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TEXAS WINDSTORM DEBATE A Closely Watched Issue
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CAT 5 LITIGATION Wind v. Water Still in Play
MEDICAL MALPRACTICE Severity Still a Problem
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Inside This Issue
April 20, 2009 • Vol. 87, No. 8 • South Central Region
N28 | Recession Affecting Insurance Coverage Supply and Demand Advisen Says Past Recessions Have Not Influenced ‘So Profoundly’ N30 | International Report Somali Pirates Step up Attacks; Exemption Renewal for Europe’s Insurers
SOUTH CENTRAL N18
SPECIAL REPORT: Young Agents The Freedom to Grow What YOUNG AGENTS Value About Being Independent
NATIONAL COVERAGE N6 | Spotlight: Inland Marine/Transportation/Cargo Special Delivery: Added Value with Cargo Insurance N18 | SPECIAL REPORT: Young Agents Survey/Big “I” Issue The Freedom to Grow Exclusive Survey: What YOUNG AGENTS Value About Being Independent N24 | Spotlight: Inland Marine/Transportation/Cargo Marine Cargo for Small to Mid-Size Businesses Doesn’t Have to Sink the Ship N25 | Closer Look: Medical Professional Liability Frequency Down but Severity Still a Problem for Med-Mal Insurers N27 | P/C Insurers Profitable in 2008 But Take Big Hits From Catastrophes, Financial Crisis N28 | Rates Rising on U.S. Property Catastrophe Reinsurance National Programs Rose Between 10% - 14%
10 | Windstorm Legislation a Closely Watched Issue in Texas Bills Finally Debated in House Committee 11
| Cat 5 Litigation in the Forecast? Wind Versus Water Damage Still in Play
N14 | Get in Touch with Gen Y Why the Modern Workplace Is Important for Young Professionals N32 | Closing Quote: Too Big to Fail: How the Feds Can Address Systemic Risk
DEPARTMENTS 6 8 8 14 22 N10
| | | | | |
Opening Note It Figures Declarations People Business Moves MyNewMarkets
12 | Agents Sue Brooke Corp. Lawsuit Alleges Civil Racketeering and Fraud
IDEA EXCHANGE 16 | Medical Liability Claims-Made Policies Challenges to the Notice Requirement N1 | Growing Your Property Casualty Agency 8 Ways to Improve Your Sales Timing and Your Income N2 | Minding Your Business Renewal Strategies in Challenging Times
10 Texas Windstorm Legislation A Closely Watched Issue
N4 | International Insider On the Road to Latin American Opportunity
N25 Medical Professional Liability Frequency Down, Severity Still a Problem
N8 | Emerging Errors & Omissions Risks Excess and Surplus Lines Market Can Help Find Solutions N12 | Make the iConnection: Engage Your Future Leaders Talent Strategies for Understanding Generation Y
4 | INSURANCE JOURNAL-SOUTH CENTRAL REGION April 20, 2009
N24 Marine Cargo Insurance For Small to Mid-Size Businesses
www.insurancejournal.com
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Idea Exchange Opening Note
The Weather Goblins
W
ho let the weather goblins out? Tornadoes, wildfires and floods, oh my! With all the weather related disasters out in full force this (and seemingly every) spring, there should be some kind of scary, Halloween-type holiday to acknowledge the violent weather. It’s not really something to celebrate, that’s for sure. Citizens of North Dakota that reside along the Red River and its tributaries had a few days’ respite from the floods of late March and early April, but by April 13, they were sandbagging again and on the lookout for more cresting on the Red. In Texas and Oklahoma, wind-whipped and droughtfueled wildfires burned hundreds of thousands of acres, destroying homes and, in some cases, small to wns, leaving hundreds if not thousands homeless. In Arkansas, a tornado blew through Mena, devastating Midwest City, Okla., April 10, 2009. that town, and as the wild weather continued eastward, the FEMA/Karen Nutini Southeast U.S. saw large swaths of destruction. One wonders just how prepared folks who live in areas that succumb to floods, hailstorms, tornadoes, hurricanes, wildfires and the like (or just about anybody anywhere in the country) every year really are? Do they know what to do in case of a w eather disaster? Do He did have they have enough insurance? one thing One business owner in Southwest Missouri said he right: His busi- learned a lot about being prepared when a series of K-4 tornadoes swept through that area in May 2008, killing 15 people. ness was well Bill Lant, whose feed store in Seneca, Mo., suffered extensiv e damage, said he’s had to change his record-keeping habits and insured. revise his plan for keeping himself, his employees and his loved ones safe. But he did have one thing right: His business was well insured. “Lant’s insurance plan included money to help cleanup the 60 truckloa ds of debris left after the storm, to pay many of his bills until the store co uld reopen and to replace much of the inventory destroyed by the storm,” the Associated Press reported. Lant said he now works even more closely than before with his insurance agent to make sure he has the proper co verages. “I make sure as I grow my inventory, I grow my insurance too,” he said. Home and business owners across the United States would do well to heed Lant’s experience and procure the necessary coverage before disaster strikes.
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 Kathleen Ellis, Susan Henry, Catherine Oak, Bill Schoeffler, Alan Shulman Contributing Writers Scott Cornell, Nancy Cerino, Edward Gray, Robert DiMuccio, Robert Redfearn Jr., Joe Tracy, Bill Wein
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
Stephanie K. Jones South Central Editor sjones@insurancejournal.com
Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Publishing, Inc., 3570 Camino del Rio N orth, 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 cop y, $195 per y ear in the U .S., $295 per year all other co untries. DISCLAIMER: While the information in this p ublication is deriv ed from so urces 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. Cop yright 2009 W ells Publishing, Inc. All Rights R eserved. Content ma y not be photocopied, reproduced or redistrib uted without written permission. Insurance J ournal is a p ublication of Wells Publishing, Inc. POSTMASTER: Send change of address form to Insurance Journal, Circulation Department, PO Box 9049, Maple Shade, NJ 08052
6 | INSURANCE JOURNAL-SOUTH CENTRAL REGION April 20, 2009
FOR QUESTIONS REGARDING SUBSCRIPTIONS: please call 856-380-417 6 or email subscribe@insurancejournal.com. You may subscribe or change your address online at insurancejournal.com/subscribe. ARTICLE REPRINTS: For reprints of articles in this issue, contact Rhonda Brown at 1-866-879-9144 ext. 194 or rbrown@fostereprints.com. Visit insurancejournal.com/reprints for more information.
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South Central Coverage Snapshot
It Figures
Declarations
1,000
A Devastating Experience
Emergency management officials in Polk County, Ark., said about 1,000 homes were damaged or destroyed during the tornadoes that ripped through the county on April 9. James Reeves, Polk County emergency management coordinator, said 200 homes were destroyed by the twister, approximately 400 homes sustained moderate damage, and another 400 sustained minor damage in the storm. Reeves said the number of damaged homes could increase as emergency officials and surveyors with the Federal Emergency Management Agency conduct assessments on the ground. He said the city will need help for weeks to recover from the storm that killed three.
$2.4 Billion Property/casualty insurers earned $2.4 billion in net income after taxes in 2008, but profits and profitability tumbled as catastrophe losses, the recession and the crisis in the financial system took a toll on underwriting and investment results. The industry’s $2.4 billion in net income after taxes last y ear was down $60.1 billion, or 96.2 percent, from $62.5 billion in 2007, according to ISO and the Property Casualty Insurers Association of America (PCI). Insurers suffered $21.2 billion in net losses on underwriting in 2008 — a $40.5 billion adverse swing from insurers’ $19.3 billion in net gains in 2007. The combined ratio worsened to 105.1 percent last year from 95.5 percent in 2007. Despite the declines, the full-year 2008 financial results show that private U.S. property casualty insurers remain well capitalized, posting $455.6 billion in policyholders’ surplus (or statutory net worth) at year-end 2008.
12 Colorado State University’s hurricane team has lowered its 2009 Atlantic forecast to 12 tropical storms, of which six could become hurricanes, down from the 14 storms, seven hurricanes and three major hurricanes predicted in December 2008, Reuters reported. Researchers said there could be two “major” hurricanes of Category 3 or higher on the five-step Saffir-Simpson intensity scale. Sea surface temperatures in the tropical Atlantic Ocean have cooled in recent months and there are signs that the eastern P acific Ocean could see the current weak La Nina conditions change to neutral or even weak El Nino by June. El Nino is a warm water phenomenon that can suppress Atlantic hurricane formation. 8 | INSURANCE JOURNAL-SOUTH CENTRAL REGION April 20, 2009
“Losing everything is an unimaginable and devastating experience. … Oklahoma’s professional agents and adjusters are poised to respond.” — Oklahoma Insurance Commissioner Kim Holland has declared a state of emergency to allow insurance companies to more rapidly respond to the recent Oklahoma wildfires. The declaration enables emergency adjusters to be temporarily licensed to expedite the insurance claims process. Holland said those who have experienced a loss should locate their policy and contact their insurance agent. Agents can help, also, if the insured’s policy documentation was destroyed in a fire.
Difficult to Report “Definite numbers are still difficult to report at this time d ue to the vast scope of this disaster.” — The Texas Forest Service said April 10 that wildfires burning across the state had caused evacuations, and destr oyed multiple homes and structures in their path. The agency said it was “working to gather accurate information on civilian fatalities, injuries, structures lost and acres burned, while still protecting the citizens of the state and their property.” Fueled by drought and high winds, wildfires burned some 172,000 acres in multiple locations, the Associated Press reported. Rains April 12 helped control the blazes. Wind-fueled fires in Montague County in North Texas had engulfed 75,000 acres April 9, destroying or damaging up to 100 homes. Thr ee people died and two were injured.
Another Obstacle “This defective Chinese drywall represents an attack on our homeowners, a defrauding of our homebuilders and another obstacle on our road to recovery.” — U.S. Sen. Mary Landrieu, D.-La. Landrieu and Sen. Bill N elson, D.-Fla., filed legislation for a recall and immediate ban on tainted building products from China, as more and more people around the country are reporting problems in their homes built with imported dr ywall. The legislation presses the Consumer Product Safety Commission (CPSC) for a recall on Chinese-made drywall, based in part on findings by a Florida homebuilder and state officials who have confirmed the presence of sulfide gases in homes built with the dr ywall. The legislation also asks the CPSC to work with feder al testing labs and the U.S. Environmental Protection Agency to determine the level of hazard posed by certain chemicals and as yet unidentified org anic compounds in the drywall. It calls on the commission to issue an interim ban on imports until it can create federal drywall safety standards so consumers are protected in the future. Reports indicate that this sulfur-emitting dr ywall smells of rotten eggs, destroys residential wiring and appliances, and poses potential health risks. www.insurancejournal.com
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Until it does.
Financial Strength and Exceptional Claim Service Property | Liability | Executive Protection | Workers Compensation | Marine | Surety Homeowners | Auto | Yacht | Jewelry | Antiques | Accident & Health Chubb Group of Insurance Companies ("Chubb") is the marketing name used to refer to the insurance subsidiaries of The Chubb Corporation. For a list of these subsidiaries, please visit our website at www.chubb.com. Actual coverage is subject to the language of the policies as issued. Chubb, Box 1615, Warren, NJ 07061-1615
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South Central Coverage News & Markets
Windstorm Insurance Debate Begins in Texas, Finally By Kelley Shannon
T
exas legislators on April 7 finally jumped into debate over how to improve the troubled windstorm insurance system that serves as a last resort for hurricane protection along much of the Gulf Coast. The House Insurance Committee, watched closely by coastal residents and insurance executives, began considering a slate of bills proposing changes to the system. It’s widely agreed the Texas Windstorm Insurance Association (TWIA) needs an update, especially after the financial toll of 2008’s Hurricane Ike. Gov. Rick Perry earlier this year declared reform of the windstorm association an emergency item this legislative session. Revamping TWIA has been on the minds of legislators for the past couple of legislative sessions, but they have been unable to reach a consensus on funding and other issues. Rep. Todd Hunter, a Corpus Christi
Republican, laid out proposals on assorted ways to potentially fund the windstorm insurance system. Among the ideas are general state revenue, federal economic stimulus money, the state’s Rainy Day Fund or assessments and fees on insurers or policyholders. Gilchrist, Texas, Sept. 22, 2008 - The Gulf of Mexico shor eline showing the effects “To me, it’s a statewide from Hurricane Ike. A view from the deck of a house that survived the destruction. issue,” he said. Jocelyn Augustino/FEMA Rep. Craig Eiland, a Galveston Democrat, eral hundred million dollars the windstorm put forth another windstorm association bill, association had in its trust fund are gone as did Insurance Committee Chairman John because of hurricane claims; that bonding is Smithee, an Amarillo Republican. Smithee not as easy because of the national economy; said he wants to ensure the solvency of the and reinsurance — a backup insurance poliTWIA and make sure it operates on sound cy for insurance companies — is no w likely business principles. to be more expensive. The fund faces more problems than it did Insurers paying into the windstorm pool last session, when lawmakers failed to pass a can recoup some of their assessments reform bill. Smithee noted that this y ear sevthrough state tax credits over several years, ultimately affecting the state budget. Lee Otis Zapp of Galveston, with the Coastal Windstorm Insurance Coalition, told House members his group proposes to “keep it simple.” He outlined several ideas, including assessing insurance companies in a way that motivates more of them to return to v oluntarily writing property policies along the coast. “We’re from Texas, one Texas,” Zapp said. “We need help.” At times, lawmakers sparred over how to spread risk around the state to pay for coastal damage. Smithee said currently TWIA policyholders with homes on the coast are not bearing the financial risk for claims that are paid for their damages, other than through their policy premiums, but residents in other parts of the state are. The Texas Coalition for Affordable Insurance Solutions, a group backed by some insurance companies, wants TWIA replenished in time for the 2009 storm season. It also wants creation of intermediate funding and long-term comprehensive reforms. Some of the windstorm insurance bills are HB3640, HB3648, HB3853 and HB4733. IJ Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
10 | INSURANCE JOURNAL-SOUTH CENTRAL REGION April 20, 2009
www.insurancejournal.com
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South Central Coverage News & Markets
Cat 5 Litigation in the Forecast? As 2008 Hurricane Claims Enter Court and New Season Approaches, Katrina Issues Linger By Bill Wein
T
he 2008 hurricane season was the sixth most active tropical storm season recorded since data collection began in 1851. Six storms made U.S. landfall in 2008. They were hurricanes Dolly, Gustav and Ike, and tropical storms Edouard, Fay and Hanna. Ike, which made landfall at Galveston, Texas, and Gustav, which made landfall in Louisiana, caused the greatest destruction. Current estimates project that Ike will be the fourth-costliest Atlantic storm to make U.S. landfall, behind Katrina, Andrew and Wilma, while Gustav is projected to come in anywhere from No. 12 to 20. A number of key coverage issues emerged in the aftermath of 2005’s Katrina and the subsequent insurance claims litigation. Many of these issues are still ongoing. They include the question of flood exclusions from homeowners’ policies; issues of wind damage versus water damage; and the question of potential agent liability in situations where property owners felt their coverage wasn’t adequate. Some of these issues will continue to come into play in insurance cases arising from Ike, Gustav and the other storms of the 2008 season, while others are not likely to be as significant. I spoke with hurricane insurance litigators to learn more about how insurance claims from the 2008 season are likely to play out. One difference that can be anticipated with the 2008 season fallout is that there won’t be the same frontal challenges to flood exclusions that occurred after Katrina, when plaintiffs argued that storm surge wasn’t flood. In light of these challenges, some carriers changed the language of their flood exclusions, specifically listing storm surge as a water exclusion. However, this change is not likely to have www.insurancejournal.com
house is gone. That’s the much impact, because for the most part, the proof. But some carriers courts have already determined that storm Wein have pushed back, arguing surge does equal flood. In the words of one litithat once they’ve proved gator, “The argument that storm surge doesn’t conditions were right for flooding to occur, constitute flood is dead.” then the burden of proof shifts back to the The question of wind damage versus water damage, however, is still very much in play. For plaintiff. Cases in Louisiana have gone both ways on this. In Mississippi, the Supreme one thing, after Katrina some insurers refined Court has agreed to address the wind versus the anti-concurrent clause conditions in their water issue in the pending Corban v. USAA. policies, defining exclusions with even more Because the wind versus water issue is still precision. Anti-concurrent clauses state, “We so unsettled, there’s potential development on can exclude the following perils, alone or in the question of damage causation. Teams of causequence.” They’ve been the basis of the rejecsation experts will continue to be needed. tion of wind-damage claims in the Katrina These teams traditionally aftermath. The anti-concurrent consist of meteorological clauses at issue specify that if a The question experts who perform forensic property is damaged by an of wind meteorology and weather excluded event, such as flood or earthquake, then it doesn’t matdamage versus reconstruction to opine on storm conditions at a precise ter that the property was also water damage location and moment in time, damaged by a covered issue, and structural engineers, who such as wind. In such cases, is still very determine the effects of those insurers argue, there is no covermuch in play. conditions on existing strucage at all. tures. State Farm and Nationwide Finally, even when the damage is entirely have argued in the Fifth Circuit Court that if caused by water, disputes will arise over the cost storm surge destroyed the house, then wind of repairs. This is normal, of course, and not damage didn’t matter. The court’s response has unique to hurricane claims. What is particular to been mixed. In some cases it found that when there was damage caused by wind, then even if hurricane insurance litigation is the question of when the loss is valued. Because traditionally storm surge later swept the house away, the prices spike in affected areas during the afterinsurer still owed something. In other cases, math of a hurricane, the timing of the v aluation anti-concurrent clause conditions have been has a big impact. This question will only be upheld by the Fifth Circuit Court. It will be exacerbated by the current state of the economy. interesting to see how the Texas courts handle “There are many more contractors willing to the anti-concurrent provisions for Ike claims. work for lower fees than there were a year ago,” Another aspect of the wind versus water the litigator with one of the top 100 law firms issue is the burden of proof. In situations in America acknowledged. “However, in insurwhere the courts are allowing coverage for ance valuation, you value for what the cost will wind damage, how is it determined which be for the next few months. You would never damage was caused by what? “During Katrina, say, ‘it’s down now, but it’s going back up, so people fled for their lives. When they returned, that’s how we’ll value it.’” IJ sometimes there was nothing but a slab,” a hurricane litigator recalled. “This became the plaintiff’s argument: The house was knocked Wein is president of IMS ExpertServices, the expert witness down by the wind.” and litigation consultant search firm based in Pensacola, Fla., The difficulties of proof are substantial in and with offices in Denver and Atlanta. Phone: 877-838-8464. this situation, raising the question: Where does This article was originally published in “BullsEye,” a newsletter the burden of proof lie? Plaintiffs argue: My distributed by IMS ExpertServices. April 20, 2009 INSURANCE JOURNAL-SOUTH CENTRAL REGION | 11
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South Central Coverage News & Markets
Agents Sue Brooke Corp. M
ore than 80 former insurance agents for bankrupt Brooke Corp. have sued the company’s lending arm, accusing it of civil racketeering and fraud. The lawsuit against Overland Park, Kan.-based Aleritas Capital Corp., filed in federal court in Kansas City,
Kan., claims it and Brooke inflated the price of insurance agencies they sold to the plaintiffs around the country and tacked on fees for services they never provided. The lawsuit says Brooke bought the insurance agencies from third parties and resold
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them to the plaintiffs, who borrowed the money for the transactions through Aleritas. The plaintiffs allege Brooke required the third parties selling the agencies to pay back a portion of the sales price — up to 10 percent in many cases — to Brooke but didn’t tell the plaintiffs about these payments. They also claim Brooke did no real evaluation of the franchises’ worth and instead tried to inflate prices to increase revenue from a bevy of add-on fees. They believe Brooke and its subsidiaries wanted its franchisees to fail so they could sell the insurance agencies again, resulting in another round of fees. “The Brooke entities[’] fraud in overstating the value of the agencies and taking kickbacks from the sellers of the agencies ensured that plaintiffs would rarely, if ever, [achieve positive] cash flow,” the lawsuit reads. “As a result, the plaintiffs either lost their agencies back to the Brooke entities or went deeper into debt to the defendant.” Before filing for Chapter 11 bankruptcy protection in October, Brooke was one of the nation’s largest franchisers of property and casualty insurance agencies with 900 locations and almost 600 employees. Founded in Phillipsburg, Kan., in 1986 by Robert Orr, the company set out to provide insurance services for small-town banks to sell to their customers. It later expanded into lending as it began selling its Brooke agency franchises, eventually moving to the Kansas City suburb of Overland Park and going public in 2003. Its demise has left thousands of insurance agents across the United States, including many in South Central states, in limbo, with many closing up shop. In addition, dozens of lenders have been left holding Brooke’s rotten loans and securities. A number of banks and other lenders have filed lawsuits against the company, claiming Orr and other company officials diverted millions of dollars for their own benefit and attempted to destroy the evidence. Lawyers for Orr have denied he did anything wrong. Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. www.insurancejournal.com
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South Central Coverage People
Ron Wright
Russell R. Oliver
Mike Kerner
Mario Vitale
Janice Tomlinson
Mike Grushon
Ron Wright, chief operating officer of Texas Mutual Insurance Co. since 1997, is set to become president and CEO of the company effective Sept. 1, 2009. Wright will succeed Russell R. Oliver, who announced his retirement in February. Oliver has worked at Texas Mutual since 1994; he was named president and CEO the following year. Two years ago, Texas Mutual launched the Executive Management Succession Planning Project to prepare for Oliver’s eventual retirement. Wright’s move to the role of president and CEO w as approved by the Board of Directors. He has had a distinguished career in the insurance industry. Before joining Texas Mutual in 1997, Wright was senior vice president of workers’ compensation for Travelers Aetna Property and Casualty Corp.
Bellbrook, Ohio, was honored by the National Association of Professional Insurance Agents (PIA) with the 2009 PIA National Professional Agent of the Year Award. Grushon was honored for his contribution to the insurance industry and the American agency system, as well as his participation in PIA. Grushon is a long-time member of PIA of Ohio. He chairs PIA’s Education Committee and has served on the board of directors and as chairman of the several other committees. In 2008 he was named PIA Chairman of the Year and was recognized with a Lifetime Achievement Award. His accolades extend beyond his professional career — Grushon and his wife, Debi, were named National Alumni of the Year by Florida College for their work running a summer youth camp for the past 18 y ears, where they take 400 kids to Walt Disney World each year.
Mike Kerner has been named chief executive officer of Zurich’s Global Corporate North America business unit. In his new position, which is effective June 1, he will oversee all Global Corporate business in North America. Kerner currently serves as global chief underwriting officer and head of group strategy in Zurich, where he led the establishment of sophisticated pricing and risk selection methodologies, and helped drive the development and implementation of the gro up’s strategy. He has served in a number of senior roles with the Zurich Financial Services Group and with Zurich North America Commercial since 1992. Kerner has extensive experience in underwriting, actuarial, operations, finance and reinsurance. He replaces Mario Vitale, CEO of Global Corporate, who had been serving on an interim basis since J anuary.
Pattie Smestad, an account executive with Eagan Insurance Agency in Metairie, La., was named 2009 Region VI Insurance Professional of the Year by the NAIW (International). Smestad, who has been with Eagan Insurance for 15 years, has been a member of the Insurance Professionals of Greater New Orleans since 1976. She served as president of the association in 1995 and has held other lea dership positions with the organization as well. She will compete at the national level with winners from eight other regions for the N ational Insurance Professional of the Year award at the NAIW National Convention to be held in New Orleans in May.
The Association of Professional Insurance Women Inc. (APIW) has selected Chubb Group Executive Vice President Janice Tomlinson as its “Insurance Woman of the Year.” Tomlinson, who has been employed by Chubb since 1973, serves as international field operations manager. She is responsible for profit and loss on a $ 2.9 billion book of business in 28 countries and oversees more than 50 offices and 2,500 employees. Prior to her current position, Tomlinson was the chairman and president of Chubb’s Canadian business operations from 1995 to 2003. The annual APIW Insurance Woman of the Year Award, first presented in 1976, recognizes an exceptional woman who has achieved prominence in her profession and has made significant contributions to the insurance industry. Mike Grushon of Thomas & Grushon Agency in
14 | INSURANCE JOURNAL-SOUTH CENTRAL REGION April 20, 2009
Nautilus Insurance Group named Thomas Miali as assistant vice president-property underwriting. Miali joins Nautilus from a reinsurance company where he served as vice president. His ba ckground includes managerial positions specializing in property underwriting for both primary and reinsurance companies. He has more than 30 y ears industry experience including excess and surplus lines, individual risk underwriting, programs, training and development and marketing. Nautilus also recently promoted Miklos F. Kallo to senior vice president, chief financial officer and treasurer. He replaced John M. Runberg who retired on March 2, 2009, after 23 years with the company. Kallo joined Nautilus in October 2008 as vice president-finance and accounting. Prior to joining Nautilus, he served as senior vice president and chief financial officer of Preferred Employers Insurance Co. Nautilus Insurance Group includes Nautilus Insurance Co. and Great Divide Insurance Co., member companies of W.R. Berkley Corporation, and writes excess and surplus (E&S) and specialty lines coverage in the United States. IJ www.insurancejournal.com
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Idea Exchange Legal Beat
Medical Liability Claims-Made Policies Challenges to the Notice Requirement
Redfearn
By Robert Redfearn Jr.
M
edical malpractice liability insurance policies, like most professional liability insurance policies, are typically “claimsmade” policies. While there are variations, claims-made policies generally provide coverage only for those claims that are ma de during the policy period notwithstanding when the claim arose, provided the claim also meets all other coverage requirements. In contrast, most policies covering liability outside of the realm of professional liability are “occurrence” policies, which provide coverage for an “occurrence” that happens during the policy period, irrespective of whether the claim arising out of the occurrence is made during or after the policy period. In short, the difference between the two
types of policies is that for an occurrence type insurance policy, the occurrence triggers coverage, whereas in a claims-made policy, the notice or making of the claim constitutes the event triggering coverage. Claims-made policies were created primarily due to the fact that the discovery of professional negligence and/or the realization of damages resulting from professional negligence typically occur a substantial period of time after the act of negligence itself. This creates the possibility of claims arising long after the policy period has expired, thus increasing the difficulty in evaluating the risks of a loss. Courts and insurers also found it problematic to decide whether the date of the alleged negligence, the date of discovery of the alleged negligence or the date of the injury caused by the alleged negligence was operative to deter-
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mine insurance coverage. [See Kroll, The Professional Liability Policy: “Claims-Made,” 13 Forum 842, 843 (1978).] The Determinant Factor Claims-made policies resolved these difficulties by establishing the date when the claim is made as the determinant factor for coverage. When an insurer first issues a claims-made policy to a new insured, the policy usually contains a “retroactive period” which, in effect, provides that the policy will not cover a claim even though made during the policy period if the underlying act of negligence occurred prior to the retroactive date set forth in the policy. The retroactive period places some limit on the potential claims that might be covered. continued on page 18
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16 | INSURANCE JOURNAL-SOUTH CENTRAL REGION April 20, 2009
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Announcing the formation of a more perfect union.
After nearly a century of providing for the workers’ compensation needs of America’s small businesses, EMPLOYERS® is venturing into new territories once again. Our successful acquisition of AmCOMP has forged two great companies into a single unit that has made us stronger, deeper and more fully prepared to advance our vision of being the workers’ compensation insurance leader for America’s leading small businesses.
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Financial Strength—As many insurers face the erosion of their financial strength in this difficult economy, EMPLOYERS’ long-time commitment to conservative investment practices, and sound business strategies, have enabled us to remain a well-funded, steadfast partner to agents and policyholders. This strength is reflected by the A- (Excellent) rating recently awarded by the A.M. Best Company to all our operating subsidiaries.
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LEARN MORE ABOUT EMPLOYERS AT www.employers.com OR CALL 888-682-6671. Copyright © 2009 EMPLOYERS. All rights reserved. Workers’ compensation insurance and services are offered through Employers Compensation Insurance Company, Employers Insurance Company of Nevada, Employers Preferred Insurance Company and Employers Assurance Company (also known as AmCOMP Preferred Insurance Company and AmCOMP Assurance Corporation, respectively). Not all insurers do business in all jurisdictions.
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Idea Exchange Legal Beat Legal Beat, continued from page 16
There are also other variations on the notice requirement of claims-made policies. For example, some policies require that the claim not only be made but also reported to the insurer during the policy period. Claimsmade policies may also contain “savings” clauses that typically provide that claims made during a certain period of time after expiration of the policy period will be deemed to have been made during the policy period if the insured gives timely notice of the facts or circumstances underlying the claim to the insurer. Courts have noted that claims-made policies “work perfectly,” so long as an insured who is covered under a retroactive date clause in his initial policy continues to purchase successive policies from the same insurer. However, problems can arise when the insured changes insurers or does not renew the policy. These circumstances can lead to a claim for which there is no coverage. Not surprisingly, when coverage is denied, the insured searches for reasons to invalidate the notice requirement of the claims-made policy as the event triggering coverage. Typically, these arguments are based on the contention that claims-made insurance policies violate public policy. However, courts in most states have rejected public policy arguments against claims-made policies. [Handbook on Insurance Coverage Disputes, §4.02(b) (Aspen Publishers, 14th Ed. 2008)] The Louisiana Experience Consistent with this trend, Louisiana’s Supreme Court has long held that claimsmade policies do not per se violate p ublic policy. [Livingston Parish School Board v. Fireman’s Fund American Ins. Co., 282 So. 2d 478 (La. 1973); Anderson v. Ichinose, 760 So. 2d 302 (La. 1999)] Unique among most other states, Louisiana permits an injured third party to sue an insurer directly under the Direct Action Statute, L.R.S. 22:655, which states that the public policy in Louisiana that liability insurance is issued primarily for the protection of the public and confers substantive rights on 18 | INSURANCE JOURNAL-SOUTH CENTRAL REGION April 20, 2009
third-party tort victims that are vested at the time when an injury occurs. Injured third-party claimants have argued that the notice requirements of claims-made policies violate public policy in those circumstances where the negligent act occurs during the policy period but the resulting claim is made after the policy period expires. The Louisiana Supreme Court has specifically rejected this argument, holding that the Direct Action Statute does not “extend the protection of the liability policy to risks that were not covered by the policy or were excluded thereby (at least in the absence of some mandatory coverage provisions and other statutes).” [Anderson v. Ichinose, 760 So. 2d 302, 307 (La. 1999)] Another challenge specific to claims-made policies providing coverage for medical malpractice was that the notice requirement in the medical liability claims-made policies violated L.R.S. 40:1299.45, which prohibits cancellation of medical malpractice insurance policies to the extent the cancellation affects “any claim that arose against the insurer or its insured during the life of the policy.” Thus, it was argued that if the claim for medical malpractice arose from professional negligence occurring during the policy period, L.R.S. 40:1299.45 precluded denial of coverage on the basis that the claim was made or reported after the policy period had expired. In considering this argument, the Louisiana Supreme Court noted that the case involved a claim that had been made and reported after the policy at issue had expired by its own terms. Drawing a distinction between cancellation and expiration, the Court noted that L.R.S. 40:1299.45 concerned the cancellation of policies, and, because the policy at issue was not cancelled, the statute was not applicable. [Anderson v. Ichinose, 760 So. 2d 302 (La. 1999)] Recently, the Louisiana Supreme Court was presented with another public policy challenge to the validity of the notice requirement in a case in which it was argued that a claimsmade policy the required the claim to be made and reported to the insurer within the policy continued on page 20 www.insurancejournal.com
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Idea Exchange Legal Beat Legal Beat, continued from page 18
period violated L.R.S. 22:629, which prohibits any provision in an insurance contract that limits a right of action against the insurer to a period of less than one year from the time when the cause of action accrues. The argument was made that because the policy period of the claims-made policy at issue was for only one year, the requirement that the claim must
be made and reported during the policy year had the effect of reducing the right of action against the insurer to a period of less than one year because the claim would, and in that case was, made and reported after the policy period had begun. The Court rejected this argument and affirmed that claims-made policies are not per
se impermissible or against public policy. With respect to L.R.S. 22:629, the Court stated that while the statute might prohibit any clause from limiting a right of action against an insurer to less than one year, it did not mandate coverage where none was found. A claimsmade policy provides the scope of coverage bargained for by the parties, the Court found, but does not limit the plaintiff’s right to sue the insurer. The Court concluded that “to hold otherwise would effectively convert a claimsmade policy into an occurrence policy and change the bargained-for exchange between the insurer and the insured.” [Hood v. Cotter, _ So. 2d _, 2008 WL 5146659 (La. 2008)] A Louisiana appellate court, however, was recently presented with the situation where a claim arose during the policy period but was not made until after the policy had been cancelled due to non-payment of premiums. Relying on the distinction between expiration and cancellation noted previously by the Louisiana Supreme Court, the appellate court held that the requirement that the claim be made during the policy period violated the mandate of L.R.S. 40:1299.45 that a cancellation of a policy “shall not” affect any claim arising during the life of the policy. Presented with the clear cancellation of a policy, the court determined that L.R.S. 40:1299.45 was applicable, even though the cancellation was for failure to pay premiums, and invalidated the notice requirement, rendering the insurer liable for the claim. [Joiner v. Taylor, _ So. 2d _, 2009 WL 365109 (La. App. 1st Cir. 2009)] One Exception Louisiana courts have made it clear that claims-made policies are not per se against public policy and have rejected most challenges to the notice requirement. At present, the one exception is that when a claims-made policy is cancelled before the policy period expires it appears that the policy will be required to cover any claims arising out of those acts or omissions that occurred within the policy period prior to the effective date of the cancellation. In this circumstance, the claims-made policy is effectively converted to an occurrence policy. Robert Redfearn Jr. (Redfearnjr@spsr-law.com) is a partner in Simon, Peragine, Smith & Redfearn, a regional law firm with offices in New Orleans, La., and Mississippi.
20 | INSURANCE JOURNAL-SOUTH CENTRAL REGION April 20, 2009
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South Central Coverage Business Moves INSURICA North America Group, a privately held independent insurance agency headquartered in Oklahoma City, is bringing each of its insurance management partners together to form INSURICA, The Insurance Management Network. The company, which is celebrating its 50th anniversary, felt the time was right “to rebrand our network partners together for our
continued growth,” according to Mike Ross, INSURICA president and chief executive officer. INSURICA’s specialty areas include hospitality, ministries, construction, energy, transportation, education and more, Ross said. As part of the re-branding campaign, 12 areas of specialization will be featured in new advertising and marketing efforts, as well as on the company’s new Web site,
www.INSURICA.com. Chairman Bill Durrett explained that the INSURICA Insurance Management Network is composed of independent insurance agencies that specialize in core industries and disciplines. With corporate headquarters in Oklahoma City, INSURICA’s Insurance Management Network includes the following partner agencies: Agar-FordJarmon & Muldrow (Norman, Okla.); Claims Indemnity Services and Commercial Insurance Services (Oklahoma City), Ford Hines Klein Watson Insurance Agency (Lawton, Okla.) Robert C. Bates LLC (Tulsa, Okla.); Towe, Hester & Erwin LLC (Lawton,
Okla.); CTK North American Insurance Services (Anaheim, Calif.); and Minard-Ames Insurance Services (Phoenix, Ariz.). INSURICA is an Assurex Global Partner and as North America Group was ranked 24 on Insurance Journal’s Top 100 Property Casualty Independent Agencies list for 2008. RHSB Dallas-based Roach Howard Smith & Barton (RHSB), an independent insurance brokerage firm and Assurex Global partner, has established a new Technology, Life Science & Media (TLM) specialty practice group. The TLM practice, led by Douglas R. Jones, will provide clients with insurance solutions and expertise tailored to respond to the industrial challenges, risks and scenarios firms often face. With more than 20 years of experience in risk management coverage and services, Jones has leadership abilities in assisting clients through developmental periods, including emerging growth, IPOs, global expansions and mergers and acquisitions. He also has extensive knowledge of techcontinued on page 24 22 | INSURANCE JOURNAL-SOUTH CENTRAL REGION April 20, 2009
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Business Moves Business Moves, continued from page 22
nology, telecommunications, life sciences and media, including expertise with highly targeted insurance products such as cyber liability, directors and officers, and errors and omissions liability. WYWLT, Bainswest Webb Young Webb Liles & Tolentino, an Oklahoma City-based independent insurance agency since 1947, joined Bainswest Inc. as a member agency effective Jan. 1, 2009. The announcement was made jointly by WYWLT principal, Bobby Young and Bainswest President Mike Loftis. Bainswest is a consortium of independent agents in Oklahoma and Arkansas with 25 locations and more than 200 insurance professionals. Insurance Journal ranked Bainswest as the 59th largest privately held insurance agency in the United States in 2008. Webb Young Webb Liles & Tolentino will continue to operate at its current location at 3007 NW 63rd. Other Oklahoma Bainswest members include Joe West Co., Fred Daniel & Sons, Carl M. Leonard & Sons and Bainsw est Benefits in Tulsa, The Arrow Group in Broken Arrow, Keystone Insurance in Sand Springs, Lon T. Jackson Agency and McMasters Insurance Counselors in Sapulpa, Somers Agency in Lindsay, The Bramlett Agency in Ardmore, and Loftis & Wetzel Corporation in Blackwell, Laverne, Ponca City and Oklahoma City. KJM Claims KJM Claims Management LLC, a full-service, independent claims management firm providing pre-litigation investigation and evaluation of professional and general liability claims and related services opened in Addison, Texas. The company is led by Kathryn Moran, KJM Claims Management founder and president. KJM Claims Management provides claims management and claim auditing services to companies across the nation. Moran, a Texas certified all-lines claims adjuster, has 13-plus years of experience in claims and litigation management at Fortune 500 and start-up insurance companies. Moran has served as a litigation specialist managing thousands of claims and litigated cases nationwide. IJ 24 | INSURANCE JOURNAL-SOUTH CENTRAL REGION April 20, 2009
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Idea Exchange Growing Your Property Casualty Agency
8 Ways to Improve Your Sales Timing and Your Income Develop Good Timing for Good Times and Bad By Alan Shulman
T
iming is everything in life and in insurance sales. Talk to a new prospect or an existing insured on the right day when both of you are in the right mood and the odds are good that you will walk away with a check. The opposite is eq ually true. So is timing a matter of luck or skill? The answer is a little of both. Here are eight random examples of ho w to use the calendar and the clock to your advantage. Ask insureds to commit to renew with y ou when your relationship is at its best , which is usually well before the customary renewal time. This window of satisfaction seldom takes place 60 to 90 days ahead of policy expiration. Why? Because your top competitors will be hard at work trying to plant seeds of dissatisfa ction [see below]. Search for a window of dissatisfaction when you are scouting for new business. Routinely probe for non-price red flags at renewal time in addition to the usual pricing vulnerabilities. Examples include a prospect’s unhappiness with the amount of a recent claim settlement, an unexpected additional premium audit, excessive loss control engineering, missing coverages, costly payment plan, etc. Fan the dissatisfactions that you uncover into flames of discontent to w eaken the prospect’s confidence in their current insurance program. Avoid the renewal-time rush by contacting a new commercial lines prospect six months before his policies expire. This way, you can sidestep the 60 to 90 day horde that sells mainly on price. Call and ask for a 15-minute meeting. Then limit yourself to exactly that amount of time, using it to pre-qualify the lead for future contact. Old school sales trick: Put a cooking timer on your prospect’s desk at the start of the meeting. Set it for 15 minutes. Then w hen it goes off, thank your prospect and prepare to go. If the individual wants to talk more, pleasantly let him know when www.insurancejournal.com
Shulman
you finally leave, that he’s the one who extended the appointment, not you. When you visit an insured at renewal time , always bring at least one new protection, premium-saving, or payment plan idea. Never go empty-handed, since this is Timing is crunch-time for you both. Almost any fresh concept everything presented now helps to reasin life and in sure the client that you’re not taking his account for grantinsurance ed. sales. Ask for an early renewal commitment if your main insurance contact person is about to leave a business you insure. Ask him or her to sign on for another y ear, before departing, when practical. Note that it will assure that your combined risk management labors won’t be instantly undone. Be the first in the door whenever you are faced with a new insurance contact person on an existing account or a long developed prospect. If you are late, you may find yourself put on the defensive by the tag-team of a new buyer and an aggressive agent. Ask for an off-hours appointment. If an insured or prospect is unable to meet with you during normal business hours, invite him in for an appointment at your office over the weekend or late in the evening. This odd meeting time may be just the ticket to get them on your turf. You’ll have time to talk, and he can leisurely see how and where you operate. After you miss out on a new business sale , handwrite a thoughtful thank you note to show your appreciation for the prospect’s time and courtesy. You’ll stand out from the e-mail only crowd and from agents who call the person to soundly complain that they weren’t fairly treated. If your note lands within a day or so of losing the sale, you’ll be in a stronger position for another shot next time around — or sooner if the person is suffering from b uyer’s regret. IJ Shulman, CPCU, is the publisher of Agency Ideas, a subscription-only sales and marketing newsletter. He is also the author of the Illustrative Insurance Sales Letter series and other P/C sales reso urces. Phone: 800-724-1435. E-mail: alan@agencyideas.com. Web site: www.agencyideas.com. April 20, 2009 INSURANCE JOURNAL-NATIONAL REGION | N1
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Idea Exchange Minding Your Business
Renewal Strategies in Challenging Times By Catherine Oak & Bill Schoeffler
I
n today’s challenging times, retaining current agency business is more important than ever. Below are a few tips to help your agency retain its renewal business.
Be Out There Early The producer needs to go see their clients at least 90 to 120 days in advance of the renewal expiration dates. If producers aren’t out there early, someone else will be. What Should Be Discussed Producers need to be prepared to discuss in the client renewal meetings what cost cutting measures can be taken to help the clients save money. It may be that higher deductibles, risk management and loss control activities can all be considered, as well as even self insurance, as long as it is done with eyes wide open. Some clients are very cash strapped and producers may have to tell them what are the mandatory coverages and what is less important. If coverages for exposures will be eliminated, it is important that producers have the clients sign off on which policies or endorsements they no longer have, to protect the agent’s errors and omissions exposure. What Else to Sell? Evaluate what other insurance policies your clients may need but do not currently have. This could include business interruption, umbrellas, employment practices liability insurance, directors and officers liability, and/or cyber liability policies. Are there other lines of co verage with cross-sell opportunities (health insurance, personal lines, life products, workers’ compensation)? N2 | INSURANCE JOURNAL-NATIONAL REGION April 20, 2009
Oak
Schoeffler
What other services can be offered to help the client for a fee (loss control to improve their workers’ compensation mod factor, HR consulting work, risk management, etc.) Clients pay more for health insurance than all property/casualty policies combined! It is always important to ask to quote the client’s health insurance, but producers If producers should first be sure the client has some concerns about their aren’t out current program or agent. there early, It is good to know what the client is currently paying and someone else who they are insured with. The will be. producer may not be able to beat what the client currently has and it is not good for the producer to waste their time or the prospect’s time. Prospective insureds will appreciate this and may give the producer a shot the following year, if they stay friendly. Market the Renewal to Other Carriers Producers may need to market the renewal to different carriers for various reasons. For example, if a client is insured with a carrier like AIG, the agency and client may still be concerned about their solvency, despite the government bail-outs. It has however, come to our attention with some of our clients that there may not be other carriers that can compete with AIG’ s pricing for certain risks, so moving it could cost the agency the account. Another reason to move carriers is to be sure the client saves money, which may be foremost in their minds today. Summary These are challenging times for many of the agency’s clients, so producers need to be extra diligent in handling renewals to retain accounts. Following the suggestions in this article should help improve retention of renewals while also showing the client the agency’s professionalism and concern for their business. IJ Schoeffler and Oak are partners at the international consulting firm Oak & Associates, providing services for mergers, acquisitions, management and financial consulting. Phone: 707-935-6565. E-mail: bill@oakandassociates.com. Web site: www.oakandassociates.com. www.insurancejournal.com
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Idea Exchange International Insider
On the Road to Latin American Opportunity Companies Must Balance Opportunities and Risks in Growing Markets Ellis
By Kathleen Ellis
A
s a large region with solid prospects for long-term growth, Latin America continues to gain in popularity as a market for many U.S. companies. Exporters to this region, however, can face significant challenges when it comes to getting their goods to their final destination. Countries in Latin America often face infra-
increased dramatically. Exports to Mexico, the United States’ third largest trading partner behind Canada and China, rose 56 percent between 2003 and 2008, according to figures from the U.S. Commerce Department. Exports to Brazil, the world’s 10th largest economy, were up nearly 300 percent in that same time period. In particular, Brazil, Latin America’s largest economy, has attracted attention in recent years as a particularly promising prospect for long-term growth and is often linked with Russia, India and China (BRIC) as one of the world’s top emerging markets. But companies that export to the region must keep in mind the risks as well. Goods shipped Exports to Brazil, the world’s 10th largest economy, were up nearly 300 percent from 2003 to 2008. to Latin America are at risk of being lost, damaged or stolen along the way. structure issues, crime and government corHijackings are a significant and growing ruption, putting those goods at risk of physiproblem in Mexico and Brazil. In Mexico, one cal damage, theft or other loss. of the biggest markets for U.S. goods, about 40 Companies exporting to these markets percent of losses are the result of hija ckings, need to carefully research the risks and and 30 percent are the result of damag e from implement loss control measures to help roadway accidents. In Brazil, the loss breakreduce the potential for losses. With knowldown is similar. About 35 percent of the losses edge of the risks and of the terms of the sales are from hijackings while 30 percent are the contracts, agents and brokers also can play an result of accidents on the road. important role in helping their clients obtain In Mexico, even though the number of the appropriate insurance and control their hijackings has not increased much, the amount losses. of money lost because of them has jumped 50 percent over the last several years, according to Latin America: Balancing Opportunity the Mexican Association of Insurance and Risk Exposures Institutions (AMIS). Sixty-five percent of hijackLatin America is an increasingly important ing events take place on the roads around market for many U.S. companies. In just the Mexico City and Estado de Mexico, according last five years, exports to the region have
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to Camara Nacional del Autotransporte de Carga (CAMACAR). In Brazil, the number of hijacking has held steady over the last few years at about 12,000 events per year, according to Agencia Nacional de Transportes Terrestres (ANTT). But it is interesting to note that 98 percent of these events happen within 150 kilometers of Sao Paulo, the nation’s capital. Other Latin American countries, such as Chile, do not have as much trouble with hijackings due to heavy local law enforcement aimed at providing safe and secure transport corridors. Hijackings are often committed with inside or official help. Customs officials as well as offduty or former police officers, for instance, have been prone to corruption and have been known to help criminals gain access to valuable items arriving in ports. Drivers of trucks as well as their transportation companies are also frequently implicated in hijackings. Although hijackings are a concern, many losses are simply the result of damage that takes place during shipment. Goods are at a much higher risk of damage in Latin America because the roads are often in poor condition and can be treacherous. Aging and inadequately maintained trucks compound the problem. That combination often leads to a high incidence of accidents in Latin American countries. In addition to the possibility of damage in transit, there is also the risk that goods will be damaged at the ports, where they are sometimes stored improperly. One common type of loss, for instance, is water damage to electronic devices as a result of improper storage at ports or as a result of leaks in poorly maintained trucks. The damage or theft of goods can result not only in a potentially significant monetary loss, but also in the loss of a company’s customers and market share if buyers decide to turn elsewhere for their needs. continued on page N6 www.insurancejournal.com
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Idea Exchange International Insider On the Road, continued from page N4
To reduce the risk of damage to their Controlling Risk to Capitalize on goods, exporters should: Market Opportunity • Make sure their products are well packAlthough the region has its unique risks, aged. Products may need extra protection, companies can take steps to minimize the additional cushioning and even modificapotential for a loss. tions to packaging to protect them from It is important, first of all, for exporters water damage for their journey into Latin and their agents and brokers to have a clear America. understanding of the terms of their sales • Ensure their transportation company is contract. Incoterms are standardized definitions used by the global shipping industry to following appropriate safety procedures. Be sure trucks are well mainprovide a common frametained and drivers are not work for issues such as Companies driving too many hours, control of goods and exporting to Latin which can also raise the financial responsibilities. These terms will spell out American markets risk of an accident. Companies can gain addiexactly who has responsineed to carefully tional, expert insight into bility for the goods and at what point that responsiresearch the risks local risks by working with local loss control experts. bility changes hands from and implement These local resources can the seller to the buyer. also provide assistance in In Latin America, the loss control monitoring loss trends to buyer often assumes measures to help gain a better understanding responsibility for the transportation of the reduce the poten- about the most common and most costly losses. goods. But in other cases, tial for losses. Insurance is another it is the seller who is important tool to help responsible for the transcompanies manage their losses. portation of the goods. For companies transporting goods overThe key point is for the exporter to underseas, ocean cargo policies are available while stand the Incoterms of the agreement and to domestic transit policies are available for know at what point in the transaction the inland transit. These types of policies typirisk has been transferred to the b uyer. cally provide “all risk” insurance and can be For exporters who have responsibility for written monoline rather than as part of a the transportation of the goods, several prepackage. ventive measures can help minimize the risk Agents and brokers also need to know of a loss. whether the country of destination requires Close attention to security measures can locally admitted insurance. If so, insurance help reduce the risk of hijackings. For must be purchased through an insurer that instance, companies should: • Carefully screen transportation companies is admitted in the local market. If not, the insured may be unable to settle its claim. and the drivers they hire. Particularly critiAlthough goods shipped to Latin cal are background checks on the drivers, American markets are at risk of being who sometimes have criminal backgrounds. hijacked or damaged while in transit, the In Mexico, for instance, 80 percent of hija ckopportunities are nevertheless compelling. ing incidents are inside jobs pulled off with By working with an insurer that knows the the help of the transportation company or Latin American markets and by taking steps the trucker transporting the goods. • Meet with local security providers to get a to tighten security and safety protocols, companies can reduce the potential for a loss better understanding of the products and and take advantage of this growing market. IJ services available to protect shipments. New technology such as satellite security services and GPS can be effective tools in reducing Ellis is a senior vice president of Chub b & Son and managthe risk of a hijacking. er of Multinational Risk Group - Global Accounts. N6 | INSURANCE JOURNAL-NATIONAL REGION April 20, 2009
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Idea Exchange Excess and Surplus Lines
Finding Solutions for Emerging E&O Risks Excess and Surplus Lines Market Offers a Place For Challenging Risks By Nancy Cerino
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ince all service providers face the tunate truth is that when times are tough, potential of law suits related to real or companies are more apt to be sued for a real perceived “errors and omissions,” E&O or perceived error or omission. coverage has become a necessity for Companies in many industries recognize nearly every service profession — from estabthis potential liability and as a result require lished architects, lawyers and computer contheir service providers to carry E&O coverage sultants to emerging professions that present before awarding them a contract. Simply put, a new and unique set of E&O risks. The chalthey want their risk to be transferred to the lenge in E&O can be getting your arms consultants who are providing them with around an emerging or unfamiliar risk, or fillexpert opinions and materials. ing a unique gap in coverage. Large pharmaceutical companies, for example, are believers in requiring consulting and Green contractors are a good example. This research firms, medical/pharmaceutical writnew breed of engineers and consultants proers, marketing firms and others to have E&O vide services such as testing the energy efficoverage. The reason is simple. These firms ciency of a building and outlining what steps are providing the pharmaceutical firm with can be taken to “green” the building environmaterials that are used in presentations to ment. For such a new line of business, there’s doctors and hospitals, and mistakes can be no one size fits all form for their exposures. In very costly. In fact, we just worked with a fact, there is no track record for green contracWeb site provider that was required by a phartor claims and little if any statistical data on maceutical company to have a $5 million E&O what type of claims would emerge. policy. Most standard lines markets would not Some of these service providers decide to touch this business — it’s simply too unprebuy the minimum E&O required dictable. A wholesale broto secure a contract and then ker who specializes in Wholesale drop the coverage as soon as the E&O, on the other hand, is contract is up. This strategy may equipped to handle this brokers write save them a little in the short type of account and find a about one in term, but it could hurt them in market with any number the long run. Remember, E&O of leading excess and surevery 10 E&O claims are usually completely plus (E&S) lines carriers. policies. unexpected. The service Because of the sheer numproviders should really be asking, ber of accounts that cross “Do I have the time and the money to defend our desks, we have the tools and experience to myself if I were to get sued?” ask the right questions and find the right carriers. In fact, wholesale brokers write about Placing Unpredictable Risks one in every 10 E&O policies. Even though there are relatively few E&O claims compared with other lines, it’s tough E&O in a Difficult Economy to predict which types of new businesses will In today’s economy, most companies are or will not have any type of claim frequency. tightening their budget and among the areas Standard lines will write E&O in certain they often try to cut is their E&O co verage. cases, such as coverage for travel agents, But they should be aware that in an economic because it’s a more predictable class of busidownturn also comes an increase in E&O ness. Generally, standard carriers want to see claims for most service providers. The unforN8 | INSURANCE JOURNAL-NATIONAL REGION April 20, 2009
an established track record in a specific industry before moving forward, and then may try to lock up an association relationship and establish a name in that niche. Wholesale brokers who specialize in E&O, on the other hand, write coverage across many different industries. To help us do that, I spend as much time talking to our E&S carriers as I spend with our retail agents. These carriers, many of which work exclusively through wholesalers, broaden our perspective. They, too, see a broad spectrum of new accounts and also serve as problem solvers. Together we see the big picture and innovate when it comes to new businesses. In addition, wholesalers can often identify coverage gaps and provide the complex mix of coverages that are required. For example, some high technology firms may think their general liability insurance will protect them from lawsuits alleging failure of a product to perform or losses to intangible property. But GL does not cover such emerging vulnerabilities and losses, so E&O should be an integral part of a high tech company’s coverage. Since many agents don’t see a lot of accounts that need E&O coverage, they often are not comfortable placing it. But that should not deter them from a potentially lucrative account in a new or unfamiliar industry. IJ Cerino is vice president of Partners Specialty Group LLC, a national independent wholesale broker in Norristown, Pa. She has specialized in E&O coverage for 20 years. www.insurancejournal.com
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Steve Ewing Ewing-Leavitt Insurance Agency Loveland, Colorado 970.679.7333 steve-ewing@leavitt.com
Ask me
why my agency affiliated with the Leavitt Group.
The Leavitt Group is an organization of affiliated independent insurance agencies. Each Leavitt Group agency is a separate entity, typically owned by its on-site manager and by Leavitt Group Enterprises. The Leavitt Group has over 115 locations and consolidated revenues of $199M on approximately $1.5B of annualized premiums. The Leavitt Group’s business is to create, build, and perpetuate independent agencies in concert with co-owners; enhance affiliated agency strength through collective endeavors; and provide key services to affiliated agencies.
Leavitt Group Enterprises | P.O. Box 130 | Cedar City, Utah 84720 | 435.586.6553 | 888.LEAVITT
www.leavitt.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. Technology Errors & Omissions Market Detail: Chamber Insurance Agency Services (www.chamberagent.com) gives agents access to an errors and omissions liability insurance market targeted to technology companies to protect them against third party professional liability losses. Features of the program include: coverage is available on a mono-line or package basis; the availability of first and third party date protection; and b usiness income. The appetite is broad and minimum premiums begin at $1,000. Deductibles begin at $2,500. Available Limits: $1 million to $20 million. Carriers: Various. Rating not provided. Admitted. States: All. Contact: Mark L. Favata at 973-669-2309 or e-mail mlfavata@chamberagent.com.
Insuring Sleep Market Detail: Cailor Fleming Insurance (www.cailorfleming.com) provides access to a true package policy for the sleep industry. The program includes coverage for property, general and professional liability, sexual abuse, inland marine and umbrella all under one package. Coverage is available for sleep centers, sleep scoring labs with a new option for the individual PST techs to purchase coverage. Premiums begin at $1,500. Available Limits: Starting at $1 million. Carriers: Unable to disclose. “A” rated by A.M. Best. Non-admitted. States: All except Alaska and Hawaii. Contact: William McMahon at 330-782-8068 or e-mail wmcmahon@ cailorfleming.com.
Ultimate Inland Marine Facility Market Detail: Allied Insurance Brokers Inc. (www.alliedforbrokers.com) gives agents access to inland marine coverage for any risk. Examples of eligible classes include: any equipment-driven risk;
builders and general contractors; machine shops, well drilling and servicing; broadcasting property and equipment; electronic equipment; railroad rolling stock; warehouseman’s legal liability; scientific equipment; oil and gas equipment; surface mining; warehouses; builder’s risk; and wind coverage available in southeast United States. Minimum premiums begin as low as $2,000. Available Limits: As needed. Carriers: Firemans Fund, Max Specialty, Navigators and others. “A” rated by A.M.
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! Best. Admitted. States: All. Contact: Chuck Weisenborn at 800-5699427 or e-mail cweisenborn@allied insbrokers.com
Senior Housing Market Detail: NSM Insurance Group (www.nsminc.com) offers agents access to its “Independent Senior Housing Insurance Program.” The program is designed for stand-alone independent senior living housing including: 1) Non-profit HUD and state financed apartment buildings; 2) Forprofit apartment management companies, condos and co-ops for more affluent seniors; and 3) For-profit and non-profit buildings with more than 50 percent sen-
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ior occupancy for both affordable and upscale housing. Nursing homes and assisted living facilities are excluded from this program. Minimum premiums begin at $5,000. Available Limits: As needed. Carriers: Unable to disclose. “A” rated by A.M. Best. Admitted. States: All. Contact: Bill Hurlman at 877-520-2552 or e-mail WHurlman@nsminc.com.
Hotel/Motel Program Market Detail: Gridiron Insurance Underwriters Inc. (www.gridironins.com) brings agents a market for hotels and motels that includes all the coverages unique to the industry. Automatic coverage extensions include: money and securities, employee dishonesty, guest property, guest relocation, guest evacuation expense, reprogramming of key system, spoilage, outdoor signs plus 20 other unique extensions. Equipment breakdown is included on every risk. Optional coverages include wake-up call liability, employee benefits, hired and non-owned auto and business income on an actual loss sustained basis. Target risks are independent properties up to $5 million TIV and franchised risks up to $2 million TIV per location. Minimum premiums begin as low as $1,500 and deductibles start at $1,000. Available Limits: Up to $5 million. Carriers: Unable to disclose. “A+” rated by A.M. Best. Non-admitted. States: Ala., Calif., Colo., Fla., Ga., Ill., La., Mich., Minn., Miss., Mo., N.Y., N.C., Pa., S.C., Tenn., Texas and Va. Contact: Jim Reller at 888-365-7701 ext. 203 or e-mail Jreller@gridironins.com.
Portable Sanitation Program Market Detail: Tangram Insurance Services (www.tangramins.com) allows agent access to its exclusive Port-O-Gard Program, a comprehensive package of covwww.insurancejournal.com
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erages specifically designed for the portable sanitation industry. The program targets firms involved in the rental and cleaning of portable sanitation units: including showers, luxury units and baby care. A full complement of coverages is available including: package protection, auto, umbrella and workers’ compensation. Available Limits: As needed. Carriers: One Beacon. “A” rated by A.M. Best. Admitted. States: Ala., Alaska, Ariz., Ark., Calif., Colo., Conn., Del., D.C., Ga., Idaho, Ill., Ind., Iowa, Kan., Ky., La., Maine, Md., Mass., Mich., Minn., Miss., Mo., Mont., Neb., Nev., N.H., N.J., N.M., N.Y., N.C., N.D., Okla., Ore., Pa., R.I., S.C., S.D., Tenn., Texas, Utah, Vt., Va., Wash., W. Va., Wis. and Wyo. Contact: Riley Binford at 707-775-2662 or e-mail rbinford@tangramins.com.
TeleRadiology Professional Liability Market Detail: Founders Professional LLC (www.founderspro.com) offers medical malpractice liability and 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
Corporation (www.amcinsurance.com) offers property protection to owners of residential and commercial 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 800-2332398 or e-mail stevejr@amcins.com. IJ Submit your company’s property/casualty markets to the industry’s leading searchable database at www.mynewmarkets.com.
There’s a better way to find Markets. Searching for a Particular Market? Find it here. From Dude Ranches to Pizza Delivery, we have markets covered. Stop Searching and Start Finding. Our database of over 25,000 markets makes it quick and easy to find that obscure market you are searching for. Best of all the service is FREE! So sign up today!
www.insurancejournal.com
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Idea Exchange Agency Management
Make the iConnection: Engage Your Future Leaders Talent Strategies for Understanding Generation Y Employees Henry
By Susan Henry “They all received trophies just for showing up. They are unable to accept failure.” “If they don’t like the way the game is being played, they will take their ball and go home.” “The first time they hear they are not perfect will be in their first performance appraisal or when they get fired.” “They don’t want to pay their dues for the big title or big paycheck … they expect it.”
T
hey — members of Generation Y, also known as the millennials — are simply misunderstood, just like the boomers and GenXers before them. This new and passionate group is entering the workforce in droves; and when fully-integrated, they will be the largest generation the U.S.
labor market has ever seen. It is time to understand them and to learn how the industry and your company can engage these future leaders. Millennials are not the lazy, self-centered attention-seekers that the media makes them out to be. In fact, they are collaborative, goaloriented and energetic — all excellent characteristics to have in any employee; however, the
following traits are sometimes distorted. Millennials are impact-driven. It is not so much that they don’t want to pay their dues; they simply want to see how their work and their job responsibilities are impacting the success of not only their department and their branch, but the entire organization. Millennials view work as an expression of themselves. They don’t separate professional from personal. They are not workaholics, like their baby boomer counterparts; rather they have a blurred line between work and play. Millennials have high expectations not only of themselves and what they can achieve, but also of their employers and managers. If they are making an impact on the company, they expect the company to make strides to impact their wellbeing too; i.e., make the company a nicer place to work, support the community. Millennials are optimistic. They believe the world can be a better place and are willing to do their part to make it that way — even at work. In fact, about half of new graduates feel the job outlook is still positive. Once you have a better idea of the value that this generation can add to your employee dynamic, you must recognize that the tactics that worked for baby boomers and GenXers may not appeal to this future talent pool. It is time to a dapt your talent strategies for the next generation. Recruiting Millennials The insurance industry offers tremendous career opportunities but is often overlooked
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by millennials in favor of other industries like banking, health care and technology. Industry leaders must work together through various associations, societies, universities and other grass roots efforts to solve the long-term challenge of branding insurance as an industry of choice. Meanwhile, you must actively recruit this generation. Your company’s brand image needs to speak to this up-and-coming generation. It must extend beyond customers to your employees and the community. Make a career in insurance, specifically at your company, appeal to millennials. Break the stereotype that insurance is boring. Consider participating in on-campus recruiting, internship and scholarship programs. Actively participate in campus activities, sending your star new graduate employees to be your spokespeople and to start a buzz that a career in your organization is special. Post jobs where millennials will see them. They are more likely to look on the Internet for jobs than their older counterparts. Utilize general, industry-specific and university job boards, linking everything back to your Web site. Make the most of these postings by standing out from other ads! Utilize short and tothe-point copy that speaks to them and their perceptions of the ideal employer, i.e., a fastpaced environment with the ability to be challenged and to grow. Utilizing action verbs, describe how the role impacts the division or company’s overall success. Communicate that your organization is a fun place to work. Close the deal by discussing incentives that actually matter to them, not face time and the three-piece suit. Money matters to this generation, but so does a defined career path, training, flexibility in hours, work process and dress code. Additionally, they want to be part of an environment that values team work and community service. www.insurancejournal.com
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able to effectively work with one another to Developing Millennials reach the greatest level of efficiency. Though millennials may think they are Provide millennials with rules and solid ready for anything, they still need training. leadership, but also offer them the support Development opportunities often play an and autonomy they need for success. Give important role in retention. Millennials desire them multiple projects that utilize their variall-encompassing training. They want to feel ous talents and provide constant feedback on they are advancing and developing new skills. what worked well. When they could have perThink beyond your company’s traditional formed better, consider altering your commutraining programs. For example, consider a nication style to reflect their own. Ask them cross-training program that rotates staff how they might do it better. between departments. It will give new professionals a Millennials view Retaining Millennials taste of other functional This generation has one of areas and the perspective work as an the lowest job satisfaction necessary to contribute more expression of rates in the workforce. They to strategy down the road. much more likely to Do not utilize a one-sizethemselves. They are leave their jobs after a year fits-all approach to developdon’t separate or two than their older ment. Step up training for counterparts. This is partly your top performers. Give professional due to where they are in life; them special projects that from personal. with no family nor mortallow them to stretch their gage, they are more mobile. abilities and responsibilities Promote job satisfaction by entrusting them beyond their normal work roles. Even though with new projects and career development your company has traditional career paths, opportunities. Provide them with cutting edge don’t be afraid to create new and exciting inditechnology to accomplish their work. Reward vidualized career plans for your A-level permillennials with flexible work hours and dress formers. codes and paid time off (PTO). Communicate Harness the power of mentorships. the hidden paycheck with younger employees, Connecting millennials with leaders who are reminding them of benefits such as medical not their managers allows them to gain additional company perspective and further insight and dental insurance, PTO, retirement savings, etc. on what it takes to be a leader or thrive in the Promote company satisfaction through iniindustry or position. It also gives them someone they can confide in without the fear of ret- tiatives that speak to their view that work is an extension of them. Create a green team to ribution during performance appraisals, etc. focus on how your organization can be more The mentor should be someone who can proenvironmentally-friendly. Support community vide direct and honest feedback. and volunteer opportunities either monetarily or by giving employees time-off to participate Managing Millennials in such events. Host employee recognition As you know, millennials often expect more lunches, intramurals or other events that of their employers than their predecessors. encourage social interaction and communicaCreate a collaborative environment that capition between employees. talizes on and values what each employee can At the end of the day, remember that prooffer. This starts with your executive team and ductivity and accuracy are the gauges of sucmanagers, who can set an example by treating cess, and stereotypes have no place in the employees of all ages and levels with fairness workforce. Updating your talent strategies as and respect. Encourage new ideas and soluthe newest generation enters the workforce tions, and don’t shoot them down just because will give your organization the tools necessary they are outside the norm. to engage its future leaders. IJ Millennials thrive on mutual respect. Educate all employees on working with members of other generations to help break down Henry is senior vice president of Jacobson Solutions, the temother generations’ stereotypes of millennials. porary staffing division of The Jacobson Group. Phone: 800Your cross-generational employees must be 466-1578. E-mail: shenry@jacobsononline.com. www.insurancejournal.com
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Idea Exchange Agency Technology
Get in Touch with Gen Y Why the Modern Workplace Is Important for the Next Generation of Professionals
By Edward Gray
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oday’s senior ranks of insurance professionals are retiring at the pace of approximately one every 10 minutes, taking a wealth of experience and knowledge out of the profession at a startling pace. Agencies and insurance carriers alike now face a major challenge to attract, hire, train and retain Generation Y replacements, all while continuing to service an increasingly complex and pressured marketplace. Gen Y is clearly the most tech-savvy generation to enter the workforce to date. Their lives have revolved around technology from the beginning with LeapFrogs, Nintendos and Gameboys. During the last decade, classrooms have filled with computers, and the social
Gray
lives of Gen Y revolve around texting, Facebook, MySpace, YouTube, instant messaging and iPhones. It’s a real-time, multi-media, digital world. Technology is an integral part of how this generation learns, works, plays, interacts and sees the world. So naturally, Gen Y workers have a somewhat evolved view of business and what they expect in a work environment. They gravitate to companies doing business with technology, faster, smarter and easier. The paper-bound processes, green-screen systems, cabinets full of policy files, in-baskets and the assemblyline of manual processes present in many agency environments are not going to win their interest or loyalty. That means in order
NAS Healthcare The healthcare industry can change in the blink of an eye – as providers, managed care organizations and other medical entities face new and evolving laws, more stringent compliance and notification requirements, and the exposures non-adherence can trigger. NAS’ Healthcare facility offers a wide selection of specialized products fully equipped to meet these challenges and provide comprehensive protection from the numerous risks inherent with unpredictable times. For over thirty years, NAS Insurance Services has remained a productoriented company, ever on the leading edge of innovation with a constant commitment to the development of specialty products. NAS is an independent underwriting manager with full binding authority to underwrite on behalf of highly-rated carriers.
to attract talented, in-demand Gen Y workers, the processes and archaic systems of the past must be left behind and the insurance industry must get with “the new century.” So, what kind of technology is going to attract Gen Y to your company? Agencies utilizing a Web 2.0 system that offers tools that enable true collaboration between agents and insurance company underwriters are most likely to get a second look. Imagine a real-time environment with a shared platform between agents and insurance company underwriters, a technology that makes it much easier for agents to do business with carriers, and one that reduces turnaround times to help agents be signifi-
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Personal Umbrella cantly more productive and engaged with the carrier. But remember, both parties need to be onboard in order for true collaboration to be achieved, so partnering with the right carrier who is already in tune with today’s technologies can be an important first step. Real-Time So, what’s a real-time environment anyway, and why will Gen Y like it? It’s where data can be recorded once and then sent wherever it needs to go real-time, minimizing touch-points for agents and underwriters using the system. It’s where outputs are user-friendly PDFs that can be distributed, forwarded, and viewed as needed. This environment is truly multi-media — documents, spreadsheets, pictures, videos, and even voice files can be added to your accounts so everything about the account is available online, and in real-time. The new world is networked, with realtime Internet access from anywhere. So, communication will be ubiquitous. Anyone can communicate with anyone they want to reach, online and in real-time. Once you have ubiquitous communication, you can use “push” technologies to leverage chatting, instant alerts, e-mail notifications, the digital yellow-sticky notes, and even shared screens with shared updating to streamline collaboration and minimize the frustrations of hours or days of back-and-forth delays. In addition to a real-time environment and true collaboration tools, what other features should such a system have in order to be complete and to help you compete? Agency upload and download should be provided by leveraging ACORD XML standards to push and pull data from the agent’s desktop into the carrier’s underwriting system and back, eliminating re-keying. Knock-out and risk appetite rules, supplemental data, and completeness edits should be available right on the agent’s desktop to eliminate wasted time and unwanted or incomplete submissions. www.insurancejournal.com
Agent access to applications, proposals, shared notes, and attachments as allowed by role is also important. The ability to leverage collective intelligence can help agents share information with insurance company underwriters using context-sensitive, wiki-like repositories. The new world enabled by technology is equipped for multi-tasking. It’s user-driven and intuitive. Gen Y doesn’t expect a system to just do one thing for just one a ccount through a tightly-scripted screen flow. They expect to use insurance systems the way they use technology in their everyday lives. Using Web 2.0 rich Internet technologies, it is possible to have multiple sessions open and to have the ability to jump to the most immediate task or message. And, an intuitive nature is important for new technologies. Gen Y workers won’t sit down and read a user manual for hours to figure out how to use a system, they will just start clicking. Technology offers great opportunities for both agents and carriers to have more productive, higher quality, and more intuitive workflows and systems. It’s not going to be your father’s insurance process, or even yours. It will be the new generaTechnology is tion’s process. And it will an integral part be a change of how this for the better. Can you generation adapt and learns, works, leverage the new techplays, interacts nologies to and sees the create the modern world. workplace? Or will you hang on to the traditional process and watch the next generation pass you by? IJ Gray is the director of customer solutions for FirstBest Systems in Bedford, Mass. E-mail: egray@firstbest.com.
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Spotlight Inland Marine/Transportation/Cargo
Special Delivery: Added Value with Cargo Insurance As Cargo Theft Rises, Carriers’ Special Investigative Units Offer Relief By Joe Tracy and Scott Cornell
A
driver pulls into a truck stop, heads inside to shower and eat — and then discovers his fully loaded trailer gone when he
returns. A truck disappears from a storage lot and is found a week later, cargo gone and vehicle parts stripped. Electronic merchandise is delivered to a warehouse and consolidated with other loads. Upon the truckload’s arrival at its final destination, the shipment is discovered to be short thousands of dollars worth of product. These scenarios, unfortunately, are examples of an all-too-common dilemma faced by those who have goods to move and those who are in the business of the delivery of goods. Agents and brokers know they need to recommend insurance that will best protect both groups from the financial repercussions of cargo theft. Understanding the resources that insurers are actually able to provide, versus what they market as capabilities, will strongly enable agents and brokers to deliver solutions that go beyond writing a check to cover losses.
pears). Increasingly, cargo theft also is the work of sophisticated gangs who repeat their tactics once they are successful. Law enforcement agencies are the first line of response when cargo has been stolen. They not only carry out local invesSpecialty Investigation Services tigations, they use interagency databases to Cargo theft is big business for criminals. be aware of regional activity and repeat The National Cargo methods used by criminals. Security Council estimates Because of increasing budget Businesses that businesses lose $25 bilpressures, few law enforcelion a year to cargo theft. lose $25 billion ment organizations have all FreightWatch International the resources necessary to a year to cargo manage the many different reports that the theft of full truckloads of goods types of crime that come theft. rose 13 percent in 2008. their way and cargo theft Sometimes the theft of often becomes a lower prioricargo is a singular event, made easier by ty. opportunity (keys left in the truck cab, for Insurers who offer specialty investigation instance) or collusion (a truck driver or a units can bring depth and expertise to a warehouse worker has some involvement in case. These special investigators can use an “inside job” and a pallet of goods disaptheir knowledge to tie together crime scene N16 | INSURANCE JOURNAL-NATIONAL REGION April 20, 2009
details, which can help law enforcement solve the case. While many insurers may advertise such assistance, some provide more effective help than others. Insurers who have their own in-house investigative team, as opposed to contracted services, can dedicate a unit to a specific type of crime, such as cargo theft. This distinction is of importance to those who use cargo and transportation insurance products. These investigative specialists are constantly updating their knowledge and skills specific to cargo through industry involvement. They develop strong relationships with law enforcement officials, which can sometimes help in moving an investigation along expeditiously. Recovery rates are much higher if the investigation begins within 72 hours of the reported theft. Additionally, the investigative specialists’ familiarity with emerging patterns of cargo www.insurancejournal.com
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theft from claims filed across the United States offers them insight that they can share with customers and utilize to plan against similar thefts. Look for an insurer who can provide regular releases on local, regional and national crime conditions, such as recent thefts, gang activity and fraudulent schemes. This service can help shippers and carriers take more effective preventive action.
Having an understanding of the industry challenges faced by their customers can advance the capabilities of agents and brokers and help them to meet those needs. Find out which insurers talk a good game and look for those that truly offer insurance solutions. Focus on those who know the logistics industry, emphasize reducing cargo theft and can continue to deliver services
over time as your customer’s operations change. Over the long haul, this extra value can deepen your relationship with your existing customers and bring new business your way. IJ Tracy is the chief underwriting officer for T ravelers Inland. Cornell is the national program manager for Travelers Specialty Investigations Group.
The Total Network From underwriting expertise, to risk control services and claims handling specialization, an insurer has the opportunity to demonstrate to customers that their special needs are a key focus. It begins with underwriting, where experts in cargo insurance underTheft of full writing and covtruckloads of erages know how to avoid coverage goods rose 13 gaps that can percent in leave customers exposed to loss2008. es. They understand the types of contractual liability agreements that are part of the daily life of shippers and carriers. Underwriters work with agents and brokers to plan out services specific to their customer’s needs. This may include reviews with risk control consultants who have specific experience in cargo loss prevention. These specialists visit sites and prepare recommendations that bolster anti-theft protection and management procedures. Their input on these items can bring v alue to a customer. Finally, an insurer’s claims handling professionals can make a significant difference that goes beyond investigative services. Insurers that have claims staff who are experts in the complex liability exposures and contract provisions that shippers and carriers face are in a better position to mak e sure claims are handled correctly and in a timely manner. Agents want to make sure their customers are paid quickly, so that they can keep business operations going. A quick claim payment also averts a potential loss of customer that results from slo w payments. www.insurancejournal.com
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The Freedom What Young Agents Value About Being Independent By Andrea Ortega-Wells ood things come to those who wait and work hard. Even in today’s challenging economic climate, young independent insurance agents remain hopeful and happy to be in a profession that allows them to work independently, be their own boss and reap the success of their efforts. A career as an independent insurance agent is among the best kept secrets in business, according to Joey O’Connor, vice president of Daniel & Eustis LLC, based in Metairie, La., just outside of New Orleans. “I think young people coming out of college would be floored at just how successful you can be as an independent insurance agent,” says O’Connor, who serves as the chairman of the Independent Insurance Agents & Brokers of America’s Young Agents Committee. “You really have the best of all worlds.” He notes that agents are in a sales environ-
G
What Young Agents Earn 11%
Under $30,000 – 11%
20%
$31,000 to $50,000 – 29% 29%
14%
$51,000 to $75,000 – 26% $76,000 to $100,000 – 14%
26%
More than $100,000 – 20%
Young Agents’ Outlook on Their Career 2% 13%
Very Optimistic – 52% Optimistic – 33%
52%
Cautious - 13%
33%
Not Optimistic – 2%
Outlook on the Future of the Independent Agency System 3% 15%
Very Optimistic – 40% 40%
42%
Optimistic – 42% Cautious - 15% Not Optimistic – 3%
according to the Louisianan. “Young agents ment where they are directly paid for their just have to realize that there’s a little bit of a success and in many instances, they work as curve there that they are going to have to be their own boss, giving them the freedom and willing to fight through; but once they do I independence entrepreneurs seek. think they will find it’s well worth it.” O’Connor is not alone in valuing the indeThe first five to 10 years as an independent pendence that comes with his job. What agent will not be a “cakewalk,” says 30-yearmany young independent agents — those 40 old Joel Geddes III, at years old or younger the Modesto, Calif.— like the most about based Capax their jobs is the freeInsurance. Geddes, dom it gives them to who has been an agent control their own desOlder Side of Young for five years, is a tiny, according to 62% are 31 to 40 years old; third generation insurInsurance Journal’s 2009 38% are 30 and under. ance professional, folYoung Agents Survey. Career Choice lowing his grandfaFor many of the 692 84% consider insurance to be a permanent ther and his father, young independent career choice; 14% are unsure. Joel Geddes Jr., who is agents surveyed, freeEducation dom is what they enjoy 56% have a college degree; 60% have completed CEO of Capax today.. Despite growing up most about the indusor are working on an insurance designation. in insurance, Geddes try. (See What Agents Experience Like Most, page N21) 25% have less than three years in insurance; never thought he’d One survey respon29% have six to 10 years; 21% have three to five enter the profession. “It’s one of those dent wrote, “Freedom years; 25% have 11 or more years. things that you see is the best thing about Family Affairs your parents doing being an independent 56% work in family-owned agencies. and it didn’t look agent.” Ownership Dreams And another simply 73% do not presently own an agency; of these, appealing,” he said. As Geddes explored said he enjoys the 57% would like to own someday. other business career “freedom in every way.” Working Class 52% work between 41 and 50 hours a week. fields, he soon found that insurance offered Patience to Succeed Gender ID impressive opportuniWhile young agents Male 66%; Female 34% ties for a high salary may enjoy the autonoRecruitment Target my on the job, being a 52% have been offered a job by another agency. and advancement potential. young independent Geddes has accepted the reality that it agent is not a get rich quick career, says will take time to build a good career. “But Meghan McGarry, a 30-year-old commercial once you do, it can be very good to you,” he account representative for Marshall & said. “You are going to put in a lot of time Sterling Inc. in Leeds, N.Y., an Insurance and a lot of extra effort up front, b ut after Journal Top 100 Agency. you get past that point it will be w orth it.” O’Connor adds that patience is important Steve Parkhurst, 32, has only been in the to being a successful agent. “The toughest insurance industry for a year. Previously, thing about being a young agent is remaining patient enough to let the course of time work Parkhurst had a successful six-year career in the mortgage industry but “got out at the in your favor,” he says. “There’s really no shortcut,” to success, continued on page N20
N18 | INSURANCE JOURNAL-NATIONAL REGION April 20, 2009
Profile of Young Agents
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to Grow
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SPECIAL REPORT Young Agents Survey/Big “I” Issue Young Agents, continued from page N18
right time,” he said. After that, he landed a position selling small commercial accounts at Walnut Creek, Calif.-based Heffernan Insurance Brokers, also an Insurance Journal Top 100 Agency. As a new insurance agent, Parkhurst admits there’s a lot to learn and young agents have to be dedicated if they want to succeed. “You have to put in extra hours,” Parkhurst says. “You can’t just stick to the 9 to 5,” he added. Helpers at Heart Parkhurst most enjoys helping his clients, making sure they have the coverage they need. In that sentiment he is typical of today’s young agents, who identify helping others solve challenges as among the major reasons they like being an independent agent. “I love helping people and this is a great way to help people,” says Marshall & Sterling’s McGarry. “On a personal level you
are helping them protect their homes, their vehicles, their family. On a business level, you are helping them protect their livelihood.” For Brewa M. Kennedy, owner of Today’s Insurance Solutions in Orlando, Fla., working as an independent insurance agent has allowed him to focus on great customer service. Even though owning his own business comes with its challenges, Kennedy says he has found it to be “much more freeing” than working for someone else. “I can approach business the way I want to,” he said. Insurance was not his first career. Kennedy, 33, became an independent agent only after years of service in the airline industry and then a brief stint as a captive agent with Allstate. After just six months as an Allstate agent, Kennedy decided “very quickly that in the Florida market it was not in the best interest for the agent or the insured” to write only Allstate policies, so he termi-
Independence Through Teamwork
W
hile the tendency is for independent agents to stress their independence and go solo, a team approach can be very valuable to producers who are new to the industry. “When producers first come in, instead of handing them the Yellow Pages and saying, ‘You are on your own, go hit the streets,’” more agencies are pairing a younger producer with a more seasoned producer, maintains Joey O’Connor, vice president of Daniel & Eustis LLC, based in Metairie, La., and chairman of the Big “I” Young Agents Committee. “I think that alleviates a lot of frustration and the inclination to say, ‘This isn’t going to work for me, I’m going to quit.’” Joel Geddes III, a 30-year-old agent at the Modesto, Calif.-based Capax Insurance, says being part of a selling team has helped him generate new business, although his partner is not an older veteran but rather a fellow young agent. Geddes, who has been an agent for five years, says about a year ago he and his partner decided to team up to get new business. “Being a young agent is all about building your book and if you are not out there proactively marketing, cold calling, building relationships, then you are not going to get any new business, especially in today’s market,” Geddes said. So the two producers decided they would be able to encourage each other’s marketing efforts better as a team. “The encouragement has been really good,” he said. “We go out and do team selling especially with the larger accounts. Team selling seems to do very well with the larger customers,” Geddes explained. Geddes says the team splits everything. Another benefit, “We are able to be very frank with each other. … The ability to be candid is a very valuable asset.” Gaining credibility in the eyes of clients who may be 10, 20 or even 30 years older is a challenge for any young salesperson. In addition to teammates, there are many resources to help younger producers succeed more quickly, notes O’Connor. The Big “I’s” Virtual University is one example. There are also many national education and training programs for new producers. IJ
N20 | INSURANCE JOURNAL-NATIONAL REGION April 20, 2009
nated his contract with the national insurer. Then he opened up his own independent insurance agency. Kennedy admits, “it’s been hard” but he has learned a few lessons along the way. “It’s my first time owning a small business and my first time working in the insurance industry,” he said. To top it off, it’s his first time managing people. Challenges abound, especially in the Florida insurance market, Kennedy says he sees opportunities where most would not. “It is a little bit scary (right now), I won’t lie,” he admits, “but at the same time millionaires are made in times like these.” Kennedy sees opportunity in the Florida property market where he’s ready and able to take market share from fleeing national carriers. Eye on the Future Despite the economic recession, most young agents continue to be optimistic about their future. According to the IJ survey, 85 percent feel very optimistic or optimistic about their own career as an agent. Young agents also have high hopes for the future of the independent agent system — some 82 percent are very optimistic or optimistic. Young agents are also confident in their ability to grow market share — 73 percent reported being very optimistic or optimistic. McGarry believes that now is the perfect time to help existing clients and gain new ones. “I think people are looking to us more than ever to help educate them about what they need and what they don’t need,” she advised. Since many people are looking to cut back on extra coverages now, it’s more important than ever for agents to make themselves available, she says. Capax’s Geddes agrees, adding that constant communication with his customers is a must. “I think one of the best things a young producer can do is to just stay in contact with your customers and let them know what’s going on in the market.” When the economy improves and people begin to start up new businesses, young agents need to be ready, advises McGarry. “Young agents need to position themselves accordingly and be ready because opportunities will start presenting themselves and you want to be prepared to meet the challenge.” IJ www.insurancejournal.com
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101 Things Young Agents Like MOST The exclusive 2009 Insurance Journal Young Agents Survey asked independent agents under 40 years old: What do you like most about being an independent agent? Here’s what some of the 692 agents who took the survey had to say: 1. Working with clients and helping them to secure their insurance needs. Providing training and development of people. Friendships developed over the years. 2. My relations with clients and collegues. The security of the industry (people need insurance). 3. It is not the same thing every day. I enjoy a challenge. I am also very honored to be able to work in the field of agriculture. 4. I love interacting with my clients and being there for them when times are tough.
5. Getting to help the people. 6. More to see than at the company level. Working one-on-one with the clients to help them. Form many positive business relationships with clients. 7. The freedom it provides and ability to work hard to determine your own income. 8. The amount of time I have with my family and the flexibility of the business. 9. Diversity of the field and constant change. 10. Taking care of the people. 11. I can make really good money and I control my schedule for the most part. 12. I like the fact that I am alwa ys networking and meeting new people as well as learning about all t ypes of business. 13. Ability to make your own income. Helping other s protect their business assets. Like working with business owner s and independent agents. Like the real world application of the products we provide. 14. The freedom to work my own hours and the fact that income ceiling is only controlled by how much effort I put. 15. Control your destiny. 16. The flexibility to work with many different carriers. 17. The social aspect. I enjoy talking to people and helping them get things done. 18. Differ ent challange everyday! 19. Relationships, freedom. 20. Opportunity for increased income. 21. Freedom to use a variety of companies. 22. I enjoy writing an account where there is a mutal feeling of respect and willingness of the client to provide information. 23. Flexible schedule and unlimited income potential. 24. Flexible work schedule and the ability to help people understand a piece of their life that is so important. 25. Freedom. Meeting local businessowners and developing relationships with businessowners/leaders in the community. 26. The ability to write any risk on the planet and not having www.insurancejournal.com
a home office dictate my life and income level. 27. Own hours, unlimited income potential, exposure to all different types of industries. 28. The pay, the excitement of learning everyday and the outstanding benefit of getting to meet and interact with my various clients around the country. 29. The freedom to try new things. 30. The one-on-one customer relations. I love being able to interact with people. 31. Freedom of choice. 32. Freedom to work when and how you would like to . 33. I enjoy having the ability to direct my own work-flow while helping people protect themselves. 34. Building relationships and educating clients. 35. Networking. Challenges of each account. 36. The clients. 37. Helping companies lower premiums and broaden coverages.
50. The steady industry and working for a great firm.
51. The freedom to control my future while helping others in the process. 52. Enjoy being of service to my clients and making qualit y products available to them. 53. Putting people back on the map after large losses, claims service is what we are all here for.
38. The relationships that are developed with my clients.
54. Control own destiny.
39. The challenges I face everyday. With insurance no two policies are alike, the job is never monotonous. I enjoy taking on the difficult risks that no one else wants to bother with. 40. Flexibilit y. 41. The ability to be able to help clients and other s truly understand what they have, or are buying. The industry is caught up in pricing, rather than needs assessment. 42. I like the variety - every day there is something different and it doesn’t ever seem to get boring. I deal with a variety of people, coverages and issues everyday and it keeps me on my toes. 43. I have learned that knowledge is my absolute best-selling feature and do everything I can to learn insurance coverages and be able and willing to give many , many examples. I like being an expert and a teacher. 44. The industry is constantly changing. I can come to work every day and learn something new. There is always a new claim or coverage question that I may have to research which only helps me in learning more.
55. The flexibility of hours and the challenge of selling a very expensive and intangible product. 56. I like being able to look at a lot of options for a customer and help find the right policy for them. 57. I like the fact our industry constantly changes. I never really considered a career in insurance prior to my father’s stroke simply because I saw it as ‘same old, same old.’ Once I got into it and saw it wasn’t, I was hooked. 58. The freedom the career offers. I have the ability to meet great people, earn a nice living, help peoples’ businesses, and be in control of my own destiny to a certain extent. 59. Your compensation is based upon your own work, not someone else’s. 60. The ability to talk to people at their best. The abilit y to talk to and help people through their worst. You have the chance to do both on any given da y no matter where you work in our industry. 61. The ability and freedom to think outside the box and not be tied down by corporate rules and regulations.
45. The freedom to write business with various companies that fit my clients needs.
62. Commission on the business that I write is nice. Applying the coverages and explaining how they work to the insureds is a challenge but keeps me on my toes.
46. Income and scheduling freedom.
63. Independence. 64. Feels like it has more freedom than other jobs.
47. The hunt and the people you meet along the wa y. 48. I like being independent from captive agencies, and having the ability to shop for the customer. I like that I can r ealize my own dreams, and the self-direction that I can take. 49. Flexibility of job and hours.
65. Still figuring that out ... 66. Client relationships and freedom associated with the position.
continued on page N22 April 20, 2009 INSURANCE JOURNAL-NATIONAL REGION | N21
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SPECIAL REPORT Young Agents Survey/Big “I” Issue 101 Things, continued from page N21 67. Ability to be as succesful as you want to be based on how hard you want to work. 68. I own my agency so the success is on me. 69. Flexibility of career and family. 70. Autonomy, freedom to build a book of business. 71. I enjoy the flexibility of the companies that I write for. I probably enjoy my relationships with each carriers’ representatives more than anything else. 72. The ability to be agile in the market and not bound by company restraints.
78. Working for myself. 79. I like the involvement with the community our particular agency has. It has nothing to do with being an independent agent. 80. Uncapped earnings, freedom, flexibility: as years go by and friends climb the corporate ladder and make more money, typically they must put in significant amount of hour s per week. In the insurance industry that is not typically true, good field underwriting, writing the policy correctly, and having well trained support staff can bring just the opposite in an agency after years of hard work.
fields all within one career, from financial, to legal, to business and risk management areas.
87. The vast knowledge accumulated in many areas of industry and insurance and law. 88. Getting to know different types of business and their story of how they came about. Love the flexibilit y of job and the ability to have uncapped earnings while at the same time the opportunity to become an owner in the agency.
73. Freedom.
81. I like the flexibility in hours, as I have small children. Additionally, the compensation is good.
74. The freedom to go to different markets.
82. Independence.
75. My favorite part of being an independent agent is the opportunity to educate people on risk management so that they can properly protect their homes and businesses.
83. Freedom in every way.
90. Freedom and open markets. Finding what is best for the client.
84. Meeting new and interesting people.
91. I enjoy the freedom of setting my own schedule.
85. Learning different industries.
92. Freedom and the earning potential. Plus I like running a small business and challenges it presents.
86. I love the fact that the industr y shifts and changes every day, I enjoy the challenge of touching so many different
93. Claims are the only interesting thing about insurance,
76. Owning the books. 77. Selling. Fixing problems, being creative and inventive.
89. I can control my own accounts.
50 Things Independent Agents Like LEAST The exclusive 2009 Insurance Journal Young Agents Survey asked independent agents under 40 years old what they like least about being an independent agent. Here’s what some of the 692 agents who took the survey had to say: 1. Lack of growth opportunities within a company. Being told there are and coming to the reality there isn’t. Not being able to achieve compensation goals due to lack of support. 2. My current income, the regulation, the redundancy of products and explaining it. 3. PAPER WORK and requoting. The redundancy in the quoting to completion on the agency management system is very frustrating to me. 4. I want to be able to earn a decent compensation for the work that I do. I hate the companies and their over all attitude toward agents.
5. The many changes of coverages. So much knowledge is required. 6. Industry cycles make it hard to explain the pricing of our product ... certainly isn’t based on loss r atios and fundamentals right now! (or when it becomes ridiculously hard either!) 7. If we had stable pricing, we might get a little credibility with the business community over the long stretch! 8. Public perception - while we’re actually one of the last lines of defense for individuals’ and companies’ abilty to continue operating, we’re too often perceived as being one half step above used car salesmen.
book of business to be portable if you change agencies down the road thus locking you into your current office or start over. 12. CE credits? I mean, seriously, with all the search functions, not one of us is actually learning the material. We all know that day-to-day sales and service is the best learning tool. 13. The public opinion of insurance in general. Most see it as a necessary evil, and even agents appear they do not like to provide a service or sell. The dumbing down of r ates and chasing premium dollars that many carriers and agents participate in, which only hurts our industr y and devalues the sevices of an agent. Also produces inadequate premium dollars and inconsistency in rates from year-to-year (or broker to broker), which adds to the public’s conception (or misconception) of the insurance industry and coverage. 14. The perception. 15. Margins are to small. 16. Cold calling and trying to get in the door of a prospect. I enjoy the quoting and proposing, just not the cold calling.
tom dollar premium due to the agent/market’s misclassification of the risk. 24. Working on commission only basis (Makes it ver y difficult to start out!) 25. It is so competitive and very difficult to attract the new customer. It seems there is an insurance agent or two on every corner. 26. The perception the general public has of insurance and insurance agents. 27. The lack of radio/television marketing by the so-called independent agency carriers (Hartford, Safeco, etc.). Mercury does a great job and is truly an independent agency carrier. The rest sell out and frankly I can’t blame them ... Travelers has some ads on TV once in a while.
28. Telling people I sell insurance for a living. 29. Lack of public knowledge of companies.
17. There are many ups and downs. I tend to have r eally great days or really bad days. Few normal days!
30. No huge name brands, especially in the Florida property market.
18. Differ ent challange everyday!
31. I’m not a young agent at 39 years old but I am highly energetic and find the largest problem in our industry to be the good old boy mentality of dominance, power and control.
19. Large national agencies. 20. The hours.
32. The unethical treatment towards a client that portrays a negative image on the profession.
9. Hearing the same complaints day in and day out about an insured’s policy.
21. Fierce competition and underhanded competitors. Agents with low ethical standards give the good guys and gals a bad name.
10. Cold calls and the negative connotation associated with the job.
22. Having online companies trash us.
34. Not having my own agency.
23. I hate that over half the accounts that I tr y to quote are misclassified and written in a market where I could not place a similiar risk. The prospect is still looking to save money even considering that they are already paying bot-
35. Quality of training.
11. What I like the least is that the industr y has very little avenues to become an owner. It seems that you have to bring a book of business with you in or der to become an owner. Most of the contracts I’ve seen don’t allow for your
N22 | INSURANCE JOURNAL-NATIONAL REGION April 20, 2009
33. Keeping up to date with changing codes and r egulations.
36. Satisfying production goals in a soft market. 37. The uncertainty of our industry’s future. www.insurancejournal.com
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money is decent, insurance is not a luxury so I’m sure employment will always be there in this industry! 94. The challenge of fully evaluating risk and finding solutions. 95. It is a steady year-round job and people will always need insurance. 96. I love that no matter how much expierence you have, you never stop learning because it’s changing everyday. 97. You determine how much you make and how much you work. 98. Being my own boss and being able to place insur ance through a number of different insurance companies. 99. The fact that insurance is ever changing and never boring. 100. The intellectual challenge. Interviewing a client, finding out what they need and matching that to what I have avalible. Also setting my own hours and to some extent getting to choose the clients I can work with. The chance for growth is exciting. 101. The freedom is the best thing about being an independent ag ent.
U N S H A K A B L E
Through markets hard and soft, Markel Insurance Company remains your unshakable source for specialty insurance. We write property & casualty and accident & health coverage for: • Amateur/youth sports
• Gymnastics and cheerleading schools
• B&Bs, inns • Boys & Girls Clubs, Scouts
• Hunting and fishing lodges
• Child care centers, preschools
39. Not every company is as technologically advanced as they probably should be. Still too many companies dealing with paper files and antiquated filing systems. 40. The paperwork.
• Health/swim/racquet clubs • Horse and farm programs
• Camps
38. Volatility and competition, as well as always having to sell more and more and more. Never seems to be enough for management.
SM
• Museums and nature centers
• Child welfare programs
• Outdoor sporting programs
• Dance and martial arts schools
• Schools – private K-12, trade, specialty
• Garage/auto repair
• Social Services/nonprofits
• Groups and clubs
and many more…
41. The politics involved and BIG agencies that bully the little ones around. 42. The thing I like the least is feeling like we do work for our clients or work for the companies and then that g oes unrecognized. For instance, you think a company is working with you as a partner and then you see something about them now selling direct. This makes me question the stability of the agency model and the future as an independent agent - are we the next travel agents? 43. I least like the lower commissions from major carriers while their upper corporate board members willingly appear to be over paid. This gives the g eneral public the impression that the agent on the street is as over paid. 44. Collecting premium in the unusual event that someone is slow to pay. 45. Stress and lack of agressive IT investments by some carriers.
46. Carrier underwriting.
MARKEL IS: Admitted Rated “A Excellent” by A.M. Best
www.markelinsurance.com 800-496-1184
47. The hours of hard work, late nights and early starts. 48. People’s initial reaction when I say I am an insurance agent.
®
49. The technology could be much improved ... especially in today’s economy, we could be doing things more efficiently. 50. Being compared to a car salesman. www.insurancejournal.com
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Spotlight Inland Marine/Transportation/Cargo
Marine Cargo Insurance for Small to Mid- Size Businesses Doesn’t Have to Sink the Ship By Michael Nukk and Alex Berisha
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mporters and exporters that ship only a modest volume of goods do not have to settle for the often pricey or inadequate marine cargo insurance that is available from freight forwarders — the usual source of this kind of coverage for small and midsized businesses. Just like the world’s largest businesses that trade internationally, small and midsized businesses that import and/or export as little as
$500,000 to $50 million of merchandise annually can also procure comprehensive and affordable marine cargo insurance that includes the benefit of services from a specialist marine insurer. It is generally less expensive — typically as much as one-third to one-half the cost — to purchase marine cargo through a broker or agent versus through a freight forwarder. Unfortunately, many smaller importers and exporters are unaware that this type of cargo insurance and service is available to them. They often rely on insurance from freight forwarders and/or overseas suppliers. Some even take the risk of leaving their critical shipments uninsured. One reason is that most brokers who specialize in marine insurance typically represent the larger businesses that meet high minimum premium requirements. These brokers or agents don’t market themselves to smaller accounts because placing this size coverage can be a time-consuming and cumbersome
process that often makes handling this business cost-prohibitive. Another reason is that many insurance brokers and agents who place property and casualty business insurance for small to midsized businesses may be unfamiliar with marine cargo coverage and the exposures involved. Finally, many businesses may not think they need to secure their own insurance because they assume that their foreign suppliers or freight forwarders are providing adequate shipment coverage. But while the coverage available through freight forwarders may not impose a deductible, it will typically limit recoveries to a fractional amount of the total value of the damaged or lost goods, whether on a “per pound” or a “per package” basis. This is insufficient recovery for most merchandise and an especially paltry sum for high-value products such as electronics, pharmaceuticals or machinery. Advantages for Small Businesses The breadth of coverage provided by marine cargo insurance may provide smaller business owners a way to recoup the full value of their goods for partial and/or catastrophic losses, usually with a nominal deductible. Even when they are entitled to marine cargo insurance at no cost under the terms of their purchase and sales contracts with foreign suppliers, this coverage is no gift. In fact, the foreign supplier may pass their own insurance expense to the buyer through their sales contract, which may be profit-laden. Another important advantage for small business owners is the more responsive claims-handling service that a specialist marine insurance company can deliver. Routine claims are typically resolved in two weeks to a month, while complex claims could take a couple more weeks to wrap-up.
N24 | INSURANCE JOURNAL-NATIONAL REGION April 20, 2009
In contrast, companies with coverage through a freight forwarder and/or foreign supplier may experience significant delays on claim settlements — sometimes taking more than a year to finalize and often with less than satisfactory results. This difference in service occurs because the freight forwarders may not have the necessary claims-handling infrastructure to efficiently handle these claims. Most specialist marine insurers have dedicated claims personnel who are experienced in the marine field, understand the client’s business, and can service a large volume of a claims through specialized systems. There are a growing number of insurance companies that facilitate insurance placements for small to midsized businesses with a Web-based underwriting system. These systems are very efficient, making it worthwhile for any broker or agent to place this size and type of coverage. With a Web-based underwriting system, the traditional time-consuming interaction between the broker or agent and the underwriter can be significantly reduced, which allows for a cost-efficient way to service smaller marine cargo businesses. For exporters, certificates of insurance can also be issued online and delivered electronically — further reducing administrative hassles for all parties involved in marine cargo insurance placement. Small to midsized businesses should request that their agent or broker seek marine cargo coverage through a specialist marine insurer that has the systems and personnel to effectively and efficiently insure their shipments at a reasonable cost, which is especially important during the current economic climate. Even if the economy weren’t so challenging, inadequately insuring marine cargo shipments wouldn’t be wise. In today’s economy, it could be financially devastating. IJ Nukk is underwriting manager of marine cargo, and Berisha is senior underwriter of marine cargo, for Liberty International Underwriters. www.insurancejournal.com
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Closer Look Medical Professional Liability
Frequency Down but Severity Still a Problem for Medical Liability Insurers
By Stephanie K. Jones
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ike just about any company anywhere on earth, medical liability insurers lost money on their equity investments in 2008 due to the meltdown in the U.S. and worldwide economies in the latter half of the y ear. However, for the first time in the experience of one long time insurance professional in the field, underwriting profits in 2008 “carried the day for overall profitability” for medical liability insurance companies. “Typically these companies underwrite to an underwriting loss and make profit through their investment gain,” said Ray Pate, executive vice president with reinsurance intermediary BMS. Pate, who has worked in the medical liability insurance industry since 1985, specializes in the company’s North American marketplace. Pate explained that after the extremely hard market years of 2001 – 2003, the “character of losses within the market changed dramatically around 2004, 2005. It changed depending on where you were in the country, but nationwide for whatever reason, the number, or as we refer to it the frequency of claims, reported to companies stabilized and subsequently reduced dramatically.” The market has more or less remained stable, Pate said, so insurers have had the opportunity to build up their balance sheets and strengthen their reserves. As a result, premium costs have trended down nationally over the past few years. www.insurancejournal.com
The decline in claims frequency in recent years has been attributed at least in part to tort reform efforts in many states that capped the so-called “pain and suffering” component of monetary awards in medical malpractice lawsuits. Many believe the caps have led to a more selective approach by plaintiffs’ attorneys when considering taking on cases. Indeed, a study released last fall by reinsurance intermediary John B. Collins Associates Inc., which was acquired in April 2009 by global risk and reinsurance specialist Guy Carpenter & Company LLC, showed that around 57 percent of medical liability insurance executives responding to Collins’ survey believed increased selectivity by the plaintiffs bar and tort reform w ere the main reasons for “the overall decline among the frequency of medical liability claims in recent years.” No Decline in Severity Although the medical liability insurance sector has enjoyed a decrease in claims frequency, the severity of high dollar claims, those that make “the front page headlines,” according to Pate, has not diminished. “The frequency of those very large claims continues, and the overall value of those big claims is very high,” Pate said. Companies cede the large loss claims “to the reinsurance market through reinsurance. That has been an effective strategy for the companies.” If premium costs begin to go up, and they
will eventually, Pate said, it likely will be because reinsurers also have lost money on investments and will be looking to stabilize their balance sheets after paying out to insurance companies for the high dollar claims. The “losses these companies cede to their reinsurers are still there and the v alue of the severe losses are high,” he said. “Those losses have to be paid for so prices have to reflect losses that are being ceded to the reinsurance program. Prices for reinsurance are not going down. They are not cheaper this year than they were last year. They had seen some decrease but I think at best we’d see it going sideways in the short term and an uptick long term.” Still, Pate said, reinsurance is available. “It’s very available for med mal companies, more so than any other line of business, because of the profitability. There’s just a higher level of focus across the board in the reinsurance business in underwriting for profitability. Particularly in this investment climate, where even if you had the all fixed income investment portfolio, you’re talking about a return on investment of 2 to 4 percent. And if you expect a 15 percent return on equity you’ve got to make it up in your underwriting performance.” Emerging Risks? Pate said insurers are attempting to g auge continued on page N26
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Closer Look Medical Professional Liability Frequency Down , continued from page N25
to what extent the aging baby boomer population and the recent economic melee might affect the medical liability line going forward. As the population ages, the health care system will become more heavily utilized. In addition providers have more tools at their disposal to respond to the growing needs of that aging population. Health care practitioners are “challenged to prescribe the right procedure or medicine or whatever the cure or hopeful cure would be,” Pate said. “With all of those options, when an adverse event occurs and you choose options A, B and C, b ut in 20/20 hindsight you should have diagnosed and gone for D, E and F, then the claim is much more difficult to litigate on behalf of the doctor.” At the same time, government reimbursements through Medicaid and Medicare are not increasing, so the physicians may be forced to see more patients but be unable to provide the most up-to-date and extensive care available because of time and monetary limitations.
Tort Reform Debate Rolls On On the other end of that spectrum, ph ysiRecent medical liability reform efforts in cians who are at or nearing retirement age various states have paid off, Pate said. Texas, may feel the need to keep on working due to which Pate dubbed the “poster child” for tort significant losses to their retirement portforeform, has seen the benefits of such legislalios. Pate said underwriters might ask, “Is tion passed in 2003. “If you were to look at their [the physicians’] collective skill set as the number of companies modern as modern medicine is that were writing in Texas today? Do they have to go back The severity and the rate level in Texas and relearn things they may of high dollar before tort reform versus the have chosen not to learn number writing now and the because they were on their claims, those rate level now, you see a draway out? And does that create that make ‘the matic improvement in that a higher risk profile for the underwriting companies?” front page head- marketplace,” Pate said. As an example, one medHe emphasized there is no lines,’ has not ical professional liability data yet to back up such theoinsurer operating in Texas, ries, but they could become diminished. Medical Protective, recently “pressure points to delivering lowered its rates for physicians for the sixth good medicine.” And because insurers are in time since 2003, and every time the company the business of second guessing what might has announced a rate change it has cited the be in order to cover themselves against possieffect of the 2003 legislation. Medical ble future claims they’re looking for “defensiProtective, which has about 9,000 policyble medicine, medicine that can be successholders in Texas, reduced rates by a 6.2 perfully defended in the courtroom.” cent statewide average effective Jan. 1, 2009. Overall, since 2003, the company has lowered malpractice premiums in Texas by an average of more than 37 percent. Despite the Texas experience, however, some consumer advocates insist that even though tort reform laws may lower costs for insurance companies, those cost reductions don’t necessarily get passed on to consumers. The American Medical Association believes otherwise and is pushing Congress to enact medical liability reform on a national level that would include a $250,000 cap on non-economic damages in medical liability cases. And with health care reform a key initiative for the Obama administration the debate over medical liability reform is likely to heat up at the national level. The plaintiff’s bar plans to lobby Congress against placing limits on medical liability lawsuits, according to Politico magazine, and the American Tort Reform Association reports that personal injury lawyers have begun targeting individual states in an effort to a dvance “their own legislative agenda to change tort law in their favor, and [are] doing so in an orchestrated and coordinated fashion through their national organization.” IJ
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National Coverage News & Markets P/C Insurers Profitable in 2008 Despite Big Hits F rom Catastrophes, Financial Crisis
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roperty/casualty insurers year-end 2008. remained profitable in 2008 Insurers also had $555.6 billion despite taking hits from several in loss and loss adjustment catastrophes, the recession and expense reserves to cover the cost the ongoing financial crisis. P/C of settling claims that had already insurers earned $2.4 billion in net occurred and another $200.8 bilincome after lion in unearned taxes in 2008, premium reserves ‘That property/ but profits set aside, bringing casualty insurers the total funds and profitability both tumavailable to cover remained profbled as cataslosses and other itable in 2008 … contingencies to trophe losses, the recession, just over $1.2 trilis a remarkable and the crisis lion. testament to in the finanPolicyholders’ cial system surplus fell $62.3 their risk took a toll on billion, or 12 permanagement underwriting cent, from $517.9 and investand conservative billion at year-end ment results. 2007. approach.’ The P/C Insurers’ net industry’s $2.4 investment gains billion in net income after taxes — the sum of net investment last year was down $60.1 billion, income and realized capital gains or 96.2 percent, from $62.5 billion (or losses) on investments — fell in 2007. And reflecting the decline 50.9 percent to $31.4 billion in in net income, the insurance 2008 from $64 billion in 2007. industry’s overall rate of return on The figures are consolidated average policyholders’ surplus estimates for all private U.S. P/C dropped to 0.5 percent in 2008 insurers based on reports accountfrom 12.4 percent in 2007. ing for at least 96 percent of all Insurers suffered $21.2 billion in business written by such insurers. net losses on underwriting in 2008 “Insurers’ net income in 2008 — a $40.5 billion adverse swing would have been the lowest in from insurers’ $19.3 billion in net more than two decades if not for gains in 2007. The combined ratio the net loss the industry suffered — a key measure of losses and in 2001 when terrorists destroyed other underwriting expenses per the World Trade Center,” said dollar of premium — worsened to Michael R. Murray, ISO’s assistant 105.1 percent last year from 95.5 vice president for financial analypercent in 2007, reports ISO and sis. Insurers’ 0.5 percent rate of the Property Casualty Insurers return for 2008 was their secondAssociation of America (PCI). lowest full-year rate of return since the start of ISO’s annual data Well Capitalized in 1959 and 8.7 percentage points Despite the decline in profits, below insurers’ 9.2 percent average the full-year 2008 financial results rate of return during the past 50 show that private U.S. P/C insuryears, Murray added. ers remain well capitalized, post“That property/casualty insuring $455.6 billion in policyholders’ ers remained profitable in 2008 surplus (or statutory net worth) at and finished the year with more www.insurancejournal.com
than a trillion dollars available to pay claims is a remarkable testament to their risk management and conservative approach,” said David Sampson, PCI president and CEO. Underwriting Results Net written premiums dropped $6 billion, or 1.4 percent, to $434.6 billion in 2008 from $440.6 billion in 2007. Net earned premiums declined $0.8 billion, or 0.2 percent, to $438.1 billion last year from $438.9 billion in 2007. “At negative 1.4 percent for 2008, net written premium growth was the weakest for any year since the start of ISO’s annual financial data for the property/casualty industry. The previous record low for annual premium growth was negative 0.6 percent in 2007, with premium growth ranging as high as 22.2 percent in 1985 and 1986,” said Murray. As premiums declined, overall net loss and loss adjustment expenses (after reinsurance recoveries) jumped $42.2 billion, or 14.2 percent, to $339.2 billion in 2008 from $297 billion in 2007. ISO estimates that the net catastrophe losses included in insurers’ financial results increased to $21.8 billion last year from $6.9 billion in 2007. Excluding estimated net catastrophe losses, loss and loss adjustment expenses increased $27.4 billion, or 9.4 percent, to $317.4 billion in 2008 from $290.1 billion a year earlier. According to ISO’s Property
Claim Services (PCS) unit, catastrophes occurring in 2008 caused $26 billion in direct insured losses to property (before reinsurance recoveries) — nearly four times the $6.7 billion in direct insured losses to property due to the catastrophes occurring in 2007 and almost twice the $14 billion average for catastrophe losses during the past 20 years. Other underwriting expenses dropped 1.6 percent to $118.2 billion in 2008 from $120.1 billion in 2007. The $21.2 billion net loss on underwriting for 2008 amounts to 4.8 percent of the $438.1 billion in net premiums earned during the year, whereas the $19.3 billion net gain on underwriting for 2007 amounted to 4.4 percent of the $438.9 billion in net premiums earned during that year. The 105.1 percent combined ratio for 2008 is the worst full-year underwriting result since the 107.3 percent combined ratio for 2002. And the combined ratio for 2008 is one percentage point worse than the 104 percent average combined ratio since the start of ISO’s annual data in 1959. “Underwriting results were significantly affected by catastrophe losses in 2008,” said PCI’s Sampson. Last year’s hurricane season spurred a $14.8 billion increase in net catastrophe losses to $21.8 billion. This accounts for about a third of the deterioration in underwriting results,” said Sampson. IJ
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National Coverage News & Markets
Recession Affecting Both Supply and Demand for Insur ance Coverage
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ommercial insurance follows influenced insurance pricing, no a boom-and-bust pricing recession since World War II has cycle thought to be largely influenced both supply and uncorrelated with broader ecodemand so profoundly,” said David nomic cycles. Bradford, But according Advisen’s exec‘While past to a new report utive vice recessions have released by president and Advisen Ltd., influenced insurance chief knowlthe current edge officer. pricing, no recession recession is dif“Hard market since World War II ferent. The conditions severity of the eventually has influenced both economic crisis will provide supply and demand will adversely insurers and so profoundly.’ impact both brokers some the top lines relief, but we and bottom lines of commercial see absolute top line income insurers, making for a turbulent declining through 2009.” 2009, researchers for Advisen say. “The Impact of the Economic “While past recessions have Crisis on the P&C Insurance
Industry,” the new Advisen briefing, examines the economic factors influencing insurer profitability and the commercial insurance pricing cycle. Inevitably, capitaldraining developments like recession-driven fraud losses, in conjunction with stagnant capital markets, will lead to a “hard” market, Advisen says. However, the hard phase of this market cycle will be materially different from prior cycles. “The economic crisis will cause exposure units to shrink, businesses to fail, and will force companies to consider budget-cutting measures such as higher retentions and lower limits. This falloff in demand will result in a top line premium decline across the
industry, substantially offsetting gains from higher rates,” Advisen stated. “Four years of falling rates is putting stress on both insurers and brokers,” said John Molka III, Advisen’s senior industry analyst and the author of the briefing. “Under more stable economic conditions, the market would be poised for a rebound. But economic turbulence is adding a new layer of complexity to the pricing cycle.We’ve identified the various forces at work on insurers’ top and bottom lines, and how those forces are likely to influence pricing and capacity in 2009 and 2010.” The 15-page briefing is available for purchase through Advisen. IJ
Rates Rising on U.S. Property C atastrophe Reinsurance
A
new industry briefing shows reinsurance rates continuing to increase for the U.S. property-catastrophe reinsurance market for April 1, 2009, renewals. According to Guy Carpenter & Co.’s “Rates Up on Tightening Capacity at U.S. 4/1 Prop-Cat Renewal” briefing, national programs rose between 10 percent and 14 percent on a risk-adjusted basis, with the Northeast seeing 6 percent to 8 percent increases. Riskadjusted pricing was up 12 percent to 14 percent on average for residual markets, though results varied widely, depending on risk pool characteristics. By comparison, reinsurance rates increased 11 percent on a verage at the Jan. 1, 2009, renewal. “The rise in reinsurance rates at the A pril 1 renewal extends the upward trend that we saw at the beginning of the y ear,” said Lara Mowery, head of Guy Carpenter’s Global Property Specialty Practice. Renewal quoting behavior varied widely among underwriters, ranging from negative 15 percent to 15 percent for certain programs. Capacity needs, regions and specific perils w ere among the factors influencing the final rates that insurers w ere able to secure. The briefing also said that pricing trends w ere substantially impacted by the availability of capacity — especially for perils in historically capacity constrained zones — as well as program-specific loss histories. The Guy Carpeneter briefing also claims that capital is likely to continue to be constrained in 2009, with uncertainty in the financial markets likely to impair investment assets. N28 | INSURANCE JOURNAL-NATIONAL REGION April 20, 2009
“Capital has undoubtedly been constrained, and this is translating into decreasing capacity in a number of areas, which then has an impact on reinsurance pricing,” Mowery said. The ability to secure additional capital will depend on specific companies and lines of business, the briefing said. As a result of concern about continued price increases, a number of Florida renewals are already underway. The outcome of the current Florida legislative session and the decisions by the Florida Hurricane Catastrophe Fund Trustees could have a profound impact on the market. “Taking early action continues to be critical in helping insurers manage their cost of coverage,” Mowery added. “As we move into the Florida renewal season, the many unknowns make this strategy more difficult for these companies.” The briefing, titled “Rates Up on Tightening Capacity at U.S. 4/1 Prop-Cat Renewal,” is available for download at www.GCCapitalIdeas.com. IJ www.insurancejournal.com
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International Coverage News & Markets
Somali Pirates Step up Attacks; Exemption Renewal for Europe’s Insurers By Charles E. Boyle
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irates have stepped up their attacks on shipping in the Gulf of Aden and the Indian Ocean. In three days (April 6-8) the marine marauders, based in Somalia, seized four cargo ships and a French yacht (See IJ Web site “International” section). However, in trying to hijack the 17,000-ton Maersk Alabama, a U.S.-flagged, Danish-owned container ship, on April 8, the pirates bit off more than they could chew. The 20-man American crew retook the ship, but the pirates got away with the captain. The USS Bainbridge, a navy destroyer was dispatched to the area. Both hijackings came to sudden and dramatic ends. U.S. Navy Seals went into action when observers saw Phillips being threatened with a firearm. After receiving the approval of President Obama, Navy sharpshooters opened fire, killing three pirates and freeing Phillips. The fourth pirate, who was on a navy ship at the time, surrendered. Negotiations reached an impasse with the hijackers of the French yacht Tanit, who were threatening to execute their hostages prompting President Nicolas Sarkozy to approve a commando strike. Although it successfully recovered the yacht, killing three pirates in the process, the owner, Florent Lemacon, was killed in the operation. French policy draws a “red line” at hostages being taken to land. A number of governments, including the U.S., the UK, China and Japan, have dispatched warships to the area in an effort to stop the piracy. It has lessened somewhat along the Somali coast, but the pirates have responded by making forays further afield. The German container ship, taken on April 6 was near the Seychelles Islands; the Maersk Alabama was about 300 miles offshore. As reported by Reuters, the pirates typically launch speed boats from mother ships, meaning they can sometimes evade warships patrolling the strategic shipping lanes and strike far out to sea. As a result “ship-owners navigating the Gulf of Aden are seeing insurance premiums for kidnap and random (K&R) increase tenfold as piracy escalates,” reported Aon Risk Services. “This means ship-owners could be paying
$30,000 premium for $3 million of cover for one journey through this piracy hotspot.” There’s a growing demand for “Specialist Piracy Policies” for K&R insurance. Aon explained that these can include “cover for consultant and negotiator costs, ranThe 17,000 tonne Maersk Alabama, a U.S.-flagged, Danish-owned container ship is seen in som demands and this undated handout image, taken when the ship was named differ ently, released to Reuters medical care.” They on April 8, 2009. Somali pirates hijacked the Maersk Alabama on April 8, with 20 American can be bought for crew on board in a major escalation in attacks at sea off the Horn of Africa nation, officials individual transits or said. REUTERS/Maersk Line Ltd/Handout on an annual basis to 2010. FERMA issued a bulletin noting that the bring down the cost. “legal certainty provided by the current BER Ashley Leszczuk from Aon’s crisis managehas fostered cooperation among insurers to ment team indicated that “despite the prescreate competitive insurance markets with ence of naval ships, the spate of piracy attacks sufficient capacity to meet the needs of large over the last six months does not seem to be international insurance programmers. A abating with increased civil unrest and renewed BER in March 2010 will continue to pirates’ easy access to rocket launchers and achieve this fundamental objective by AK47s. As such, we’ve seen enquiries for cover exempting joint calculations, tables and studescalate as ship-owners seek to protect their ies, and co-(re)insurance pools from EU comemployees and businesses.” petition rules.” Numerous solutions have been discussed, The statement also approved the EC’s but each one seems to have its own drawactions on joint calculations and studies, an backs. They include: 1) more naval patrols; 2) issue raised by “large commercial buyers.” In putting armed guards on vessels; 3) a convoy relation to pools, the EC said the rene wal of system, similar to that used in the N orth the BER is necessary not only to clarify the Atlantic in World War II; 4) Taking out the safe harbors, but also to induce compliance by Mother Ships; 5) Bombing the pirates sanctupool members,” a stance FERMA agrees with. aries in Somalia but there’s also the risk of FERMA was disappointed, however, that civilian casualties; 6) avoid the “at-risk” area; 7) the Commission didn’t endorse the view of try to regenerate Somalia so it isn’t a failed and the industry that cooperation in relation to essentially lawless state. standard policy conditions (SPC’s) should continue to be covered by the BER. FERMA’s Renewal seems set for the European bulletin pointed out that it is “very valuable to insurance industry’s Block Exemption large commercial buyers as it reduces transacRegulation (BER). The European tion costs, facilitates the comparison between Commission (EC) recently endorsed continupolicy conditions and provides better coning the regulations, which exempt insurers tract certainty. Accordingly, FERMA believes from the European Union’s rules governing that, to the extent that SPCs will fall o utside competition, much to the relief of the 16-memof the BER, the Commission should at the ber Federation of European Risk Management very least issue guidance so as to pro vide sufAssociations (FERMA - www.ferma.eu). ficient comfort and legal certainty as of March The exemptions were first introduced in 2010.” IJ 2003, and are currently scheduled to expire in
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BE HERE...
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Check out the next webcast Astonish Results presents: How the Power of Email Marketing Can Grow Your Agency Date: April 29, 2009 Time: 10:00AM PT / 1:00PM ET TransUnion presents: Protecting Your Portfolio Against Foreclosure and Vacancy-Related Claims Date: May 5, 2009 Time: 10:00AM PT / 1:00PM ET Register at: www.insurancejournal.com/webcasts Are you interested in having your own webcast or custom video? Give us a call: 800-897-9965 ext. 148
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Idea Exchange Closing Quote
Too Big to Fail How the Feds Can Address Systemic Risk Without Creating More Bureaucracy
DiMuccio
By Robert A. DiMuccio
A
merica’s market-based economic system once created the largest economic engine in the world and gave this country one of the highest standards of living in history. However, that system now faces a credibility crisis of great proportions. The extraordinary and severe contraction we are experiencing has disrupted not just financial markets, but more importantly, it has also disrupted people’s lives. Hundreds of thousands of Americans are losing their jobs every month as a result of the economic domino effect produced by the interconnectedness of a number of important financial services companies. That interconnectivity is known as systemic risk: the likelihood that a company’s failure or imminent failure would require government intervention to prevent or limit the failures of other vital companies. The existing system failed to anticipate the pro blems that created the condition in which we find ourselves today, and people only want to know one thing: how are we, as a nation, going to avoid similar crises in the future? The onus is on the financial services sector to present a compelling vision to address the current crisis to Congress and the American people, who are demanding action to restore economic opportunity and well-being. If we fail to present a viable plan, we can rest assured that Congress will put forth its own plan. If that happens, it is likely that our ability to innovate and our freedom to adapt or fail — which are necessary in a market economy — will be severely limited. How to Address Systemic Risk My company, Amica Mutual Group, is a member of a tra de association that has proposed to Congress a detailed and focused framework for monitoring, limiting and addressing systemic risk. This plan, proposed by the Property Casualty Insurers Association of America (PCI), would help America respond to the current crisis and restore investor confidence in our marketplace. PCI has proposed a definition and analysis of systemic risk focusing on entities that are “too interconnected to fail” rather
N32 | INSURANCE JOURNAL-NATIONAL REGION April 20, 2009
than “too big to fail.” This level of interconnectivity is measured by the counter-party risks and third-party leveraging tied to a company’s activities — in other words, how many additional failures would be caused by a company’s impairment — and the correlation of a company’s risks with other systemic waves and What is needed economic cycles. is a single federal We now know that even relatively small derivatives firms can overseer with create enormous leveraging the institutional throughout the global economy, vulnerable to market downturns, expertise and and becoming too interconnected independence to fail. This stands in contrast to large auto insurers whose risk to monitor exposures are independent from economic cycles and who can fail systemic risk. with negligible systemic impact. What is needed is a single federal o verseer with the institutional expertise and independence to monitor systemic risk. Systemic risk oversight must be flexible, to quickly adjust to market innovations. It also should be tiered, focused on greater transparency and disclosure to the regulator to allo w broader risk monitoring, with increased information sharing for larger risks, and specific risk management standards and oversight for significant systemic risks. Additionally, it requires the ability to coordinate responsive action that allows failure to occur within an organized, predictable and managed framework. PCI has also made specific proposals for greater regulatory coordination and anti-fraud information-sharing globally, in a manner avoiding duplicative or excess reporting burdens. PCI’s suggestion of a systemic risk overseer, which has been rapidly gaining support, fills the regulatory gaps and addresses the vulnerabilities identified by Congress. Importantly, it does so without imposing a massive new regulatory system or opening the door to social engineering that w ould create moral hazards and undermine our nation’s competitiveness. It is clear that the federal government is going to take action in response to the existing economic crisis and the ca uses that precipitated it. We advocate that this action address the specific problem of systemic risk and do so witho ut creating needless additional bureaucracy, and we believe our plan accomplishes these ends. IJ DiMuccio is president and CEO of Amica M utual Group in Providence, R.I. www.insurancejournal.com
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