agency profits Productivity Revenue growth Contingent commissions Individual performance No incentive plan Other

35.6% 28.2% 25.5% 15.6% 36.7% 24.5% 4.7%

Agency Compensation Satisfaction Index*

Total Income The 2013 Agency Salary Survey revealed even more positive trends in total income, which includes profit sharing, bonuses, and other income:

Management/Agency Owner/Agency Principal Producer/Sales Support Staff/CSR/Account Executive

3.51 3.03 2.75

N16 | INSURANCE JOURNAL-NATIONAL REGION February 25, 2013

www.insurancejournal.com Average Agency Salaries By Experience

* 5 = Most Satisfied; 1 = Least Satisfied

Manager/Owners

Producers

Staff

Other

Agency Compensation Satisfaction Index* Management/Agency Owner/Agency Principal Producer/Sales Support Staff/CSR/Account Executive necessity,” Burand says. “Agency owners are recognizing that after several years of little to no increases, their staff need raises.”

According to the IJ survey, 25.5 percent of agency owners/management/principals increased the overall compensation paid by their agencies in 2012, and 38.7 percent plan to increase compensation in 2013.

Jo-Ann Gastin, senior vice president for human resources at Lockton, says many agencies, including Lockton, took steps during the recession and soft market to work smarter, opening up monies to increase compensation.

“We’ve all taken steps to right-size,” she said. “That always impacts the bottom line and releases money for increased salaries.

I think we’ll be seeing more of that in the future.”

Marketing areManager also paying more employees. Agencies have either stabilized or are growing 000 $31,000 $30,750 $43,750 their staffs; $55,000 580 $35,918 $102,813 not many are$36,500 downsizing.$45,602 593 $50,774 $61,198 $54,250 According$47,656 to IJ’s Agency Salary Survey, 813 $55,303 $60,861 $69,194 $68,143 36.3 percent $110,161 of respondents reported $108,810 8,750 $81,875 $106,908 increases in $77,500 staff size in 2012.

Just 15.5 $85,476 5,441 $88,889 $89,808 percent of respondents reported 9,643 $94,342 $108,750 $142,647 decreas$118,269 ing staff, while nearly half (48.3 percent) reported staff size stayed the same in 2012 compared to 2011. of all agencies responding 2011 More 2010than half2009 2008 2007 said-0.6% they believe-1.2% their agency’s staff size 2.9% 1.1% 2.2% 1.6% -0.8%in 2013 2.3% will-0.2% remain the same as 2012, but 2.7% 2.1% 0.6% -0.1% 2.7% 3.2% some 42.7 percent believe their agencies will increase staff size this year. Just 3.9 percent anticipate staff size will decrease in 2013.

According to research conducted by his 2011 Agency Consulting Group (ACG), most 3.9% agencies will remain stable or shrink in staff 3.3% size in the coming year, Diamond says.

“One of things we measure in our 2.2% composite group on a regular basis is the number of employees and the revenue per employee,” he says. e Plans The latest set of numbers revealed by ACG’s composite group show that agencies under $1 million in revenue averaged 6.56 .6% employees in 2011, while in 2012 that num.2% ber posted at 6.33.

.5% .6% .7%

3.51 3.03 2.75

* 5 = Most Satisfied; 1 = Least Satisfied

Right Staffing VolumeThe (Management) Agencies are not only paying out more

es nager

4.7%

Accounting Personal Commercial in compensation, but many agencies Manager Lines Mgr. Lines Mgr.

www.insurancejournal.com

Average Agency Salaries By Experience Less than 1 year 1-2 years 3-5 years 6-10 years 11-20 years 21-30 years More than 30 years

Manager/Owners

Producers

Staff

$87,000 $27,250 $71,286 $89,588 $101,589 $131,013 $141,900

$40,500 $35,625 $55,409 $57,560 $65,228 $81,146 $97,852

$43,000 $37,650 $41,506 $54,400 $47,117 $59,765 $61,059

Average Agency Salaries by Region East Midwest South Central Southeast West

Manager/Owners

Producers

Staff

$144,935 $100,345 $125,468 $109,939 $131,506

$68,230 $64,662 $55,587 $61,955 $88,186

$51,884 $45,916 $52,679 $50,670 $65,910

CSR Salaries and Hours Average Salary Paid

Average Hours Worked

$58,889 $42,571 $51,749

40.45 39.10 39.90

Commercial lines CSR Personal lines CSR Support staff average

CSR Average Salaries East Midwest South Central Southeast West

Commercial Lines

Personal Lines

Support Staff

$58,403 $48,221 $56,740 $51,264 $73,659

$38,438 $37,093 $40,553 $35,991 $55,095

$45,313 $44,883 $58,833 $73,500 $54,161

What Implemented inthat 2012, The ACG surveyStrategies also found that Agencies agencies with the employee base you already between or $1 million and $2 million averaged have,” he adds.

Plan to Implement in 2013 16.8 employees; in 2012 it was 16.6. Agencies Burke agrees.

He hasn’t seen increases in 2012 2013 2.8% doing between Cut $2-3benefits million averaged 24 employees staff but he has7.3% seen many agencies health costs to employees 9.4%technology9.2% and they Shift stayed stableplan at 24 employees. a better job using to be more Increase benefits 5.9% 6.1% And the largest agencies, those with more efficient, sometimes changing agency manForce reduction of employees 9.4% 5.2% than $3 million in revenue, averaged 65.3 agement systems to help.

Postpone hiring 37.9% 25.6% employees in 2011 and 64.3 employees in “Revenue per employee is19.0% the whole Postpone raises 32.2% Increase hiring 2012. deal,” he says.24.2% “Agencies have42.7% to find ways Increaseview, compensation 25.6% 38.7% In Diamond’s agencies are finally to operate more productively so there’s using automation appropriately to generate quite a lot of effort going on in the better more revenue per employees. In addition to agencies to learn how to be more efficient.”

Benefits Agencies Offer increasingWhat efficiency through automation, In Berry’s view, agency staffing has never those agencies with incentive compensation 2013 really decreased, even in the worst 2012 2011 2010 years Groupare health 77.7% 76.8% 79.9% small 79.1% plans in place able insurance to provide raises to of the recession.

“Usually businesses Health Savings employees, he says.

“AndAccount* you do that by not 32.2% don’t react as quickly to the market. They Dental 48.9% 50.1% 48.0% adding employees.

You do that by growing 52.5% continued on page N18 Group life/disability 401(k) Profit Sharing IRAs

53.7% 56.6% 56.1% 54.6% 57.7% 55.0% 53.9% 52.4% February 25, 2013 INSURANCE REGION | N17 17.8% 17.4% JOURNAL-NATIONAL 20.1% 19.2% 10.4% 9.1% 8.4% 9.9%

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lement in 2013

SPECIAL REPORT

to employees

ployees

n

2012 7.3% 9.4% 5.9% 9.4% 37.9% 32.2% 24.2% 25.6%

Higher than 2011 Lower than 2011 Same in 2012 compared to 2011

2013 2.8% 9.2% 6.1% 5.2% 25.6% 19.0% 42.7% 38.7%

Agency Salary Survey

11.0%

Agency Staff Size in 2012 Increase Decrease Stay the same

Playbook, continued from page N17

hang inOffer there a little longer before making s Agencies

48.3%

36.3% 15.5%

load is high but manageable, so that the staff still have time to help train the new Anticipated Agency Staff people,” Burand says. “The smartest agency Sizethat in hiring 2013staff earlier managers know rather than later can make all the differIncrease ence in whether an agency achieves quality Decrease Stay the same organic growth.”

want to know they are in control of their income.

They also want a re-occurring revenue e stream that most organizations or indusnt* 42.7% 53.5% tries don’t offer, Berry added. That’s a perk that3.9% the insurance business delivers over other sales industries.

“They get paid 90 cents on every dollar The Right Compensation Plan every year plus that high retention percent The insurance industry well-positioned of that re-occurring revenue,” Berry Change in isAgencies’ Health age 3.3% to attract topPlans salespeople for a number of says.

“They only have to sell that product in Past Year 30.9% reasons. one time and get paid on it 90 percent of ent Yes to be rewarded for their 65.8% Producers want the time for the rest of their lives.”

No success with anNot open opportunity to earn Lockton’s Gastin says that’s one aspect Sure more money, according to Berry. They that draws top-notch sales professionals from outside of the insurance world into the busiAgencies Paying for Agencies’ Plansfor to Employee Change nce: % Paid

by Agency 5.8% ness.

3.7% 7.3% Spouse/Family Health Payroll Expense in 2013 27.1% “We have a unique 45.7% Reduce payroll expense model and our financial Yes 41.3% 69.3% 69% Increase payroll expense No model does lend itself 49% Keep the same Not Sure well to the entrepreneur Not sure 54% because it’s their own busi57% ness,” she says. “It’s a very 68% Agency Owners and Agency Salary Increases different financial model 3.1% 18.2% than you would see in Health Insurance in 2012 39.1% 49.9% other companies.”

Different plan than employees than 2011 nce: % Paid Higher by Agency for Employee 78.8% The independent agen11.0% Same plan as employees Lower than 2011 cy producer model has Not Sure Same in 2012 compared to 2011 no compensation restricn 27.1% tions, and no geographic million 50.5% restrictions. “Producers Producer Commissions million Agency Staff Size 68.6% are literally in their own in 2012 5 million in 2012 79.5% 36.3% 39.6% business and can go any45.0% 48.3% 0 million Increase 81.6% Increase where that they want and 15.4% Decrease 00 million Decrease 71.5% 15.5% make as much money as Stayed the same in 2012 Stay the same compared to 2011 they want,” says Gastin, more 80.7% who believes that’s a good recruiting tool for the Agencies’ Plans to Change Anticipated industry. alth Insurance Plan Agency in Past Staff Year 6.4% 12.0% Commission Structure Size in 2013 Diamond says what pro42.7% 53.5% ducers want in compensaChanged in 2012 Increase oyee contribution 43.44% 81.6% 3.9% tion may depend on where Will change in 2013 Decrease ctible limitsStay the same 61.31% No changes they are at in their career. igher co-pays for participants 44.10% “The producers that are benefit 10.49% young and inexperienced are looking for the highest benefits Change in Agencies’ Health 8.85% Owners Thinking About 5.5% 3.3% 5.5% dollar amount coming out Selling the Agency Plans in Past Year 30.9% of the agency,” he says. “But Yes Yes 65.8% 89.1% the producers who know No No the business and underNot applicable Not Sure stand that it is the net changes,” he says.

2013 2012 2011 2010 He has seen 76.8% agencies move out lower 77.7% 79.9% 79.1% performers 32.2% in recent years. “It’s been a good 52.5% 50.1%Berry 48.0% opportunity for48.9% that decision,” says.

53.7% 56.6% 54.6% Now, as times for agencies56.1% improve, he sees 57.7% 53.9% 52.4% agencies hiring55.0% again. “Hiring is increasing 17.8% 17.4% 20.1% 19.2% right10.4% now. It’s the right time to hire. But 9.1% 8.4% 9.9%it’s always the right5.4% time to hire the right7.4% per5.7% 5.0% 4.5% 4.3% 4.3% son.” 4.6% 4.5% says that 1.8%too many 2.6% Burand agencies3.1% make 24.4% 14.0% 12.3% 11.1% the mistake of waiting to hire staff until 28.0% 44.6% 48.2% 48.5% sales 3.0% increase so much that the workload is not 11.7% bearable. 12.6% 10.0% 11.3% “The best time to hire is when the work-

N18 | INSURANCE JOURNAL-NATIONAL REGION February 25, 2013

Agencies Paying for Spouse/Family Health

3.7%

www.insurancejournal.com

Support staff average

$51,749

39.90

Agencies’ Plans to Change Payroll Expense in 2013

CSR Average Salaries East Midwest South Central Southeast West

Commercial Lines

Personal Lines

Support Staff

$58,403 $48,221 $56,740 $51,264 $73,659

$38,438 $37,093 $40,553 $35,991 $55,095

$45,313 $44,883 $58,833 $73,500 $54,161

Reduce payroll expense Increase payroll expense Keep the same Not sure

5.8% 7.3% 45.7%

41.3%

Agency Salary Increases

What Strategies Agencies Implemented in 2012, or Plan to Implement in 2013 2012 7.3% 9.4% 5.9% 9.4% 37.9% 32.2% 24.2% 25.6%

Cut benefits Shift health plan costs to employees Increase benefits Force reduction of employees Postpone hiring Postpone raises Increase hiring Increase compensation

2013 2.8% 9.2% 6.1% 5.2% 25.6% 19.0% 42.7% 38.7%

What Benefits Agencies Offer Group health insurance Health Savings Account* Dental Group life/disability 401(k) Profit Sharing IRAs Pension Plan ESOP Stock Options FSA Education reimbursement Childcare/Daycare* No Benefits Provided

2013 77.7% 32.2% 52.5% 53.7% 57.7% 17.8% 10.4% 5.7% 4.6% 4.5% 24.4% 28.0% 3.0% 11.7%

2012 76.8%

2011 79.9%

2010 79.1%

48.9% 56.6% 55.0% 17.4% 9.1% 5.4% 4.5% 1.8% 14.0% 44.6%

50.1% 56.1% 53.9% 20.1% 8.4% 5.0% 4.3% 2.6% 12.3% 48.2%

48.0% 54.6% 52.4% 19.2% 9.9% 7.4% 4.3% 3.1% 11.1% 48.5%

12.6%

10.0%

11.3%

* First year response

Health Insurance: % Paid by Agency for Employee East Midwest South Central Southeast West

69% 49% 54% 57% 68%

Health Insurance: % Paid by Agency for Employee Under $1 million $1 million - $5 million $5 million - $10 million $10 million - $25 million $25 million - $50 million $50 million - $100 million $100 million or more

27.1% 50.5% 68.6% 79.5% 81.6% 71.5% 80.7%

Managing Sales by Team Effort in 2012

E

Higher than 2011

39.1%

49.9%

very single agency out there needs good sales11.0% Lower than 2011 management, but sales management isn’t solved Same in 2012 compared to 2011 by hiring a single sales manager.

“Sales management is a team sport. The whole agency’s management team has to be involved in Agency Staff Size it,” maintains Brian Burke, chairman of B.H. Burke in 2012 36.3% & Co. Inc., a Westbrook, Conn.-based organization 48.3% that advisesIncrease individuals and firms on the sale, purDecrease chase and management of independent insurance15.5% Stay the same agencies.

Like any team, the sales team needs a leader with credibility among the producer staff.

Anticipated Agency Staff “But there’s a lot of administrative work that has 2013 to happenSize within sales management, meaning giving 42.7% good information,” he says. “There’s a lot of 53.5% admin Increase that needs to happen by people who are not neces3.9% Decrease the same sarily sales Stay leaders but who are in the agency and in the whole sales management effort. It’s not until you get really larger that you have a full time sales manager. Change Those are in usually shared tasks.”

Agencies’ Health 3.3% Owners must give agency producers a sales Plans in Past Year 30.9% model to run on, a clear path for what the agency is 65.8%to going to do Yes for them to be successful, according No Justin Berry,Not vice president, sales management for Sure MarshBerry, a national consulting services organization for independent agencies and brokerages. This includes a solid sales infrastructure, training supAgencies Paying for port, technical support, style and strategy.

3.7% Spouse/Family Health “They’ve always known what they needed to do 27.1% but now agency Yes owners who were once producers 69.3% themselves No are most likely saying, ‘Why do I want to Not Sure make it harder for them to be successful?’

“Giving them a model to run on allows them to shorten the time frame it takes to be successful,” Agency Owners and that is going3.1% Berry says.

“Most likely, a producer to be ableHealth to grow Insurance a $500,000 book of business or 18.2% more is going to do it no matter what but why not Different plan than employees 78.8% shorten thatSame process of getting there?” plan as employees Every owner knows that truly talented producers Not Sure are not easy to come by.

“Good producers, not all producers, are looking for great Producer opportunitiesCommissions to make more sales,” says Burand, founder and owner of Burand & Associates in 2012 39.6% LLC based in Pueblo, Colo. “These producers under45.0% stand more Increase sales is more important than a specific 15.4% Decrease compensation plan. These producers though are Stayed the same in 2012 compared to 2011 hard to find.” continued on page N20

Changes to Health Insurance Plan in Past Year www.insurancejournal.com

Agencies’ Plans to Change

6.4%

February 25, 2013 INSURANCEStructure JOURNAL-NATIONAL REGION 12.0% | N19 Commission

2011 1.1%

1.6% 2.1%

2010 -0.6% SPECIAL -0.2% 0.6%

2009 2008 -1.2% 2.2% REPORT -0.8% 2.3% -0.1% 2.7%

2007 2.9% 2.7% 3.2%

What Strategies Agencies Implemented in 2012, or Plan to Implement in 2013

Agency Salary Survey

2011 3.9% Playbook, continued from page N19 3.3% money that counts and not gross money are 2.2% saying, ‘We can trade off percentage com-

mission if I can get other things paid for that I would have to pay for myself.’ They are looking for the net dollar.” e Plans Burke says what producers want most is a fair split of commissions. “And it’s all over the place as to what the perception of fair .6% is,” he says. .2% They also want “good support” in terms .5% of having proposals prepared on time, good .6% service, and good carrier relationships. .7% Then producers who are moving through their 30s and early 40s realize that they not .5% only have to get income, they have to “build 7% some equity in something,” Burke says. That means some type of post-career benefits, usually in the form of deferred compensax* tion. “So if they if they die, or are disabled 3.51 or retire they, or their beneficiaries, get paid 3.03 a percentage of their commissions for a few years. It’s usually in the form of deferred 2.75 comp in addition to the cash compensation,” Burke says.

Some agencies embrace that idea and some fight it. “It’s something you want your e producers to have. Why fight it? And it’s a very good recruiting tool,” Burke adds.

Staff $43,000 Diamond agrees that retirement benefits, $37,650 whether a pension plan, a deferred com$41,506 pensation plan, or shadow stock, are a good $54,400 $47,117 idea for both the producer and the agency. $59,765 “The reason it benefits the agency is that $61,059 the more they have tied up in those plans the more likely it is that those producers will stay until retirement as opposed to jumping ship. The reason it’s good for the producer is that he has the same benefit Staff $51,884 as if he owned an equity position in the $45,916 agency or in his book,” he says. $52,679 This kind of benefit is important to offer $50,670 $65,910 key agency players who, Diamond says, are the “most valuable players” in an agency.

When it comes to the right compensation plan for service staff, good wages are important.

“What is important for agency owners is to determine whether they need quality staff,” Burand says. “Quality staff are far more productive than average staff but the agency must pay approximately 10 percent more for this quality. These agency owners

Cut benefits Shift health plan costs to employees Increase benefits Force reduction of employees Postpone hiring Postpone raises Increase hiring Increase compensation

Personnel Budget Ratio

H

2012 7.3% 9.4% 5.9% 9.4% 37.9% 32.2% 24.2% 25.6%

2013 2.8% 9.2% 6.1% 5.2% 25.6% 19.0% 42.7% 38.7%

personnel budget should be kept in the 30 ow much of a bite should compensapercent range of that 50, he says. tion take out of an agency?

What Benefits Agencies Offer “The way we evaluate an agency’s prof In order for most agencies to have itability and performance looking satisfactory profitability, total personnel 2013 2012 2011 is by2010 at what is the salary in relation to the budgetsGroup shouldhealth be kept in the 60s as a 77.7% 76.8% 79.9% 79.1% insurance Health Savingscommissions, Account* 32.2% amount of commissions handled? percentage of regular not Dental 48.9%account 50.1% 48.0% “In a large world, you can have including contingent commissions, accord- 52.5% Group life/disability 53.7% 56.6% 56.1% 54.6% an account executive making eight to 10 ing to Brian Burke, chairman of B.H. Burke 401(k) 57.7% 55.0% 53.9% 52.4% times their pay,” Burke says.

“That works & Co. Inc., based in Westbrook, Conn.

Profit Sharing 17.8% 17.4% 20.1% 19.2% well from9.1% an expense ratio stance.

“So ifIRAs you have an agency with $1 mil10.4% 8.4% 9.9%So if Pension the Plantotal personnel budget 5.7% 5.0% $80,000 7.4%a year you have 5.4% someone making lion of revenue ESOP 4.5%handling 4.3% but they are $700,0004.3% of income should be around the $650,000 range, or 65 4.6% Stock Options 4.5% 1.8% 2.6% 3.1% that can14.0% work fine 12.3% for the agency even percent.FSA If you get up into the 70s you are 24.4% 11.1% though that may sound like a lot of going toEducation struggle with profitability.

If you reimbursement 28.0% 44.6% 48.2% 48.5% money in the old world.

Whereas in a small get down into the 50s you are probably Childcare/Daycare* 3.0% ProvidedBurke says.

11.7% 10.0%working 11.3% account 12.6% world someone really going toNo beBenefits very profitable,” First yearthe response hard is going to have a hard time handling That *means cash portion of an agen$100,000 to $150,000 of income. …That’s cy’s total personnel budget — not benefits the reason why you can’t be paying produc— needs to be in the 50s, Burke adds. % Paid by for Employee ersAgency on small accounts because it’s already a EveryHealth agency is Insurance: different, but usually profit drain on the agency.” the office and service staff portion of the

East Midwest believe 10 percent more is a great investSouth Central ment. Agency owners that focus less on Southeast productivity feel differently.”

Dave Coons, Westsenior vice president of The

69% 49% always be a selling point for candidates and greater incentives will 54% attract stronger tal57% ent.”

Berry says it’s important for agency own68%

Jacobson Group, says the insurance industry ers to understand that they “get what they as a whole is witnessing a push to incentivpay for” when it comes to top employees. ize.

“It’s a tough bite put out money for a Health Insurance: % Paid by Agency fortoEmployee “While base salaries are remaining good producer,” he says, but in the end it’s relativelyUnder flat, insurance organizations are worth it to the success of 27.1% the agency. $1 million crafting enticing bonus plans and benefit Insurance Journal’s Agency Salary Survey $1 million - $5 million 50.5% offerings. To cater to a diverse and mobile collected 1,386 responses from independent $5flexibility millionin-scheduling $10 million 68.6% workforce, and geoinsurance agencies and brokerages nationwide $10 million $25 million 79.5% graphic location is becoming commonplace. via an online survey. Demotech Inc., IJ’s official Work-from-home and other telecommuting $25 million - $50 million research partner, assisted with81.6% analysis of this options are opening up the talent pool,” year’s survey results. For more information, con$50 million - $100 million 71.5% he says. “Competitive compensation will tact awells@insurancejournal.com.

80.7% $100 million or more

N20 | INSURANCE JOURNAL-NATIONAL REGION February 25, 2013

Changes to Health Insurance Plan in Past Year Increased employee contribution Increased deductible limits Implemented higher co-pays for participants Reduced drug benefit Reduced other benefits

43.44% 61.31% 44.10% 10.49% 8.85%

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News & Markets Mobile Technology Gaining with Insurers: Survey

W

hile much of the attention around use of mobile devices in insurance has centered on consumer apps offered by large personal lines insurers, other property/ casualty insurers and life/annuity insurers are rolling out mobile capabilities for their policyholders and agents as well, according to a report from research and advisory firm Novarica.

The report, “Mobile in Insurance Beyond Personal Lines: Current Trends and Expectations,” is based on a recent survey of more than 75 insurer chief information officers (CIOs) who are members of the Novarica Insurance Technology Research Council.

More than 30 percent of insurers already provide some agent or policyholder capabilities via mobile, driven by massive adoption of tablets , says the Novarica report.

Also, more than 60 percent of insurers will add new mobile capabilities for policyholders and agents in 2013, according to Novarica.

“As the use of smartphones and especially tablets displaces the use of desktops and laptops in more areas of personal and professional life, support for these platforms is becoming critical to insurers’ abilities to communicate electronically across the value chain,” said Matthew Josefowicz, partner at Novarica and co-author of the study.

The researchers said it is important for insurer CIOs to set business expectations about the immediate value of mobile investments carefully.

“Mobile is about positioning for the future, and significant measurable shortterm ROI is in short supply. But given the rate of change in tablet adoption, insurers cannot afford to be left behind. Avoiding mobile today is like avoiding web browsers in the late ’90s,” said Chad Hersh, partner at Novarica.

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2/11/13 11:11 AM

February 25, 2013 INSURANCE JOURNAL-NATIONAL REGION | N21

Closer Look

On The Water E&O Insights: Insuring Personal Watercraft Do Your Customers Know the Options?

I

t won’t be long before Mother Nature lets your customers know it’s time to get their boats out of storage and into the water.

Other customers might decide it’s time to purchase that dream boat.

Both of these scenarios will prompt contact with your agency to arrange the necessary coverage. When you are contacted, what will you provide?

By Curtis M. Presuming the waterPearsall craft meets the criteria to go on a homeowners policy, is that the only option your customers will get, or will you look to provide the benefits of a separate watercraft policy? What are some of the differences?

The answers are important for the appropriate agency staff to know and understand, because your customers will look to you for your knowledge and expertise. How confident are you in your knowledge of the differencesIJbetween insuring a watercraft Stand Alone ad.pdf 1 2/7/13 on a homeowners policy versus a policy

specifically designed for this exposure?

If you’re not too confident, this is the right time to do your homework so you are fully prepared when the calls start and a customer states: “I need coverage for my boat.”

Key Differences If your customer is looking for coverage for physical damage? This is typically not provided under a homeowners policy; only liability protection is provided. With the price tag of these “toys,” this could be key.

What about coverage for injury to passengers and others? Once again, a separate watercraft policy is typically needed for this coverage.

To 4:17 PM ensure your customers know the options available based on how they insure

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N22 | INSURANCE JOURNAL-NATIONAL REGION February 25, 2013

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their boats, make them aware of the benefits of insuring a boat or yacht with a specialty carrier. The following coverages are automatically included or available for a fee with specialty carriers: • Roadside assistance if the policyholder’s vehicle becomes disabled while towing the boat.

• Coverage for fishing equipment and other personal effects, such as water skis.

• Fuel spill coverage – your clients may be legally liable. Do they have the necessary coverage?

• Wreckage removal.

• Medical payments, even for water skiers.

Issues and Tips There have been a number of errors and omissions claims involving this class of business. Among the issues: •Territorial restrictions: This can involve specific territories, such as Cuba. In addition, some watercraft policies have limitations excluding coverage in certain types of water (fresh water versus salt water) or sizes of water (rivers and lakes compared to larger bodies of water such as the ocean).

•Lay-up period: Many policies will have a standard lay-up period, where the watercraft needs to be out of the water. Be sure www.insurancejournal.com

rate, so it is probably best to look to your meeting, to discuss the coverage and nonspecialty carriers for this information. It is coverage issues of insuring various types also a great topic to include in your personal of watercraft. The goal is to be certain the lines account reviews/questionnaires. staff understands all the coverages and •The application: It is highly recomhow they apply before customers start callmended that you ing. This is a good Now is the time to think about time to get “up to sit down with the personal watercraft insurance speed” and learn customer to review each question and the “A to Z” of options for your customers. to explain all of the boat insurance. coverages in detail. If the customer does not At the end of the day, it is the customer’s choose the broadest protection, get a signdecision about what coverages to secure. off for the coverages that were declined.

Yet, to make an educated decision, the cus •Receipt of the policy: When your agency tomer must know the options. The discusreceives the policy, review it to ensure it sion should go more smoothly if you notify provides the coverages requested by you the customer of the differences before a and the customer. Then, when forwarding loss, as opposed to after it. the policy to the customer, advise in a cover letter that the customer needs to review the Pearsall is president of Pearsall Associates Inc., a risk policy to make sure everything is in order. management consulting firm. He is also a special consul •Education and training: Your staff and tant to the Utica National Agents E&O program. Phone: your customers can benefit. Spend a few 315-768- 1534. Email: curtis@pearsallassociates.com. Blog: minutes, maybe at the next agency staff www.agentseotips.com.

your client is aware of the requirements.

•Physical damage coverage: Look to write the coverage, if possible, on an agreed-value basis. This is certainly broader than actual cash value.

•Insufficient limits: Major accidents happen.

Provide limit options for your customer and look to schedule this policy under the umbrella with the necessary underlying limit.

•Liability: Provide the much broader P&I liability (protection and indemnity) protection as opposed to straight watercraft liability.

•Not understanding the binding guidelines relating to the age of the vessel: What are the specific survey requirements?

Other Tips to Consider •Customer education: If you have a newsletter (paper or electronic), include a section regarding watercraft to help educate customers. The information must be accu-

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Find a Hoops for Hope event in one of these cities: Los Angeles, San Francisco, Phoenix, Des Moines and Chicago.

To register or for more information go to cityofhope.org/hoops or call 800-272-2310, ext. 26370

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February 25, 2013 INSURANCE JOURNAL-NATIONAL REGION | N23

NATIONAL COVERAGE

News & Markets Employers Underestimate True Cost of Complying with Healthcare Reform: Willis

T

he majority of employers seek to avoid cost increases for their group health plans. However, more than half have not put pen to paper to calculate the cost of healthcare reform, according to a survey by the Willis Human Capital Practice, a unit of Willis Group Holdings.

Among employers who have tracked the cost of compliance, nearly two-thirds indicate that healthcare reform has increased their costs, Willis said. While 60 percent of employers state that avoiding healthcare reform cost increases is very important to their businesses, employers are relying upon inaccurate “perceptions of cost” as they plan their responses to healthcare reform, Willis said.

When asked about the impact of healthcare reform on various aspects of plan design and benefits offered to employees, the majority of employers said that healthcare reform has not yet affected their plans.

Perhaps because many employers assume

that healthcare reform will generally not affect their costs, only 20 percent of surveyed employers plan to adjust other rewards (i.e., retirement, dental, vision, salaries, vacation, bonuses) to offset the cost of compliance. The majority of employers hope to comply with healthcare reform and expand health coverage as necessary — without reducing other benefits.

The Health Care Reform Survey 2013 outlines employers’ perceptions regarding the Patient Protection and Affordable Care Act (PPACA) and their planned responses to health care reform measures. The survey provides a snapshot about what actions employers believe other employers will take in response to healthcare reform and represents the findings from more than 1,200 employers of varying sizes, industry sectors and geographic regions.

Other findings include: 55 percent of employers felt that competitors would shift

costs to employees; 34 percent indicated that they might take this same action.

Employers indicated that they are now much more likely to voluntarily relinquish grandfathered status (this year 39 percent of employers chose to voluntarily forego grandfathered status; last year, only 13 percent of employers made the same decision).

Most employers intend to “play” under the “pay or play” mandate, and are planning to offer coverage that exceeds the “minimum essential coverage” requirement, and then adjust coverage and contributions after the fact to manage expenses.

“Employers are still coming to terms with the impact of healthcare reform, and many employers still seem to function in a ‘shock mode.’ While few employers consciously manage their group medical benefits as a component of their total rewards perspective, survey responses indicate the very beginning of an employer trend in this direction,” said Jay Kirschbaum, practice leader - National Legal and Research Group, Willis Human Capital Practice.

Advertisers Index Readers, browse, contact, or do product searches on any of our full page advertisers at: http://www.insurancejournal.com/adshowcase/ Abram Interstate www.abraminterstate.com W26 Agent Support Network of America www.asnoa.com W13, M3 Agostini Wholesale Insurance www.agostiniwholesale.com W30 American Reliable www.assurantspecialtyproperty.com N5 Anderson & Murison, Inc. www.andersonmurison.com N22 Applied Underwriters W9, W60, SC9, SC50 www.applieduw.com SE9, SE48, E9, E48. M9, M50 Arrowhead General Insurance Agency www.arrowheadgrp.com N7 Astonish Results www.astonishresults.com W14, SC12, SE12, E12, M12 Burnett & Company www.bcoinc.com SC18 Burns & Wilcox Ltd. www.burnsandwilcox.com W7, SC7, SE7, E7, M7 California Earthquake Authority www.calquake.com W3 Capitol Insurance Companies www.capitolindemnity.com N11

Catlin US www.catlinus.com W21, SC19, SE13, E13, M13 Century National www.cnico.com W25 Chubb www.chubb.com W11, SC11, SE11, E11, M11 City of Hope www.cityofhope.org N23 General Star www.generalstar.com W17, SE17, E17, M17 GeoVera Insurance Company www.geovera.com SC16, SE16 Great American Corporate W19, SC17, SE3 www.greatamericaninsurancegroup.com E3, M19 IICF www.iicf.org W16, SC14, SE14, E14, M14 IMCA www.imcanet.com N9 K&K Insurance Group www.kandkinsurance.com W15, SC15, SE15, E15, M15 Lexington W29, SC20, SE18 www.lexingtoninsurance.com E18, M20

N24 | INSURANCE JOURNAL-NATIONAL REGION February 25, 2013

Liberty Mutual www.libertymutual.com W59, SC49, SE47, E47, M49 Midlands Management Corporation www.midlandsmgmt.com N4 Monarch E & S Insurance Services www.monarchexcess.com W27 National Alliance for Insurance Education & Research www.scic.com N21 PersonalUmbrella.Com www.personalumbrella.com W5, SC5, SE5, E5, M5 Scottsdale Insurance Company www.scottsdaleins.com W2, SC2, SE2, E2, M2 SIAA www.siaa.net N3 Tejas American General Agency www.taga1.com SC3 Texas Mutual Insurance Company www.texasmutual.com SC13 United Contractors Insurance Agency www.ucisg.com N12 Westrope www.westrope.com N8

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NATIONAL COVERAGE

News & Markets Insurers Begin Employing IBM’s Supercomputer Watson

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r. Watson is accepting new patients.

The Watson supercomputer is being offered commercially to doctors and health insurance companies, IBM said this month.

IBM Corp., the health insurer WellPoint Inc. and Memorial Sloan-Kettering Cancer Center announced two Watson-based applications — one to help assess treatments for lung cancer and one to help manage health insurance decisions and claims.

Both applications take advantage of the speed, database and language skill the computer demonstrated in defeating the best human “Jeopardy!” players two years ago.

IBM said Watson has improved its performance by 240 percent since then.

In both applications, doctors or insurance company workers will access Watson through a tablet or computer. Watson will compare a patient’s medical records to what it has learned and make recommendations

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in decreasing order of confidence.

In the cancer program, the computer will consider what treatment is most likely to succeed. In the insurance program, it will consider what treatment should be authorized for payment.

Watson — named for IBM founder Thomas Watson — has been trained in medicine through pilot programs at Indianapolis-based WellPoint and at Sloan-Kettering in New York.

Manoj Saxena, an IBM general manager, said the supercomputer has ingested 1,500 lung cancer cases from Sloan-Kettering records, and 2 million pages from journals, textbooks and treatment guidelines.

“Watson is not making the decisions” on treatment or authorization, Saxena said. “It is essentially reducing the effort for doctors and nurses by going through thousands of pages of information for each case.”

AP Images ©2013

The lung cancer program is being adopted by the Maine Center for Cancer Medicine and WestMed in New York’s Westchester County. WellPoint is using the insurance application in Indiana, Kentucky, Ohio and Wisconsin.

WellPoint said using Watson should not increase insurance premiums because of savings from waste and errors.

Copyright 2013 Associated Press.

February 25, 2013 INSURANCE JOURNAL-NATIONAL REGION | N25

spotlight

Farm & Ranch High Prices, Crop Insurance to Offset Drought Losses for Farmers in 2013: USDA

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he seven-year-old U.S. agricultural boom, driven by record-high commodity prices and painfully tight supplies, is expected to peak this year and then come to an abrupt end as high costs start to bite, the government projected this month.

The U.S. Agriculture Department said farm income would soar to a record $127.6 billion this year, up 15 percent, thanks to high market prices and crop insurance payments that will offset losses from the worst drought in more than half a century.

Farm income would fall by one-third next year, to $96.9 billion, said USDA, because corn, wheat and soybeans — the three most widely grown crops — will fetch dramatically lower prices with bumper crops expected this fall.

The abrupt contraction in farm income could prompt operators to slow purchases of equipment such as trucks, tractors and combines, structures such as grain bins, or The contraction in crop land. Land farm income could prices soared slow purchases of along with grain prices equipment such as since 2006. trucks, tractors and High procombines, structures, duction costs, or crop land. up 12 percent in two years, will compound the effect of lower earnings for crop farmers. But lower prices for grains and oilseeds will be a welcome relief for livestock producers who have complained of ruinously high prices for feed for cattle, hogs and poultry.

“While income declines from the 2013 record through 2015, it remains well above the average of the previous decade,” said USDA in a battery of projections for farm output, income and exports this year.

The projections were based on conditions at the end of 2012 and will be updated at USDA’s annual Outlook Forum at the end of the month.

N26 | INSURANCE JOURNAL-NATIONAL REGION February 25, 2013

Swollen Farm Exports U.S. farm exports are projected at a record $145 billion this fiscal year, which ends on Sept. 30, up $10 billion from the previous year. USDA said the record “largely reflects high commodity prices.”

Agricultural exports would drop by $3 billion in fiscal 2014, it said, and by an additional $5 billion in fiscal 2015.

Assuming yields return to normal this year, farmers will harvest a record 14.4 billion bushels of corn, up 34 percent from last year; the second-largest soybean crop on record at 3.335 billion bushels; and a medium-sized wheat crop of 2.19 billion bushels, USDA said.

Market prices would plunge this fall as a result, USDA said. It projected corn would sell for an average $5.40 a bushel at the farmgate, down nearly $2 from the record-high season-average price forecast for this year.

Soybean prices would be nearly $3 below the record $14.30 a bushel expected this year. Wheat would be down by 70 cents from the record $7.90 a bushel forecast for this marketing year.

“Nonetheless, U.S. prices for corn, wheat and soybeans are projected to remain historically high, above pre-2007 levels,” USDA said.

Growers were projected to plant 254 million acres — second only to the record set in 2012 — of the eight major U.S. crops: wheat, rice, corn, sorghum, barley, oats, soybeans and upland cotton this year, USDA said.

Persistent Drought Brings Fear for Crop Size With drought persisting in the U.S. Plains and western Corn Belt, there was high concern about likely yields. The

winter wheat crop, grown mostly in the Plains, was most at risk from drought.

USDA projected lower yields for wheat and a smaller crop this year than in 2012 despite larger wheat area.

USDA devoted three pages, out of the 105 pages in its annual projections, to explaining the methodology behind its projections of yields. Its corn formula looked at 25 years of crops, including the 1988 and 2012 droughts.

USDA’s projected corn yield was higher than other forecasts. A Kansas

State University economist, Dan O’Brien, used 157.4 bushels an acre as the likely yield in a forecast last month.

David Anderson, agricultural economist at Texas A&M, has used 150 bushels an acre as a reasonable yield that would produce a record crop.

Many analysts believe growers will plant 97 million to 99 million acres of corn, compared to the 96 million acres projected by USDA. U.S. corn and soybean production has fallen for three years in a row. Traders have focused on barebones corn supplies and the need to rebuild stockpiles.

Experts say weather in late summer, when the corn and soybean crops mature, is the greatest determinant of crop size, despite the anxiety about planting crops in a dry seedbed.

Copyright 2013 Reuters. www.insurancejournal.com

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direct writers and captives are not equipped to deliver. Our customers care about price, but it is not the sole factor.

Research by PIA’s company council, The PIA Partnership, shattered some of the myths many of us had clung to: Myths like insureds don’t want to hear from us until renewal time.

Our research found that 69 percent of customers want to be contacted when their insurance agent or company has a suggestion to add coverage they may be missing or increase coverage when they may be underinsured. Eighty-one percent want to be contacted about saving money on their insurance; and 63 percent would like to receive contact every six months or less for a general review of their coverages.

Even with the latest advances in technology, insurance sales remain a people business. This does not mean that agents should reject innovation or attempt to do business in a world that no longer exists. What it means is that we need to have an accurate picture of the marketplace to succeed.

Sense of Community Our customers want a sense of community, of belonging.

Cutting-edge agents have realized that in many respects, social media is today’s Main Street USA. In the past, when people wanted to share pictures of a new grandchild, they would go to their neighbors’ homes with a stack of hard-copy photographs that had been developed at the local drugstore.

Today, they post pictures to Facebook that are emailed, because that’s where their neighbors are. ometimes, independent insurance agents can get too Professional, independent insurance agents need to get sophisticated for their own good. back to what we do best: become involved again in the lives I was reminded of this recently. My agency is fairly large, of our clients and our local communities. and I like to think that it is on the cutting-edge in many Today, community involvement means more than joining areas, such as technology and the use of social media.

Rotary or Kiwanis. Now it includes being on social media But every so often, someone will walk into the lobby of platforms, which have evolved into the town squares of the our building and say they need to purchase an insurance 21st century. Yet while the boundaries of what constitute policy. Just like that. This is not a retro remembrance of the local communities may have expanded, our communities are “good old days” — it happens more often than you think. real, not virtual. We live in the real world, with real people Too many of us get bogged down in our computer syswho have real insurance needs, in a place that is local. tems and programs. They are great aids to our businesses, What drove this home were the calls I got from clients and but they are merely devices to assist us. If we turn our friends after Superstorm Sandy, thanking me for insisting entire focus to these tools, we risk losing sight of what our on coverage they originally wanted to reject. I would not let customers really value: our ability to provide them with them make foolish decisions because I simply expert advice and choices in insur‘Independent insurance could not face them in church, in town, or ance products from many carriers. agents need to get back anywhere had I let them down. This is what And we provide more: We listen an agent does! I wonder what the outcome to our clients’ concerns, hear what to what we do best.’ would have been had they bought online. they are saying, and respond to As always, agents are on the cutting edge of changes in their specific needs. This differentiates us from e-marketing how our communities are structured and how we communicarriers who can be no more than a voice or digital signal cate. But we are still local agents serving Main Street America on the other end of a line. We are here today, and will be — wherever Main Street happens to be. tomorrow when they really need to see me.

Customers Want What Local Agents Provide

S

By Andrew C. Harris

Personal Relationships Customers don’t come to us to be “processed.” They come to us for the personal relationship, advice and counsel that N28 | INSURANCE JOURNAL-NATIONAL REGION February 25, 2013

Harris is president of the National Association of Professional Insurance Agents. He is the majority partner in Liberty Insurance Associates of Millstone Township, N.J.

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THERE ARE SOME RISKS ONLY A SPECIALIST CAN HANDLE. We’re LIU, the global specialty lines division of Liberty Mutual Insurance. To meet our underwriters and learn more about how they can help you and your clients handle unique risks, visit www.LIU-USA.com.

Boston | New York | Chicago | Atlanta | Dallas | Houston | Denver | Los Angeles | San Francisco | Miami | Baltimore | London | Europe | Asia | Australia | Canada | Latin America | Middle East Certain coverage may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds. Š 2012 Liberty Mutual Insurance.

Expect big things in workers’ compensation. Expect to save a third of your clients 30% or more. Expect broad acceptance and few class limitations nationwide. Expect competitive commissions. For information call (877) 234-4450 or visit auw.com/us.

Š2013 Applied Underwriters, Inc. A Berkshire Hathaway company. Rated A by A.M. Best.

Expect big things in workers’ compensation. Expect to save a third of your clients 30% or more. Expect broad acceptance and few class limitations nationwide. Expect competitive commissions. For information call (877) 234-4450 or visit auw.com/us.

Š2013 Applied Underwriters, Inc. A Berkshire Hathaway company. Rated A by A.M. Best.