DAY AT THE BREACH Data Security Coverage Sales
QUAKE COVERAGE Even Carolinas Need to Know
DROWNING IN FLORIDA Coral Insurance Underwater
Beyond Security®
“Safe Landing”
Mike Davis Executive Vice President U.S. Risk Underwriters Skydiver General Star Broker
“Even with 250 successful jumps, there’s always a risk jumping out of airplanes. But with great training and the best equipment, I’m always confident of a safe landing. “I manage my clients’ risk the same way—nothing but the best. With an A++ rating and Berkshire Hathaway backing, there’s no stronger E&S market than General Star. “Whether I’m free falling at 10,000 feet or working on a challenging account, I’m always confident of a safe landing with General Star behind me and my clients.” To find the General Star broker nearest you, visit our website at www.generalstar.com. © 2007 General Star Management Company, Stamford, Connecticut. Certain coverages may be written on a nonadmitted basis. Specialty underwriting through designated surplus lines brokers. Atlanta 404 239 6777 Chicago 312 267 8600 Los Angeles 213 630 1930 New York 212 341 8200 Stamford 203 328 5700
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No matter what type of coverage you’re looking for, we’ll navigate you to the best option.
Covering the horizon with six specialized companies and over 30 wholesale programs, AmWINS Underwriting delivers clients an impressive array of insurance solutions. Among our companies is The American Equity Underwriters,Inc.(AEU),well known for underwriting expertise in the following areas: • Shipbuilding and Repair • Stevedoring • Steamship Agents • Terminal Operators • Marina Construction • Marine Contractors • And many other waterfront activities Backed by AmWINS Group,one of the nation’s largest wholesale firms, AEU and all of our underwriting companies have the resources and the expertise to find a better way. To get on board, visit amwins.com/aeu or call 866.238.8754.
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Inside This Issue April 20, 2009 • Vol. 87, No. 8 • Southeast Region
SOUTHEAST COVERAGE 8
N18 Special Report: Young Agents
| Florida Takes Over Coral Insurance Insurer Drowning in Hurricane Claims 8 | Georgia Trucking Insurance Agent Charged Allegedly Added Undisclosed Commissions to Policies 8 | Lawmakers Seek to Ban Chinese Drywall Sen. Nelson Urges Action on Potentially Hazardous Material 14 | Data Security: A Risk and a Sales Opportunity for Agents Enormous Market Includes All Businesses That Process Credit Cards 17 | Market Timing: A Faulty Strategy in Buying Earthquake Coverage Too Many Buy When Earthquake Activity Arises, Then Cancel
IDEA EXCHANGE
What Do They Like, Dislike About Their Career Choice?
NATIONAL COVERAGE N16 | 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 Medical-Malpractice 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% 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
14 Data Insecurity Insurance Opportunity In Data Breaches
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 N4 | International Insider On the Road to Latin American Opportunity 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 N14 | Get in Touch with Gen Y Why the Modern Workplace Is Important for Young Professionals N32 | Closing Quote: Robert DiMuccio Too Big To Fail: How the Feds Can Address Systemic Risk
17 Market Timing Why It Doesn’t Work for Buying Earthquake Coverage
DEPARTMENTS 16 | N32 | N10 | 6 |
4 | INSURANCE JOURNAL-SOUTHEAST REGION April 20, 2009
Business Moves Closing Quote MyNewMarkets Opening Note
N30 High Seas Hijackings Can Somalian Pirates Be Stopped?
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Idea Exchange Opening Note Publisher Mark Wells Chief Executive Officer Mitch Dunford
Play Ball
EDITORIAL
B
aseball season has arrived and with it the optimism that this is the year our favorite team will go all the way. The Amazing Rays will surpass their impressive performance of last season. The Big Bad Braves will return to their winning ways. Hanly Ramirez and the Marlins will surprise everyone. This is the year. For some insurance agents, this is the year, too, despite the faltering economy and lingering soft market. These agents have managed wisely, played by the rules, practiced the fundamentals, invested in their farm system, and are ready to play their best ball. For these agents, there are scoring opportunities all around. This is the year they add home run power by signing key sluggers who have been let go by other teams. This is the year they shore up their bullpen and bench by buying other teams run by veterans whose All Star days are behind them. This is the year they manufacture RBIs by targeting the fastest growing industries, as reported by MyNewMarkets.com’s Chris Boggs: Management, Scientific and Technical Consulting Services; Individual and Family Services; Home Health Care Services; Securities, Commodity Contracts and other Financial Investments (they will come back after the recession); Residential Care and Independent Artists, Writers and This is the year to Facilities; Performers. This is the year they bunt their way onto first base take advantage of with green construction and alternative energy risks, other teams’ two of the most exciting growth sectors. This is the year they play solid defense by making injuries and poor every client aware of the costs of breaches of data securimanagement. ty, then move the runners along by selling them protection. As Thomas Katona, president, Apogee Insurance Group, says in the article on page 14: “It isn’t a matter if an exposure might occur, it will occur.” This is the year they improve their on-base percentage by identifying growth companies that are entering global markets, an increasing number of which have fewer than 100 employees. This is the year they hit and run, taking advantage of other teams’ injuries and poor management, whether it be State Farm’s forfeiting the game in Florida or AIG’s striking out around the world. This is the year they ignore the economy, the naysayers, the commentators. There’s no waiting ‘til next year for this team. We should know by October how well the Rays, Braves, Marlins and these ardent agents have done.
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, Robert DiMuccio, Edward Gray, Joe Tracy, Reid Wilson
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
Andrew Simpson Southeast/Midwest Editor asimpson@insurancejournal.com
Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Publishing, Inc., 3570 Camino del Rio North, Suite 200, San Diego, CA 92108-1747. Periodicals Postage Paid at San Diego, CA and at additional mailing offices. SUBSCRIPTION RATES: $7.95 per copy, $12.95 per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this publication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended to be legal, accounting, tax, technical or other professional advice. Readers are advised to consult competent professionals for application to their particular situation. Copyright 2009 Wells Publishing, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. Insurance Journal is a publication of Wells Publishing, Inc. POSTMASTER: Send change of address form to Insurance Journal, Circulation Department, PO Box 9049, Maple Shade, NJ 08052
6 | INSURANCE JOURNAL-SOUTHEAST REGION April 20, 2009
FOR QUESTIONS REGARDING SUBSCRIPTIONS: please call 856-380-4176 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.
Southeast Coverage News & Markets
Florida Takes Over Coral Insurance; Security First, MacNeill Step In
C
oral Insurance Co., a residential property insurer in Florida, has been ordered into receivership for the purpose of rehabilitation. The Department of Financial Services was named as the receiver by Leon County Circuit Court Judge P. Kevin Davey as of April 9. Coral, which has approximately 11,750 homeowner policyholders, reached an agreement with Security First Insurance Co. and the MacNeill Group, Inc. to provide replacement coverage. Homeowners with homes valued
at under $1 million will have the option to get coverage with insurer Security First, while homeowners with homes valued at $1 million or more will have the option of coverage with the MacNeill Group, Inc., a managing general agency. On April 7, Coral sent a notice to all appointed agents notifying them of the agreements made with Security First and the MacNeill Group with the goal of moving all of the in-force policies from Coral prior to the start of the 2009 hurricane season (June 1, 2009). Agents who do not currently
Georgia Trucking Insurance Agent Charged
A
Chattanooga, Tenn. insurance agent has been charged with insurance fraud and theft for allegedly adding commissions to policies when he told policyholders that the coverage was being sold on a net basis — with a set fee, but without a commission, according to Georgia Insurance Commissioner John W. Oxendine. Warrants were issued for Edward Prater, 61. Oxendine said Prater was not a licensed insurance
agent in Georgia, but through his truck insurance agency sold the policies with improper commissions in the state. Oxendine said Prater received $2.6 million in commissions by altering documents to deceive clients about their premium payments. Prater earned the commissions primarily on group auto and workers compensation policies, according to officials. The alleged fraud has been going on since 2003, Oxendine said. In 1996 Prater co-founded the U.S. Insurance Group agency in Chattanooga. The agency says it is licensed in 40 states and also has offices in Nashville and Lakeland, Florida. IJ
Hurricane Prediction Lowered
W
hile lawmakers in coastal states debated property insurance rates and reforms, forecasters lowered their 2009 Atlantic forecast to 12 tropical storms, of which six could become hurricanes. The Colorado State University team said the season could see two “major” hurricanes of Category 3 or higher on the five-step Saffir-
Simpson intensity scale. In its December forecast, the CSU team predicted 14 storms, seven hurricanes and three major hurricanes in the 2009 season, which begins on June 1 and lasts six months. Forecasts can be wrong. CSU predicted 15 tropical storms for the 2005 season, but a record 28 formed. IJ
8 | INSURANCE JOURNAL-SOUTHEAST REGION April 20, 2009
have an agency appointment with Security First can obtain one by contacting the insurer, according to officials. Coral Insurance Co. consented to being placed in receivership for rehabilitation. The company stopped writing new coverage in early March and stopped writing renewal coverage after March 29, 2009. On March 27, the state suspended the company’s license to write business for six months after determining that the insurer had about $2 million less than the $4 million
in surplus it should have. State auditors largely blame claims from Hurricane Wilma in late 2008 and early 2009, some of them re-opened by public adjusters, for the company’s financial weakness, according to Edward Domansky, FLOIR spokesman. The insurer had exhausted its reinsurance and been forced to pay more claims directly. In late December, the carrier had received a $5 million cash infusion from investors to help deal with the burgeoning Wilma claims problem. IJ
Lawmakers Seek to Ban Chinese Drywall
U
.S. Sens. Bill Nelson, D.-Fla., and Mary Landrieu, D.-La., have filed federal legislation for a recall and immediate ban on tainted building products from China, as people around the country are reporting problems in their homes built with imported drywall. 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 drywall. Congressman Robert Wexler, D.-Fla., has filed similar legislation in the House. In addition, Wexler has urged Florida Governor Charlie Crist to declare a state of emergency in Florida over the product, which would allow homeowners to apply for federal loans. Nelson and Landrieu’s legislation also asks the CPSC to work with federal testing labs and the Environmental Protection Agency to determine the level of hazard posed by certain chemi-
cals and as yet unidentified organic compounds in the drywall. In addition, the legislation calls on the commission to issue an interim ban on imports until it can create federal drywall safety standards. The drywall is linked to seeping sulfide gases that can corrode electrical wiring and components of air-conditioning and other household appliances. The lawmakers said they’re hoping to jump-start a process for helping affected homeowners with the costs of repairs or replacement, which under their bill would be the responsibility of the manufacturers. The problem is potentially big. Officials believe between 60,000 and 100,000 homes nationwide may contain tainted drywall. In Florida, an estimated 36,000 homes are believed to be affected. Problems also have been reported in New Orleans, Virginia, Alabama, Mississippi and California. A number of homeowners have filed lawsuits and some developers are suing the manufacturers of the drywall. IJ www.insurancejournal.com
Who insures you doesn’t matter.
Until it does.
Financial Strength and Exceptional Claim Service Property | Liability | Executive Protection | Workers Compensation | Marine | Surety Homeowners | Auto | Yacht | Jewelry | Antiques | Accident & Health Chubb Group of Insurance Companies ("Chubb") is the marketing name used to refer to the insurance subsidiaries of The Chubb Corporation. For a list of these subsidiaries, please visit our website at www.chubb.com. Actual coverage is subject to the language of the policies as issued. Chubb, Box 1615, Warren, NJ 07061-1615
Southeast Coverage Snapshot
It Figures 27 The number of fires within a mile of each other in an Orangeburg County, South Carolina neighborhood that firefighters have battled in the past six months. All of the fires have been in vacant homes without power and almost all appear to have been intentionally set. No injuries have been reported.
$33 Million The amount that Marsh & McLennan Cos. paid out in compensation to its two chief executives that oversaw the company in 2008, according to an Associated Press calculation. Michael G. Cherkasky, who served as CEO until Jan. 29, took home more than $8.2 million in compensation in 2008. His successor, Brian Duperreault, took home more than $24.8 million in compensation for the 11 months he served CEO. Cherkasky was ousted as CEO after presiding over weak earnings results for two years.
$11.6 Million The total compensation that insurance broker Aon Corp. gave its president and chief executive in 2008, a 13 percent increase from the year before, according to The Associated Press.
$1 Million The amount that consumers in Mississippi have received in recovered claims payments and premium refunds in the first three months of 2009 as reported by the Consumer Services Division of the Mississippi Insurance Department (MID). This is a nearly 400 percent increase of the amount collected in the first quarter of 2008. The largest increase in collections during the first quarter of 2009 was in the property/ casualty area, officials said. This area saw more than a 1,000 percent increase in collections, taking in over $737,000 for consumers despite a 16 percent decrease in the number of claims handled during this same time in 2008.
35.7 Million Estimated July 1, 2008, population most threatened by Atlantic hurricanes. These people live in the coastal portion of the states stretching from North Carolina to Texas and represent approximately 12 percent of the nation’s population.
10 | INSURANCE JOURNAL-SOUTHEAST REGION April 20, 2009
Declarations Crist Free Market “Isn’t it the free market approach? I’m a free market guy, but I think we need to keep our eye on insurance companies, property insurance companies specifically. They have a history of not being the kindest, warmest people, or industry, in Florida.” — Florida Gov. Charlie Crist on whether the state should permit state-backed Citizens Property Insurance to raise rates 10 percent.
Ready in Kentucky “I’m trying to exercise things we’ve not done before. Learn all the lessons ahead of time so that if we ever have to do it, it works well.’’ — Brig. Gen. John Heltzel, the head of Kentucky’s Division of Emergency Management, who wants his teams to be prepared for the possibility of a disease outbreak or manmade emergencies so he is planning practice sessions involving a chemical spill, pandemic and terrorist attack.
Pirate Treasure “Piracy has been an issue for some time and it has already lead to higher insurance premiums. Premiums are going to go up because the pirates are going to become a little more vicious and hold out for more money.” — Paul Keane, a partner at Cichanowicz, Callan, Keane, Vengrow & Textor LLP, who specializes in maritime cases, after U.S. Navy sharpshooters rescued the captain of an American cargo ship who was being held hostage by pirates off the coast of Somalia.
Ransom Split “There has been a lot of discussion in the market recently over the fact that there is no provision for splitting up the ransom between property and life. There are definitely going to be lawsuits coming out of this.” — Attorney Michael Marks Cohen of the firm Nicoletti Hornig & Sweeney, predicting disputes among insurers over payments of ransom to pirates.
Drywall Dilemma “I believe you’re going to see this is widespread. Anytime you have mounting evidence of potentially toxic goods, you have an obligation to act quickly to protect consumers.” — U.S. Sen. Bill Nelson, D.-Fla., a member of the Senate Commerce Committee, who has requested a federal investigation into drywall imported from China that could be hazardous.
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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.
Here are just a few of the many benefits of being appointed with EMPLOYERS t
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.
t
Stability & Dependability—EMPLOYERS has never left a market it has entered.
t
Effective Loss Control Programs—EMPLOYERS offers free loss control and OSHA seminars to help agents achieve their continuing education goals.
t
Expanded Operating Area—Through this acquisition, EMPLOYERS now serves the workers’ compensation needs of your clients in 30 states.
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.
Southeast Coverage People
Janice Tomlinson
Jeff Price
Mike Kerner
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 at the insurer. 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 award recognizes an “exceptional woman who has achieved prominence in her profession and has made significant contributions to the insurance industry.” The Main Street America Group has named Jeff Price as assistant secretary, director, claims field. Price is based out of the property/casualty insurance carrier’s Richmond, Va., regional office and manages six Main Street America casualty units that are located in Richmond, Jacksonville, Fla., and Syracuse, N.Y. In his role as a field director, Price is responsible for corporate claims administration, regional quality standards, customer service processes and execution of our defined culture. He is also responsible for regulatory and corporate audit coordination, claims budget process, process improvement initiatives, change management within the claims organization and coordination of other non-technical activities that support claims. Price joined Jacksonville, Fla.-headquartered Main Street America in 2001 as a regional casualty claims manager and was promoted to his current position in 2006. Prior to joining Main Street America, Price was a claims manager at One Beacon Insurance in Syracuse, N.Y. His industry experience also includes a claim representative role at Allstate Insurance Co. in Melville, N.Y. Mike Kerner has been named chief executive officer of Zurich’s Global Corporate in North America business unit. In his new position, which is effective June 1, he will oversee all Global Corporate business in North America. The 43-yearold 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 group’s strategy. Kerner has served in a number of senior roles with the Zurich Financial Services Group and with Zurich North America Commercial since 1992. He has experience in underwriting, actuarial, operations, finance and reinsurance. Kerner replaces Mario Vitale, CEO of Global Corporate, who had been serving on an interim basis since January. Nautilus Insurance Group named Thomas Miali as assistant vice president-property underwriting. Miali joins Nautilus from a reinsurance company where he served as vice
12 | INSURANCE JOURNAL-SOUTHEAST REGION April 20, 2009
president. His background includes managerial positions specializing in property underwriting for both primary and reinsurance companies. He has more than 30 years industry experience including excess and surplus lines, individual risk underwriting, programs, training and development and marketing. Nautilus Insurance Group, comprised of Nautilus Insurance Co. and Great Divide Insurance Co., members of W. R. Berkley Corp., writes excess and surplus and specialty lines. Insurance Services Office (ISO) executive Arthur R. Cadorine has received the American Society of Workers’ Comp Professionals’ (AMCOMP) Legends Award for his contributions to the workers’ compensation industry. Cadorine has served with ISO and its predecessor organizations for more than 44 years. Currently, he leads ISO’s Information Acquisition, Development, and Service Department, with responsibility for ISO’s workers’ compensation information products, reinsurance services, contractual and license products and development, and statistical plans. Cadorine is a member of the Casualty Actuarial Society (CAS), where as chair of the data management and information committee, he made major contributions to the actuarial profession in the field of data management. In 2004, the CAS recognized his service with the Matthew Rodermund Service Award. He is a past member of the board of directors of the Insurance Accounting and Systems Association (IASA), which awarded him its president’s award in 2008. He is also a past president of the Insurance Data Management Association (IDMA), which in 2007, awarded him the Gary Knoble Service Award for lifetime significant contributions to the data management profession. USG Insurance Services Inc., a national wholesale broker of commercial insurance headquartered in Tampa, Fla., has promoted Christine Kops to branch manager of the Tampa office. Kop previously served as USG Florida production manager, brokerage manager and senior underwriter. Prior to her career at USG, she worked for seven years at Morstan General Agency as the Marketing office manager, preceded by six years as vice president of Risk Management for Tongue Brooks Insurance. Kops also held the titles of marketing manager for Suncoast Insurance and brokerage marketer for Roger Bouchard. Greensboro, North Carolina-based workers’ compensation insurer Key Risk Insurance Co. has named Susan Preston regional director for the Mid-Atlantic Region. As regional director, Preston will oversee Key Risk’s Mid-Atlantic Region, including Virginia and states to the north. Preston will be responsible for overall profitability, planning, retention and growth of the territory. Preston brings more than 20 years of experience in the insurance industry to her new position, having served in various marketing and underwriting roles. IJ www.insurancejournal.com
Southeast Coverage News & Markets
Data Security Presents a Risk— and Sales Opportunity —for Agents It’s An Enormous Market That Includes Main Street Businesses Doing Credit Card Transactions By Patricia-Anne Tom
D
ata security represents a new risk for independent insurance agencies that may not be compliant with data security laws or have plans in place to protect their companies from data breaches. It also represents a new market opportunity to sell insurance coverage. Failing to protect data can have a huge financial impact on a company. According to the “U.S. Cost of Data Breach Study” conducted by data protection company PGP Corp. and The Ponemon Institute, data breach incidents cost U.S. companies $202 per compromised customer record in 2008. Lost business is the most
costly effect, averaging $4.59 million or $139 per record compromised. “After four years of conducting this study, one thing remains constant: U.S. businesses continue to pay dearly for having a data breach,” said Dr. Larry Ponemon, chairman of The Ponemon Institute. “As costs only continue to rise, companies must remain on guard or face losing valuable customers in this unpredictable economy.” There are many types of breaches. Kroll Inc. found that 4.8 percent occur in disposal of documents on computers; 1.8 percent occur with email; 20.8 percent occur because of hacking; 22.4 percent occur because of lost, missing or stolen laptops; and 15.3 percent occur via the Web. Oftentimes, the data security breaches are a
Data Security Not the Same As Cyber Risk Coverage
E
ven if business owners are concerned about the risks, they may not be aware of the insurance coverages available to help protect their livelihoods. “The vast majority of people are not aware that insurance can be bought on the back end. It’s surprising how many don’t know the coverage exists, and that the CGL (commercial general liability) and GL (general liability) policies don’t cover electronic data,” said Apogee Insurance’s Thomas Katona. Bodily injury and tangible property damage don’t exist with identity theft, he explained. When seeking coverage for data breaches, security and privacy insurance can help with liability defense costs and damages; notification costs; credit monitoring expenses; and first-party losses. Primary limits available go up to $25 million, and excess limits go to $150 million or more. Sublimits often apply on notification credit monitoring, Katona said. Agents should advise clients to be careful about what coverages they buy, Adam Sills, underwriter for Darwin Professional Underwriters Inc., advised. There is no standard ISO application and insurers differ as to what risks they will insure.
“Policies have changed in the past four to five years. A lot of people are now buying coverage because of privacy and for notification costs, which is new,” Sills added. The number of carriers offering coverage also has increased from a handful five years ago to about 25 to 30 carriers today. “People tend to confuse cyber insurance with data security and data breach insurance,” Katona added. He explained that cyber insurance is typically what happens with viruses or malicious code, and there is damage that occurs with systems being down. Data security coverages are available for almost every component of the business, and are designed to help with notification, crisis management, etc. Because the technological environment changes rapidly, agents should go over forms carefully with customers because the forms are providing coverage for a moving target, Katona said. “In a form that says, ‘cyberspace activity,’ what does that really mean?” he asked. “The vast majority of old coverages are insufficient or incorrect today, because of new technology.” IJ
14 | INSURANCE JOURNAL-SOUTHEAST REGION April 20, 2009
result of not having the appropriate procedures in place to prevent employee mischief. “Typically, we find that technology people doing the work don’t have security background checks but they’re given access to the systems. So we find that a lot of security breaches are done by insiders,” said Thomas Katona, president, managing member of Apogee Insurance Group. A Prevention Plan Indeed, one hurdle is that companies often don’t understand the exposure, according to Leslie Lamb, global risk and insurance manager for Cisco Systems Inc. “Cyber liability is fairly new, and we’re all fairly vulnerable,” Lamb said. Companies may not have the right protocol in place to prevent data security breaches, and they might not have clear guidelines to handle a breach if one occurs. But it’s important for business owners to get up to speed. “If a breach occurs, the ability to respond must be timely,” said Shena Crowe, Infragard Coordinator for the Federal Bureau of Investigation. “Companies only have about 30 days or less.” “After a breach, a lot of companies don’t know what to do,” said Adam Sills, underwriter for Darwin Professional Underwriters Inc. For instance, companies do not have to send notices to customers for every sort of breach — but if they do, that will incur costs. Although it may not be required by law, many consumers expect the company to offer them credit monitoring, which can be a huge additional cost. Notification costs $1 to $2 per individual; credit monitoring costs $10 to $20 per person per year, said Nicholas Economidis, an underwriter for Beazley USA. Regulations in 44 states, the District of Columbia, Puerto Rico and the Virgin Islands require that individuals be notified if their data has been lost, stolen, or compromised. “Having a response plan in place can save a lot of money,” Sills said. Despite the gravity of the issue, business owners have a false sense of security, showed a www.insurancejournal.com
recent national survey by Zogby International on behalf of Identity Theft 911. In the study, most business owners indicated data breaches were not the highest priority. Agent Opportunities While it is challenging to keep up with technology, that constant change is also what makes this is a good time for independent insurance agents to be selling coverages to help protect their clients. “It isn’t a matter of if an exposure might occur, it will occur,” Katona said. “Ninety-eight percent of the time, companies have voices in their secure data information that will expose them, with things like HIPAA (Health Insurance Portability and Accountability Act) information, credit card information and people’s home addresses. … I would guess that 5 percent of the world has coverage for secured data. That’s only a guesstimate, but it’s an enormous market, even for main street businesses that are doing credit card transactions. “I think agents, in a soft market, should be paying attention to the emerging coverages. This is one of those coverages, and one that most of their clients probably do not have,” Katona added. “I think when they talk to their insureds, they will find that they are concerned about it.” Of course, agents and brokers must educate themselves if they ar to help their clients. Katona offers sugegsted questions for agents to ask their clients: • Does the client transacts business over the Internet? • Does the client move information to another party over the Web Resource: Internet? More information on state data • What are the underbreach laws is available from the pinnings of the National Conference of State client’s technology? Legislatures at www.ncsl.org/pro- • Does the client have grams/lis/cip/priv/breach.htm. a fire wall? • What processes and procedures are in place for things like encryption? • What processes and procedures are in place for people accessing company computers? “Spend time to manuscript coverage to match the client’s exposure,” Cisco Systems’ Lamb said. www.insurancejournal.com
Above all, agents should take steps to ensure they’re covered themselves. The Gramm-LeachBliley Act requires companies to have security measures in place but Katona says “98 percent” of the agencies he deals with are not compliant. “As ... insurance agents and brokers, we have a responsibility to protect that data.” IJ
Crowe, Economidis, Lamb, Katona and Sills spoke on a panel, “Walking the Data Security Tightrope: What’s Below?” at the 2008 PLUS International Conference in November 2008. This article is based on their presentations, as well as independent interviews with Insurance Journal.
April 20, 2009 INSURANCE JOURNAL-SOUTHEAST REGION | 15
Southeast Coverage Business Moves Munich Re German reinsurer Munich Re has successfully concluded the acquisition of specialty insurer HSB Group from American International Group for $739 million. The deal was originally announced last December. The purchase price in cash was financed by Munich Re from internal resources. All the requisite approvals have now been obtained from the relevant authorities. The core of the HSB Group, Hartford Steam Boiler Inspection and Insurance Co., is one of the largest insurance and inspection companies specializing in engineering risks in the U.S. HSB is a provider of equipment breakdown and engineered lines of insurance, other specialty coverages, and inspection, certification and engineering consulting services. HSB Group’s equity capital as of Dec. 31, 2008 amounted to around $586 million and its gross written premium income for 2008 totaled $930 million. A.M. Best Co. indicated that HSB and its members ratings “remain under review with positive implications.” Lockton Lockton International has been granted a license by the Dubai Financial Services Authority to operate as an insurance broker in the Dubai International Financial Centre. The Dubai office represents Lockton’s first footsteps into the Middle East and North African region, with further expansion planned. Dubai will be the regional hub and will operate as a treaty and facultative reinsurance operation, serving the needs of regional insurance companies. The office will be equipped to handle all classes of business backed by the firm’s wholesale operations in London and elsewhere. Lockton Dubai will be managed by Wael Khatib, who has been appointed president. Allied World Allied World Assurance Co. Holdings has opened a branch office in Hong Kong in order to expand its operations into Asia. Bill Cotter, senior vice president, Asia, will oversee all Asian insurance operations from the new office. Initial offerings include primary and excess professional lines and general casualty products as well as accident and health products. 16 | INSURANCE JOURNAL-SOUTHEAST REGION April 20, 2009
Cotter has years of international experience in the Asian market. For the last two years he has been the CEO of CIGNA Worldwide Life Insurance Co. and CIGNA Worldwide General Insurance Co., a Hong Kong subsidiary of CIGNA International. He also worked for AIG and its affiliates for over 15 years. AIG Taiwan The Bank of East Asia has signed a deal to buy the Taiwan securities arm of American International Group as the ailing U.S. insurance giant sells assets to raise cash. The deal is subject to regulatory approval in Taiwan, Chan Kay-cheung, vice chairman of Bank of East Asia (China), told Reuters. Motorists Mutual Motorists Mutual Insurance Co. of Columbus, Ohio, has been approved for membership at Federal Home Loan Bank of Cincinnati. Motorists is among more than 180 insurance companies in the 12-district FHLBank system. Membership allows Motorists to take advantage of FHLBank’s product line, including advances that can be used for liquidity management and general asset/liability management. Motorists Mutual Insurance Co. is the lead company in The Motorists Insurance Group, which is composed of nine property and casualty, life and brokerage companies. Motorists’ products are sold by a network of more than 4,000 independent agents in Ohio, Pennsylvania, West Virginia, Kentucky, Indiana and Michigan. The FHLBank is a $98 billion wholesale regional bank providing financial services for residential housing and economic development to 728 member financial institutions in Kentucky, Ohio and Tennessee. Guy Carpenter, Collins Guy Carpenter & Co. LLC completed the previously announced acquisition of John B. Collins Associates Inc. The acquisition of Collins, the fifth largest reinsurance intermediary in the U.S. and seventh largest in the world, strengthens Guy Carpenter’s capabilities in medical professional liability, agriculture, Florida property, program, and regional specialty lines of business. Terms of the transaction have not been disclosed. IJ www.insurancejournal.com
Southeast Coverage News & Markets
Market Timing: A Faulty Strategy on Earthquake Coverage Many Clients Buy Coverage When Earthquake Activity Arises, Then Cancel When It Subsides By Reid Wilson
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sk anyone who has been affected by the recent volatility of the stock market, and they will tell you that it’s almost impossible to time the stock market’s ups and downs — and even more difficult in today’s financial environment. Those who attempt to “beat” the market, over the long run, will lose. The same can be said for earthquake insurance. Most people think that earthquakes are mostly a California problem, but earthquake activity can occur, and has occurred, in Nevada, Utah and as far east as Illinois. Even in South Carolina, there is a fault line that produces tremors. With each earthquake, managing general agents see an increase in the number of retail agents requesting earthquake coverage for insureds. Many may be purchasing earthquake insurance because they realized they needed coverage and will continue to purchase it for the long term. However, history has shown that many purchasers are, in effect, trying to time the earthquake market. It is when earthquake activity occurs in their region that insureds decide it’s time to buy earthquake insurance. Once the activity subsides, they cancel or let their earthquake policies lapse. There are three very good reasons why this is a bad approach, and agents should advise their clients accordingly: 1. Timing May Be Wrong If insureds think they can wait for a few tremors in their area and then have time to obtain a new earthquake policy, they could be very wrong. Quite often, there are no signs of earthquake activity prior to a moderate to major severity earthquake (categorized as a 5.0 or higher on the Richter Scale). An earthquake loss can happen without any prior activity or notice. 2. It May Be Too Late to Get Coverage After an earthquake or small tremor occurs, most insurance companies implement a moratowww.insurancejournal.com
rium on new policies in that region for a period of days, where no new policies can be written. This is to protect insurers against aftershocks or to decrease the chances of insuring a building that was damaged by the initial earthquake (prior to the insured purchasing the coverage). So, in many cases, agents will not be able to find coverage for their clients. 3. The Coverage May Cost More The law of supply and demand often kicks in for a region that shows signs of earthquake activity. With the occurrence of earthquake activity, more consumers rush to their agents to buy coverage. As earthquake capacity is often limited, the supply stays constant but the demand goes up — driving prices up. Insureds could end up paying significantly more than if they had purchased an annual earthquake policy prior to any actual earthquake activity. In addition, as insurers often do, they may reward long-term customers with renewal credits for staying with the same insurance company for a period of years. Important Factors for Insureds In helping clients with earthquake insurance, there are important factors that agents should understand before placing coverage.
Location — Many services, including the Insurance Services Office (ISO), rate the earthquake exposure of particular geographic areas by assigning them a hazard zone. It is important whether a location is in a high or low hazard zone. This will affect coverage availability and pricing. Earthquake zone maps are available from ISO and other companies. Building Construction — Construction can affect damageability, and therefore rates, in a manner that is different than the typical fire
exposure. For instance, a frame building can withstand an earthquake better than a masonry building. There also is a difWilson ference in a true masonry building versus a brick veneer building in withstanding damage from an earthquake (brick veneer buildings do not hold up as well). Year Constructed — Building codes in areas susceptible to earthquakes make a building better able to withstand an earthquake. It’s important to understand what codes were in place when the building was constructed and whether any earthquake code modifications have been made to the building. Special Deductibles — Special earthquake deductibles often apply, usually expressed as a percentage of the total insured values being covered for earthquake. Deductible values can range between 1 percent and 10 percent of total insured values. The money spent on earthquake insurance premiums is often a very small percentage of a consumer’s overall spend on insurance, making the coverage well worth the cost. In addition, many consumers do not realize that earthquake is not covered in most standard commercial property and homeowners policies. It must be added as a separate coverage or policy. Wall Street pundits often claim that to “buy and hold over the long term” is the best strategy for asset protection. Those who know insurance agree that such a strategy pays off for earthquake coverage as well. Agents should work with their customers to determine their earthquake coverage needs and options, and strengthen their own personal or business asset protection plan. IJ Wilson is a Burns & Wilcox vice president and manager of the company’s Salt Lake City, Las Vegas and Reno offices. E-mail: rowilson@burns-wilcox.com.
April 20, 2009 INSURANCE JOURNAL-SOUTHEAST REGION | 17
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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
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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 equally true. So is timing a matter of luck or skill? The answer is a little of both. Here are eight random examples of how to use the calendar and the clock to your advantage. Ask insureds to commit to renew with you 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 dissatisfaction [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 weaken 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 when it goes off, thank your prospect and prepare to go. If the individual wants to talk more, pleasantly let him know when
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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 year, 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 buyer’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 resources. 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
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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 coverage 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
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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, structure issues, crime and government cordamaged or stolen along the way. ruption, putting those goods at risk of physiHijackings are a significant and growing cal damage, theft or other loss. problem in Mexico and Brazil. In Mexico, one Companies exporting to these markets of the biggest markets for U.S. goods, about 40 need to carefully research the risks and percent of losses are the result of hijackings, implement loss control measures to help and 30 percent are the result of damage from reduce the potential for losses. With knowlroadway accidents. In Brazil, the loss breakedge of the risks and of the terms of the sales down is similar. About 35 percent of the losses contracts, agents and brokers also can play an are from hijackings while 30 percent are the important role in helping their clients obtain result of accidents on the road. the appropriate insurance and control their In Mexico, even though the number of losses. hijackings has not increased much, the amount of money lost because of them has jumped 50 Latin America: Balancing Opportunity percent over the last several years, according to and Risk Exposures the Mexican Association of Insurance Latin America is an increasingly important Institutions (AMIS). Sixty-five percent of hijackmarket for many U.S. companies. In just the ing events take place on the roads around last five years, exports to the region have Mexico City and Estado de Mexico, according N4 | INSURANCE JOURNAL-NATIONAL REGION April 20, 2009
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
Controlling Risk to Capitalize on To reduce the risk of damage to their Market Opportunity goods, exporters should: Although the region has its unique risks, • Make sure their products are well packcompanies can take steps to minimize the aged. Products may need extra protection, potential for a loss. additional cushioning and even modificaIt is important, first of all, for exporters tions to packaging to protect them from and their agents and brokers to have a clear water damage for their journey into Latin understanding of the terms of their sales America. contract. Incoterms are standardized defini• Ensure their transportation company is tions used by the global shipping industry to following appropriate safety procedures. Be provide a common framesure trucks are well mainwork for issues such as tained and drivers are not Companies control of goods and driving too many hours, exporting to Latin which can also raise the financial responsibilities. These terms will spell out American markets risk of an accident. exactly who has responsiCompanies can gain addineed to carefully bility for the goods and at tional, expert insight into what point that responsiresearch the risks local risks by working with bility changes hands from local loss control experts. and implement the seller to the buyer. These local resources can In Latin America, the also provide assistance in loss control buyer often assumes monitoring loss trends to measures to help responsibility for the gain a better understanding transportation of the reduce the poten- about the most common goods. But in other cases, and most costly losses. tial for losses. it is the seller who is Insurance is another responsible for the transimportant tool to help portation of the goods. companies manage their losses. The key point is for the exporter to underFor companies transporting goods overstand the Incoterms of the agreement and to seas, ocean cargo policies are available while know at what point in the transaction the domestic transit policies are available for risk has been transferred to the buyer. inland transit. These types of policies typiFor exporters who have responsibility for cally provide “all risk” insurance and can be the transportation of the goods, several prewritten monoline rather than as part of a ventive measures can help minimize the risk package. of a loss. Agents and brokers also need to know Close attention to security measures can whether the country of destination requires help reduce the risk of hijackings. For locally admitted insurance. If so, insurance instance, companies should: must be purchased through an insurer that • Carefully screen transportation companies is admitted in the local market. If not, the and the drivers they hire. Particularly critiinsured may be unable to settle its claim. cal are background checks on the drivers, Although goods shipped to Latin who sometimes have criminal backgrounds. American markets are at risk of being In Mexico, for instance, 80 percent of hijackhijacked or damaged while in transit, the ing incidents are inside jobs pulled off with opportunities are nevertheless compelling. the help of the transportation company or By working with an insurer that knows the the trucker transporting the goods. Latin American markets and by taking steps • Meet with local security providers to get a to tighten security and safety protocols, better understanding of the products and companies can reduce the potential for a loss services available to protect shipments. New and take advantage of this growing market. IJ technology such as satellite security services Ellis is a senior vice president of Chubb & Son and managand GPS can be effective tools in reducing er of Multinational Risk Group - Global Accounts. the risk of a hijacking. 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
S
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 examGreen contractors are a good example. This ple, are believers in requiring consulting and new breed of engineers and consultants proresearch firms, medical/pharmaceutical writvide services such as testing the energy effiers, marketing firms and others to have E&O ciency of a building and outlining what steps coverage. The reason is simple. These firms can be taken to “green” the building environare providing the pharmaceutical firm with ment. For such a new line of business, there’s materials that are used in presentations to no one size fits all form for their exposures. In doctors and hospitals, and mistakes can be fact, there is no track record for green contracvery costly. In fact, we just worked with a tor claims and little if any statistical data on Web site provider that was required by a pharwhat type of claims would emerge. maceutical company to have a $5 million E&O Most standard lines markets would not policy. touch this business — it’s simply too unpreSome of these service providers decide to dictable. A wholesale brobuy the minimum E&O required ker who specializes in to secure a contract and then Wholesale E&O, on the other hand, is drop the coverage as soon as the equipped to handle this contract is up. This strategy may brokers write type of account and find a save them a little in the short about one in market with any number term, but it could hurt them in of leading excess and surthe long run. Remember, E&O every 10 E&O plus (E&S) lines carriers. claims are usually completely policies. Because of the sheer numunexpected. The service ber of accounts that cross providers should really be asking, our desks, we have the tools and experience to “Do I have the time and the money to defend ask the right questions and find the right carmyself if I were to get sued?” riers. In fact, wholesale brokers write about Placing Unpredictable Risks one in every 10 E&O policies. Even though there are relatively few E&O E&O in a Difficult Economy claims compared with other lines, it’s tough In today’s economy, most companies are to predict which types of new businesses will tightening their budget and among the areas or will not have any type of claim frequency. they often try to cut is their E&O coverage. Standard lines will write E&O in certain But they should be aware that in an economic cases, such as coverage for travel agents, downturn also comes an increase in E&O because it’s a more predictable class of busiclaims for most service providers. The unforness. Generally, standard carriers want to see N8 | 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
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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 business 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 adapt 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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Developing Millennials able to effectively work with one another to Though millennials may think they are reach the greatest level of efficiency. ready for anything, they still need training. Provide millennials with rules and solid Development opportunities often play an leadership, but also offer them the support important role in retention. Millennials desire and autonomy they need for success. Give all-encompassing training. They want to feel them multiple projects that utilize their varithey are advancing and developing new skills. ous talents and provide constant feedback on Think beyond your company’s traditional what worked well. When they could have pertraining programs. For example, consider a formed better, consider altering your commucross-training program that rotates staff nication style to reflect their own. Ask them between departments. It how they might do it better. will give new professionals a Millennials view taste of other functional Retaining Millennials areas and the perspective This generation has one of work as an necessary to contribute more the lowest job satisfaction expression of to strategy down the road. rates in the workforce. They Do not utilize a one-sizemuch more likely to themselves. They are fits-all approach to developleave their jobs after a year don’t separate ment. Step up training for or two than their older your top performers. Give counterparts. This is partly professional them special projects that due to where they are in life; from personal. allow them to stretch their with no family nor mortabilities and responsibilities gage, they are more mobile. beyond their normal work roles. Even though Promote job satisfaction by entrusting them your company has traditional career paths, with new projects and career development don’t be afraid to create new and exciting indi- opportunities. Provide them with cutting edge vidualized career plans for your A-level pertechnology to accomplish their work. Reward formers. millennials with flexible work hours and dress Harness the power of mentorships. codes and paid time off (PTO). Communicate Connecting millennials with leaders who are the hidden paycheck with younger employees, not their managers allows them to gain addireminding them of benefits such as medical tional company perspective and further insight and dental insurance, PTO, retirement savings, on what it takes to be a leader or thrive in the etc. industry or position. It also gives them somePromote company satisfaction through inione they can confide in without the fear of ret- tiatives that speak to their view that work is ribution during performance appraisals, etc. an extension of them. Create a green team to The mentor should be someone who can profocus on how your organization can be more vide direct and honest feedback. environmentally-friendly. Support community and volunteer opportunities either monetarily Managing Millennials or by giving employees time-off to participate As you know, millennials often expect more in such events. Host employee recognition of their employers than their predecessors. lunches, intramurals or other events that Create a collaborative environment that capiencourage social interaction and communicatalizes on and values what each employee can tion between employees. offer. This starts with your executive team and At the end of the day, remember that promanagers, who can set an example by treating ductivity and accuracy are the gauges of sucemployees of all ages and levels with fairness cess, and stereotypes have no place in the and respect. Encourage new ideas and soluworkforce. Updating your talent strategies as tions, and don’t shoot them down just because the newest generation enters the workforce they are outside the norm. will give your organization the tools necessary Millennials thrive on mutual respect. to engage its future leaders. IJ Educate all employees on working with memHenry is senior vice president of Jacobson Solutions, the tembers of other generations to help break down porary staffing division of The Jacobson Group. Phone: 800other generations’ stereotypes of millennials. 466-1578. E-mail: shenry@jacobsononline.com. Your cross-generational employees must be 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 account 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 investigations, they use interagency databases to Specialty Investigation Services be aware of regional activity and repeat Cargo theft is big business for criminals. methods used by criminals. The National Cargo Because of increasing budget Security Council estimates Businesses pressures, few law enforcethat businesses lose $25 billion a year to cargo theft. lose $25 billion ment organizations have all the resources necessary to FreightWatch International a year to cargo manage the many different reports that the theft of types of crime that come full truckloads of goods theft. their way and cargo theft rose 13 percent in 2008. often becomes a lower prioriSometimes the theft of ty. cargo is a singular event, made easier by Insurers who offer specialty investigation opportunity (keys left in the truck cab, for units can bring depth and expertise to a instance) or collusion (a truck driver or a case. These special investigators can use warehouse worker has some involvement in their knowledge to tie together crime scene an “inside job” and a pallet of goods disapN16 | 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 Travelers 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 value 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 make 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 slow 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%
ment where they are directly paid for their according to the Louisianan. “Young agents success and in many instances, they work as just have to realize that there’s a little bit of a their own boss, giving them the freedom and curve there that they are going to have to be independence entrepreneurs seek. willing to fight through; but once they do I O’Connor is not alone in valuing the indethink they will find it’s well worth it.” pendence that comes with his job. What The first five to 10 years as an independent many young independent agents — those 40 agent will not be a “cakewalk,” says 30-yearyears old or younger old Joel Geddes III, at — like the most about the Modesto, Calif.their jobs is the freebased Capax dom it gives them to Insurance. Geddes, Older Side of Young control their own deswho has been an agent 62% are 31 to 40 years old; tiny, according to for five years, is a 38% are 30 and under. Insurance Journal’s 2009 third generation insurCareer Choice Young Agents Survey. ance professional, fol84% consider insurance to be a permanent For many of the 692 lowing his grandfacareer choice; 14% are unsure. young independent ther and his father, Education agents surveyed, freeJoel Geddes Jr., who is dom is what they enjoy 56% have a college degree; 60% have completed CEO of Capax today.. or are working on an insurance designation. most about the indusDespite growing up Experience try. (See What Agents in insurance, Geddes 25% have less than three years in insurance; never thought he’d Like Most, page N21) 29% have six to 10 years; 21% have three to five enter the profession. One survey responyears; 25% have 11 or more years. dent wrote, “Freedom “It’s one of those Family Affairs is the best thing about things that you see 56% work in family-owned agencies. being an independent your parents doing Ownership Dreams agent.” and it didn’t look And another simply 73% do not presently own an agency; of these, appealing,” he said. As 57% would like to own someday. said he enjoys the Geddes explored Working Class “freedom in every way.” other business career 52% work between 41 and 50 hours a week. fields, he soon found Gender ID Patience to Succeed that insurance offered Male 66%; Female 34% While young agents impressive opportuniRecruitment Target may enjoy the autonoties for a high salary my on the job, being a 52% have been offered a job by another agency. and advancement young independent potential. agent is not a get rich quick career, says Geddes has accepted the reality that it Meghan McGarry, a 30-year-old commercial will take time to build a good career. “But account representative for Marshall & once you do, it can be very good to you,” he Sterling Inc. in Leeds, N.Y., an Insurance said. “You are going to put in a lot of time Journal Top 100 Agency. and a lot of extra effort up front, but after O’Connor adds that patience is important you get past that point it will be worth it.” to being a successful agent. “The toughest Steve Parkhurst, 32, has only been in the thing about being a young agent is remaining insurance industry for a year. Previously, patient enough to let the course of time work Parkhurst had a successful six-year career in in your favor,” he says. the mortgage industry but “got out at the “There’s really no shortcut,” to success, continued on page N20
N18 | INSURANCE JOURNAL-NATIONAL REGION April 20, 2009
Profile of Young Agents
www.insurancejournal.com
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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 always networking and meeting new people as well as learning about all types of business. 13. Ability to make your own income. Helping others protect their business assets. Like working with business owners 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. Different 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 quality 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. Flexibility. 41. The ability to be able to help clients and others 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 ability to talk to and help people through their worst. You have the chance to do both on any given day 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 way. 48. I like being independent from captive agencies, and having the ability to shop for the customer. I like that I can realize 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.
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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 hours 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 flexibility 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 industry 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 overall 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 ratios 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 rates and chasing premium dollars that many carriers and agents participate in, which only hurts our industry 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.
tom dollar premium due to the agent/market’s misclassification of the risk. 24. Working on commission only basis (Makes it very 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.
15. Margins are to small.
28. Telling people I sell insurance for a living.
16. Cold calling and trying to get in the door of a prospect. I enjoy the quoting and proposing, just not the cold calling.
29. Lack of public knowledge of companies.
17. There are many ups and downs. I tend to have really great days or really bad days. Few normal days!
30. No huge name brands, especially in the Florida property market.
18. Different 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 try 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 industry has very little avenues to become an owner. It seems that you have to bring a book of business with you in order 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 regulations.
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 insurance 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 agent.
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: • Gymnastics and cheerleading schools
• Amateur/youth sports • 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 goes 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 general 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
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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
I
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.
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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
L
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 year. 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 were 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 value 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 gauge 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, but 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.
On the other end of that spectrum, physiTort Reform Debate Rolls On cians who are at or nearing retirement age Recent medical liability reform efforts in may feel the need to keep on working due to various states have paid off, Pate said. Texas, significant losses to their retirement portfowhich Pate dubbed the “poster child” for tort lios. Pate said underwriters might ask, “Is reform, has seen the benefits of such legislatheir [the physicians’] collective skill set as tion passed in 2003. “If you were to look at modern as modern medicine is the number of companies today? Do they have to go back The severity that were writing in Texas and relearn things they may and the rate level in Texas of high dollar have chosen not to learn before tort reform versus the because they were on their number writing now and the claims, those way out? And does that create rate level now, you see a drathat make ‘the a higher risk profile for the matic improvement in that underwriting companies?” front page head- marketplace,” Pate said. He emphasized there is no As an example, one medlines,’ has not data yet to back up such theoical professional liability ries, but they could become insurer operating in Texas, diminished. “pressure points to delivering Medical Protective, recently good medicine.” And because insurers are in lowered its rates for physicians for the sixth the business of second guessing what might time since 2003, and every time the company be in order to cover themselves against possi- has announced a rate change it has cited the ble future claims they’re looking for “defensieffect of the 2003 legislation. Medical ble medicine, medicine that can be successProtective, which has about 9,000 policyfully defended in the courtroom.” holders in Texas, reduced rates by a 6.2 percent 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 advance “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 From 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 Insurance 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 Catastrophe 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 average at the Jan. 1, 2009, renewal. “The rise in reinsurance rates at the April 1 renewal extends the upward trend that we saw at the beginning of the year,” 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 were among the factors influencing the final rates that insurers were able to secure. The briefing also said that pricing trends were 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 The 17,000 tonne Maersk Alabama, a U.S.-flagged, Danish-owned container ship is seen in negotiator costs, ranthis undated handout image, taken when the ship was named differently, released to Reuters som demands and on April 8, 2009. Somali pirates hijacked the Maersk Alabama on April 8, with 20 American medical care.” They crew on board in a major escalation in attacks at sea off the Horn of Africa nation, officials can be bought for said. REUTERS/Maersk Line Ltd/Handout individual transits or on an annual basis to bring down the cost. 2010. FERMA issued a bulletin noting that the Ashley Leszczuk from Aon’s crisis manage“legal certainty provided by the current BER ment team indicated that “despite the preshas fostered cooperation among insurers to ence of naval ships, the spate of piracy attacks create competitive insurance markets with over the last six months does not seem to be sufficient capacity to meet the needs of large abating with increased civil unrest and international insurance programmers. A pirates’ easy access to rocket launchers and renewed BER in March 2010 will continue to AK47s. As such, we’ve seen enquiries for cover achieve this fundamental objective by escalate as ship-owners seek to protect their exempting joint calculations, tables and studemployees and businesses.” ies, and co-(re)insurance pools from EU comNumerous solutions have been discussed, petition rules.” but each one seems to have its own drawThe statement also approved the EC’s backs. They include: 1) more naval patrols; 2) actions on joint calculations and studies, an putting armed guards on vessels; 3) a convoy issue raised by “large commercial buyers.” In system, similar to that used in the North relation to pools, the EC said the renewal of Atlantic in World War II; 4) Taking out the the BER is necessary not only to clarify the Mother Ships; 5) Bombing the pirates sanctusafe harbors, but also to induce compliance by aries in Somalia but there’s also the risk of pool members,” a stance FERMA agrees with. civilian casualties; 6) avoid the “at-risk” area; 7) FERMA was disappointed, however, that try to regenerate Somalia so it isn’t a failed and the Commission didn’t endorse the view of essentially lawless state. the industry that cooperation in relation to standard policy conditions (SPC’s) should Renewal seems set for the European continue to be covered by the BER. FERMA’s insurance industry’s Block Exemption bulletin pointed out that it is “very valuable to Regulation (BER). The European large commercial buyers as it reduces transacCommission (EC) recently endorsed continution costs, facilitates the comparison between ing the regulations, which exempt insurers policy conditions and provides better confrom the European Union’s rules governing tract certainty. Accordingly, FERMA believes competition, much to the relief of the 16-memthat, to the extent that SPCs will fall outside ber Federation of European Risk Management of the BER, the Commission should at the Associations (FERMA - www.ferma.eu). very least issue guidance so as to provide sufThe exemptions were first introduced in ficient comfort and legal certainty as of March 2003, and are currently scheduled to expire in 2010.” IJ
N30 | INSURANCE JOURNAL-NATIONAL REGION April 20, 2009
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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 problems 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 trade 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 to fail. This stands in contrast to independence 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 overseer 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 allow 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 would 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 causes that precipitated it. We advocate that this action address the specific problem of systemic risk and do so without creating needless additional bureaucracy, and we believe our plan accomplishes these ends. IJ DiMuccio is president and CEO of Amica Mutual Group in Providence, R.I. www.insurancejournal.com
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