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DONEGAL’S DEMUTUALIZATIONS An Unusual Growth Strategy
START-UP STORIES New Agencies Defy Economy
PUBLIC RISK PRIORITIES Risk Managers’ Checklist
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Inside This Issue February 9, 2009 • Vol. 87, No. 3 • Midwest Region
MIDWEST COVERAGE 6
7 Start-Up Stories New Agencies Defy Hard Economy, Soft Market Entrepreneurs Are Cropping Up Everywhere
NATIONAL COVERAGE N1 | SPECIAL REPORT: Small Business/BOPs 5 Business Owner Policy Gaps and Pitfalls for Agents N4 | SPECIAL REPORT: Small Business Pros and Cons of Running an Agency Small Business Unit N8 | SPECIAL REPORT: Top 100 Agency Profile Georgia-based J. Smith Lanier and Co. — Employee-Powered Excellence N12 | Closer Look: Errors and Omissions How to Avoid Agency E&O Claims N16 | Closer Look: Non-Profits/Social Service Study Shows Need for Standardizing Nursing Home Social Workers’ Credentials N20 | Closer Look: Non-Profits/Social Service Agent Advice Can Help Human Service Agencies in Tough Economic Times 38 | Closer Look: Errors and Omissions Agency Liability for Certificates of Insurance
www.insurancejournal.com
| Starting an Agency? Go Rural, Think Small South Dakota Study Reveals Agencies Don’t Need Big Numbers 6 | Wisconsin Court Rules on Underinsured Motorists Coverage Tractor’s UIM Doesn’t Cover Son Injured in Non-Covered Vehicle 7 | Start-Up Stories: New Agencies Defy Economy and Soft Market Entrepreneurs Are Cropping Up Across the Country 8 | Ohio Caps Workers’ Comp Experience Mods Bureau Seeks to Prevent Wide Cost Swings for Employers 8 | Indiana Teachers Seek Some Immunity Governor Backs Bill for Order in the Classroom 35 | Swimming Downstream: How Donegal Does It Sheboygan Falls Deal Illustrates Mutual Growth Through Demutualizations
IDEA EXCHANGE N22 | Minding Your Business Time Management: 10 Tricks of the Trade N24 | Carrier Watch Stocks Down 14%; Middle Market Carriers Active in Intermediary Acquisitions 36 | Managing an Agency in a Troubled Economy Andrade’s Priority 2: Systematic Sales Effort
35 Donegal’s Demutalization of Sheboygan Falls A Mutual Growth Strategy
38 Errors & Omissions Over Certificates E&O Expert Pearsall On How Agencies Can Protect Themselves
42 | Closing Quote: PERI’s Mary Stewart 5 Risk Management Challenges for Public Entities
39 42 N18 4 10
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DEPARTMENTS
Wisconsin Rules on Underinsured Motorist Coverage
Business Moves Closing Quote MyNewMarkets Opening Note People
Family Member Covered Only When Injured in Covered Vehicle
February 9, 2009 INSURANCE JOURNAL-MIDWEST REGION | 3
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Idea Exchange Opening Note
Dream Agents
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e Insurance Journal writers are fortunate in that we get to speak with a lot of good folks from company CEOs and agency principals to state regulators and experienced underwriters. They come in all accents, ages and attitudes. Most of the time it is enjoyable. But nothing we do compares to the fun of speaking with entrepreneurs launching their own agencies. We recently spoke with new agency owners from across the country. Some of the start-up stories we heard appear in this issue; others can be found in our other regional editions. These new agency owners are brimming with confidence despite today’s market conditions and economic turmoil. They really do see opportunities where others see obstacles: Soft market? Heck, that just means carriers need more business and are open to making appointments. Hard economy? Great! Buyers are looking to save and so they’re open to new ideas – and pitches from new agencies. No renewals? What a relief! That’s one less distraction from going after new business. Hands tied by a non-compete? Be patient. Meanwhile there’s a ton of prospects out there. Facing established competition in town? Sure they’ve been around awhile but they’ve lost touch with sales. Too young? Too old? Doesn’t matter, just get out and sell to These entrepreneurs those who can relate to you or you relate to. No financing available? No problem, savings will suffice are absolutely sold and it really doesn’t cost a whole lot.
on the promise of the independent agency system.
The insurance experience of these entrepreneurs is impressive. Most, if not all, have sold insurance for years, either as captives or independent agents. But there’s a big difference between having an income stream and owning the business. Andy Norman had been a producer for seven years when he got the itch. He could have had ownership at his agency in a few years but Norman didn’t want to wait. “I decided I want it now,” the 30-year old Floridian said. Scott Gussos in South Dakota knew within minutes of being told that the agency where he produced for 14 years was closing that he would be starting his own agency. His wife Nancy was ready, too. They’d talked about it for years and now the time was right. Chattanooga insurance agent John Witty wasn’t getting any younger and he knew he wanted to “build something” for his kids. This isn’t the first time he has gone the independent route; he once owned his own retail store. In Las Vegas, Gina Russo had three strikes against her: she is a woman in a male-dominated industry; she’s only 27 years old, although she already has eight years in insurance; and she’s the mother of a nine-month-old baby. But none of that stopped her. They all have their revenue targets but it’s really not about the money. It’s more than money; it’s about fulfilling dreams. And as the way to make their dreams come true, they are absolutely sold on the promise of the independent agency system. Asked for some advice for others who may be Andrew Simpson dreaming of starting an agency, Norman didn’t East/Southeast Editor asimpson@insurancejournal.com hesitate: “Just do it. It’s worth it.”
Publisher Mark Wells Chief Executive Officer Mitch Dunford
EDITORIAL Editor-in-Chief Andrea Ortega-Wells | awells@insurancejournal V.P. Content/ and Interim Midwest/Southeast Editor Andrew Simpson | asimpson@insurancejournal.com East Editor Kenneth J. St. Onge | kstonge@insurancejournal.com South Central Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Patricia-Anne Tom | ptom@insurancejournal.com MyNewMarkets Associate Editor Chris Boggs | cboggs@insurancejournal.com International Editor Charles E. Boyle | cboyle@insurancejournal.com Columnists LMC Capital LLC, Catherine Oak, Bill Schoeffler Contributing Writers David J. Firstenberg, Steven Plitt, Mary Stewart, Curtis Pearsall, Lori Widmer
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 Eric Jeter (281) 655-0234 ejeter@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
MARKETING Marketing Administrator Gayle Wells | gwells@insurancejournal.com Advertising Coordinator Erin Burns | eburns@insurancejournal.com (619) 584-1100 x120 New Markets Sales Manager Kristine Honey | khoney@insurancejournal.com Classified and Ancillary Sales Manager Nicola Coghill | ncoghill@insurancejournal.com (619) 584-1100 x125 New Media Producer Chad Reese | creese@insurancejournal.com
DESIGN/WEB Vice President/Design Guy Boccia | gboccia@insurancejournal.com Vice President/Technology Joshua Carlson | jcarlson@insurancejournal.com Graphic Designer Jamie Bethell | jbethell@insurancejournal.com Web Developer Jeff Cardrant | jcardrant@insurancejournal.com Web Developer Chris Thompson | cthompson@insurancejournal.com
A D M I N I ST R AT I O N Accounting Manager Megan Sinclair | msinclair@insurancejournal.com Admin./ Marketing Asst. Kristina Delavega | kdelavega@insurancejournal.com Cover designed by: Guy Boccia
Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly 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 2009 Wells Publishing, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. Insurance Journal is a publication of Wells Publishing, Inc. POSTMASTER: Send change of address form to Insurance Journal, Circulation Department, PO Box 9049, Maple Shade, NJ 08052
4 | INSURANCE JOURNAL-MIDWEST REGION February 9, 2009
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Midwest Coverage News & Markets
Wisconsin Court Sides with Insurer on Denying Underinsured Motorist Coverage
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he Wisconsin Supreme Court has ruled in favor of an insurance company that argued that the underinsured motorists endorsement to a farmer’s business auto policy applies to an injured family member only if he was in a covered vehicle. Jonathan Lisowski was injured in 2004 when an underinsured driver hit his family’s Dodge Avenger. He claimed he should be covered under the underinsured motorists clause of a Hastings Mutual Insurance Co. insurance policy on his father’s Mack semi-tractor. Hastings Mutual denied the claim. Now five justices have endorsed the insurer’s view and upheld lower court rulings that the Dodge was not covered under the tractor policy. The opinion was written by Justice N. Patrick Crooks. Justice Ann Walsh Bradley dissented, maintaining that underinsured motorist coverage has always applied to family members regardless of which vehicle they were in during an accident. The Lisowski family had multiple personal and business vehicles insured under policies from three companies. Dennis Lisowski, a farmer, owned a Chevy Lumina, a Chevy pickup, a Dodge Avenger, and a Mack semi-tractor. He bought policies for the Lumina and the pickup from First Community Insurance Co. but allowed them to lapse. He had purchased the Dodge for his son, Jonathan, who bought insurance for it from Northern Progressive but bought no UIM coverage.
The Mack semi-tractor, which was used exclusively for farming, was covered by a business auto policy issued by Hastings Mutual, which had a UIM endorsement. Jonathan Lisowski was a passenger in a car accident involving the Dodge, and a friend of his was driving. Jonathan Lisowski claimed coverage under the UIM endorsement to the business auto policy on his father’s semi-tractor on the grounds that, as a family member of the named insured, he was entitled to coverage for any injury caused by an underinsured motorist. Hastings Mutual denied coverage on the grounds that the UIM policy applied to covered autos only. The Buffalo County Circuit Court found that the Dodge was not a covered auto in the Hastings Mutual policy and concluded that the UIM endorsement required Jonathan Lisowski to be an occupant of a covered auto in order to trigger UIM coverage. Jonathan Lisowski appealed this and a later decision in the insurer’s favor all the way to the state Supreme Court. But his result was no different. What the parties disputed was whether Jonathan Lisowski was entitled to coverage as an insured regardless of where he was at the time he was injured by the underinsured motorist. Jonathan Lisowski advanced a halfdozen reasons his father’s business auto policy should provide coverage, including that the language “for a covered auto” is merely introductory language and not part of the policy. However the court ruled that the language is part of the policy, and an important part. “The ‘for a covered auto’ language on which this case turns is substantive language that appears in several places in the policy, including the endorsement page. When the provisions of the policy are read together, the language is not ambiguous,” the decision said. IJ
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Starting an Agency? Go Rural, Think Small Question: How many people does it take to support an insurance agency? Answer: At least 1,089. One to run the agency and 1,088 townspeople.
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he population required to support different businesses varies greatly but insurance agencies have one of the lowest thresholds at 1,088, according to researchers at South Dakota State University. Only churches and full-service restaurants have lower thresholds. Businesses such as home centers, floor covering stores and appliance stores have high thresholds. The researchers say that threshold levels help identify the businesses most likely to flourish, or at least survive, in rural towns. For example, a sporting goods store, with a threshold level of 23,027, will probably be more successful if it is located along a highly traveled highway. On the other hand, a full-service restaurant, with a threshold of 953, can succeed in a town with a population below 1,000. Retail businesses and services with threshold levels below 3,000 are generally more easily supported by rural communities. Insurance agencies and brokerages, gasoline station/convenience stores, and grocery stores are some of the businesses that are most likely to succeed in rural communities. Businesses with the lowest population threshold levels: Religious organization 750 Full-service restaurant 953 Insurance agency 1,088 Gas station/conv. store 1,454 Supermarket 1,552 Businesses with the highest population threshold levels: Heating oil dealer 17,270 Gift/novelty store 19,737 Sporting goods store 23,027 Home center 27,632 Pet/pet supply store 46,054 The researchers acknowledge the limitations of using population threshold alone. Clearly, other factors contribute to the fate of businesses, including access to a highway and residents’ disposable income. But retail threshold levels can be useful in determining which businesses are likely to survive, or if a new enterprise might do better with a secondary enterprise. IJ Source: Threshold Levels for Selected Rural South Dakota Retail and Service Businesses, by Saileza Khatiwada, Michael McCurry and Trevor Brooks, Rural Life and Census Data Center, South Dakota State University, College of Agriculture and Biological Sciences, December 2008 www.insurancejournal.com
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Midwest Coverage News & Markets
Start-Up Stories: How New Agencies Are Competing A Crop of Newly-Formed Agencies Is Defying the Hard Economy and Soft Market gency?
By Andrew G. Simpson es owest ota ts floor . y the ural hold ated -servown below unionesses
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he independent insurance agency system is enjoying a resurgence. For years, the number of agencies in the country had been declining but that trend, while not reversed, has been halted. The number in 2008 was 37,500 — the same as in 2006. That number is from the 2008 Future One Agency Universe Study sponsored by the Independent Insurance Agents and Brokers of America, Trusted Choice and several carriers. The study attributes the stabilization to two key trends: fewer mergers among larger agencies and a new phenomenon of more start-up agencies. Eleven percent of the agencies in the study were founded after 2004, and about four percent as recently as 2007 and 2008. Not surprisingly, most new ventures are small; few if any have the resources of, for instance, a giant like Marsh, which is behind one of the new agencies. But the agency entrepreneurs are not small in ambition. Insurance Journal interviews reveal these agency entrepreneurs have big plans and, in some instances, are showing promising early results. New York: Marsh & McLennan Agency New York-based global insurance broker Marsh, accustomed to handling large accounts, announced in October that it is setting up a separate retail agency to go after a share of the $80 billion in premium paid by smaller and emerging growth firms. According to Jack Butcher, president and CEO of the new retail venture, Marsh & McLennan Agency LLC will be separate from Marsh’s insurance brokerage. The target market will be firms with revenues between $50 million and $75 million. Butcher has in mind cities where he wants to launch the new retail operations but he isn’t going public with them yet. “When we do operationalize, when we do go live, this will be a national agency, meaning, I do expect to have a footprint that will be attractive to carriers who are looking for an effective distribution model,” he told Insurance Journal. He said Marsh will “almost certainly” be www.insurancejournal.com
looking to hire producers to staff these locations in early 2009, in addition to using current employees. It will also be looking to acquire agencies. Marsh has named as chairman of the new agency, David L. Eslick, who most recently was CEO of USI Holdings, where he negotiated more than 50 acquisitions over five years.
riers. “We were successful with some 90 percent of them gaining a contract,” said Scott. Today GSN represents Western National, Columbia, Auto-Owners, Safeco, North Star Mutual, State Auto, Progressive, and has contracts with key surplus lines brokers. The Gussos are counting on these providers to help them target middle market These entreprecommercial accounts, between neurs have big $50,000 up to plans and, in $130,000 in premisome instances, um, as well as ones in the $5,000 are showing to $10,000 premipromising early um range. They are also writing results. personal lines and some life and health. Among their clients will be some of the people and businesses in Madison, a town with about 6,500 people, that Scott has been serving for years at Wells Fargo — where he built a
South Dakota: GSN Insurance GSN Insurance in Madison, South Dakota just opened its doors on January 5 but already it has a veteran staff, a stable of loyal customers, and a carrier roster that would be the envy of many long-time independent agencies. GSN owners Scott and Nancy Gusso may be new at running their own agency but they are hardly new to insurance. Each has nearly 20 years experience in insurance. Most recently, Scott was the producer for Wells Fargo Insurance in Madison and Nancy, general manager for an insurer in nearby Watertown. The couple got married a few years ago and even during their courtship, they often mused about how great it would be to have their own business, according to Scott. Scott was employed by Wells Fargo continued on page 37 Insurance 14 years. Then one day early last November, Wells Fargo told him it was closing its Madison operation where he was the lone producer. 11% founded since 2004 Meanwhile, Nancy had become dis4% founded in 2007 and 2008 enchanted with her job in company 33% in South Atlantic states management. Clearly, change was in 20% in West South Central states the air because the two didn’t hesi11% in Mountain region states tate on their next move. 10% in East North Central states “Within minutes of them giving us 10% in West North central states the notice that they were closing the 48% of revenues from personal lines commissions office I knew I was just going to start 41% from commercial lines commissions my own agency,” Scott said. “I came 80% grew between 2006 and 2007 at an average of home and told Nancy that I was no 55 percent longer employed. We both said. ‘Oh 47 is average age of principal my God,’ but then said we need to (compared to 52 for all agencies) pick ourselves up and start our own agency. Everything kind of came Source: 2008 Future One Agency Universe Study sponsored by the together so maybe it was meant to Independent Insurance Agents and Brokers of America, Trusted be.” Choice and several carriers. The day after he was given notice, the two began calling around for car-
Profile of New Agencies
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Midwest Coverage Snapshot Nebraska Volunteers Have Immunity
North Dakota Eyes Allowing Self-Insurance
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olunteers preparing to respond to disasters in Nebraska have the same immunity from liability as those in paid positions. That’s the legal opinion of Attorney General Jon Bruning’s office in response to questions from Lt. Gov. Rick Sheehy. The opinion says volunteers involved in activities at the local, county or state levels are not liable in the event of personal injury or property damage arising from their work except in the case of “willful misconduct,
gross negligence or bad faith.’’ It says the Nebraska Emergency Management Act provides that immunity. While it doesn’t specifically distinguish between training and exercising, he says both are critical to emergency management. The opinion says changes to clarify the law are not needed. IJ
Indiana Teachers Seek Some Immunity
North Dakota state agency is the only entity that can legally sell workers compensation insurance to businesses in the state. But Minot state Rep. Dan Ruby says it’s about time the Workforce Safety and Insurance agency got some competition. Ruby has introduced legislation that would allow North Dakota businesses to provide their own workers compensation coverage. They would have to show their finances are strong enough to handle self-insurance. The bill also would let compa-
Ohio Caps Workers’ Comp Experience Mods
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ndiana lawmakers are considering a bill that would provide qualified immunity to teachers who act reasonably and in good faith to maintain classroom order. Supporters say the legislation would allow a judge to reject frivolous lawsuits against teachers at the beginning of the legal process, rather than forcing them to waste time and money defending themselves. Teachers told the Senate Education Committee that the bill would send an important
message of support to educators. Dan Clark, deputy director of the Indiana State Teachers Association, said it would allow teachers to act quickly to restore order rather than hesitate and worry about a possible lawsuit. “Teachers and principals are expected to be in charge,’’ Clark said. Republican Gov. Mitch Daniels pushed for the bill on the campaign trail, saying he’s heard from teachers all over the state about their fear of needless lawsuits. IJ
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nies buy workers compensation insurance from insurers outside the state. He said North Dakota is one of only four states that puts a monopoly state agency in charge of coverage. Businesses are required to buy workers compensation coverage. The bill is HB1408. IJ
he Ohio Bureau of Workers’ Compensation (BWC) board of directors has approved a cap on an employer’s workers’ compensation insurance experience modifier (EM) that it hopes will limit extreme premium swings in the event of a serious accident or loss of a group-rated premium. The cap will take effect on July 1, 2009. BWC said it plans to leave this cap in place permanently. The cap will prevent any individual employer’s experience modifier from increasing by more than 100 percent from one year to the next. This cap is intended to significantly reduce premium increases resulting from loss of a group discount or other factors that can cause instability in employer premiums, according to Melissa Vince, the bureau’s public information officer. BWC said the capping plan is part of its efforts to “foster economic growth by stabilizing premiums and providing
relief for small businesses that are striving to remain competitive in a difficult economy.” The board also approved a motion to allow BWC staff to explore options designed to “create greater equity in what Ohio employers are charged for workers’ compensation insurance coverage.” The agency said it will look for new approaches to ensuring employers pay the right rate for the right risk. BWC staff will provide the board with regular updates on progress to this initiative with board members making a final decision in the coming months. The BWC board of directors also voted to extend the deadline for employers to apply for the group rating program from February 28 to April 24. The application deadline extension will allow additional time for sponsoring organizations to determine how to proceed once potential changes are implemented. IJ www.insurancejournal.com
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It Figures
Declarations Middle Strategy
1 in 502,544
“This truly is a strategic move not a financial move. The data [on independent agents’ market share] is pretty compelling… For years, agents and brokers have sought to place their middle market clients with Liberty Mutual but couldn’t access us because we distributed directly to that segment of the market. Now they can. And we are giving middle market businesses what they want, the opportunity to have Liberty Mutual as their carrier, and still work with their trusted advisor — their agent or broker.” — J. Paul Condrin, Liberty Mutual’s president of Commercial Markets, telling Insurance Journal why his company decided to drop its direct sales to middle market and go with only independent agents and brokers.
The odds of dying in an aircraft accident, according to the Insurance Information Institute in materials sent to journalists reporting on the US Airways Airbus emergency landing in the Hudson River and the successful rescue of passengers.
$1.4 Million The amount Travelers Insurance donated to The St. Paul school district for college-readiness for students and leadership training for principals.
$56 Million The price tag on the flood recovery package Iowa lawmakers passed and sent to Gov. Chet Culver for his signature. The measure is targeted at areas including Cedar Rapids that were hard hit by last year’s floods. Under the measure, $24 million will go to housing assistance programs, while $22 million will go to grants for flood-stricken communities. Another $10 million will go for assistance to individuals for items like mental health counseling and other flood-related needs.
$13.8 Million
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The amount that Kansas Insurance Commissioner Sandy Praeger’s office said it helped thousands of Kansas consumers recover in settling disputes with their insurance companies in 2008.
The jail sentence in years given a former vice president of American International Group Inc.for his role in a scheme to manipulate AIG’s financial statements. Christian Milton was convicted by a federal jury on Feb. 25, 2008, on charges of conspiracy, securities fraud, false statements to the U.S. Securities and Exchange Commission and mail fraud. AIG shareholders lost at least $544 million as a consequence of the scheme, according to the court.
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Privacy Fight “It took about two weeks for my black eyes to go away, and I had my bottom teeth coming through my lip. But the surveillance is an invasion of privacy.’’ — Dean Windhorst, who said he was beaten up in two bar fights in the North Dakota town of Center, where authorities have proposed requiring bar owners to install surveillance cameras. Officials say there has been a rash of brawls like those in John Wayne movies.
Class Action “The threat of lawsuits is very real in the classroom. The students seem to be winning.” — Morgan County teacher Angela Williams who told The Associated Press she tries to maintain order in her special education classroom but disruptive students often threat to sue her. Indiana is considering legislation that would grant teachers some immunity from lawsuits by unruly students.
Somewhat Adequate “If you’re required to carry insurance under law, which you are, you should have to have somewhat adequate insurance. I don’t think these limits are excessive at all.’’ — North Dakota Rep. Chris Griffin, D-Larimore, in support of legislation that would raise the state’s mandatory minimum auto insurance limits that have not been raised since 1985. State law now requires drivers to have $25,000/$50,000 injury coverage plus at least $25,000 in property damage coverage. The legislation raises the injury limits to $50,000/$100,000 and the property damage limit to $50,000.
Discouraging “One of the biggest problems in North Dakota is people without insurance. When we analyze this, who are those folks that aren’t carrying any insurance? They were 19-year-olds and young people that are poor. But if we raise the rates, are we going to encourage those people to buy insurance, or are we going to discourage them?’ — North Dakota Rep. Arlo Schmidt, D-Maddock, expressing his concern over raising the state’s minimum auto insurance limits. February 9, 2009 INSURANCE JOURNAL-MIDWEST REGION | 9
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Midwest Coverage People
Therese Vaughan
Bill Kronenberg
Greg Case
Eleanor Barnard
Former Iowa Insurance Commissioner Therese M. Vaughan, Ph.D., has been named chief executive officer of the National Association of Insurance Commissioners (NAIC), effective Feb. 18, 2009. Vaughan replaces Catherine J. Weatherford, who left the NAIC in July 2008. Andrew Beal, who served as acting executive vice president and CEO in the interim, has been promoted to chief operations officer. Beal also will continue to serve as the NAIC’s chief legal officer. Vaughan will serve as the association’s primary representative and chief spokesperson in Washington, D.C. Her responsibilities will include outreach to federal governmental entities and state government associations, as well as consumer and insurance industry representatives. She will also launch of the association’s new Center for Insurance Information, which will make the NAIC information and resources more accessible to Congress and other federal agencies. Prior to joining the NAIC, Vaughan was the Robb B. Kelley Distinguished Professor of Insurance and Actuarial Science at Drake University, a position she held since January 2005, following 10 years as Iowa insurance commissioner. She is the co-author of two college textbooks on insurance. The selection was based on the recommendation of a search committee formed last summer, which was chaired by 2008 NAIC President and Kansas Insurance Commissioner Sandy Praeger. While the majority of staff members will remain in Kansas City, Vaughan’s office will be in the association’s Washington, D.C., headquarters, where some 16 NAIC staff members work. The Target Markets Program Administrators Association has introduced Bill Kronenberg as its new president. Kronenberg comes to the position as Greg Thompson, chairman and CEO of Thomco, steps down after completing his two year term. Kronenberg’s insurance career began with American International Group. He joined ECS in 1985, transforming the company from a small insurance underwriting agency into XL Environmental, Inc., a leading provider of integrated environmental risk management solutions. Kronenberg also established ECS International, now known as XL Environmental, Ltd, a London based subsidiary and the first exclusive environmental insurance underwriter in the UK. In July 2004 Kronenberg purchased Professional Underwriters Co., a program administrator writing public entity business, and became its CEO. Recently that company was sold to the Glatfelter Insurance Group. Aon Corp. President and Chief Executive Officer Gregory C. Case has been named “2008 Insurance Leader of the Year” by St. John’s University School of Risk Management. The award recognizes the outstanding contributions of individuals whose leadership in the worldwide insurance and financial services industry sets them apart from their peers.
10 | INSURANCE JOURNAL-MIDWEST REGION February 9, 2009
Last year’s recipient was James J. Schiro, chief executive officer of Zurich Financial Services Eleanor Barnard has been named chief distribution, sales and marketing officer for Fireman’s Fund Insurance Co. Most recently Barnard served as chief marketing officer and head of distribution for Zurich North America. Her background also includes senior positions at Safeco Insurance, where she was senior vice president for sales and distribution, and at CNA where she served as senior vice president of sales and marketing. In addition, Barnard was president of Hilb Rogal and Hamilton’s New Jersey operation. Randy Farless has accepted the newly created position of senior vice president for sales operations and marketing. Worcester, Massachusetts-based The Hanover Insurance Group Inc. named Helen Ryan Savaiano as vice president, management liability. Savaiano will develop a business unit that builds on The Hanover’s current employment practices liability (EPLI) offering, to include nonprofit and private company directors and officers, as well as other related coverages. She will work out of Itasca, Illinois. Savaiano joins The Hanover from W.R. Berkley Corp. in Chicago. Navigators Management Co. has established Navigators Environmental, a new business unit that will focus on underwriting specialized environmental insurance products on a global basis. The company named Adrien Robinson vice president and Environmental Practice Leader. He will be located in the company’s Chicago office. Robinson has a background in law, engineering and insurance, as well as 14 years in the environmental industry. He was most recently with AIG Environmental Insurance. Marsh has named David L. Eslick as chairman of Marsh & McLennan Agency, its new agency for small and emerging growth U.S. companies. Eslick, who has 30 years of experience in the insurance industry, most recently was chairman, president and CEO of USI Holdings, where he led USI’s rapid expansion during the past five years to become the ninth largest insurance brokerage. Eslick joined USI in San Francisco in 1997, serving as a senior vice president of Sales. He became president and chief operating officer in 1999, and chairman, president and CEO in 2002. He began his insurance career with Ohio National Life in 1979, and held positions with Prudential Insurance and Acordia (now Wells Fargo Insurance) before joining USI. Joe Peloso joined Liberty International Underwriters as a vice president charged with expanding casualty-driven program business. As vice president of liability programs based in New York, Peloso will oversee LIU’s non-professional liability program operations in the U.S. Peloso has 25 years of program business experience with both insurers and reinsurers, including work in the general agent market segment. IJ www.insurancejournal.com
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Special Report Small Business/BOPs
5 Business Owner Policy Gaps and Pitfalls Agents Should Watch Out For
By Chris Boggs
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usiness owner policies, traditionally referred to simply as BOPs, were introduced in 1976 and significantly revised in 1987. The BOP evolved gradually since the 1987 revisions to include risk classification and sizes not contemplated in the original or revised editions of the form. Additionally, many insurance carriers have built upon the Insurance Services Office’s (ISO) version to develop proprietary forms. BOP policies have long been viewed as the easy way to protect the client with the greatest amount of coverage, and to a great extent they are. BOP policies were designed to simplify the risk management process by packaging property and liability coverages into one form while including several coverage extensions that traditionally necessitated endorsements. However, reliance on the breadth of coverage automatically provided by the BOP may have blinded some to the form’s coverage gaps. BOP Business Income Limitations Business income protection provided by the BOP is relationally broad — there is no coinsurance with which the agent or insured need be concerned and the loss of income is “fully” covered for 12 months. But even in its breadth three weaknesses exist: 1. Ordinary payroll is limited to 60 days; 2. Coverage is limited to 12 months of www.insurancejournal.com
Many factors directly affect the “period of restoration” and the time it takes a particular entity to return to its pre-loss “operational capability.” Among the relevant factors: time for the adjustment process; time for building plans to be drawn and approved; finding and hiring a contractor; obtaining building permits; time to rebuild; and any building code-related issues. The insured may require more than 12 months to return to “operational capability” depending on the loss severity and problems in accomplishing all the necessary “period of restoration” factors. The BOP offers no way for the insured to increase the protection beyond 12 months. “Operational capability” as it relates to business income is an entity’s ability to operate at or near pre-loss production or sales capacity. This is a non-policy-defined business income term describing the point at which an insured can operate with the same level of inventory, protection; and equipment and efficiency as before the opera3. Extended business income is limited to 30 tional-closing loss. days. To clarify, “operational capability” is not synOrdinary payroll is not limited in the stanonymous with a return to pre-loss income levdard business income policies unless done so els, which may take much longer to accomby endorsement. The BOP is exactly opposite plish. “Operational capability” is merely the — unless endorsed otherwise, coverage for entity’s ability to produce goods and provide ordinary payroll is limited to just 60 days. service at the same level, efficiency and speed Should the insured desire to extend payroll to “ordinary” employees beyond these 60 days, the as before the loss (i.e., the ability to conduct “operations” at pre-loss levels). This highlights policy must be endorsed by notation on the the third limitation of declaration page, indicating the BOP’s business the number of days of coverBOP policies have long income coverage — the age desired, and payment of been viewed as the easy 30-day limit on the an additional premium way to protect the client extended period of must be made. indemnity. “Ordinary” employees are with the greatest amount Once the business has all employees other than of coverage. However, reopened and returned officers, executives, departreliance on the BOP may to full operational capament managers, employees have blinded some to the bility, returning to preunder contract or any other form’s coverage gaps. loss cash flows and employees specifically listed income levels may take a as being necessary, non-ordinary employees (done by name or job classifica- while. The unendorsed/unaltered BOP provides only 30 days of additional protection foltion). Payroll for these non-ordinary employees is covered for the entire period of restoration or lowing the period of restoration to return to pre-loss profit levels. If the insured feels this is 12 months, whichever comes first. inadequate coverage (which it probably is), the The insured has no remedy should the “period of restoration” extend beyond the 12 months period of extended business income coverage can be extended by a notation on the declaraof coverage provided by the BOP’s business tion page and the payment of an additional income protection. Business income lost after the 12-month period of indemnity is paid out of premium. the insured’s pocket. continued on page N2 February 9, 2009 INSURANCE JOURNAL-NATIONAL REGION | N1
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Business Personal Property – Seasonal Increase Limitation One often touted benefit of the BOP is the automatic 25 percent seasonal increase for business personal property. This is appropriate for those insureds subject to periods of foreseeable or even unforeseen increases in business personal property. However, this extension of coverage comes with a caveat — the business personal property limit must equal 100 percent of the average monthly values on hand for the 12 months (or the length the insured has been in business, whichever is less) immediately preceding the loss. This means that the value used for the current year has to include the seasonally increased values of the year prior. If the insured averaged $100,000 for nine of the previous 12 months and $120,000 for the remaining three (within the 25 percent), what limit must they carry to assure the availability of the seasonal increase protection? The insured’s average monthly value is $105,000 [(($120,000 x 3) + ($100,000 x 9))/12]. To qualify
Breakdown, Boiler and Artificial Electrical Damage Limitations Limitation may not be the correct term for System Breakdown, Boiler and Artificial Electrical Damage losses — exclusion is more appropriate. Loss caused by a systems breakdown, steam boiler or artificial electrical damage is specifically excluded in ISO’s BOP coverage form. To pick up coverage for these exposures requires an endorsement be attached. The BP 04 59 “Equipment Breakdown Protection Coverage,” adds back the necessary protection.
intended goal, providing a wide scope of coverage without the need of much agent/policy interaction. However, relying too heavily on the BOP without knowledge of its finer details can leave the client lacking at the time of a loss. This article discusses five limitations or exclusions that may adversely affect clients, but there are others. And the BOP program offers additional endorsements to personalize the policy to fit each client’s need. Even though the BOP looks like a full package of protection, proper time must be devoted to assure the insured is protected. Writer’s Note: This article has focused solely on ISO’s BOP form. Many carriers have developed their own forms. Non-ISO forms must also be carefully analyzed to find their own weaknesses and gaps. A BOP is not a “onceand-done” form — it must be monitored like any other. IJ
ISO BOP BOP policies accomplish much of their
Boggs is the associate editor of MyNewMarkets.com. E-mail: cboggs@mynewmarkets.com. Phone: 619-584-1100 ext. 137.
for the seasonal increase, the insured must carry $105,000 — not the $100,000 that is the most common amount on hand. Many agents fail to account for this policy provision, which potentially leaves their client without the proper protection should a loss occur during the time of a seasonal increase.
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N2 | INSURANCE JOURNAL-NATIONAL REGION February 9, 2009
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REVIEW YOUR RISK
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SPECIAL REPORT Small Business
Pros and Cons of Running a Small Business Unit Agencies Say SBUs Take Dedication, Technology But Offer Profitability that would enable the firm to handle a large flow of potential clients and insureds. oing for the big fish may bring in Heffernan Group has operated a small busibig returns but some agencies ness unit since it opened its doors in 1988, but think having a strategic plan to go about nine years ago the firm invested to make after all those little fish is just as the unit a little bigger. Then about two years important. Three of the largest agencies in the ago, the firm again invested capital to make country say having small business units (SBUs) the SBU what it is today — 26 small business as in integral part of their agency is simply a producers generating about $4.2 million in revmust. enue. That’s up from $1.8 million in revenue just two years ago, Heffernan said. “I just can’t imagine not doing it,” says Tim Heffernan says that Templeton, president and while its SBU generates chief operating officer of ‘Not only is it just 4 percent of the North Carolina-based Senn Dunn. “For us it turned out serving the small agency’s total revenue, the unit and the people who that the client was getting clients but it’s run it are an integral part served better by having a of the company’s plan. small accounts unit. And it helping the rest He says there’s a big turned out that our producers of the company market in the small busiwho were very tenured, very ness arena that few other experienced, were really able grow. agencies target. “A lot of to work on more larger and carriers have done very more complicated accounts well in that arena and a lot of brokers really which then helped the agency grow a lot.” do not concentrate on it,” he said. “We saw a Senn Dunn, an Insurance Journal Top 100 lot of brokers, our competitors, not aggressiveagency with $22 million in revenue, brings in ly pursuing small business and almost letting just $500,000 in revenue through its small accounts unit, but Templeton says the benefits it go. So to me there was opportunity there for of having it go beyond that. “I think it has also us to give the independent agent touch to clients who might not have been getting it helped us grow the larger clients,” he says. “Not only is it serving the small clients but it’s from their current broker or on a direct basis.” helping the rest of the company grow.” For Steven Grossberg, president of The NIA Target Market For Senn Dunn and The NIA Group, the Group in New Jersey, also an IJ Top 100 success of their SBUs has depended upon findagency, having a small business unit is just ing the right target small business market. part of having an agency that writes all facets If the small business account fits with a of accounts — benefits, life, property/casualty standard market, or stock carriers, a lot can or personal lines. “We like to cross-sell small be done to make the operation very efficient, accounts,” he says. “We find it to be very effecsays NIA Group’s Grossberg. However, he tive. … What may be a small property/casualadded, the efficiencies just aren’t there when ty case could be a large group benefits case,” writing a small account through an alternate he added. market. For another IJ Top 100 agency, CaliforniaLinda Coleman, executive vice president for based Heffernan Group, targeting small busiThe NIA Group, who supervises the agency’s ness was always in the cards, according to small business division, says risk appetites for Mike Heffernan, founder, president and CEO. insurance companies are not very broad when “One of my goals was always to build a small dealing with small business clients, which can business unit and have it be more like personal lines,” he said. Heffernan envisioned an SBU be a challenge. “That leads you to go into the that used technology, procedures and systems continued on page N6 By Andrea Wells
G
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SPECIAL REPORT Small Business Small Business Unit, continued from page N4
alternative markets and that requires a lot more involvement in the underwriting process,” she added. “You’ve got to be able to pick something up, answer it and put it back down,” Senn Dunn’s Templeton said. “The volume is a challenge. There’s a lot of renewals every
month. There’s a lot of activity going on every month.” According to Templeton, in order for Senn Dunn’s SBU to be effective, it had to decide what type of small business account to focus on. “We have to focus on things we can control, focus on things that are rela-
tively straightforward,” he said. “We get a call from a small contractor, we know exactly where to go, what carrier to use, we know how to get it done, we can turn a quote around very quickly,” he said. “But if we had somebody call with a really unique exposure, say a ship’s hull inspector that would take a lot of work and we really don’t have that expertise.” Templeton said, “sure there’s a market out there ‘We like to crossfor Mr. Hull sell small Inspector,” but the time spent accounts. … What chasing specialty may be a small coverages might have been better property/casualspent writing ty case could be a three retail locations. large group “As we benefits case.’ became more focused on the right carrier and right type of client our service improved,” he said. “Once we got the discipline to do that then we really had more time and more capability to handle those good Main Street businesses.” For Heffernan Group, much of its small business has gone to monoline workers’ comp carriers in California and to the surplus lines market, but Heffernan expects to do more in the future with standard carriers. “The Hartfords and the Travelers of the world definitely enjoy the fact that we have a dedicated unit that kind of mirrors their own corporate structure,” he said. “They are able to allocate the resources that they have for that unit directly.” Even though small business growth has been good with standard carriers, Heffernan envisions it being even better in the future. “One of our goals for this year is to try to take advantage of the fact that they are giving us resources. And we just want to have better results with them.” Phil Runge of Travelers’ Select Accounts division likes that Heffernan’s business model focuses on lower exposures and smaller premium based accounts. “Their business model fits in quite well with our business model,” he said. continued on page N14
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Employee
INSURANCE JOURNAL
TOP100 AGENCIES D. Gaines Lanier Chairman and CEO
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-Powered Excellence
With a Conservative View on Growth and Employees as Owners, J. Smith Lanier & Co. Has Risen to the Top Even in the Toughest Market Imaginable By Lori Widmer
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or J. Smith Lanier & Co., 1981 was a big year. That’s when the people into the business and let them have an equity play in it; particWest Point, Ga.-headquartered insurance firm decided to ipate in the financial gain of the business. His shares grew at the same switch from what was a long history of rate.” being family-owned and operated to an Therein lies the beauty. If employees share the Insurance Journal employee-owned business model. wealth, in J. Smith’s estimation, they have a vested Top 100 Agency Profile interest in the health and management of the comNot that the old model wasn’t working. In fact, RANKING: No. 9 pany. In turn, everyone wins. In 1993, the ESOP the company had been operating as a family-owned Agency Name: was born. enterprise since its inception in 1868. That’s right J. Smith Lanier & Co. Today’s J. Smith Lanier & Co. employee is win— 1868. Started just after the Civil War by Ward Headquarters: West Point, Ga. ning big time. Since 1993, the company has quadruCrocket and Lafayette Lanier, the company was Year Founded: 1868 first part of a dual operation — a bank and an Additional Locations: Alabama - pled in value and has managed to outpace even its own expectations in terms of success. Each insurance company — that the founding brothers Huntsville, Birmingham, Opelika; employee receives equity — Gaines estimates that established in order to help their community Florida - Tallahassee; Kentucky a staffer making $40,000 can bring in an additional rebuild after the war. Today it’s one of the top Lexington; Tennessee $160,000 to $180,000 in equity. While it’s true ranked independent brokerage firms in the country, Chattanooga, Knoxville, employees are not the majority shareholders — yet it still maintains its regional location; the comMurfreesboro; Georgia - Albany, they comprise 20 percent of the shareholder interpany’s main headquarters is in West Point, Ga., with Atlanta, Augusta, Carrollton, 19 offices throughout Georgia, Tennessee, Alabama, Columbus, Loganville, Manchester, est with an additional 70 shareholders making up the remaining interest — they are very much Kentucky and Florida. Newnan, Thomasville, Waycross, invested in the well being of the company. Presently at the helm is D. Gaines Lanier, CEO West Point. Gaines says there are no regrets going employeeand a descendant of the founders. In fact, the 2007 Premium Volume owned. At the outset, the changes were difficult to Lanier family has headed the company since its Property/Casualty: see, but within just a few short years, employees inception, passing ownership from one Lanier to $655.1 million were seeing a positive change on their year-end another four times in the 140 years the company has Other than statements. “They could see the value that’s been existed. Gaines Lanier, who came on board in 1976 Property/Casualty: created. It has an impact on longevity, the work and was appointed CEO in 1999, has been with the $433.3 million (benefits) ethic and loyalty to the company.” company through some of its key transitions, the % Commercial: 65% Not to mention an impact on employee involvemost important being the establishment of the % Personal: 10% ment and awareness of business as usual. employee ownership model. % Benefits: 25% “Employees are conscious of cost-cutting and Principals: D. Gaines Lanier, Sharing the Wealth CEO; Gary Ivey, COO; Frank Plan, expenses and client retention. They have engaged as being owners. They have seen over these 15 years The company’s third CEO, J. Smith Lanier II (and chief financial officer. what that value means to them financially.” And Gaines’ grandfather), is the mastermind of employMergers/Acquisitions: that, he says, makes for a stronger business foundaee ownership in the company. As Gaines puts it, Insuramerica Aviation (Loganville, tion. the elder Lanier was a leader who understood the Ga.) Associated General Agency Treating employees right by allowing them to importance of securing the buy-in of the employees. (Chattanooga, Tenn.) participate in the growth and success of the com“One of the traits that Smith Lanier brought was his Number of Employees: 576 business savvy to spread the wealth. He brought continued on page N10
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are much more engaged in the culture of the organization than the pany, as well as giving them control over decisions that affect their financials. Our first meetings are always about the people — we operating success, has created a welcome cost-saver — employee never talk about the money. We look for people who are culturally retention. Employees have a strong presence on steering committees, like us — conservative, honest, of high integrity, similar value sysusually 20 producers and a smattering of management teaming to tem and sales oriented. If they’re willing to grow the business and determine necessary resources and business methods that help be part of a business. There is a difference between someone who increase their success rates. Gaines believes this additional layer of wants to own the business and someone who wants to share ownerinvolvement has created not only the company’s exponential profit ship. I have every desire to be on top of the mountain; I just have no growth, but also has allowed them to hang on to key talent. “We lose very few produc‘One of the traits that Smith Lanier brought was his business savvy to spread the ers. wealth. He brought people into the business and let them have an equity play in it …’ When they get desire to be there alone.” here and after 10 or 15 years they have a half million to a million or His goal is to maintain the cooperative attitude that is pervasive in better in value, they’re not looking to leave if we treat everyone the organization. “If a producer in Atlanta writes a nice account, a right.” producer in Albany celebrates with him — we as an organization The company also has a highly-tuned resource distinction — a are successful. We have a competitive nature with our competition, stable of claims staff, loss control professionals, alternative risk perbut we don’t have to compete with ourselves. It’s part of our strucsonnel, errors and omissions, and directors and officers liability speture that we’re stronger together than we are by ourselves.” cialists, large casualty specialists, and large property specialists. Each J. Smith Lanier & Co. producer has plenty of resources to bring Conservative Business Equals Growth in to the client as needed. “We’ve had a great deal of success over the Another factor Gaines attributes to the company’s success is its last few years in forming captives and alternative risk mechanisms conservatism in both business and personal endeavors. “We’re a confor clients. Our claims advocacy group is, in our minds, where the servative people. We’ve never leveraged the company hard. We make client really sees us create value when he has a very difficult claim. good business decisions. We put money back into the company every We assist instead of standing back and handing it over to the insuryear. It started in 1980 when we really started running the business er.” like a business and not like a family company.” That’s not to say the family ideals have been abandoned. To the Choosing Wisely contrary, in explaining his belief that each employee from manageOne thing J. Smith Lanier & Co. does well is evaluate opportuniment to mail room has the same responsibility to the health of the ties and let the opportunities find them, not the other way around. collective, Gaines speaks of the family atmosphere. “In our world “Opportunities arise, but not on our schedule. We stay in a position there’s a responsibility of the family member to the family. You ask to capitalize on the opportunities.” the family to help when he can, but every member needs to underAs for a perfect fit, Gaines says it’s not what one would think. “We stand he has to bring his value back to the family or he doesn’t stay part of the family. Most people say the family takes care of you, but in our world it works both ways.”
Pictured standing left to right in back: Board members Scott Crawford, executive vice president; Gary Ivey, president and COO; Frank Plan, CFO. Seated left to right in front: Sloan Howard, senior vice president and steering committee representative to the board; Board members D. Gaines Lanier, chairman and CEO, and Robert Culpepper, executive vice president. N10 | INSURANCE JOURNAL-NATIONAL REGION February 9, 2009
Decisions, Decisions Not every decision made in the company has been a good one. Gaines laughs about some of the not-so-successful decisions, of which he says there were more than enough out there. Of the successes, he says, “We’re very fortunate. We’ve made some mistakes — no question about it, and some I would obviously not do again. Fortunately, none have been that big in magnitude that it created a real problem for us. Our real success has been finding those people who culturally fit us.” He cites the recent acquisitions in Lexington and Tallahassee. “These people believed in our culture more than anything else. That’s why they’re here. It’s not necessarily the economics of every transaction — they enjoy working in this environment.” One not-so-successful decision involved a merger attempt with two groups in 1980, one which Gaines is reluctant to talk about. “We realized shortly after that it was a bad merger and we split it back out in 1981.” www.insurancejournal.com
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INSURANCE JOURNAL
TOP100 AGENCIES But even the bad decisions can be catalysts for positive change. When the company decided to leave behind the merger, Gaines became an owner, as did William Parr Jr., who is the company’s current vice-chairman emeritus. They also brought on board the company’s current Chief Operating Officer Gary Ivey, who is also a major shareholder. Maintaining in a Tough Market At present, Gaines says the company is looking at a flat growth year for 2008 as well as 2009. Thank the current recession and volatile market conditions, which are testing (and in some cases sinking) competitors and many large financial institutions. Still, Gaines maintains a positive outlook. Business as usual must go on. “It’s not necessarily that we aren’t writing new clients, we’re not growing or we’re not competing to bring on new talent. We are. It’s just that you cannot go through the economic downturn and the rate reductions of the competitive market we’ve been in and it not have an effect on growth, but we’re not going negative.” He attributes that back to the company’s conservative approach. The company, he says, makes a good return, but doesn’t over-leverage and try to outdo the competition in deal making. “We’re conscious of who we are. We’re not going to overpay for a deal just to make a deal. We’ve probably lost some opportunities from maybe even better than a double-digit growth. We have not done that because we’re not going to go out and overpay for transactions.”
D. Gaines Lanier and J. Smith Lanier II
think it’s going to change us. We’re not going to change this company a great deal by that. We’re going to be conservative in our expansion. Fortunately, we have a very strong capital base. We’ve been diligent in building retained earnings. We may all tighten our belts, and I really think we are. But we’re not going to go out of business.” What about coverage availability? In Gaines’ estimation, it will be Recession and Opportunities there and the market will be competing heavily for business. “Carriers Gaines’ outlook in a recessionary era could well be fueled by a do have capital, and they’re going to want to continue to grow the long history of conservative, smart decision making. How does the business.” It takes no crystal ball, in his opinion. “We all should’ve current economic situation affect the industry and how J. Smith known this was coming. Nothing stays great forever.” His only concern Lanier & Co. will be conducting business? “I think they are going to — maintaining caution and not overstaffing until revenue comes back. That’s going to be tough, as he points out, ‘We’ve had a great deal of success over the last few years in because of the influx of talent that he expects is already flooding the market. forming captives and alternative risk mechanisms for clients.’ be very parallel to each other for this reason — we have seen over the last several years rate decreases coming from carriers where rates have actually gone down. Couple that with exposure increases that we’re going to see because of the economic downturn. Payrolls are going to be lower, sales are going to be lower, and you’re not going to see the expansion in businesses. All that’s going to come through in premium. That’s going to affect all of us. The carrier is going to be faced with the same problem — so are we as brokers. We’re going to see return premium audits, in my estimation, much heavier in ’09 and ’10. “I think the next two years are going to be the toughest years that this industry’s faced in the last 10 (years). In the market we’re in now, rates are going down, exposure base is going down, competition’s still there, so obviously everyone’s going to earn less. In the last several months the real business climate is changing. We’ve seen the demise of businesses, bankruptcies, and everything else increase. We think that’s going to continue. That’s going to have a major impact on our world and on the industry.” But as for how it will affect operations, Gaines is positive. “I don’t www.insurancejournal.com
Family Attitude, Employee Involvement For now the company plans to continue its current way of doing things, which is to work together and to reach into the surrounding communities in order to make a difference. J. Smith Lanier & Co. employees are very much part of the communities in which they work, donating not only time but money to various organizations and community projects. The company itself is very involved in the Fuller Center for Housing, and Lanier employees have built six Habitat for Humanity houses. The company also sponsors the Brain Tumor Foundation for Children charity event, which raised an estimated $225,000 in 2007. Additionally, each office gets $5,000 to donate to local charities at Christmas, worth about $50,000 to the company annually. Gaines believes it’s the focus on the whole that distinguishes his company from its competitors. “We’re real people who happen to be in the insurance business. We’re grounded.” IJ Widmer is a Philadelphia-based freelance writer who specializes in insurance and risk management topics. February 9, 2009 INSURANCE JOURNAL-NATIONAL REGION | N11
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Closer Look Errors and Omissions
How to Avoid Agency Errors and Omissions Claims Advising Clients on Specific Dollar Values of Coverages They Need to Consider May Create Unnecessary Exposures Plitt
By Steven Plitt
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here have been an increasing number of lawsuits brought against agents in situations where the client/policyholder does not have sufficient liability coverage limits to pay for the liability exposure caused by an accident. Typically, in these types of situations the client/policyholder sues the insurance agent alleging that the agent should have recommended the purchase of higher policy limits. This situation also arises frequently with uninsured and underinsured motorist (UM/UIM) claims as well. In most states, insurance agents are not required to recommend a specific amount of coverage. Also in most states, insurance agents are only required to provide to the client the appropriate insurance products to protect against the client’s risks. This recommendation does not include the limits of coverage which should be purchased, however.
At the time of the insurance purchase the amount of insurance coverage necessary to protect the insured is purely speculative. Irrespective of the client’s financial status, if an insurance agent were to recommend large limits and no accident occurred then the client would have, in hindsight, overpaid for the amount of risk coverage needed. On the other hand, when an accident does occur which produces substantial injury or liability exposures — that realized exposure— in hindsight demonstrates that larger limits should have been purchased and that the purchase of higher limits was a prudent decision. The point to this is that the agent, at the time of the policy sale, cannot predict with any accuracy the amount of coverage that the insured should purchase. Any recommendation will cut both ways depending on hindsight.
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Assessing the Amount of Liability In order to assess the appropriate amount of liability and UM/UIM coverage that the client should purchase would require the agent to have substantial access to the insured’s financial investments and properties. With respect to UM/UIM coverage, the amount of health insurance can be relevant. Even with this information, an agent cannot accurately assess the insured’s risk which is expressed through the dollar amount of the policy’s limits. Perhaps one of the most comprehensive discussions of the public policy for judicial refusal to declare that insurance agents owe a duty to recommend specific amounts of insurance can be seen in the Maryland case of Sadler v. Loomis Co., 139 Md.App. 374, 776 A.2d 25 (Md. App. 2001). In Sadler, the Maryland Court of Special Appeals found that a lawsuit brought by an insured against her insurance agent for “woefully underinsuring” her was not a legally recognizable claim. The court in Sadler noted that the majority of states refused to hold agents liable for failing to recommend a sufficient amount of insurance because it is the insured who is “in the best position to assess the value of his or her assets, and the extent of potential loss in the event that a risk materializes, whether by adverse judgment, business interruption, fire, theft, or the like.” (139 Md.App. at 400, 776 A.2d at 40) Additionally, the court observed that it is the “insured [who] is generally considered best able to balance the factors relating to potential economic loss against the expenses of purchasing additional insurance, the likelihood that a particular risk will materialize, and the insured’s own comfort level with the risk versus the cost of greater protection.” The court expressed concern that requiring agents to advise policyholders of the www.insurancejournal.com
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amount of coverage they should purchase would “readily encourage an insured who suffers a loss to fabricate that he or she would have bought more insurance had it been recommended.” In essence, the creation of such an obligation to advise insureds on the amount of coverage they should purchase would indirectly afford insureds the opportunity to insure after the loss by merely asserting that they would have bought the additional coverage had it been offered.
believes is adequate to protect against the possibility of risk exposure. The letter can tell the client that the agent may make a recommendation, generally, that it is the client who must choose the amount of coverage purchased. As an example, the agent could recommend an umbrella or excess policy as a type of product and then
explain the coverage requirements that are a condition precedent to the availability of that product. IJ Plitt is a national legal expert on insurance law and insurance agent issues. He is the current author of the national treatise COUCH ON INSURANCE 3D. E-mail: sp@kunzlegal.com. Web site: www.kunzlegal.com.
Minimizing Risk of Litigation Where does this leave the insurance agent? It is appropriate and required that insurance agents assist their clients with the selection of the right products to protect their clients. Oftentimes agents will recommend that an umbrella or excess policy be purchased above the primary There have been an limits because of the client’s increasing number general financial of lawsuits brought condition or the against agents in size of the busisituations where the ness being client/policyholder insured. This does not have sufficient type of advice liability coverage limits falls under the category of the to pay for the liability agent’s obligaexposure caused by tion to present an accident. the right products for the client’s needs. Specific dollar values are not directly recommended, although they are independently obvious, i.e., a $1 million umbrella. By recommending an umbrella or excess policy, the agent is recommending coverage in excess of the threshold attachment point. With respect to UM and UIM coverage, agents will often tell their clients that they should consider insuring themselves as much and as fully as they insure themselves against the prospect of a lawsuit against the insured. This type of general advice does not rise to the level of a specific recommendation for coverage limits. In order to minimize the risk of litigation, the prudent insurance agent should prepare a letter which is sent to every insured indicating that the insured must determine how much coverage he or she www.insurancejournal.com
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SPECIAL REPORT Small Business Small Business Unit, continued from page N6
Technology SBUs rely heavily on technology to create greater efficiencies, including in-house automation tools and carrier resources that enable producers and service staff working with small accounts to move quickly.
John Pritchard, Heffernan’s senior vice president and manager of special accounts, or small business, says to be successful an SBU has to have to a lot of volume and has to track that volume constantly. “We have invested in technology
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THE SALES & MARKETING PUBLICATION FOR P&C PROFESSION ALS PAGE TWO
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These self-pu blished documents permit you substitute for the traditi to put your insura onal nce offer coverage in the best checklist where possible light. insureds sign new Accordingly don’t limit on to or off , yourself to coverage of each comparing and limit. just the core After all, document’s coverages. primary functi this Also feature any special packa to help you on is close the that are part ges sale, not protect you of your quote All insurance against E&O instance, . For proposals if the home claims. built upon The charts are owners the pillars policy that supplement of price, you propo summarize protection, and se includes your regula an endorsemen PAGE FOUR and servic r proposal e. On document. the surfac e, it is extrem Pre-fil limited deduc t package with ADVERTISING ely as many covera l and compare simple for tible windo potential replacemen w ges and servic buyers to t, refrigerated glass as space and compare Solicit Contrac es cost. They spoilage, judgment food tors with just have and dama allows. Then sit down Target-Specific to examine ge from backed up two Marketing. with the prosp sewers — and help what do these numbers. But ect disclose him or her them all. dollars actual to complete Their practi the other buy? That’s cal value side of each stands out where protec ly PAGE FIVE form, itemsince they by-item. This and servic tion are e fill in the of the custom not part joint exerci picture. se is one of the Competing ary contra Q&A keys ct. quotes are Furthermore never actively involv to sales success, identical, CSRs and Custom , when you as limits, covera include multip ing the buyer er Skills. proposal endorsemen ges, le policy types in the Managing New presen the same ts, and seller on Commercial chart, such when an in-per tation. However, services vary as auto, HO, and umbre Lines Producers. from offer son meeti lla, you promo physically ng is to offer. So, when impossible 51% or more Post a “Want idea of the te the or resisted, List “to Gain prospect of these the charts variations moving their Desired Sales can be emaile are to your entire accou Appointments advantage, d as PDF files and nt to you, it’s wise to . instead point them of just a single filled in with Tips for Design out. prospect policy. This To help you ing Your over the phone the format encou to presen Next Agency . Still, with all of rages both differences, t the Logo. their advan of you to discuss we have develo tages, these and quote tools aren’t two comp ped multiple for everyo arison charts policies at ne. the same [see page 7] and Larger comm PAGE SIX time, even when posted them there are require simila ercial accounts PRODUCER SALE online Subscr in our disparate expiration r comparativ ibers-Only S dates. information, Area. e The first one but just not compares The first chart Inject Fun into the this forma in integral and Commercial also serves t. So, use limited summ optional covera as a Lines Insuran this chart structure aspects of ary ce Proposals. ge mainly your propo useful in itemiz of discussions, 7 Ways to Pep sal to personal lines to encourage prospect’s ing the pre-sa Up a Small existing policie the coverages and small le and limits Business Present business prospects the secon s; that you to interact d compares initially propo ation. with you, servic and to ensure Modify and sed that you menti — and noting output custom es. that the major distinctions versions of oned non-c ized of your offer items such each using overed as flood insura Word. clearly under are However, stood. Let nce. it is not a today’s harsh us vs. viable them menta lity work to your sales advantage.
PAGE THREE
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Use Compariso n Charts to Highlight the Advantages of Your New Bu siness Propo sal
that allows us to track activity for each producer, which is very, very important. We’ve also, to the extent possible, taken advantage of as much technology as we could from our carriers, using their online rating systems, and the like.â€? “Every producer is extremely accountable for activity,â€? Heffernan said. “We cannot allow someone to not constantly prospect. In the larger commercial, we monitor it but it’s not that hands on.â€? Small commercial prospecting has to be tracked daily, Pritchard added. “We actually track it real-time, daily. I’m tracking activity on a day-to-day basis for everybody to make sure they have a consistent flow of activity on a daily basis.â€? Heffernan says, most importantly, for an SBU to be successful it has to have quality leadership and management support. “Someone has to lead it. There’s a lot of people, there’s a lot of moving parts, you have to have the passion and understand the insurance business. You have to have the knowledge about pretty much every product available because we are selling to manufacturers, to contractors, to non profits ‌ you have to have broad-based knowledge and you have to be a good leader. It doesn’t work ‘I think you have without that kind of indito have a belief vidual.â€? in it. You can’t Heffernan also believes a belittle it. You successful can’t make it SBU must have support seem like it’s just from the top small business.’ down. “I think you have to have a belief in it. You can’t belittle it,â€? he adds. “You can’t make it seem like it’s just small business.â€? Dedication to the SBU is a must for success, Heffernan says. “It’s taken us two years and believe me it’s a capital investment. You don’t start making money right off the bat. I think if you want to do it, you have to be dedicated and spend at least three years to see if it works.â€? IJ www.insurancejournal.com
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We insure the printing industry from A to Z. Not to mention C, M, Y and K. Technology in the printing industry is constantly evolving. And so are the risks your clients face. From the breakdown of sophisticated equipment to errors and omissions in a customer’s order, the economic implications can be huge. That’s why Travelers has developed insightful insurance solutions that stay in-synch with printers’ needs, including a product that addresses the expense of replacing or recreating a customer’s lost files. Which is something we think you will find is well worth the paper it’s printed on. To find out more information, contact your local Travelers Commercial Accounts Representative. ©2009 The Travelers Companies, Inc. All rights reserved. The Travelers Indemnity Company and its property casualty affiliates. One Tower Square, Hartford, CT 06183
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Closer Look Non-Profits/Social Services
Study Shows Need for Standardizing Nursing Home Social Workers’ Credentials Only Half of Nursing Homes Surveyed Employ Social Workers with Degrees in Social Work
S
ocial workers play a vital role in improving the quality of nursing home residents’ lives. But qualifications of nursing home social workers vary wildly in part because of low federal standards and inconsistent state laws, the first national study on nursing home social workers reveals. Only half of nursing home social workers have a degree in social work, and 20 percent do not have a four-year degree, a University of Iowa survey of 1,071 nursing home social service directors shows. Despite their desire to learn, two-thirds of nursing home social workers report they do not belong to a professional organization that helps to keep them up-to-date on nursing home social work issues, and only 38 percent are licensed in
social work. For-profit nursing homes are 31 percent less likely to hire a degreed social worker. The numbers are concerning, given the important responsibilities nursing home social workers have, said Mercedes Bern-Klug, the assistant professor of social work in the UI College of Liberal Arts and Sciences who led the study. Nursing home social workers advocate for residents and watch for signs of stress and depression. They connect residents and families with resources in and outside the nursing home and facilitate transitions such as hospice, a hospital stay or a return to independence. They guide families, residents and care providers through difficult conversations or conflicts. “Nursing home social workers handle very
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serious emotional issues affecting residents, family members and other staff members, and they deserve to be educated on how to handle these issues,” Bern-Klug said. “Everyone benefits when nursing homes hire qualified social workers.” Older adults struggle with dementia, and the highest rates of suicide are among older adults. Some are victims of physical, emotional or financial abuse. “Still, many people in charge of social work in nursing homes aren’t social workers, and the federal government doesn’t require that they be social workers,” Bern-Klug said. Homes with more than 120 beds are required by federal law to employ a full-time social worker, but anyone with a bachelor’s degree in any human service field — not necessarily social work — and one year of supervised experience in the field is considered qualified. Seventy percent of nursing homes have less than 120 beds, and therefore are not required by federal law to employ a social worker. Most homes do employ one — but typically only one — which means devoting adequate time to each client is difficult, Bern-Klug said. Many times social workers’ jobs involve other duties like marketing or activity planning. “I asked 1,000 social workers, ‘How many residents can you handle? Federal guidelines say you can do 120,’” Bern-Klug said. “An overwhelming majority said fewer than 60. “We need legislation to demand well-prepared social workers and to set reasonable social worker-to-resident ratios, but unless families demand changes, it will be difficult to get them,” Bern-Klug said. “Decades of research has documented the negative consequences of having too few nurses in a nursing home, and still we don’t have strong laws demanding a realistic nursing ratio.” Bern-Klug examined state laws and found that 10 states don’t address qualifications for nursing home social workers, and seven state codes do not appear to comply with federal standards. Twenty-one states require www.insurancejournal.com
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a social work degree, and most others require a four-year degree, but not in social work. Iowa’s guidelines for social services in nursing homes with more than 120 beds are identical to the federal guidelines. Iowa code does not address the social service credentials of the majority of its nursing homes, which have fewer than 120 beds. The research also uncovered loopholes in state laws. In Colorado, for-profit nursing homes in rural areas don’t have to hire a qualified social worker if they advertise for a week in a local paper and don’t find one. In Indiana, social services can be provided by a member of the clergy who completes a 48-hour course and consults with a social worker. “We need to standardize nursing home social worker qualifications, regardless of the number of beds, and nursing homes need to make sure their social workers have access to the training they deserve in order to do their jobs well,” Bern-Klug said. Nursing homes need to support existing social workers by providing educational and professional development opportunities, along with decent salaries and benefits, she said. Full-time salaries in some regions are as low as $15,000 per year, while others exceed $60,000, the study showed. “Nursing homes tend to focus on physical care — the risk of falling, the risk of bed sores or skin ‘We need legislation wounds — which are very serious to demand wellissues,” Bern-Klug prepared social said. “But people workers and to set need more than good physical care reasonable social to thrive, and physworker-to-resident ical conditions have ratios, but unless emotional consequences that social families demand workers can help changes, it will be address. As individdifficult to get uals and families them.’ compare nursing home options, they should ask about the qualifications of the social worker and the number of residents under his or her care.” The analysis of laws on nursing home social worker qualifications was published in the fall issue of the Journal of Gerontological Social Work. Results of the national survey will be published in the Journal of American Medical Directors Association. IJ www.insurancejournal.com
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New Markets The following markets were selected from the MyNewMarkets database of 25,000 coverages and programs. To find additional markets, or to submit markets, go to www.MyNewMarkets.com. High-Value Homeowners’ Protection Market Detail: Irwin Siegel Agency Inc. (www.isapcg.com) brings agents access to AIG’s Private Client Group program. Private Client Group is a comprehensive package program for high net worth individuals seeking to protect their valuable assets and benefit from flexible coverages, innovative products, extraordinary services and competitive pricing. A high-deductible option is available to allow targeted high net worth clients effectively control costs. Agents are not subject to production minimums. Available Limits: As needed. Carriers: American International Group. “A” rated by A.M. Best. Admitted. States: All. Contact: Mark Madsen at 800-622-8272 or e-mail mark.madsen@SiegelAgency.com.
General Liability for Roofers Market Detail: MarketScout (www.marketscout.com) gives agents access to a general liability market for roofers. Residential, repair and commercial roofers are welcome. No exclusions for hot tar or heights. New entities are also welcome. The carrier can provide blanket additional insureds and blanket waivers of subrogation endorsements. Minimum premiums begin at $10,000 and the minimum deductible is $5,000. Available Limits: $1 million to $5 million. Carriers: Unable to disclose. “A” rated by A.M. Best. Non-admitted. States: All. Contact: John Gaskill at 972-934-4212 or e-mail jgaskill@marketscout.com.
Specialty Equipment Rental General Liability Program Market Detail: Trade Group Insurance Specialties Inc. (www.tradegroupins.com) created and is the exclusive underwriter for the FLOW Rental Program. FLOW provides general liability protection for specialty rental trades such as traffic control/barricades, portable toilet, temporary power and fencing,
and water pump/flow diversion. Minimum premiums begin at $10,000. Available Limits: As needed. Carriers: Unable to disclose. “A” rated by A.M. Best. Non-admitted. States: All except New York. Contact: Michael Bell at 866-366-7938 or e-mail mbell@tradegroupins.com.
TeleRadiology Professional Liability Market Detail: Founders Professional LLC (www.founderspro.com) offers medical mal-
Bringing Market Seekers and Market Providers Together • Find markets in our database • Promote your markets on our site • Join our community forums • Membership is free! practice/professional liability protection to TeleRadiology practices serving hospitals, imaging centers, ASCs and physician groups. Coverage is provided on a claims-made basis with available prior acts protection. Minimum premiums begin at $25,000 and deductibles begin at $5,000. Available Limits: $1 million to $10 million. Carriers: Unable to disclose. “A” rated by A.M. Best. Non-admitted. States: All. Contact: Robert C. Hall at 813-769-1290 or e-mail robert@founderspro.com.
Vacant Property Market Detail: American Management Corp. (www.amcinsurance.com) offers property protection to owners of residential and com-
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mercial vacant property in 45 states and the District of Columbia. Minimum premiums begin at $750. Available Limits: Up to $2 million. Carriers: Various carriers. “A” rated by A.M. Best. Non-admitted. States: Ala., Ariz., Ark., Calif., Colo., Conn., Del., D.C., Ga., Idaho, Ill., Ind., Iowa, Kan., Ky., La., Maine, Md., Mich., Minn., Miss., Mo., Mont., Neb., Nev., N.H., N.J., N.M., N.C., N.D., Ohio, Okla., Ore., Pa., R.I., S.C., S.D., Tenn., Texas, Utah, Vt., Va., Wash., W. Va., Wis. and Wyo. Contact: Stephen Strange Jr. at 800-233-2398 or e-mail stevejr@amcins.com.
Large Commercial Umbrella Market Detail: Northern Star Insurance Agency LLC (www.northernstarins.com) can offer certain classes of commercial insureds umbrella and excess coverage with limits up to $100 million. Northern Star specializes in community associations, real estate, hospitality, public entities, restaurants, museums and cultural centers, auto dealers, contractors, distributors, manufacturers, retailers, service organizations and many other market segments. Minimum premiums begin at $500. Available Limits: $1 million to $100 million. Carriers: Unable to disclose. “A-” or better as rated by A.M. Best. Admitted and non-admitted. States: Ala., Alaska, Ariz., Ark., Calif., Colo., Conn., Del., Ga., Ill., Ind., Md., Miss., Mo., Neb., Nev., N.J., N.M., N.Y., N.C., Ore., Pa., R.I., S.C., Tenn., Texas, Utah, Va. and Wis. Contact: Eric Magee at 714-938-0015 or e-mail emagee@northernstarins.com.
Medical Property Protection Market Detail: RPS of New York (www.rpsins.com) offers agents a property protection program designed specifically for the health care industry equipment. The medical diagnostic equipment coverage form is crafted to provide protection for: MRIs, CAT scanners, X-Ray equipment and other portable diagnostic equipment. Power units www.insurancejournal.com
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and specialized trailers part of mobile units can also be covered. Blanket limits of $250,000 are also available on items such as accounts receivable, EDP (including extra expense), extra expense, food spoilage and contamination, loss data preparation costs, personal property of patients and valuable papers and records. Minimum premiums and deductibles begin at $5,000. Available Limits: $1 million to $100 million. Carriers: Unable to disclose. “A” rated by A.M. Best. Admitted. States: All. Contact: Robert Hecht at 631-969-1900 or e-mail bob_hecht@rpsins.com.
insurance, language, modeling, music, photography, public speaking, real estate, tailor, theater, tutoring instruction and more. General liability is available as part of a package or on a monoline basis. Professional liability and abuse/molestation coverage are also offered. Available Limits: As needed. Carriers: Various carriers. “A++” rated by A.M. Best. Admitted and non-admitted. States: Ariz., Calif., Colo., Md., Neb., Nev., N.M., Ore., Pa., Tenn., Texas, Utah, Va. and Wash. Contact: Elizabeth Gaida at 619-593-2059 or e-mail elizabeth@agostinisurplus.com.
Artisan Contractors Package Training Schools Package Market Detail: Agostini Wholesale Insurance (www.agostinisurplus.com) offers agents a program focused on specialty training schools including: art, athletic, bartending, beauty, business, computer, cooking craft, dance,
Market Detail: Chopra Insurance Brokerage Inc. (www.choprainsurance.com) offers an artisan and trade contractors insurance program using some hard-to-find coverage – the 11/85 edition of the CG 20 10. Coverage is provided using Insurance Services Office’s (ISO’s)
occurrence policy form. Other often requested coverages include: waiver of subrogation language, “primary” wording, blanket additional insured and a per-project aggregate. Coverage is also available for residential repair and remodeling contractors. Minimum premiums begin at $5,000 and deductibles start at $1,000. Available Limits: $1 million to $2 million. Carriers: Unable to disclose. “A +” rated by A.M. Best. Non-admitted. States: Ala., Ariz., Calif., Colo., Del., Fla., Ga., Idaho, Ill., Ind., Iowa, Kan., Ky., La., Maine, Md., Mass., Mich., Minn., Miss., Mo., Mont., Neb., Nev., N.H., N.M., N.C., Ohio, Okla., S.C., S.D., Tenn., Utah, Vt., Va., Wash., W. Va. and Wis. Contact: John Upchurch at 818-551-4588 or e-mail Jupchurch@choprainsurance.com. IJ Submit your company’s property/casualty markets to the industry’s leading searchable database at www.mynewmarkets.com.
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Spotlight Non-Profits/Social Service
Human Services Agencies Can Benefit from Agent Advice, Especially in Challenging Economic Times Custom Coverages and Loss Control Can Help Non-Profits Survive By David J. Firstenberg
W
hile today’s economic environment presents some challenges for many companies large and small, independent agents who understand and embrace those challenges can help solve problems for their clients and even create new opportunities. This is especially true for agents with not-for-profit, human services organizations as customers, because they are being uniquely impacted by the country’s financial landscape. Fortunately, with the expert advice of independent agents, these organizations can protect themselves against many risks, helping to ensure their stability and even success into the future.
Firstenberg
Human Services Landscape Unlike other businesses, human services organizations are experiencing an increase in the demand for services tied to economicrelated issues. And, at the same time, longreliable sources of funding, including state and local governments and charitable foundations, are being compromised. Because most of these non-profits are small or mid-sized local agencies with budgets of under $1 million — they are precisely the kind of organization that stand to benefit from the skill and knowledge of local independent agents. The Importance of Agent Advice Independent agents — who, generally, are
N20 | INSURANCE JOURNAL-NATIONAL REGION February 9, 2009
well-known to be personally vested and involved in their local communities — can enhance the ability of local non-profit organizations to operate with greater efficiency and effectiveness. Through their expertise and valuable advice, agents can be a major asset to customers in this highly specialized, unique market, helping them to thrive and be more successful to carry on their mission, in spite of the prevailing economic environment. First, by extending important baseline coverages to small to mid-sized non-profit and human services agencies — including professional liability, general liability, physical and sexual abuse, management liability (including employment practices liability), umbrella and commercial auto — independent agents can
www.insurancejournal.com
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provide these critically important organizations with protection against further financial strain resulting from accidents, lawsuits and more. Additionally, agents can provide guidance on new types of coverages that are designed to help protect non-profits against existing and emerging risks, which are especially relevant during the current fiscal climate. For instance, coverage for unpaid donations and pledges — a growing problem in challenging economic times — will pay out when a donor is unable to fulfill a written pledge due to bankruptcy or unemployment. For organizations that place patients who are aging or have mental or physical disabilities, some carriers also are offering protection for residential room reserve. Such coverage will replace state reimbursement income to human service agencies when a client is temporarily discharged to the hospital because of accident or illness, protecting nonprofits against the sudden loss of budgeted revenues. Additionally, some carriers are extending protection provided by the property form to also cover property and vehicle damage caused by a client placed by the insured not-for-profit organization. This type of protection would cover foster care agencies placing a child in the residence of a home health care provider. Later this year, The Hanover Insurance Group, which has a long and proud history of supporting local non-profit organizations through charitable donations and the valuable contributions of employee volunteers, will introduce Human Service Advantage, an expanded package of coverages strategically created for a broad range of not-for-profit organizations. Human Service Advantage expands existing offerings for not-for-profit organizations and will enable agent partners to offer an important safety net for those organizations that do so much to help others. Loss Control Besides advising non-profits on specific coverages to protect against their unique exposures, independent agents can deliver significant value to human services agencies through www.insurancejournal.com
counseling on loss control issues. Agents know that the only thing their customers want more than fast, efficient claims services, is to not have any claims at all. Working closely with loss control experts from their most experienced carriers, agents can provide a wide variety of valuable loss control services that will help reduce the likelihood of incidents that might result in a claim and, in this way, provide added financial protection for their customer. Appropriate loss control services may include seminars on exposures unique to human services organizations, such as helping clients employee effective de-escalation techniques to diffuse tense situations, reducing the need to use manual restraints which can lead to severe injuries and even death; risk transfer programs, to protect organizations from paying the price for someone else’s error or carelessness; discounted staff screening services (especially important in an industry that provides personal services and where there is a relatively high turnover rate). Together, these services can help organizations save money, and eliminate the need for claims before they even happen. Agents can work with their partner carriers, to offer loss control services unique to specialized organizations, like not-for-profits. A Unique Way to Help While insurance may not be the first thing that comes to mind when people consider how they can help local non-profits survive a severely strained economy, it can make a meaningful difference. In partnership with strong carriers, independent agents can help these organizations to take a more pro-active approach to understand and effectively manage their risks, while reducing costs and operating more efficiently, so they can continue to meet the needs of the most vulnerable members of the community. IJ Firstenberg is the commercial lines president for The Hanover Insurance Group.
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Idea Exchange Minding Your Business
Time Management 10 Tricks of the Trade
By Catherine Oak & Bill Schoeffler
T
ime is the only resource we cannot recreate and we all have the same amount. How can you optimize your life by being “in control of time” rather than being “controlled by it?” Here are 10 tips to help you be time efficient.
1. Determine Your Time Wasters What are your biggest time wasters? Is it surfing the net? Email? Phone calls (on your cell phone of course)? Reading or sorting junk mail? Why is it we find these things essential when they did not exist for most of humanity? Trim down or eliminate the “time wasters” in your life. Make time for the truly important things — the big rocks — in your life (major work projects, family, personal time, etc.). Allocate only an hour a day on the “time wasters.”
2. Prioritize and Delegate Determine the key things to accomplish each day. Write them on a white board or in your day planner. Create a task list of secondary important items to do in between the scheduled primary important items. If possible, get through your big items first and you will feel better because you have finished the most important things each day. Delegate “large time — small gain” items. For example, yard work, which does not need your expertise, train or hire someone else to handle it.
3. Limit Tasks Most people put too much on their “to do” lists. For some people it is hard to say no, or they just want to be a “superhero.” Be realistic. Only schedule what is possible to accomplish on a given day and “double buffer” the time allocated. If you take on too much, you will feel let down at the end of the day because of all the things you did not accomplish. It is better to do less and be grateful for the things you actually did get done.
Oak
Schoeffler
4. Paper - Only Handle it Once One of the biggest “time killers” is how paper is mishandled. Someone a while back came up with a system for handling each piece of paper. There are only five options to handling each piece of paper when received. Decide to: 1) Toss it; 2) File it; 3) Read it; 4) Delegate it; or 5) Act on it. If possible, go paperless and get rid of the clutter. Start fresh and get rid of the old paper. Remember: O.H.I.O. — Only Handle it Once!
5. Improve the Hit Ratio Don’t practice quote. We don’t need the practice, nor do the underwriters. Track your “quote-to-write” or hit ratio. The closer the ratio is to 1.0 the better. The key is to pre-screen each prospect to see if they fit your program or book of business. Spend a few minutes pre-qualifying them so that there is a high likelihood of you writing the business.
6. Schedule Time for New Business Most salespersons don’t have much time to write new business because of daily pressures from existing accounts, such as service issues or account renewals. Time must be scheduled each day for producers to work on new business. Otherwise, they will not take the time to prospect and handle new accounts.
7. Streamline the Renewal Process In order for producers to focus on new sales, the renewal process needs to be streamlined and handled mostly by the service staff. Producers and CSRs should go over the list of renewals at least 90 to 120 days in advance to discuss the strategy for each account. From there, the CSRs or account executives should gather renewal information, submit for renewal or re-market the account and deliver the renewals to the client or to the producer for final review. Producers should work only on those accounts that need their expertise or relationship.
8. Staff Stratification Whenever possible, all persons in the agency should delegate tasks to the least costly, qualified employee who can handle that work. With automation, however, most service staff are doing it all themselves, including claims. But certain projects can be batched up, such as faxing, scanning, filing, all of
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which can be handled by a clerical person. Consider outsourcing work, such as certificates, which can be handled online or outsourced to third parties.
9. Plan Your Day Set up daily or weekly calendars on your desk that can be visible to you at all times. Plan when to make calls and appointments and fill the time in between the secondary tasks. Remember to make some time for your “time waster” as well. When out of the office optimize the time by scheduling more than one client or prospect in the same area. Plan the order of the visits based on the proximity to each other and the office. Try not to let new prospects or even existing clients, change your scheduled day. Changes will waste time and can cause you a lot of other problems.
10. Take Care of Yourself If you are one of those people that never get to the gym, or take the time to read, think or meditate, you need to make sure it is scheduled every day. The best thing for the body and the
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ficult because people tend to do too much, too mind is sleep. A good night’s sleep will leave fast. Change is accomplished by taking one you refreshed and feeling like you are ready to take on the day. And don’t forget to eat right, as step at a time. Just like building muscles, it can be challenging at first, but with small increwell. mental changes over time it gets easier. Invest some time for personal growth. Read Choose one thing you want to change and books that enrich one’s life, such as motivationmake one small adjustal tapes, biographies, histoment, today. Add one more ry, etc. Utilize open time to Discover how your step each day. As small as open your mind. Sign up life can be enhanced these changes may seem, for a (non-insurance) semiyou will see big results. nar, preferably in resort and made much Soon, when you look back, locations. Personal growth more enjoyable by the change will be notably cannot only be painless, making simple drastic. but also a pleasure. Listen adjustments. Start Oak & Associates is here to audio books (CDs, tapes to help guide your agency or iPods), while driving for now to design your to reach its full potential. maximum use of your time. use of time, now and We are offering agency in the future. owners and managers a Summary free half-hour consultation Discover how your life on issues impacting you and your agency. Give can be enhanced and made much more enjoyus a call today for your success for tomorrow! IJ able by making the simple adjustments outlined in this article. Don’t worry about the past because it’s gone. Start now to design your use Schoeffler and Oak are partners at the consulting firm of Oak of time, now and in the future. & Associates. Phone: 707-935-6565, E-mail: bill@oakand Change to one’s habit or behavior is often dif- associates.com. Web site: www.oakandassociates.com.
February 9, 2009 INSURANCE JOURNAL-NATIONAL REGION | N23
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Idea Exchange Carrier Watch
Insurers’ Stocks Down 14%; Middle Market Carriers Active in Intermediary Acquisitions Stock Price: Commercial lines stocks mirrored those of major indices in 2008, trading down 14 percent. Mergers & Acquisitions: Middle market carriers continue to be major players in the acquisition market as they look to wholesalers and managing general agencies (MGA) to add scale and distribution during the soft market. ProAssurance Corp. (NYSE:PRA) agreed to acquire Houston-based Mid-Continent General Agency Inc., an MGA that produces approximately $25 million a year in premiums from ancillary health care providers and other professional liability coverages. HCC Insurance Holdings Inc. (NYSE:HCC) also made two MGA/wholesaler acquisitions, picking up specialty divisions from Arrowhead General Insurance Agency and U.S. Risk Insurance Group Inc. Likewise, FCCI Mutual acquired Mississippi Insurance Managers. FCCI Mutual and Mississippi Insurance Managers jointly owned Brierfield Insurance Co. and as part of the transaction, FCCI acquired the remaining 20 percent of Brierfield. Also active in the carrier sector, the above mentioned HCC acquired Californiabased Surety Co. of the Pacific. HCC expects the acquisition to add $20 million of premium in 2009. ProAssurance Corp. also announced two carrier acquisitions during the quarter. The PICA Group will become part of ProAssurance through an all cash, sponsored demutualization. A provider of professional liability to doctors of podiatric medicine, the PICA Group insures approximately 9,800 podiatric physicians in 47 states and the District of Columbia. PICA also insures other health care professionals and provides errors and omissions liability insurance for a small, but growing, number of independent insurance agents through its PACO subsidiary. PICA wrote $99 million in premium in 2007, has $284 million in total assets, and has maintained an A.M. Best rating of “A-” (excellent) for the past 13 years. Earlier in the quarter ProAssurance announced it is expanding its legal profession-
al liability business by purchasing the Georgia Lawyers Insurance Co. ProAssurance is also establishing new relationships with agencies that produce legal professional liability business in 11 additional jurisdictions in the MidAtlantic and the West. These moves complement its existing $10 million book of legal professional liability business in the Midwest. GLIC insures approximately 2,700 lawyers in Georgia and had direct written premium of approximately $5.5 million in 2007. The fifth workers’ compensation transaction of 2008 was announced in October. Companion Property & Casualty Insurance Group announced that it has acquired all of the insurance and insurance-related service operations of AmFed Holding Co. Inc., the largest workers’ comp insurance and self-insurance administration company in Mississippi. The acquisition includes AmFed National Insurance Co. and AmFed Casualty Insurance Co., along with operating entities AmFed Cos. LLC and AmFed Insurance Services LLC. AmFed administers more than $75 million in annual premiums in Mississippi. In November, State Automobile Mutual
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Insurance Co. agreed to acquire Rockhill Insurance Group of Kansas City, Mo. With approximately $122 million in capital and surplus, Rockhill writes approximately $135 million in specialty property/casualty direct written premium through four insurance company subsidiaries. Key business segments include commercial property, general liability for residential construction, commercial umbrella and surety; a monoline workers’ compensation company, RTW; and Absentia, a third party administrator providing workers’ compensation claim and loss control services. Rockhill writes business on a non-admitted basis in 49 states and the District of Columbia and is licensed on an admitted basis in 42 states and the District of Columbia. Rockhill was started in November 2005 with $145 million in capital from private equity investors. IJ LMC Capital LLC is a national investment banking firm focused exclusively on the insurance industry. Services include qualified, industry-specific advisory relating to mergers and acquisitions, capital raises and valuations. Phone: 704-943-2600. E-mail Info@LMCCapital.com. Web site: www.LMCCapital.com. www.insurancejournal.com
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Midwest Coverage News & Markets Swimming Downstream: How a Regional Insurer Buys Others Through Demutualization Donegal Group’s Strategy Has Taken It From Writing in 1 State to 19 in 20 Years By Ted Huntington
E
ven in a good economy, mutual insurers face challenges trying to raise the capital they need to grow since they don’t have any stock to sell. But one insurer has figured out a way to overcome this disadvantage. Donegal Group Inc. is a Marietta, Pennsylvania-based regional insurance holding company that owns Donegal Mutual and several other subsidiaries writing property and casualty insurance in the Mid-Atlantic, Southeastern and Midwestern regions. Donegal executives have been using their own success as a mutual that formed a downstream holding company to gobble up smaller, sometimes troubled regional mutual insurers. The strategy unfolds in two steps: first it affiliates with the targeted mutual; then it begins the process of demutualizing it. The strategy has worked a half dozen times in the past 20 years. It all began in 1986, when Donegal Mutual saw other mutual companies were forming downstream holding companies. It formed Donegal Group Inc. and completed a stock offering, with Donegal Mutual retaining a majority interest. In the same year, it formed Atlantic States Insurance Co. as a whollyowned subsidiary. Atlantic States and Donegal Mutual then created an agreement under which their premiums, losses and expenses are pooled and each company is allocated a given percentage of the combined underwriting results. The pooling agreement produces more stable underwriting results for each company and spreads the risk of loss. Each company has at its disposal the capacity of the entire pool, rather than being limited to whatever its own capital and surplus would permit. The arrangement has worked. “Since 1986, the intercompany pooling agreement has allowed Donegal Mutual and Atlantic States to fulfill their shared objective of growing their premium and surplus. Donegal Group Inc.’s three public stock offerings have provided capital necessary to support growth in Atlantic States’ share of the pooled business over time, and its stockholders, including Donegal Mutual, have benefited as the pool has grown substantially,” Donald H. Nikolaus, president www.insurancejournal.com
and chief executive officer, reported recently. The concept worked so well, Donegal Group decided to see how it might work for other mutuals in need. According to Jeffrey D. Miller, senior vice president and chief financial officer for Donegal, five of Donegal’s acquisitions prior to late last year have involved demutualizations:
First Donegal affiliates with the targeted mutual; then it begins the process of demutualizing it. Southern Insurance Co. of Virginia (1988); Pioneer Insurance Co. of Ohio (demutualized in 1993 and subsequently merged into another subsidiary); Delaware Atlantic Insurance Co. (demutualized in 1994 and subsequently merged into another subsidiary); Pioneer Insurance Co. of New York (demutualized in 1998 and subsequently merged into another subsidiary) and Le Mars Insurance Co. (2004). Now one more can be added to the list. Donegal’s most recent acquisition via demutualization in Wisconsin provides a glimpse into how the strategy is implemented. Sheboygan Falls Mutual Insurance was founded in 1899, the same year Donegal was, and has been writing mostly personal lines in Wisconsin since then. In 2007, it wrote direct premium of $9.2 million. While the rural insur-
er had been around a long time, the board of directors recognized that the company faced problems that weren’t getting any easier to solve. Its automation systems were antiquated; it lacked a clear line of succession for senior management, and it was not as efficient as it should be. Worst of all, it lacked access to capital to fix its problems. They knew that the insurer needed help. It just so happened that there was an insurer interested in helping. But in exchange, Sheboygan Falls would have to give up its identity as an insurer owned by its policyholders. In December, 2006, Sheboygan Falls welcomed the offer of a pooling arrangement with Donegal Mutual similar to the one with Atlantic States. In June, 2007, the Wisconsin regulator approved the arrangement. This first step buoyed Sheboygan Falls but Donegal made it known that the affiliation would be terminated unless Sheboygan Falls converted from a mutual to a stock company, with all of its stock purchased by Donegal Mutual. An independent appraiser warned that if it lost its affiliation with Donegal this “could reasonably be expected to have significant adverse consequences for the financial health of, and future prospects for, Sheboygan Falls.” So the process moved forward. Donegal gained control of the insurer on June 7, when six of its directors’ positions were allocated to Donegal Mutual, which also bought a $3.5 million surplus note issued by Sheboygan. In April 2008, the company, assured that it would give its policyholders and agents a stronger company, decided to pursue demutualization. There were a few obstacles, however. With a mutual insurer, each policyholder is also part owner of the company and all policyholders would have to be compensated for the sale of their company to Donegal. Also, Wisconsin regulators had never dealt with a demutualization nor had they ever overseen a process of appraising a company and arriving at a fair value to pay policyholders. The Sheboygan Falls case illustrates one of the drawbacks of the demutualization process— it’s not quick. “For example, in Wisconsin, the insurance department never continued on page 40
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Idea Exchange Managing an Agency in a Troubled Economy
Systematic Sales Strategy Should Be Priority No. 2 for Agency Managers Andrade
I
n this hard economy coupled with the soft market, most agencies expect sales and revenues to go down. Even the best performers feel the downward trends in premiums. According to Juan Andrade, executive vice-president for sales and distribution at The Hartford, who oversees his company’s agency management consulting arm, Business Management Group, customer retention should be an agency’s first priority when managing in a troubled economy (see Jan. 26, 2009 issue). As critical as it is, customer retention alone may not be enough. Andrade’s priority number 2 for managing an agency in these troubled times is following a systematic sales strategy. Insurance Journal’s Andrew Simpson asked Andrade for advice for agencies that would lead to growth even in today’s market. You advise agencies to take a systematic approach to sales. What does that mean? Andrade: I think this is a strategy that is time tested. It works for the hard market as well as the soft market. And you know at the end of the day we are all sales people. And so what we’ve got to keep our focus on really is number one, on the pipeline; number one on ensuring that we have the right people within our organization, bringing in accounts, building that pipeline et cetera, executing on that vision. This is not a strategy that we can afford to employ only in a hard market or a soft cycle. I think this is Video something that This is second installment in we’ve got to conan Insurance Journal Interview tinue doing at all with The Hartford’s Juan times within our Andrade. View the entire market cycles Insurance Journal video series, and within the Managing an Agency in a economy basicalTroubled Economy, at ly. The focus on www.insurancejournal.tv. the pipeline is very critical, the
focus on working accounts that you already have, working on cross-sell. By that what I mean is really getting leads from accounts that you already own within the agency. So if you are thinking about going into a particular industry vertical or a particular segment that you may not have been in, for example healthcare, and you may already have a couple of accounts in that area, go talk to your contacts, to your relationships in these areas and find out who else they would recommend, what other areas might be that we are not looking at, etcetera. I think the whole science of selling becomes very important and that discipline is critical, particularly to surviving a soft cycle. Is this a good time for agents to consider entering new markets, new states or adding products? Andrade: I think it is a wonderful time to be looking at diversification, particularly given that the cycle has really impacted, particularly more of the commercial lines of insurance than anything else. Certainly, you wouldn’t want to minimize it and personalize it. We are seeing that across the board. But I think if you are a commercial specific, quality agent you have been particularly affected by this. I think diversifying is wise to do anyway. We are seeing a lot of our agents and brokers do that. We are looking at different industry verticals, different niches of the economy. So there are pockets there. There are infinities. There are different programs that we can be involved in. As a whole, it does make sense to diversify. Are there pockets of the economy that you think are worth an agent looking at now? Andrade: Absolutely. Even though we are living in unprecedented times, we are seeing things in the economy that we never thought we would see in our lifetimes. There are still areas that are very vibrant. I would say healthcare is
36 | INSURANCE JOURNAL-MIDWEST REGION February 9, 2009
one. Energy is another one, particularly as you start looking at green energy, alternative energy areas. I think these are areas where you are starting to see smaller businesses make a lot more investment, and they are still growing. I think those are places that I would be looking at. Areas like construction, depending on what part of the country you’re in, are probably either good or bad, depending This is a wonderful on what part of time to be looking the economic at diversification cycle you happen There are still to be in. There is such a substantial areas that are very vibrant. Healthcare amount of our GDP in the econo- is one. Energy is another one. my that is tied to construction. That’s still an area to look at, depending, again, on the specific area of the country. I would say from what I have seen in my experience, health care, energy, those are very good places to be looking at right now. What do you think is a realistic goal for new sales in this economy for an agency? Andrade: That’s a tough question because I think it really does depend on where you are geographically in the country and in the segments that you’re in. If I were owning an agency these days, from a revenue perspective I would feel probably OK about being flat with total written premium at this point in time, with a big focus on retention in trying to grow new business in whatever areas I could. I think if I was in the mid-single digits I would be feeling pretty good about myself. If you, obviously, have reached the double digits, you would feel real good about it. It all depends, too, on where you are. Some agencies have had more of a focus on retention than new business. I would say flat to single digits probably could be a good place to be, given market conditions. IJ www.insurancejournal.com
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Midwest Coverage News & Markets continued from page 7
erful king on very care is
book of about $300,000 in commissions. The Gussos approached Wells Fargo about buying Scott’s book but they thought the asking price was too high. “Ultimately we made the decision that we’ve got enough customer loyalty that we can retain 75 percent of this business without blinking an eye. So we decided not to buy it and it’s coming in the door anyway,” said Scott. As for financing, the Gussos had managed to save some money to put into the business. They also were eventually able to convince Wells Fargo to lend them some funds—although it wasn’t easy. The Gussos were initially told that they didn’t qualify because they lacked three years of experience running a business; Scott’s 14 years with Wells Fargo and their combined 40 years in insurance were not enough. They were eventually able to get a $20,000 loan out of Wells Fargo but the bank president, in the Gussos’ words, “had to make an exception.” The Gussos expect to have about $250,000 in revenues within two years and close to double that within five. They also have some other goals in mind, according to Scott. “In five years, we’d like to have a couple more employees and be able to take some vacation in the winter.” Florida: VanDyke Norman Kevin VanDyke and Andy Norman opened their agency around Thanksgiving last year but already they are thinking big. VanDyke knows what it’s like to be part of a big operation, having been with a $130 million wholesale nursery where he handled insurance and risk management issues. “I always felt like I could offer people help based on my experience buying insurance,” he said. Norman had been a producer with a local independent agency since he graduated from college in 2002. Over the years, as he gained more experience, he also grew impatient for the next phase in his insurance career. “I decided I want it now,” said the 30-year old Norman. The two met through a mutual business contact and decided to pool their experience and financial resources to start an agency. VanDyke Norman opened in November in St. Augustine. To get carriers, Norman’s contacts from the last seven years and his former agent father’s contacts over the last 20 years have paid off. However, they are still looking for a market for their agribusiness accounts. www.insurancejournal.com
Their Jacksonville metro market is dominated by two established commercial agencies but they like their own odds. “Candidly our brand new agency has more producers than either of them,” said VanDyke. Norman believes that the struggling economy actually works in their favor because employers are reviewing every expense trying to save money. “We’re probably getting more looks from people shopping than we would in a normal steady economy,” he said. For now they are both concentrating on commercial accounts. VanDyke is zeroing-in on agriculture and agribusiness, landscapers, contractors in general and professional liability. Norman is utilizing his expertise in the condominium association market and is more of a generalist in the businesses he goes after. They are also hoping to grow through acquisitions, “especially if we could find somebody with a commercial book,” according to VanDyke. If they could change one thing about the early goings-on it would be to have an agency management system fully operating. They got sidetracked by a potential agency acquisition and only recently bought a system. Tennessee: Chattanooga Insurance Agency Having been both a captive agent and a producer in an independent insurance agency, John Witty knows the feeling of bringing in business and being paid well for it. But for him the experience was not totally satisfying. “I realized having the income stream is nice but it’s nothing like owning your own business,” Witty said. In September, Witty launched Chattanooga Insurance Agency but even before he opened the doors he was hunting for carriers. He talked to people he knew from his years in the business. “I just had to say to them, ‘Take chance with me. I can’t guarantee you a half
million dollars the first year but I will guarantee you my best effort and I can offer to quote you first.’” His contacts have come through. Witty has won contracts with MetLife P&C, Encompass, Old Dominion, National Grange and Progressive. He still wants another personal lines carrier and two commercial carriers. Witty can’t go after the accounts he wrote at his former agency but with 385,000 people in the Chattanooga area, there are plenty of prospects. Chattanooga has a number of other agencies. Witty said he is never the only quote on an account but he is confident he can compete. First, several local agencies have consolidated with banks, which don’t have interest in some of the smaller premium accounts he likes. Also, Witty feels his prospects will relate to him. “I’m a bit older. You tend to write the people you associate with,” he said, suggesting that for his customers, it’s not all about price. Perhaps Witty’s best decision was locating his agency in a business incubator park run by the local Chamber of Commerce. Witty is the only insurance agency in the park and his marketing materials are given to every prospect for the park, which has attracted 65 start-ups. “I didn’t know that this was going to be as good a location as it has been… I can have the opportunity to write 30 businesses as they move in and out,” he said. To finance the agency, Witty is using a home equity line of credit, although his bank reduced the term of the loan from what he originally planned. “It cut my time frame in half,” he said. Within two years, Witty sees his firm writing $1.5 million in premium and hopefully qualifying for revenue sharing with a few carriers. In five years, he says he’d like to see perhaps his son and daughter working in the business, and the family enjoying a nice lifestyle. IJ
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Closer Look Errors & Omissions
Certificates of Insurance and Agency Liability: What Agents Should Know Pearsall
By Curtis M. Pearsall
A
common practice by insurance carriers is to inform their agents that they should not send the company copies of certificates of insurance when they are issued. This is most likely the result of mail-flow issues with the underwriting departments, many of which are now becoming “paperless” … not to mention that the task of naming and filing certificates into a computer system is cumbersome! That leaves the agent with the responsibility of issuing and filing certificates. However, if a copy is never sent to the carrier, the carrier can hide behind a “shield of ignorance” if a problem arises by stating that it knew nothing about the certificate. In effect, the practice of refusing certificates can place a carrier in a better defense posture when a claim is made based on misrepresentations on a certificate. At the same time, the defense of an agency can be weakened when a carrier claims ignorance. Certificates of insurance can and will be the basis of claims against agencies. Even though there is language present on a certificate that
in effect states the certificate does not constitute a contract between the parties – nor does it amend, extend or alter coverage under the policies listed – claims are made and suits are filed based on representations present on certificates. A common pattern involves an entity (who is not party to an insurance contract) that receives a certificate of insurance from an agency’s client as a condition before business is conducted with the agency’s client. If the information stated on the certificate is incorrect, it leads the party doing business with an agency’s client to believe that there is coverage. However, when it is discovered there is no coverage – and the party must pay for, or suffers, a loss – a claim can be made against the agent based on the theory of detrimental reliance. It will be claimed that had the party known there was no coverage, it would not have done business with the agency’s client and, therefore, would not have suffered a loss. Consider, for example, a claim by a bank that loaned money to a golf course for the purchase of GPS devices to be used in golf carts. The bank wanted proof that there was coverage for the GPS devices under the golf course’s policy. The agency’s CSR who handled the client’s request to provide proof of coverage actually misunderstood the request, thinking she was being asked to provide proof of coverage for the carts. A fire occurred at the course’s main storage facility resulting in the loss of all of the golf carts and GPS devices. The carrier paid for the carts, but paid nothing for the GPS devices because they were not covered. The bank sued the agency, alleging that it would not have loaned the money had it known there would be no coverage for the GPS devices. The claim against the agency was settled for about $50,000. Agencies should be aware of the pitfalls involved in sending out certificates of insurance that are inaccurate. For example, if an agency is
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sending a certificate to a client that lists another party as an additional insured, the agency must be certain that the party is listed on the policy. If this requires a change endorsement to be sent to the carrier, send it. Even if the carrier is sent a copy of a certificate, do not expect them to add a party without a specific request to do so. Simply stated, a certificate is not the proper vehicle for the request. Agencies also need to be familiar with certain types of vendor’s coverage or blanket additional-insured endorsements before stating a party is an additional insured. Not all parties or actions will trigger coverage under either a vendor’s endorsement or an additional-insured endorsement. If in doubt, call the carrier for an interpretation before a certificate is issued. It is important, too, to never issue a certificate as a favor to an insured without knowing for certain that the Send copies of information stated certificates to the on the certificate is carrier, regardless of whether the accurate. When a lawsuit ensues as a carrier wants result of inaccurate them. information on a certificate, all fingers will be pointed directly at the agency, especially if the carrier knows nothing of the certificate. Finally, it is advisable to send copies of certificates to the carrier, regardless of whether the carrier wants them. Once receipt of the copies has been confirmed, a carrier cannot claim ignorance – and the agency might have an additional avenue for recovery should a claim arise. IJ A former independent agent, Pearsall is vice president with Utica National Insurance Group, where he is Director of Special Programs and Director of the Utica Errors & Omissions operation. This is reprinted with permission from Utica’s E&O Communique.
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Midwest Coverage Business Moves
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the less e
Liberty Mutual, Wausau Liberty Mutual Group, which sells insurance both direct and through independent agents, is discontinuing direct distribution to mid-sized businesses and now plans to distribute its commercial property/casualty insurance products in the middle market exclusively through independent agents and brokers. Liberty Mutual defines the middle market as businesses with total account premium ranging from a low of about $150,000 up to about $1.5 million. Liberty Mutual has written about $2.5 billion in this segment. The insurer is selling off the renewals on these direct accounts to Arthur J. Gallagher & Co., Hub International and USI Holdings Corp. . It is also creating a new unit, Liberty Mutual Middle Market, which will accept and serve middle market business only from agents and brokers. Products available will remain workers’ compensation, general liability, commercial automobile, property, crime and umbrella for mid-sized companies. As part of the move, the company is retiring the Wausau brand, which has been part of its middle market operation. The moves recognize that about 95 percent of middle market business insurance is sold by independent agents and brokers, not through direct distribution. The company acknowledged that by limiting itself to direct distribution in the middle market, it was missing out on opportunities to grow. Illinois-based broker Arthur J. Gallagher & Co. is acquiring renewal rights from Liberty Mutual’s middle market business in the Midwest and Southeast. Gallagher is also acquiring renewals and hiring the national producer group from Wausau Signature Agency. The agreement includes an initial payment of $44 million and additional payments based on revenues. The maximum amount of the additional payments is $120 million. Chicago-based brokerage Hub is getting the renewals in Arizona, Arkansas, California, Colorado, Hawaii, Kansas, Louisiana, Nebraska, Oklahoma, Utah and Texas. Terms were not disclosed. USI Holdings Corp., based in Briarcliff Manor, New York, is the third buyer. It is grabbing the renewal rights in the Northeast region. Further details were not available. www.insurancejournal.com
Ironshore, C.V. Starr Maurice “Hank” Greenberg, the man who ran American International Group for nearly 40 years and who now runs C.V. Starr & Co., is being reunited with some executives who used to work under him when he ran AIG. C.V. Starr is teaming up with Bermuda-based Ironshore Inc. to form a new excess insurance agency. Iron-Starr Excess Agency Limited, which will act as a specialty lines insurance and reinsurance managing general agency, domiciled in Bermuda. Ironshore Ironshore Inc. has appointed Steven England as executive vice president responsible for running its newly created U.S. Property/ Casualty underwriting operations based in St. Louis, Missouri. The new unit, Ironshore National Branch, will act as a U.S. underwriting office for certain of Ironshore’s property/ casualty operations. Ironshore National Branch will build out a national distribution platform for Ironshore products utilizing primarily a wholesale brokerage distribution strategy. England was most recently president of AIG Landmark, where he managed the start up of an agribusiness practice. Prior to heading up AIG Landmark, he was regional vice president for AIG’s Commercial Insurance Group in Houston, Texas. he will report to Shaun Kelly, CEO of Ironshore’s U.S Operations. Colt Park Insurance, Armstrong/ Robitaille/Riegle Ann Arbor, Mich.-based Armstrong /Robitaille/Riegle Inc. has merged with Colt Park Insurance Agency of Brighton, Mich. A/R/R specializes in insuring multi-state and multi-location businesses. Colt Park Insurance Agency was founded in 1903. Jim Winchel, who lost his battle with cancer in Sept. 2008, and his wife Gloria, grew the agency, which specialized in VIP personal lines and commercial insurance. Colt Park is licensed to write in Michigan, Ohio, Indiana, Florida and Tennessee. Gloria Winchel will head the personal lines division and will be based in Brighton along with the Colt Park team. IJ February 9, 2009 INSURANCE JOURNAL-MIDWEST REGION | 39
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C Midwest Coverage News & Markets News & Markets, continued from page 35
experienced a demutualization. The statutes “Sheboygan Falls had 22,000 policyholders – all weren’t clear and the regulators had a number in upper Wisconsin,” Dreher said. “This is a conof questions about what we will do – or not do servative population base that tends to be a less – for Sheboygan Falls. It turned into a lengthy litigious society.” negotiation that lasted over two years,” recalled According to Dreher, Donegal would considFred Dreher of the Philadelphia-based law firm er acquiring stock companies but it has not Duane Morris LLP. For this and its other transfound any it considers potential targets. actions, Donegal has relied upon Dreher, one of “Donegal tries to grow both organically and the leading legal engineers of demutualizations. through acquisition. It does not rule out stock Initially, Wisconsin regulators were leery of companies but it has found a niche with mututhe transaction but, according to Dreher, they als,” he said. IJ became more comfortable after speaking with regulators in other states and coming to understand Donegal’s track record. Sheboygan Falls was eventually valued at $7.2 million, which transfew years ago, Sheboygan Falls independent agents lated into about $300 for each poliwere working with a company with outdated technolcyholder. “It’s not a fortune but it is ogy, high expenses and a questionable future. Now they found money for the insureds,” have a company they can believe in and recommend to polDreher said. icyholders with confidence. On Nov. 11, 2008, Wisconsin “Agents are better off because the company has a better Insurance Commissioner Sean [“A” –Excellent] A.M. Best rating– it is better off financially,” Dilweg gave final approval to the said Fred Dreher of the Philadelphia-based law firm Duane conversion. About a month later, Morris LLP, who is the legal brains behind the Donegal Donegal Group Inc. bought all of acquisitions of demutualized carriers. the capital stock of Sheboygan Sheboygan now provides its agents with a direct comFalls for about $12 million, a sum puter link to a proprietary rating system and other technothat included a surplus contribulogical tools that weren’t available before the takeover. tion of $8.5 million to support the That’s not to say there aren’t potential concerns for future premium growth of agents. When a smaller insurer is taken over by a larger Sheboygan Falls. In the end, according to Dreher, one, it can often lead to a reduction in agency force. But Dreher said most Sheboygan Falls agents have little to fear the demutualization saved a comon that score, unless their loss raio is bad. pany that may have been headed Les Trempe, an owner of Trempe Insurance in for conservatorship or liquidation; Sheboygan, thinks agents are enthusiastic about the demusomething no insurance departtualization of Sheboygan Falls. “No one had anything ment wanted to face. derogatory to say,” he said, referring to the latest agents’ When it’s scouting for new meeting. Trempe said he has already seen some rate reducacquisitions, Donegal looks only at tions. “In general, the change is very good for the company, independent agency system insurfor the agents – and ultimately, for the policyholders, as ers. Dreher says this is because well,” he said. Donegal is committed to the indeScott Umland, owner of Umland Insurance Services, pendent agency distribution channel. Donegal typically rules out car- LLC, in New Holstein, has been an appointed agent with Sheboygan Falls for 25 years. “I see where there are some riers underwriting in areas prone positives that will come of the change through additional to hurricanes (Florida or Louisiana products and automation,” he said. Umland is grateful that for example) or earthquakes Donegal seems intent on maintaining the strong agent-car(California). It also tends to avoid rier relationships. “It is nice to see that they are keeping carriers domiciled in states where the Sheboygan Falls employees and the working relations the regulators may be “consumerthat we’ve developed over the years.” IJ oriented to a fault.” Finally, it likes carriers in conservative areas.
Agents Win When Sheboygan’s Fall-ing Mutual is Saved
A
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B
Idea Exchange Closing Quote
5 Risk Management Challenges for Public Entities in Today’s Economy By Mary Stewart
Stewart
L
ocal governments increased their commitment to risk management over the past decade, as they met the challenges posed by several major natural disaster and terrorism events. Better local government loss prevention, crisis management and risk communication resulted. We now face a more prolonged, national disaster: a major economic downturn. This latest disaster threatens to erode, rather than strengthen, local government risk management. Risk management must demonstrate its centrality to the government’s mission and find ways to succeed with fewer resources. A key attribute of a strong risk management program is vision; the ability to anticipate and address emerging risk prior to a critical event. The following are a few difficult risk issues that public sector should think about in the coming year: 1. Increased Demand for Services. One predictable outcome of an economic downturn is increased criminal activity. Another is an increased need for social services. The government must evaluate whether it has sufficient capacity to handle the increased responsibility. Are the courts able to handle an increase in their case load? Will sheriffs and police officers become more involved in noncore activities, such as foreclosures/evictions or increased domestic disturbances? Can the jails accommodate an increase in population? Will non-sworn personnel (police aides, volunteers) be used Public risk to enforce codes/laws? managers Will unmarked cars be used to transport arrested persons and on have faced disasters; other official business, due to a now they lack of marked police cruisers? face another Do social services agencies have one: a major the resources to provide added economic assistance to families in trouble?
downturn.
2. Privacy Concerns. As local law enforcement agencies work with Homeland Security to protect against terrorist attacks, there may be more claims alleging breach of privacy. Have law enforcement policies been updated to reflect privacy issues under federal/state laws? Has the agency created spe42 | INSURANCE JOURNAL-MIDWEST REGION February 9, 2009
cial units to handle cyber crimes and to protect information related to those crimes? 3. Using Technology to Address Risk Issues. Technology is an important tool for addressing many societal risk issues, including disasters, dwindling natural resources, and homeland security. But it must be used with care to avoid negative consequences. Will government be liable if the technology fails to achieve its purpose or causes damage? Will technology providers require liability protection in exchange for participation in efforts to manage societal risk? (Examples are telecommunications and vaccine providers.) 4. Public Health Emergencies. Local governments are closely involved in managing public health emergencies, such as pandemic illness or bioterrorism. They must know in advance the extent of their legal authority to quarantine individuals, close schools and public gathering places, shut down transportation, and take other steps to reduce the spread of communicable illness. To the extent possible, plans should be shared in advance with all government employees. Will mandatory quarantines or business closures result in lawsuits? How will emergency responders be protected from infection? Will the government be responsible for the safety and actions of volunteers who assist with care of the ill? How will the jail manage a pandemic that threatens the incarcerated population? 5. Benchmarking and Performance Measurement. Benchmarking and performance measurement help risk management demonstrate its value by providing quantitative evidence to support its priorities, decisions, programs and results. Share documents, procedures and ideas with other governments to promote better performance. Use cost/benefit analysis and measurements to identify areas with high frequencies or severe claims. Maintain regular communication with a group of governments (peer group) that are similar to your organization. Join PERI’s Data Exchange to gain state/ national comparison. Stewart is director of research and development, Public Entity Risk Institute PERI), Fairfax, Virginia, www.peri.org. www.insurancejournal.com
Y T Ge Ins ex Liv ww
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