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LIBERTY MUTUAL Drops Direct Sales in Middle Market
CALIFORNIA FEE REDUCTION Agent/Broker Fees Down 6%
NEW AGENCY START-UPS Defy Hard Market, Soft Economy
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Bring it on! With one swift move Randy will supply the quote, bind the policy and leave you feeling content. He wants your business. He wants it now. • Artisan & General Contractors • Commercial Packages • Lessor’s Risk • Restaurants • Distributors • Offices • OL & T • Monoline General Liability • Excess Liability • Manufacturers • Monoline Property • Vacant Buildings • Bars & Taverns • Security Patrols
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Inside This Issue February 9, 2009 • Vol. 87, No. 3 • West Region
WEST COVERAGE
N8 J. Smith Lanier and Co. Top 100 Agency Profile Georgia-Based Company Has EmployeePowered Excellence
NATIONAL COVERAGE N1 | SPECIAL REPORT: Small Business/BOPs 5 Business Owner Policy Gaps and Pitfalls Agents Should Watch Out For N4 | SPECIAL REPORT: Small Business Pros and Cons of Running an Agency Small Business Unit N8 | SPECIAL REPORT: Top 100 Agency Profile Georgia-based J. Smith Lanier & Co. — Employee-Powered Excellence
8
| Liberty Mutual Drops Direct Sales to Middle Market Businesses Puts Faith in Independent Agents
9
| Montana Wants More State Fund Oversight Legislative Proposal Suggests Examining Workers’ Comp Program
9
| Allstate To Raise California Homeowners Rates Homeowners Rates Could Go Up 6.9%
10 | Local Fire Chiefs Depend on Neighboring Stations for Assistance Volunteer Fire Departments Have Difficulty Attracting Firefighters
IDEA EXCHANGE N22 | Minding Your Business Time Management: 10 Tricks of the Trade N24 | Carrier Watch Stocks Down 14%; Middle Market Carriers Active in Intermediary Acquisitions 46 | Systematic Sales Strategy Should Be Priority No. 2 for Agency Managers Health Care, Energy Are Potential Growth Areas 50 | Closing Quote: 5 Risk Management Challenges for Public Entities in Today’s Economy Public Risk Managers Face New Disaster: The Major Economic Downturn
14 | USC Geographers Create U.S. ‘Death Map’ of Natural Event Fatalities Hazard Mortality Most Prominent in South 40 | Start-Up Stories: How New Agencies Are Competing Crop of New Agencies is Defying the Hard Economy, Soft Market
DEPARTMENTS 6 | Opening Note 12 | People N18 | MyNewMarkets
42 | Closer Look: Errors & Omissions Certificates of Insurance and Agency Liability: What Agents Should Know 44 | Study Unveils Target Areas for Flood Policy Sales But Selling More at Subsidized Premiums Could Sink Flood Program
N12 | Closer Look: Errors and Omissions How to Avoid Agency E&O Claims N16 | Closer Look: Non-Profits/Social Service Study Shows Need for Standardizing Nursing Home Social Workers’ Credentials N20 | Closer Look: Non-Profits/Social Service Agent Advice Can Help Human Service Agencies in Tough Economic Times
4 | INSURANCE JOURNAL-WEST REGION February 9, 2009
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Local Fire Chiefs Depend on Neighboring Stations for Assistance Volunteer Fire Departments Have Difficulty Attracting Firefighters
Errors & Omissions Certificates of Insurance and Agency Liability: What Agents Should Know
www.insurancejournal.com
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Idea Exchange Opening Note
Change and Protect C
hange is coming to Washington and to the National Association of Insurance Commissioners, but hopefully it’s change that will protect the status quo when it comes to insurance regulation. Last spring, the editors at Insurance Journal took it upon ourselves to urge the NAIC, which makes its home in Kansas City, Mo., to make a move, writing: “It’s time for the group representing the states’ insurance regulatory experts to pack up its bags, computers and name badges — and move to Washington, D.C.” Our concern was that despite the clout of independent agents as state regulation advocates, powerful insurer and financial services lobbies that favor federal regulation too often seemed to dominate the debate in the nation’s capital. The voice of the states needed to be strengthened. It turns out our advice was not needed. NAIC leaders had already set in motion events that culminated recently in news that NAIC has hired a new CEO, who will operate out the nation’s capital. Former Iowa Insurance Commissioner Therese M. Vaughan has been named to the job. Since 2005, Vaughan has been an insurance professor at Drake University. Prior to that, she was Iowa insurance commissioner for 10 years. She also served as NAIC president in 2002. Vaughan will become the chief spokeswoman for state regulation of insurance, and by being in Washington, she will be able to connect with federal and The NAIC will now state government entities and consumer representatives. be able to better Vaughan also will oversee the launch of the NAIC’s new educate the nation Center for Insurance Information, which is intended to make about what’s going the vast NAIC resources more accessible to members of Congress and other federal agencies. This new center could on in the states. do more than any single person can to advance and protect state regulation. It is being established at the same time that Rep. Paul Kanjorski, D-Pa., is sponsoring H.R. 5840, The Insurance Information Act of 2008, to create an Office of Insurance Information within the Treasury. The bill’s supporters, including the NAIC, believe the legislation would help states share confidential data with the federal government while protecting regulations in international insurance agreements. There is concern that H.R. 5840 could morph into federal regulation. NAIC said it will oppose that. “Our willingness to work constructively on the targeted issues addressed by this legislation should not be construed as implicit acceptance of federal intervention,” former NAIC President Sandy Praeger has said. Close to 90 insurance bills were before his committee when he proposed the measure, according to Kanjorski. “Regardless of whether or not the federal government directly regulates insurance, we must educate ourselves on insurance policy and build a knowledge base in the federal government on these matters,” the Democrat said. Now the NAIC itself will be in a better position to educate Kanjorski and his associates. As we wrote last May, the NAIC is superior to any federal office because its knowledge is derived from real businesses, markets, consumers and experience. In addition to the NAIC informing states about what’s going on in Washington, it will now be able to better educate the entire nation about what’s Patricia-Anne Tom going on in the states. West Editor ptom@insurancejournal.com
Publisher Mark Wells Chief Executive Officer Mitch Dunford
EDITORIAL Editor-in-Chief Andrea Ortega-Wells | awells@insurancejournal V.P. Content/ and Interim Midwest/Southeast Editor Andrew Simpson | asimpson@insurancejournal.com East Editor Kenneth J. St. Onge | kstonge@insurancejournal.com South Central Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Patricia-Anne Tom | ptom@insurancejournal.com MyNewMarkets Associate Editor Chris Boggs | cboggs@insurancejournal.com International Editor Charles E. Boyle | cboyle@insurancejournal.com Columnists LMC Capital LLC, Catherine Oak, Bill Schoeffler Contributing Writers David J. Firstenberg, Curtis M. Pearsall, Steven Plitt, Mary Stewart, Lori Widmer
SALES V.P., Sales & Marketing Julie Tinney (800) 897-9965 x148 jtinney@insurancejournal.com West Dena Kaplan (800) 897-9965 x115 dkaplan@insurancejournal.com South Central Eric Jeter (281) 655-0234 ejeter@insurancejournal.com
Midwest Lauren Knapp (800) 897-9965 x161 lknapp@insurancejournal.com Southeast Howard Simkin (800) 897-9965 x162 hsimkin@insurancejournal.com East Dave Molchan (800) 897-9965 x145 dmolchan@insurancejournal.com
MARKETING Marketing Administrator Gayle Wells | gwells@insurancejournal.com Advertising Coordinator Erin Burns | eburns@insurancejournal.com (619) 584-1100 x120 New Markets Sales Manager Kristine Honey | khoney@insurancejournal.com Classified and Ancillary Sales Manager Nicola Coghill | ncoghill@insurancejournal.com (619) 584-1100 x125 New Media Producer Chad Reese | creese@insurancejournal.com
DESIGN/WEB Vice President/Design Guy Boccia | gboccia@insurancejournal.com Vice President/Technology Joshua Carlson | jcarlson@insurancejournal.com Graphic Designer Jamie Bethell | jbethell@insurancejournal.com Web Developer Jeff Cardrant | jcardrant@insurancejournal.com Web Developer Chris Thompson | cthompson@insurancejournal.com
A D M I N I ST R AT I O N Accounting Manager Megan Sinclair | msinclair@insurancejournal.com Admin./ Marketing Asst. Kristina Delavega | kdelavega@insurancejournal.com
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-WEST REGION February 9, 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.
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Indemnity group of insurance companies. With a market focus on commercial auto and general liability, National Indemnity is one of the leading property/casualty members of the Berkshire Hathaway group of insurance companies. insurance company. PGIA operates in the far western and southwestern states principally writing business in California, Arizona, Nevada, and Oregon. We specialize in liability and physical damage coverage for commercial auto risks that cover a broad spectrum of exposures. We provide coverage (including stand-alone provide General Liability, Property and Package coverage for many classes of business that are a challenge to place, even in today’s marketplace. Below is a detailed listing of the classes of coverage available. If your particular risk is not listed below, please do not hesitate to ask us about it.
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West Coverage Snapshot
Liberty Mutual Drops Direct Sales to Middle Market Businesses Puts Faith in Independent Agents property, crime and umbrella for mid-sized companies. The insurer said that each of iberty Mutual Group is the brokerage firms has extended throwing in the towel on offers of employment to many of direct distribution of insurance the Liberty Mutual Group sales to middle market businesses. and service professionals supportBecause it couldn’t beat indeing the transferred policies. The pendent agents and brokers — transactions are expected to close who dominate sales in this segon or around March 1, 2009. ment — Liberty Mutual has The new Middle Market unit decided to join them. will be organized into three diviThe Boston-based company, sions, with headquarters in Boston which sells insurance both direct (Eastern Division), Chicago and through independent agents, (Central Division), and Dallas is discontinuing direct distribu(Western Division). Agents and tion to mid-sized businesses and brokers will be aligned with dedinow plans to distribute its comcated distribution and underwritmercial property/casualty insuring resources. ance products in the middle marAs part of the move, the compaket exclusively through independny is retiring the Wausau brand, ent agents and brokers. Liberty Mutual defines the mid- which has been part of its middle market operation. dle market as businesses with The moves recognize that about total account premium ranging from a low of about $150,000 up to 95 percent of middle market busiabout $1.5 million. Liberty Mutual ness insurance is sold by independent agents and brokers, not has written about $2.5 billion in through direct distribution. The this segment. company acknowledged that by The giant insurer, which ranks limiting itself to direct distribuas the sixth largest property and tion in the middle market, it was casualty insurer in the United missing out on opportunities to States, is selling off the renewals grow. on these direct “This truly is a middle market This is a strate- strategic move accounts to several not a financial large brokers: gic move, not a move. The data Arthur J. Gallagher financial move. [on independ& Co., Hub International and The data is pret- ent agents’ market share] is USI Holdings Corp. ty compelling. pretty comThe company pelling,” J. Paul also is creating a Condrin, Liberty Mutual’s presinew commercial business unit, dent of Commercial Market, told Liberty Mutual Middle Market, Insurance Journal. which will accept and serve midCondrin said the change is a dle market business only from agents and brokers going forward. response to requests from the company’s agents and the preferProducts available will remain ences of customers. workers’ compensation, general “For years, agents and brokers liability, commercial automobile,
By Andrew G. Simpson
L
8 | INSURANCE JOURNAL-WEST REGION February 9, 2009
have sought to place their middle market clients with Liberty Mutual but couldn’t access us because we distributed directly to that segment of the market. Now they can. And we are giving middle market businesses what they want, the opportunity to have Liberty Mutual as their carrier, and still work with their trusted advisor — their agent or broker,” he said. Condrin said that because middle market customers very often do not have risk managers, they rely on the advice and service of agents and brokers for their insurance needs; whereas larger, complex businesses usually have internal expertise that makes going direct to a carrier more of an option. Liberty Mutual will continue to write large commercial risks through its direct channel. Liberty Mutual also writes large national account business through brokers and small commercial business through independent agents. In fact, most of the company’s commercial insurance is distributed through third parties. Mark A. Butler has been appointed chief operating officer of the new Middle Market business unit. Butler was previously executive vice president and general manager of field operations for Liberty Mutual’s National Market commercial insurance operations, which caters to large complex business accounts. Liberty Mutual said its new Middle Market unit plans to expand its network of appointed agents and brokers. Condrin said the new unit would be available to
agents currently writing with its regional personal lines and small business companies known as Liberty Mutual Agency Markets. Wausau Insurance Co., a subsidiary since 1999, has written middle market business directly and through agents and brokers. Wausau Insurance comprises Employers Insurance Co. of Wausau, Wausau General Insurance Co., Wausau Business Insurance Co. and Wausau Underwriters Insurance Co. Wausau direct representatives will have an opportunity to work with the large brokerages buying the renewal rights. Agents and brokers who have been placing business with Wausau will have access to the Middle Markets unit. “So while the Wausau brand will be retired, the Wausau agents, brokers and policyholders are vital to our future success,” Condrin said. “We value those partnerships and will focus on deepening and enhancing them via quality service, proactive communication, and a commitment to delivering superior outcomes.” The company said it is committed to the overall commercial lines market and believes agents and brokers can help it better compete in the middle of this arena. “Today’s announcement reinforces our commitment to being a leader in commercial insurance,” said Edmund F. Kelly, Liberty Mutual Group chairman, president and CEO. “The agreements with Gallagher, Hub and USI speak to the quality of our business and desire to form strong, mutually beneficial relationships www.insurancejournal.com
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with agents and brokers who have earned outstanding reputations among middle market buyers.” Illinois-based broker Arthur J. Gallagher & Co. is acquiring renewal rights from Liberty Mutual’s middle market business located in the Midwest and Southeast regions. As part of the agreement, Gallagher expects to hire approximately 75 Liberty Mutual producers in these regions. Gallagher is also acquiring substantially all of the policy renewal rights and hiring the national producer group from Wausau Signature Agency, Liberty Mutual’s commercial property/casualty and employee benefits insurance agency headquartered in Wausau, Wis. When completed, it is expected that the transaction will add approximately 120 new insurance sales professionals to Gallagher’s retail commercial property/casualty brokerage operation under the direction of its president, James S. Gault. The agreement includes an initial payment in cash and stock of approximately $44 million and additional payments in cash or stock (at Gallagher’s election) that is based on revenues generated in the two year period beginning 12 months after closing. The maximum amount of the additional payments is $120 million. The agreement is also subject to customary closing conditions including regulatory approval under the Hart Scott Rodino Antitrust Improvements Act of 1976. The transaction is expected to close around March 1. Chicago-based brokerage Hub International gets the renewal rights to Liberty Mutual’s middle market business in Arizona, Arkansas, California, Colorado, Hawaii, www.insurancejournal.com
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Kansas, Louisiana, Nebraska, Oklahoma, Utah and Texas. Terms of this transaction were not disclosed. Hub said the business would be integrated into its regional operations: Hub International of California, Hub International Gulf South, Hub International Texas and Hub International Southwest. Roy H. Taylor, President of Hub’s West Region, will oversee the management of this group. USI Holdings Corp., based in Briarcliff Manor, N.Y., is grabbing the renewal rights — and some 44 Liberty Mutual sales professionals — in the Northeast region, which includes New York, New Jersey, Connecticut and Massachusetts. Details of the USI transaction were not immediately available, but Edward J. Bowler, senior vice president for corporate development at USI, told Insurance Journal his firm is “delighted” with the deal and considers Liberty Mutual sales people to be among the best in the business. Liberty Mutual has launched a Web site at www.liberty mutualgroupmiddlemarket. com to provide more information about the moves. The Web site asks and answers the following question: “Is Liberty Mutual really exiting direct distribution for middle market companies? Yes. Liberty Mutual fully intends to exit direct distribution of its products to middle market businesses and focus solely on distribution through independent insurance agents and brokers. We made this decision to satisfy the requirements of the vast majority of middle market buyers, who typically value and seek the input of a trusted agent/broker.” IJ
Montana Wants More State Fund Oversight
T
he Montana State Fund is bucking a proposal for more legislative oversight of its workers’ compensation insurance program. A state lawmaker says the state is on the hook for financial shortfalls at the quasi-private operation. Democratic Sen. Ron Erickson said the State Fund should undergo in-depth financial examinations, and the state should get the results. Erickson told a Senate committee on Jan. 16, 2009, that his bill would require the State Fund to hire a qualified firm to conduct the examinations. The panel did not immediately vote on the idea. Private insurers support the idea. They say it’s only fair since they have to file reports with the state auditor’s office. The State Fund says the $200,000 expense is unnecessary because the operation is already subject to legislative audits. IJ Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Allstate To Raise California Homeowners Rates 6.9%
T
he California Department of Insurance has approved Allstate Insurance’s request to raise its homeowners multi-peril insurance rates 6.9 percent. For information, visit www.insurance.ca.gov/0250-insurers/0800-ratefilings/0100-rate-filing-lists/rate-filing-approvals/upload/Ap010208.xls. IJ
It Figures 37,500 The number of number of independent agencies nationwide, according to the “2008 Future One Agency Universe Study,” sponsored by the Independent Insurance Agents and Brokers of America, Trusted Choice and several carriers.
$10.3 million Amount that should be saved annually as a result of fee reductions taken by the California Department of Insurance. The reductions also include a 6 percent fee reduction for more than 300,000 licensed insurance agents, brokers and adjusters charged by CDI. The most common fee is paid by agents, brokers and adjusters for their licenses. Going forward, the cost of renewing a license will decrease from $144 to $135. The total savings for license renewals will be $3.5 million annually.
1857 Year the the Carrizo Plain section of the San Andreas fault felt a massive earthquake that had an estimated magnitude of 7.9. IJ February 9, 2009 INSURANCE JOURNAL-WEST REGION | 9
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West Coverage News & Markets
Local Fire Chiefs Depend on Neighboring Stations for Assistance
P
roperty/casualty insurance trict than to any fire station in agents should be aware that their own district. But of those firefighters face significant chalchiefs, 39 percent said the closer lenges today, according to a survey neighboring fire department does commissioned by Insurance not respond on automatic aid to Services Office Ltd. (ISO). fires in their districts. Most U.S. fire departments call The survey, commissioned by on neighboring communities to ISO and conducted by ORC, help them fight fires, and the includes responses from a random most significant reason for that is sample of 500 chiefs and other the need for more firefighters. ranking fire department officials Also, nearly one in six departrepresenting jurisdictions of all ments either has no water service sizes across the United States. The for firefighting or must rely on margin of error is plus or minus 4 sources other than hydrants, pospercentage points. sibly leading to delays. Those are “The survey helps ISO, along some of the findings of a recent with property/casualty insurance independent survey of fire chiefs companies and the firefighting conducted by Opinion Research community, gain further insights Corp. (ORC) of Princeton, N.J. into key issues in fire departments More than half (54 percent) of across the country,” said Mike the chiefs in the survey said their Waters, ISO’s vice president of departments “always or almost Risk Decision Services. “We hope always” call on neighboring the results of the study will highdepartments to respond to the ini- light the critical challenges facing tial alarm for a structure fire. fire chiefs as they manage their Another 28 percent reported that limited resources.” they sometimes call on neighborNearly all of the chiefs (98 pering departments. cent) indicated that their departAmong the chiefs who call on ments can communicate by radio neighboring departments on the directly with fire departments of first alarm, 74 perneighboring cent said a very sigcommunities. Volunteer fire nificant reason for Most said they doing so is the need departments are can also comfor more responhaving difficulty municate ders; 29 percent directly with attracting a said a need for spelocal emercialized apparatus gency medical sufficient or equipment is services (95 very significant; and number of percent) and 25 percent cited as police (84 perfirefighters. very significant the cent). fact that a neighbor“This positive ing fire station is closer to the finding shows that local interopresponse area than any station in erability — the ability to connect their own district. emergency responders — is on One-third of the chiefs in the the rise,” said Robert W. Cobb, survey (33 percent) reported that ISO’s director of community haztheir response areas have populatard mitigation. “We’ll continue to ed sections that are closer to a fire track emergency communications station in a neighboring fire disas one of the key elements of an 10 | INSURANCE JOURNAL-WEST REGION February 9, 2009
effective fire-suppression program.” The study also reveals that communities with volunteer fire departments — or combination volunteer and paid/career departments — are having difficulty attracting and training a sufficient number of firefighters. Among the chiefs of volunteer and combination departments, 93 percent said that the biggest recruitment challenge is the time commitment. The chiefs also cited a small volunteer pool (84 percent) and education and training requirements (83 percent) as obstacles. More than one-third of the chiefs (36 percent) said their departments spend less than 10 hours per firefighter per month on training; 42 percent spend between 10 and 20 hours; and 22 percent spend more than 20 hours. The average percentage of training hours spent on structure fires (42 percent) is double that spent on rescue incidents (21 percent) and also double that spent on EMS or other medical services (21 percent). The study raises questions about the adequacy of the water supply in communities. About 4 percent of the chiefs said that there is no water service for firefighting in their communities, and another 11 percent said they rely on sources of water other than hydrants — including lakes, ponds, rivers, creeks, wells, tankers and others. In communities that have water service for firefighting, only about half the chiefs (52 percent) said hydrants protect “all or almost all” of their primary response areas. In communities with water service, 23 percent of the chiefs said that the responsible agency or organization inspects and flow-tests the hydrants less than once a year.
“This survey points out the need to understand the actual situation on the ground when evaluating fire protection at a particular location,” Waters said. “It’s not enough to know there’s a fire station nearby. You also have to know if the station will respond to a possible fire and if there will be enough trained personnel, adequate equipment, and sufficient water for firefighting, among other things.” ISO’s Public Protection Classification (PPC) program gives insurance companies and fire departments a standard measurement of the effectiveness of fire protection in more than 46,000 fire districts throughout the country. Under the program, ISO staff visit the communities to collect information about their fire departments, emergency communication systems, and water supplies. ISO then analyzes the information and assigns a Public Protection Classification number from 1 to 10. Class 1 generally represents the best fire protection, and Class 10 indicates that the community’s fire-suppression program does not meet ISO’s minimum criteria. The program incorporates recognized standards developed by the National Fire Protection Association and the American Water Works Association. IJ www.insurancejournal.com
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West Coverage People
Hank Haldeman
Harrison Jerome
Carol Newman
Doug Stewart
Jay Stewart
Rebecca Wanta
The California Insurance Wholesalers Association awarded Hank Haldeman its recipient of the 2008 Industry Achievement Award. The award was given in appreciation of Haldeman’s outstanding dedication and hard work in promoting, defending, advocating and improving the Wholesale Insurance Industry in the State of California. Haldeman is executive vice president and a director of The Sullivan Group, responsible for group-wide business development, market relationships, strategic planning, systems, and marketing. He began his insurance career in 1980 as a wholesale broker, specializing in biotechnology, product and professional liability, alternative risk and environmental liabilities with Stewart Smith West Inc., where he became vice president and director. In 1986, he took on the chief operating officer, senior vice president and branch manager roles at Henry Ward Johnson & Co., responsible for the Western states operations of the wholesale broking subsidiary of Johnson & Higgins. Haldeman joined The Sullivan Group in 1997 as senior vice president and director. He also serves as president of Sullivan Healthcare Insurance Services and G.J. Sullivan Co. Reinsurance, both in Los Angeles. California’s State Compensation Insurance Fund announced five executive appointments — chief operating officer, general counsel, chief risk officer, chief financial officer and chief information officer. The appointments were authorized by Senate Bill 1145, signed into law Sept. 26, 2008, by Gov. Arnold Schwarzenegger, and are a step in State Fund’s efforts to improve its corporate governance, operational strength and customer service. “The addition of these positions will bring immediate, deep functional expertise into our organization, lessening our need over time to use outside consultants and ultimately decreasing our cost of doing business,” said State Fund President Jan Frank. The executive appointees are: •Harrison Jerome, chief operating officer, will oversee operational aspects of the organization to ensure that State Fund has the proper operational controls, and administrative and reporting procedures. Jerome has been with State Fund since 1981 and has served in operational areas, most recently as vice president of information technology. •Carol Newman, general counsel, will direct State Fund legal matters and will ensure protection of State Fund’s legal rights and compliance with policies established by the Board and the president. Newman has more than a quarter century of corporate legal experience with private insurance companies and has operational knowledge of the property and casualty insurance business. •Doug Stewart, chief risk officer, will develop a comprehensive and integrated approach for risk management across State Fund’s operations and decreasing operational loss. Stewart has more than 36 years of experience in the
12 | INSURANCE JOURNAL-WEST REGION February 9, 2009
insurance industry. He’s held positions in claims, underwriting, marketing, sales and management in both the field and corporate headquarters. He holds the designations of Chartered Property Casualty Underwriter (CPCU) and Accredited Adviser in Insurance (AAI). •Jay Stewart, chief financial officer, will oversee the preparation of financial reports, budgeting and financial forecasting. Stewart has more than 40 years experience in financial reporting, 30 years of that in the insurance industry, holding positions in senior management consulting, external auditing and controlling corporate risk. He is also a certified public accountant. •Rebecca Wanta, chief information officer, will develop and implement a comprehensive technology platform for the organization. Most recently, Wanta served as North America chief information officer for Best Buy. Navigators Management Co. established Navigators Environmental, a new business unit that will focus on underwriting specialized environmental insurance products globally. The company named Adrien Robinson vice president and environmental practice leader. He will be located in the company’s Chicago office. Robinson has a background in law, engineering and insurance, as well as 14 years of experience in the environmental industry. He was most recently with AIG Environmental Insurance. Farmers Insurance Group of Cos. and Zurich Financial Services named Dan Dunmoyer senior vice president and head of state legislative and regulatory affairs in the United States. Dunmoyer recently served as chief cabinet secretary and deputy chief of staff for California Gov. Arnold Schwarzenegger. He will lead a national team based in state capitols and major cities, and will guide strategic direction and for state political grassroots programs and networks, which include thousands of small business, financial service professionals representing Farmers and Zurich throughout the United States. Hiscox appointed Bob Gadaleta and Chris Leisz senior vice presidents in the Management Liability Division. Both will be based Hiscox’s Manhattan, N.Y., office. Gadaleta and Leisz will focus on expanding the existing not-for-profit management liability and public officials’ liability books of business, as well as starting a private company management liability underwriting unit. Prior to joining Hiscox, Gadaleta spent 14 years at American International Group Inc., where he had national oversight for the not-for-profit book of business including directors and officers’ liability, employment practices liability and fiduciary liability. Leisz also joins Hiscox from AIG, where he held positions in the private/not-for-profit management liability division, most recently as vice president and chief underwriting officer. IJ www.insurancejournal.com
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West Coverage News & Markets USC Geographers Create U.S. ‘Death Map’ of Natural Event Fatalities by County
U
niversity of South Carolina geographers have produced a map of natural-hazard mortality in the United States. The map, featured in the International Journal of Health Geographics, gives a county-level representation of the likelihood of dying as the result of natural events such as floods, earth-
quakes or extreme weather. Dr. Susan Cutter, a Carolina distinguished professor of geography, and Kevin Borden, a doctoral candidate in geography, used nationwide data dating back to 1970 to create the map. Cutter said the map will be a valuable planning and policy tool.
“This work will enable research and emergency-management practitioners to examine hazard deaths through a geographic lens,” said Cutter, a national authority in hazards and vulnerability research. “Using this as a tool to identify areas with higher-than-average deaths can justify allocation of resources to these areas with the goal of reducing loss of life.” Hazard mortality is most prominent in the South, where most people are killed by severe weather, such as tornadoes. Other areas identified as having elevated risks include the northern Great Plains Region, where heat and drought are the biggest killers, and in the mountainous areas of the West, where deaths are attributed to winter weather Hazard mortality and flooding. The greatest threats to is most promithe south central nent in the region are floods and tornadoes. South, where Heat/drought most people are ranked highest among the hazkilled by severe ard categories, weather, such as causing 19.6 percent of total tornadoes. deaths, followed by severe summer weather (18.8 percent) and winter weather (18.1 percent). Geophysical events such as earthquakes, wildfires and hurricanes were responsible for less than 5 percent of total hazard deaths combined. “Over time, highly destructive, highly publicized, often catastrophic singular events such as hurricanes and earthquakes are responsible for relatively few deaths when compared to the more frequent, less catastrophic events such as heat waves and severe weather,” Cutter said. The findings provide a valuable blueprint to identify hazard mortality “hot spots” that merit in-depth study so that emergency-management officials can reduce future deaths. IJ
Web resource Cutter and Borden’s article and map in the International Journal of Health Geographics can be accessed at: www.ij-healthgeographics.com/ 14 | INSURANCE JOURNAL-WEST REGION February 9, 2009
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Special Report Small Business/BOPs
5 Business Owner Policy Gaps and Pitfalls Agents Should Watch Out For
By Chris Boggs
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usiness owner policies, traditionally referred to simply as BOPs, were introduced in 1976 and significantly revised in 1987. The BOP evolved gradually since the 1987 revisions to include risk classification and sizes not contemplated in the original or revised editions of the form. Additionally, many insurance carriers have built upon the Insurance Services Office’s (ISO) version to develop proprietary forms. BOP policies have long been viewed as the easy way to protect the client with the greatest amount of coverage, and to a great extent they are. BOP policies were designed to simplify the risk management process by packaging property and liability coverages into one form while including several coverage extensions that traditionally necessitated endorsements. However, reliance on the breadth of coverage automatically provided by the BOP may have blinded some to the form’s coverage gaps. BOP Business Income Limitations Business income protection provided by the BOP is relationally broad — there is no coinsurance with which the agent or insured need be concerned and the loss of income is “fully” covered for 12 months. But even in its breadth three weaknesses exist: 1. Ordinary payroll is limited to 60 days; 2. Coverage is limited to 12 months of www.insurancejournal.com
Many factors directly affect the “period of restoration” and the time it takes a particular entity to return to its pre-loss “operational capability.” Among the relevant factors: time for the adjustment process; time for building plans to be drawn and approved; finding and hiring a contractor; obtaining building permits; time to rebuild; and any building code-related issues. The insured may require more than 12 months to return to “operational capability” depending on the loss severity and problems in accomplishing all the necessary “period of restoration” factors. The BOP offers no way for the insured to increase the protection beyond 12 months. “Operational capability” as it relates to business income is an entity’s ability to operate at or near pre-loss production or sales capacity. This is a non-policy-defined business income term describing the point at which an insured can operate with the same level of inventory, protection; and equipment and efficiency as before the opera3. Extended business income is limited to 30 tional-closing loss. days. To clarify, “operational capability” is not synOrdinary payroll is not limited in the stanonymous with a return to pre-loss income levdard business income policies unless done so els, which may take much longer to accomby endorsement. The BOP is exactly opposite plish. “Operational capability” is merely the — unless endorsed otherwise, coverage for entity’s ability to produce goods and provide ordinary payroll is limited to just 60 days. service at the same level, efficiency and speed Should the insured desire to extend payroll to “ordinary” employees beyond these 60 days, the as before the loss (i.e., the ability to conduct “operations” at pre-loss levels). This highlights policy must be endorsed by notation on the the third limitation of declaration page, indicating the BOP’s business the number of days of coverBOP policies have long income coverage — the age desired, and payment of been viewed as the easy 30-day limit on the an additional premium way to protect the client extended period of must be made. indemnity. “Ordinary” employees are with the greatest amount Once the business has all employees other than of coverage. However, reopened and returned officers, executives, departreliance on the BOP may to full operational capament managers, employees have blinded some to the bility, returning to preunder contract or any other form’s coverage gaps. loss cash flows and employees specifically listed income levels may take a as being necessary, non-ordinary employees (done by name or job classifica- while. The unendorsed/unaltered BOP provides only 30 days of additional protection foltion). Payroll for these non-ordinary employees is covered for the entire period of restoration or lowing the period of restoration to return to pre-loss profit levels. If the insured feels this is 12 months, whichever comes first. inadequate coverage (which it probably is), the The insured has no remedy should the “period of restoration” extend beyond the 12 months period of extended business income coverage can be extended by a notation on the declaraof coverage provided by the BOP’s business tion page and the payment of an additional income protection. Business income lost after the 12-month period of indemnity is paid out of premium. the insured’s pocket. continued on page N2 February 9, 2009 INSURANCE JOURNAL-NATIONAL REGION | N1
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Business Personal Property – Seasonal Increase Limitation One often touted benefit of the BOP is the automatic 25 percent seasonal increase for business personal property. This is appropriate for those insureds subject to periods of foreseeable or even unforeseen increases in business personal property. However, this extension of coverage comes with a caveat — the business personal property limit must equal 100 percent of the average monthly values on hand for the 12 months (or the length the insured has been in business, whichever is less) immediately preceding the loss. This means that the value used for the current year has to include the seasonally increased values of the year prior. If the insured averaged $100,000 for nine of the previous 12 months and $120,000 for the remaining three (within the 25 percent), what limit must they carry to assure the availability of the seasonal increase protection? The insured’s average monthly value is $105,000 [(($120,000 x 3) + ($100,000 x 9))/12]. To qualify
Breakdown, Boiler and Artificial Electrical Damage Limitations Limitation may not be the correct term for System Breakdown, Boiler and Artificial Electrical Damage losses — exclusion is more appropriate. Loss caused by a systems breakdown, steam boiler or artificial electrical damage is specifically excluded in ISO’s BOP coverage form. To pick up coverage for these exposures requires an endorsement be attached. The BP 04 59 “Equipment Breakdown Protection Coverage,” adds back the necessary protection.
intended goal, providing a wide scope of coverage without the need of much agent/policy interaction. However, relying too heavily on the BOP without knowledge of its finer details can leave the client lacking at the time of a loss. This article discusses five limitations or exclusions that may adversely affect clients, but there are others. And the BOP program offers additional endorsements to personalize the policy to fit each client’s need. Even though the BOP looks like a full package of protection, proper time must be devoted to assure the insured is protected. Writer’s Note: This article has focused solely on ISO’s BOP form. Many carriers have developed their own forms. Non-ISO forms must also be carefully analyzed to find their own weaknesses and gaps. A BOP is not a “onceand-done” form — it must be monitored like any other. IJ
ISO BOP BOP policies accomplish much of their
Boggs is the associate editor of MyNewMarkets.com. E-mail: cboggs@mynewmarkets.com. Phone: 619-584-1100 ext. 137.
for the seasonal increase, the insured must carry $105,000 — not the $100,000 that is the most common amount on hand. Many agents fail to account for this policy provision, which potentially leaves their client without the proper protection should a loss occur during the time of a seasonal increase.
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REVIEW YOUR RISK
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SPECIAL REPORT Small Business
Pros and Cons of Running a Small Business Unit Agencies Say SBUs Take Dedication, Technology But Offer Profitability that would enable the firm to handle a large flow of potential clients and insureds. oing for the big fish may bring in Heffernan Group has operated a small busibig returns but some agencies ness unit since it opened its doors in 1988, but think having a strategic plan to go about nine years ago the firm invested to make after all those little fish is just as the unit a little bigger. Then about two years important. Three of the largest agencies in the ago, the firm again invested capital to make country say having small business units (SBUs) the SBU what it is today — 26 small business as in integral part of their agency is simply a producers generating about $4.2 million in revmust. enue. That’s up from $1.8 million in revenue just two years ago, Heffernan said. “I just can’t imagine not doing it,” says Tim Heffernan says that Templeton, president and while its SBU generates chief operating officer of ‘Not only is it just 4 percent of the North Carolina-based Senn Dunn. “For us it turned out serving the small agency’s total revenue, the unit and the people who that the client was getting clients but it’s run it are an integral part served better by having a of the company’s plan. small accounts unit. And it helping the rest He says there’s a big turned out that our producers of the company market in the small busiwho were very tenured, very ness arena that few other experienced, were really able grow. agencies target. “A lot of to work on more larger and carriers have done very more complicated accounts well in that arena and a lot of brokers really which then helped the agency grow a lot.” do not concentrate on it,” he said. “We saw a Senn Dunn, an Insurance Journal Top 100 lot of brokers, our competitors, not aggressiveagency with $22 million in revenue, brings in ly pursuing small business and almost letting just $500,000 in revenue through its small accounts unit, but Templeton says the benefits it go. So to me there was opportunity there for of having it go beyond that. “I think it has also us to give the independent agent touch to clients who might not have been getting it helped us grow the larger clients,” he says. “Not only is it serving the small clients but it’s from their current broker or on a direct basis.” helping the rest of the company grow.” For Steven Grossberg, president of The NIA Target Market For Senn Dunn and The NIA Group, the Group in New Jersey, also an IJ Top 100 success of their SBUs has depended upon findagency, having a small business unit is just ing the right target small business market. part of having an agency that writes all facets If the small business account fits with a of accounts — benefits, life, property/casualty standard market, or stock carriers, a lot can or personal lines. “We like to cross-sell small be done to make the operation very efficient, accounts,” he says. “We find it to be very effecsays NIA Group’s Grossberg. However, he tive. … What may be a small property/casualadded, the efficiencies just aren’t there when ty case could be a large group benefits case,” writing a small account through an alternate he added. market. For another IJ Top 100 agency, CaliforniaLinda Coleman, executive vice president for based Heffernan Group, targeting small busiThe NIA Group, who supervises the agency’s ness was always in the cards, according to small business division, says risk appetites for Mike Heffernan, founder, president and CEO. insurance companies are not very broad when “One of my goals was always to build a small dealing with small business clients, which can business unit and have it be more like personal lines,” he said. Heffernan envisioned an SBU be a challenge. “That leads you to go into the that used technology, procedures and systems continued on page N6 By Andrea Wells
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SPECIAL REPORT Small Business Small Business Unit, continued from page N4
alternative markets and that requires a lot more involvement in the underwriting process,” she added. “You’ve got to be able to pick something up, answer it and put it back down,” Senn Dunn’s Templeton said. “The volume is a challenge. There’s a lot of renewals every
month. There’s a lot of activity going on every month.” According to Templeton, in order for Senn Dunn’s SBU to be effective, it had to decide what type of small business account to focus on. “We have to focus on things we can control, focus on things that are rela-
tively straightforward,” he said. “We get a call from a small contractor, we know exactly where to go, what carrier to use, we know how to get it done, we can turn a quote around very quickly,” he said. “But if we had somebody call with a really unique exposure, say a ship’s hull inspector that would take a lot of work and we really don’t have that expertise.” Templeton said, “sure there’s a market out there ‘We like to crossfor Mr. Hull sell small Inspector,” but the time spent accounts. … What chasing specialty may be a small coverages might have been better property/casualspent writing ty case could be a three retail locations. large group “As we benefits case.’ became more focused on the right carrier and right type of client our service improved,” he said. “Once we got the discipline to do that then we really had more time and more capability to handle those good Main Street businesses.” For Heffernan Group, much of its small business has gone to monoline workers’ comp carriers in California and to the surplus lines market, but Heffernan expects to do more in the future with standard carriers. “The Hartfords and the Travelers of the world definitely enjoy the fact that we have a dedicated unit that kind of mirrors their own corporate structure,” he said. “They are able to allocate the resources that they have for that unit directly.” Even though small business growth has been good with standard carriers, Heffernan envisions it being even better in the future. “One of our goals for this year is to try to take advantage of the fact that they are giving us resources. And we just want to have better results with them.” Phil Runge of Travelers’ Select Accounts division likes that Heffernan’s business model focuses on lower exposures and smaller premium based accounts. “Their business model fits in quite well with our business model,” he said. continued on page N14
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Employee
INSURANCE JOURNAL
TOP100 AGENCIES D. Gaines Lanier Chairman and CEO
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-Powered Excellence
With a Conservative View on Growth and Employees as Owners, J. Smith Lanier & Co. Has Risen to the Top Even in the Toughest Market Imaginable By Lori Widmer
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or J. Smith Lanier & Co., 1981 was a big year. That’s when the people into the business and let them have an equity play in it; particWest Point, Ga.-headquartered insurance firm decided to ipate in the financial gain of the business. His shares grew at the same switch from what was a long history of rate.” being family-owned and operated to an Therein lies the beauty. If employees share the Insurance Journal employee-owned business model. wealth, in J. Smith’s estimation, they have a vested Top 100 Agency Profile interest in the health and management of the comNot that the old model wasn’t working. In fact, RANKING: No. 9 pany. In turn, everyone wins. In 1993, the ESOP the company had been operating as a family-owned Agency Name: was born. enterprise since its inception in 1868. That’s right J. Smith Lanier & Co. Today’s J. Smith Lanier & Co. employee is win— 1868. Started just after the Civil War by Ward Headquarters: West Point, Ga. ning big time. Since 1993, the company has quadruCrocket and Lafayette Lanier, the company was Year Founded: 1868 first part of a dual operation — a bank and an Additional Locations: Alabama - pled in value and has managed to outpace even its own expectations in terms of success. Each insurance company — that the founding brothers Huntsville, Birmingham, Opelika; employee receives equity — Gaines estimates that established in order to help their community Florida - Tallahassee; Kentucky a staffer making $40,000 can bring in an additional rebuild after the war. Today it’s one of the top Lexington; Tennessee $160,000 to $180,000 in equity. While it’s true ranked independent brokerage firms in the country, Chattanooga, Knoxville, employees are not the majority shareholders — yet it still maintains its regional location; the comMurfreesboro; Georgia - Albany, they comprise 20 percent of the shareholder interpany’s main headquarters is in West Point, Ga., with Atlanta, Augusta, Carrollton, 19 offices throughout Georgia, Tennessee, Alabama, Columbus, Loganville, Manchester, est with an additional 70 shareholders making up the remaining interest — they are very much Kentucky and Florida. Newnan, Thomasville, Waycross, invested in the well being of the company. Presently at the helm is D. Gaines Lanier, CEO West Point. Gaines says there are no regrets going employeeand a descendant of the founders. In fact, the 2007 Premium Volume owned. At the outset, the changes were difficult to Lanier family has headed the company since its Property/Casualty: see, but within just a few short years, employees inception, passing ownership from one Lanier to $655.1 million were seeing a positive change on their year-end another four times in the 140 years the company has Other than statements. “They could see the value that’s been existed. Gaines Lanier, who came on board in 1976 Property/Casualty: created. It has an impact on longevity, the work and was appointed CEO in 1999, has been with the $433.3 million (benefits) ethic and loyalty to the company.” company through some of its key transitions, the % Commercial: 65% Not to mention an impact on employee involvemost important being the establishment of the % Personal: 10% ment and awareness of business as usual. employee ownership model. % Benefits: 25% “Employees are conscious of cost-cutting and Principals: D. Gaines Lanier, Sharing the Wealth CEO; Gary Ivey, COO; Frank Plan, expenses and client retention. They have engaged as being owners. They have seen over these 15 years The company’s third CEO, J. Smith Lanier II (and chief financial officer. what that value means to them financially.” And Gaines’ grandfather), is the mastermind of employMergers/Acquisitions: that, he says, makes for a stronger business foundaee ownership in the company. As Gaines puts it, Insuramerica Aviation (Loganville, tion. the elder Lanier was a leader who understood the Ga.) Associated General Agency Treating employees right by allowing them to importance of securing the buy-in of the employees. (Chattanooga, Tenn.) participate in the growth and success of the com“One of the traits that Smith Lanier brought was his Number of Employees: 576 business savvy to spread the wealth. He brought continued on page N10
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J. Smith Lanier & Co., continued from page N9
are much more engaged in the culture of the organization than the pany, as well as giving them control over decisions that affect their financials. Our first meetings are always about the people — we operating success, has created a welcome cost-saver — employee never talk about the money. We look for people who are culturally retention. Employees have a strong presence on steering committees, like us — conservative, honest, of high integrity, similar value sysusually 20 producers and a smattering of management teaming to tem and sales oriented. If they’re willing to grow the business and determine necessary resources and business methods that help be part of a business. There is a difference between someone who increase their success rates. Gaines believes this additional layer of wants to own the business and someone who wants to share ownerinvolvement has created not only the company’s exponential profit ship. I have every desire to be on top of the mountain; I just have no growth, but also has allowed them to hang on to key talent. “We lose very few produc‘One of the traits that Smith Lanier brought was his business savvy to spread the ers. wealth. He brought people into the business and let them have an equity play in it …’ When they get desire to be there alone.” here and after 10 or 15 years they have a half million to a million or His goal is to maintain the cooperative attitude that is pervasive in better in value, they’re not looking to leave if we treat everyone the organization. “If a producer in Atlanta writes a nice account, a right.” producer in Albany celebrates with him — we as an organization The company also has a highly-tuned resource distinction — a are successful. We have a competitive nature with our competition, stable of claims staff, loss control professionals, alternative risk perbut we don’t have to compete with ourselves. It’s part of our strucsonnel, errors and omissions, and directors and officers liability speture that we’re stronger together than we are by ourselves.” cialists, large casualty specialists, and large property specialists. Each J. Smith Lanier & Co. producer has plenty of resources to bring Conservative Business Equals Growth in to the client as needed. “We’ve had a great deal of success over the Another factor Gaines attributes to the company’s success is its last few years in forming captives and alternative risk mechanisms conservatism in both business and personal endeavors. “We’re a confor clients. Our claims advocacy group is, in our minds, where the servative people. We’ve never leveraged the company hard. We make client really sees us create value when he has a very difficult claim. good business decisions. We put money back into the company every We assist instead of standing back and handing it over to the insuryear. It started in 1980 when we really started running the business er.” like a business and not like a family company.” That’s not to say the family ideals have been abandoned. To the Choosing Wisely contrary, in explaining his belief that each employee from manageOne thing J. Smith Lanier & Co. does well is evaluate opportuniment to mail room has the same responsibility to the health of the ties and let the opportunities find them, not the other way around. collective, Gaines speaks of the family atmosphere. “In our world “Opportunities arise, but not on our schedule. We stay in a position there’s a responsibility of the family member to the family. You ask to capitalize on the opportunities.” the family to help when he can, but every member needs to underAs for a perfect fit, Gaines says it’s not what one would think. “We stand he has to bring his value back to the family or he doesn’t stay part of the family. Most people say the family takes care of you, but in our world it works both ways.”
Pictured standing left to right in back: Board members Scott Crawford, executive vice president; Gary Ivey, president and COO; Frank Plan, CFO. Seated left to right in front: Sloan Howard, senior vice president and steering committee representative to the board; Board members D. Gaines Lanier, chairman and CEO, and Robert Culpepper, executive vice president. N10 | INSURANCE JOURNAL-NATIONAL REGION February 9, 2009
Decisions, Decisions Not every decision made in the company has been a good one. Gaines laughs about some of the not-so-successful decisions, of which he says there were more than enough out there. Of the successes, he says, “We’re very fortunate. We’ve made some mistakes — no question about it, and some I would obviously not do again. Fortunately, none have been that big in magnitude that it created a real problem for us. Our real success has been finding those people who culturally fit us.” He cites the recent acquisitions in Lexington and Tallahassee. “These people believed in our culture more than anything else. That’s why they’re here. It’s not necessarily the economics of every transaction — they enjoy working in this environment.” One not-so-successful decision involved a merger attempt with two groups in 1980, one which Gaines is reluctant to talk about. “We realized shortly after that it was a bad merger and we split it back out in 1981.” www.insurancejournal.com
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INSURANCE JOURNAL
TOP100 AGENCIES But even the bad decisions can be catalysts for positive change. When the company decided to leave behind the merger, Gaines became an owner, as did William Parr Jr., who is the company’s current vice-chairman emeritus. They also brought on board the company’s current Chief Operating Officer Gary Ivey, who is also a major shareholder. Maintaining in a Tough Market At present, Gaines says the company is looking at a flat growth year for 2008 as well as 2009. Thank the current recession and volatile market conditions, which are testing (and in some cases sinking) competitors and many large financial institutions. Still, Gaines maintains a positive outlook. Business as usual must go on. “It’s not necessarily that we aren’t writing new clients, we’re not growing or we’re not competing to bring on new talent. We are. It’s just that you cannot go through the economic downturn and the rate reductions of the competitive market we’ve been in and it not have an effect on growth, but we’re not going negative.” He attributes that back to the company’s conservative approach. The company, he says, makes a good return, but doesn’t over-leverage and try to outdo the competition in deal making. “We’re conscious of who we are. We’re not going to overpay for a deal just to make a deal. We’ve probably lost some opportunities from maybe even better than a double-digit growth. We have not done that because we’re not going to go out and overpay for transactions.”
D. Gaines Lanier and J. Smith Lanier II
think it’s going to change us. We’re not going to change this company a great deal by that. We’re going to be conservative in our expansion. Fortunately, we have a very strong capital base. We’ve been diligent in building retained earnings. We may all tighten our belts, and I really think we are. But we’re not going to go out of business.” What about coverage availability? In Gaines’ estimation, it will be Recession and Opportunities there and the market will be competing heavily for business. “Carriers Gaines’ outlook in a recessionary era could well be fueled by a do have capital, and they’re going to want to continue to grow the long history of conservative, smart decision making. How does the business.” It takes no crystal ball, in his opinion. “We all should’ve current economic situation affect the industry and how J. Smith known this was coming. Nothing stays great forever.” His only concern Lanier & Co. will be conducting business? “I think they are going to — maintaining caution and not overstaffing until revenue comes back. That’s going to be tough, as he points out, ‘We’ve had a great deal of success over the last few years in because of the influx of talent that he expects is already flooding the market. forming captives and alternative risk mechanisms for clients.’ be very parallel to each other for this reason — we have seen over the last several years rate decreases coming from carriers where rates have actually gone down. Couple that with exposure increases that we’re going to see because of the economic downturn. Payrolls are going to be lower, sales are going to be lower, and you’re not going to see the expansion in businesses. All that’s going to come through in premium. That’s going to affect all of us. The carrier is going to be faced with the same problem — so are we as brokers. We’re going to see return premium audits, in my estimation, much heavier in ’09 and ’10. “I think the next two years are going to be the toughest years that this industry’s faced in the last 10 (years). In the market we’re in now, rates are going down, exposure base is going down, competition’s still there, so obviously everyone’s going to earn less. In the last several months the real business climate is changing. We’ve seen the demise of businesses, bankruptcies, and everything else increase. We think that’s going to continue. That’s going to have a major impact on our world and on the industry.” But as for how it will affect operations, Gaines is positive. “I don’t www.insurancejournal.com
Family Attitude, Employee Involvement For now the company plans to continue its current way of doing things, which is to work together and to reach into the surrounding communities in order to make a difference. J. Smith Lanier & Co. employees are very much part of the communities in which they work, donating not only time but money to various organizations and community projects. The company itself is very involved in the Fuller Center for Housing, and Lanier employees have built six Habitat for Humanity houses. The company also sponsors the Brain Tumor Foundation for Children charity event, which raised an estimated $225,000 in 2007. Additionally, each office gets $5,000 to donate to local charities at Christmas, worth about $50,000 to the company annually. Gaines believes it’s the focus on the whole that distinguishes his company from its competitors. “We’re real people who happen to be in the insurance business. We’re grounded.” IJ Widmer is a Philadelphia-based freelance writer who specializes in insurance and risk management topics. February 9, 2009 INSURANCE JOURNAL-NATIONAL REGION | N11
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Closer Look Errors and Omissions
How to Avoid Agency Errors and Omissions Claims Advising Clients on Specific Dollar Values of Coverages They Need to Consider May Create Unnecessary Exposures Plitt
By Steven Plitt
T
here have been an increasing number of lawsuits brought against agents in situations where the client/policyholder does not have sufficient liability coverage limits to pay for the liability exposure caused by an accident. Typically, in these types of situations the client/policyholder sues the insurance agent alleging that the agent should have recommended the purchase of higher policy limits. This situation also arises frequently with uninsured and underinsured motorist (UM/UIM) claims as well. In most states, insurance agents are not required to recommend a specific amount of coverage. Also in most states, insurance agents are only required to provide to the client the appropriate insurance products to protect against the client’s risks. This recommendation does not include the limits of coverage which should be purchased, however.
At the time of the insurance purchase the amount of insurance coverage necessary to protect the insured is purely speculative. Irrespective of the client’s financial status, if an insurance agent were to recommend large limits and no accident occurred then the client would have, in hindsight, overpaid for the amount of risk coverage needed. On the other hand, when an accident does occur which produces substantial injury or liability exposures — that realized exposure— in hindsight demonstrates that larger limits should have been purchased and that the purchase of higher limits was a prudent decision. The point to this is that the agent, at the time of the policy sale, cannot predict with any accuracy the amount of coverage that the insured should purchase. Any recommendation will cut both ways depending on hindsight.
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Assessing the Amount of Liability In order to assess the appropriate amount of liability and UM/UIM coverage that the client should purchase would require the agent to have substantial access to the insured’s financial investments and properties. With respect to UM/UIM coverage, the amount of health insurance can be relevant. Even with this information, an agent cannot accurately assess the insured’s risk which is expressed through the dollar amount of the policy’s limits. Perhaps one of the most comprehensive discussions of the public policy for judicial refusal to declare that insurance agents owe a duty to recommend specific amounts of insurance can be seen in the Maryland case of Sadler v. Loomis Co., 139 Md.App. 374, 776 A.2d 25 (Md. App. 2001). In Sadler, the Maryland Court of Special Appeals found that a lawsuit brought by an insured against her insurance agent for “woefully underinsuring” her was not a legally recognizable claim. The court in Sadler noted that the majority of states refused to hold agents liable for failing to recommend a sufficient amount of insurance because it is the insured who is “in the best position to assess the value of his or her assets, and the extent of potential loss in the event that a risk materializes, whether by adverse judgment, business interruption, fire, theft, or the like.” (139 Md.App. at 400, 776 A.2d at 40) Additionally, the court observed that it is the “insured [who] is generally considered best able to balance the factors relating to potential economic loss against the expenses of purchasing additional insurance, the likelihood that a particular risk will materialize, and the insured’s own comfort level with the risk versus the cost of greater protection.” The court expressed concern that requiring agents to advise policyholders of the www.insurancejournal.com
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amount of coverage they should purchase would “readily encourage an insured who suffers a loss to fabricate that he or she would have bought more insurance had it been recommended.” In essence, the creation of such an obligation to advise insureds on the amount of coverage they should purchase would indirectly afford insureds the opportunity to insure after the loss by merely asserting that they would have bought the additional coverage had it been offered.
believes is adequate to protect against the possibility of risk exposure. The letter can tell the client that the agent may make a recommendation, generally, that it is the client who must choose the amount of coverage purchased. As an example, the agent could recommend an umbrella or excess policy as a type of product and then
explain the coverage requirements that are a condition precedent to the availability of that product. IJ Plitt is a national legal expert on insurance law and insurance agent issues. He is the current author of the national treatise COUCH ON INSURANCE 3D. E-mail: sp@kunzlegal.com. Web site: www.kunzlegal.com.
Minimizing Risk of Litigation Where does this leave the insurance agent? It is appropriate and required that insurance agents assist their clients with the selection of the right products to protect their clients. Oftentimes agents will recommend that an umbrella or excess policy be purchased above the primary There have been an limits because of the client’s increasing number general financial of lawsuits brought condition or the against agents in size of the busisituations where the ness being client/policyholder insured. This does not have sufficient type of advice liability coverage limits falls under the category of the to pay for the liability agent’s obligaexposure caused by tion to present an accident. the right products for the client’s needs. Specific dollar values are not directly recommended, although they are independently obvious, i.e., a $1 million umbrella. By recommending an umbrella or excess policy, the agent is recommending coverage in excess of the threshold attachment point. With respect to UM and UIM coverage, agents will often tell their clients that they should consider insuring themselves as much and as fully as they insure themselves against the prospect of a lawsuit against the insured. This type of general advice does not rise to the level of a specific recommendation for coverage limits. In order to minimize the risk of litigation, the prudent insurance agent should prepare a letter which is sent to every insured indicating that the insured must determine how much coverage he or she www.insurancejournal.com
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SPECIAL REPORT Small Business Small Business Unit, continued from page N6
Technology SBUs rely heavily on technology to create greater efficiencies, including in-house automation tools and carrier resources that enable producers and service staff working with small accounts to move quickly.
John Pritchard, Heffernan’s senior vice president and manager of special accounts, or small business, says to be successful an SBU has to have to a lot of volume and has to track that volume constantly. “We have invested in technology
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THE SALES & MARKETING PUBLICATION FOR P&C PROFESSION ALS PAGE TWO
CSR SELLING Upsell / Cross-S ell Tip Sheet for Commercial CSRs.
These self-pu blished documents permit you substitute for the traditi to put your insura onal nce offer coverage in the best checklist where possible light. insureds sign new Accordingly don’t limit on to or off , yourself to coverage of each comparing and limit. just the core After all, document’s coverages. primary functi this Also feature any special packa to help you on is close the that are part ges sale, not protect you of your quote All insurance against E&O instance, . For proposals if the home claims. built upon The charts are owners the pillars policy that supplement of price, you propo summarize protection, and se includes your regula an endorsemen PAGE FOUR and servic r proposal e. On document. the surfac e, it is extrem Pre-fil limited deduc t package with ADVERTISING ely as many covera l and compare simple for tible windo potential replacemen w ges and servic buyers to t, refrigerated glass as space and compare Solicit Contrac es cost. They spoilage, judgment food tors with just have and dama allows. Then sit down Target-Specific to examine ge from backed up two Marketing. with the prosp sewers — and help what do these numbers. But ect disclose him or her them all. dollars actual to complete Their practi the other buy? That’s cal value side of each stands out where protec ly PAGE FIVE form, itemsince they by-item. This and servic tion are e fill in the of the custom not part joint exerci picture. se is one of the Competing ary contra Q&A keys ct. quotes are Furthermore never actively involv to sales success, identical, CSRs and Custom , when you as limits, covera include multip ing the buyer er Skills. proposal endorsemen ges, le policy types in the Managing New presen the same ts, and seller on Commercial chart, such when an in-per tation. However, services vary as auto, HO, and umbre Lines Producers. from offer son meeti lla, you promo physically ng is to offer. So, when impossible 51% or more Post a “Want idea of the te the or resisted, List “to Gain prospect of these the charts variations moving their Desired Sales can be emaile are to your entire accou Appointments advantage, d as PDF files and nt to you, it’s wise to . instead point them of just a single filled in with Tips for Design out. prospect policy. This To help you ing Your over the phone the format encou to presen Next Agency . Still, with all of rages both differences, t the Logo. their advan of you to discuss we have develo tages, these and quote tools aren’t two comp ped multiple for everyo arison charts policies at ne. the same [see page 7] and Larger comm PAGE SIX time, even when posted them there are require simila ercial accounts PRODUCER SALE online Subscr in our disparate expiration r comparativ ibers-Only S dates. information, Area. e The first one but just not compares The first chart Inject Fun into the this forma in integral and Commercial also serves t. So, use limited summ optional covera as a Lines Insuran this chart structure aspects of ary ce Proposals. ge mainly your propo useful in itemiz of discussions, 7 Ways to Pep sal to personal lines to encourage prospect’s ing the pre-sa Up a Small existing policie the coverages and small le and limits Business Present business prospects the secon s; that you to interact d compares initially propo ation. with you, servic and to ensure Modify and sed that you menti — and noting output custom es. that the major distinctions versions of oned non-c ized of your offer items such each using overed as flood insura Word. clearly under are However, stood. Let nce. it is not a today’s harsh us vs. viable them menta lity work to your sales advantage.
PAGE THREE
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that allows us to track activity for each producer, which is very, very important. We’ve also, to the extent possible, taken advantage of as much technology as we could from our carriers, using their online rating systems, and the like.â€? “Every producer is extremely accountable for activity,â€? Heffernan said. “We cannot allow someone to not constantly prospect. In the larger commercial, we monitor it but it’s not that hands on.â€? Small commercial prospecting has to be tracked daily, Pritchard added. “We actually track it real-time, daily. I’m tracking activity on a day-to-day basis for everybody to make sure they have a consistent flow of activity on a daily basis.â€? Heffernan says, most importantly, for an SBU to be successful it has to have quality leadership and management support. “Someone has to lead it. There’s a lot of people, there’s a lot of moving parts, you have to have the passion and understand the insurance business. You have to have the knowledge about pretty much every product available because we are selling to manufacturers, to contractors, to non profits ‌ you have to have broad-based knowledge and you have to be a good leader. It doesn’t work ‘I think you have without that kind of indito have a belief vidual.â€? in it. You can’t Heffernan also believes a belittle it. You successful can’t make it SBU must have support seem like it’s just from the top small business.’ down. “I think you have to have a belief in it. You can’t belittle it,â€? he adds. “You can’t make it seem like it’s just small business.â€? Dedication to the SBU is a must for success, Heffernan says. “It’s taken us two years and believe me it’s a capital investment. You don’t start making money right off the bat. I think if you want to do it, you have to be dedicated and spend at least three years to see if it works.â€? IJ www.insurancejournal.com
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Closer Look Non-Profits/Social Services
Study Shows Need for Standardizing Nursing Home Social Workers’ Credentials Only Half of Nursing Homes Surveyed Employ Social Workers with Degrees in Social Work
S
ocial workers play a vital role in improving the quality of nursing home residents’ lives. But qualifications of nursing home social workers vary wildly in part because of low federal standards and inconsistent state laws, the first national study on nursing home social workers reveals. Only half of nursing home social workers have a degree in social work, and 20 percent do not have a four-year degree, a University of Iowa survey of 1,071 nursing home social service directors shows. Despite their desire to learn, two-thirds of nursing home social workers report they do not belong to a professional organization that helps to keep them up-to-date on nursing home social work issues, and only 38 percent are licensed in
social work. For-profit nursing homes are 31 percent less likely to hire a degreed social worker. The numbers are concerning, given the important responsibilities nursing home social workers have, said Mercedes Bern-Klug, the assistant professor of social work in the UI College of Liberal Arts and Sciences who led the study. Nursing home social workers advocate for residents and watch for signs of stress and depression. They connect residents and families with resources in and outside the nursing home and facilitate transitions such as hospice, a hospital stay or a return to independence. They guide families, residents and care providers through difficult conversations or conflicts. “Nursing home social workers handle very
N16 | INSURANCE JOURNAL-NATIONAL REGION February 9, 2009
serious emotional issues affecting residents, family members and other staff members, and they deserve to be educated on how to handle these issues,” Bern-Klug said. “Everyone benefits when nursing homes hire qualified social workers.” Older adults struggle with dementia, and the highest rates of suicide are among older adults. Some are victims of physical, emotional or financial abuse. “Still, many people in charge of social work in nursing homes aren’t social workers, and the federal government doesn’t require that they be social workers,” Bern-Klug said. Homes with more than 120 beds are required by federal law to employ a full-time social worker, but anyone with a bachelor’s degree in any human service field — not necessarily social work — and one year of supervised experience in the field is considered qualified. Seventy percent of nursing homes have less than 120 beds, and therefore are not required by federal law to employ a social worker. Most homes do employ one — but typically only one — which means devoting adequate time to each client is difficult, Bern-Klug said. Many times social workers’ jobs involve other duties like marketing or activity planning. “I asked 1,000 social workers, ‘How many residents can you handle? Federal guidelines say you can do 120,’” Bern-Klug said. “An overwhelming majority said fewer than 60. “We need legislation to demand well-prepared social workers and to set reasonable social worker-to-resident ratios, but unless families demand changes, it will be difficult to get them,” Bern-Klug said. “Decades of research has documented the negative consequences of having too few nurses in a nursing home, and still we don’t have strong laws demanding a realistic nursing ratio.” Bern-Klug examined state laws and found that 10 states don’t address qualifications for nursing home social workers, and seven state codes do not appear to comply with federal standards. Twenty-one states require www.insurancejournal.com
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a social work degree, and most others require a four-year degree, but not in social work. Iowa’s guidelines for social services in nursing homes with more than 120 beds are identical to the federal guidelines. Iowa code does not address the social service credentials of the majority of its nursing homes, which have fewer than 120 beds. The research also uncovered loopholes in state laws. In Colorado, for-profit nursing homes in rural areas don’t have to hire a qualified social worker if they advertise for a week in a local paper and don’t find one. In Indiana, social services can be provided by a member of the clergy who completes a 48-hour course and consults with a social worker. “We need to standardize nursing home social worker qualifications, regardless of the number of beds, and nursing homes need to make sure their social workers have access to the training they deserve in order to do their jobs well,” Bern-Klug said. Nursing homes need to support existing social workers by providing educational and professional development opportunities, along with decent salaries and benefits, she said. Full-time salaries in some regions are as low as $15,000 per year, while others exceed $60,000, the study showed. “Nursing homes tend to focus on physical care — the risk of falling, the risk of bed sores or skin ‘We need legislation wounds — which are very serious to demand wellissues,” Bern-Klug prepared social said. “But people workers and to set need more than good physical care reasonable social to thrive, and physworker-to-resident ical conditions have ratios, but unless emotional consequences that social families demand workers can help changes, it will be address. As individdifficult to get uals and families them.’ compare nursing home options, they should ask about the qualifications of the social worker and the number of residents under his or her care.” The analysis of laws on nursing home social worker qualifications was published in the fall issue of the Journal of Gerontological Social Work. Results of the national survey will be published in the Journal of American Medical Directors Association. IJ www.insurancejournal.com
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New Markets The following markets were selected from the MyNewMarkets database of 25,000 coverages and programs. To find additional markets, or to submit markets, go to www.MyNewMarkets.com. High-Value Homeowners’ Protection Market Detail: Irwin Siegel Agency Inc. (www.isapcg.com) brings agents access to AIG’s Private Client Group program. Private Client Group is a comprehensive package program for high net worth individuals seeking to protect their valuable assets and benefit from flexible coverages, innovative products, extraordinary services and competitive pricing. A high-deductible option is available to allow targeted high net worth clients effectively control costs. Agents are not subject to production minimums. Available Limits: As needed. Carriers: American International Group. “A” rated by A.M. Best. Admitted. States: All. Contact: Mark Madsen at 800-622-8272 or e-mail mark.madsen@SiegelAgency.com.
General Liability for Roofers Market Detail: MarketScout (www.marketscout.com) gives agents access to a general liability market for roofers. Residential, repair and commercial roofers are welcome. No exclusions for hot tar or heights. New entities are also welcome. The carrier can provide blanket additional insureds and blanket waivers of subrogation endorsements. Minimum premiums begin at $10,000 and the minimum deductible is $5,000. Available Limits: $1 million to $5 million. Carriers: Unable to disclose. “A” rated by A.M. Best. Non-admitted. States: All. Contact: John Gaskill at 972-934-4212 or e-mail jgaskill@marketscout.com.
Specialty Equipment Rental General Liability Program Market Detail: Trade Group Insurance Specialties Inc. (www.tradegroupins.com) created and is the exclusive underwriter for the FLOW Rental Program. FLOW provides general liability protection for specialty rental trades such as traffic control/barricades, portable toilet, temporary power and fencing,
and water pump/flow diversion. Minimum premiums begin at $10,000. Available Limits: As needed. Carriers: Unable to disclose. “A” rated by A.M. Best. Non-admitted. States: All except New York. Contact: Michael Bell at 866-366-7938 or e-mail mbell@tradegroupins.com.
TeleRadiology Professional Liability Market Detail: Founders Professional LLC (www.founderspro.com) offers medical mal-
Bringing Market Seekers and Market Providers Together • Find markets in our database • Promote your markets on our site • Join our community forums • Membership is free! practice/professional liability protection to TeleRadiology practices serving hospitals, imaging centers, ASCs and physician groups. Coverage is provided on a claims-made basis with available prior acts protection. Minimum premiums begin at $25,000 and deductibles begin at $5,000. Available Limits: $1 million to $10 million. Carriers: Unable to disclose. “A” rated by A.M. Best. Non-admitted. States: All. Contact: Robert C. Hall at 813-769-1290 or e-mail robert@founderspro.com.
Vacant Property Market Detail: American Management Corp. (www.amcinsurance.com) offers property protection to owners of residential and com-
N18 | INSURANCE JOURNAL-NATIONAL REGION February 9, 2009
mercial vacant property in 45 states and the District of Columbia. Minimum premiums begin at $750. Available Limits: Up to $2 million. Carriers: Various carriers. “A” rated by A.M. Best. Non-admitted. States: Ala., Ariz., Ark., Calif., Colo., Conn., Del., D.C., Ga., Idaho, Ill., Ind., Iowa, Kan., Ky., La., Maine, Md., Mich., Minn., Miss., Mo., Mont., Neb., Nev., N.H., N.J., N.M., N.C., N.D., Ohio, Okla., Ore., Pa., R.I., S.C., S.D., Tenn., Texas, Utah, Vt., Va., Wash., W. Va., Wis. and Wyo. Contact: Stephen Strange Jr. at 800-233-2398 or e-mail stevejr@amcins.com.
Large Commercial Umbrella Market Detail: Northern Star Insurance Agency LLC (www.northernstarins.com) can offer certain classes of commercial insureds umbrella and excess coverage with limits up to $100 million. Northern Star specializes in community associations, real estate, hospitality, public entities, restaurants, museums and cultural centers, auto dealers, contractors, distributors, manufacturers, retailers, service organizations and many other market segments. Minimum premiums begin at $500. Available Limits: $1 million to $100 million. Carriers: Unable to disclose. “A-” or better as rated by A.M. Best. Admitted and non-admitted. States: Ala., Alaska, Ariz., Ark., Calif., Colo., Conn., Del., Ga., Ill., Ind., Md., Miss., Mo., Neb., Nev., N.J., N.M., N.Y., N.C., Ore., Pa., R.I., S.C., Tenn., Texas, Utah, Va. and Wis. Contact: Eric Magee at 714-938-0015 or e-mail emagee@northernstarins.com.
Medical Property Protection Market Detail: RPS of New York (www.rpsins.com) offers agents a property protection program designed specifically for the health care industry equipment. The medical diagnostic equipment coverage form is crafted to provide protection for: MRIs, CAT scanners, X-Ray equipment and other portable diagnostic equipment. Power units www.insurancejournal.com
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and specialized trailers part of mobile units can also be covered. Blanket limits of $250,000 are also available on items such as accounts receivable, EDP (including extra expense), extra expense, food spoilage and contamination, loss data preparation costs, personal property of patients and valuable papers and records. Minimum premiums and deductibles begin at $5,000. Available Limits: $1 million to $100 million. Carriers: Unable to disclose. “A” rated by A.M. Best. Admitted. States: All. Contact: Robert Hecht at 631-969-1900 or e-mail bob_hecht@rpsins.com.
insurance, language, modeling, music, photography, public speaking, real estate, tailor, theater, tutoring instruction and more. General liability is available as part of a package or on a monoline basis. Professional liability and abuse/molestation coverage are also offered. Available Limits: As needed. Carriers: Various carriers. “A++” rated by A.M. Best. Admitted and non-admitted. States: Ariz., Calif., Colo., Md., Neb., Nev., N.M., Ore., Pa., Tenn., Texas, Utah, Va. and Wash. Contact: Elizabeth Gaida at 619-593-2059 or e-mail elizabeth@agostinisurplus.com.
Artisan Contractors Package Training Schools Package Market Detail: Agostini Wholesale Insurance (www.agostinisurplus.com) offers agents a program focused on specialty training schools including: art, athletic, bartending, beauty, business, computer, cooking craft, dance,
Market Detail: Chopra Insurance Brokerage Inc. (www.choprainsurance.com) offers an artisan and trade contractors insurance program using some hard-to-find coverage – the 11/85 edition of the CG 20 10. Coverage is provided using Insurance Services Office’s (ISO’s)
occurrence policy form. Other often requested coverages include: waiver of subrogation language, “primary” wording, blanket additional insured and a per-project aggregate. Coverage is also available for residential repair and remodeling contractors. Minimum premiums begin at $5,000 and deductibles start at $1,000. Available Limits: $1 million to $2 million. Carriers: Unable to disclose. “A +” rated by A.M. Best. Non-admitted. States: Ala., Ariz., Calif., Colo., Del., Fla., Ga., Idaho, Ill., Ind., Iowa, Kan., Ky., La., Maine, Md., Mass., Mich., Minn., Miss., Mo., Mont., Neb., Nev., N.H., N.M., N.C., Ohio, Okla., S.C., S.D., Tenn., Utah, Vt., Va., Wash., W. Va. and Wis. Contact: John Upchurch at 818-551-4588 or e-mail Jupchurch@choprainsurance.com. IJ Submit your company’s property/casualty markets to the industry’s leading searchable database at www.mynewmarkets.com.
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Spotlight Non-Profits/Social Service
Human Services Agencies Can Benefit from Agent Advice, Especially in Challenging Economic Times Custom Coverages and Loss Control Can Help Non-Profits Survive By David J. Firstenberg
W
hile today’s economic environment presents some challenges for many companies large and small, independent agents who understand and embrace those challenges can help solve problems for their clients and even create new opportunities. This is especially true for agents with not-for-profit, human services organizations as customers, because they are being uniquely impacted by the country’s financial landscape. Fortunately, with the expert advice of independent agents, these organizations can protect themselves against many risks, helping to ensure their stability and even success into the future.
Firstenberg
Human Services Landscape Unlike other businesses, human services organizations are experiencing an increase in the demand for services tied to economicrelated issues. And, at the same time, longreliable sources of funding, including state and local governments and charitable foundations, are being compromised. Because most of these non-profits are small or mid-sized local agencies with budgets of under $1 million — they are precisely the kind of organization that stand to benefit from the skill and knowledge of local independent agents. The Importance of Agent Advice Independent agents — who, generally, are
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well-known to be personally vested and involved in their local communities — can enhance the ability of local non-profit organizations to operate with greater efficiency and effectiveness. Through their expertise and valuable advice, agents can be a major asset to customers in this highly specialized, unique market, helping them to thrive and be more successful to carry on their mission, in spite of the prevailing economic environment. First, by extending important baseline coverages to small to mid-sized non-profit and human services agencies — including professional liability, general liability, physical and sexual abuse, management liability (including employment practices liability), umbrella and commercial auto — independent agents can
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provide these critically important organizations with protection against further financial strain resulting from accidents, lawsuits and more. Additionally, agents can provide guidance on new types of coverages that are designed to help protect non-profits against existing and emerging risks, which are especially relevant during the current fiscal climate. For instance, coverage for unpaid donations and pledges — a growing problem in challenging economic times — will pay out when a donor is unable to fulfill a written pledge due to bankruptcy or unemployment. For organizations that place patients who are aging or have mental or physical disabilities, some carriers also are offering protection for residential room reserve. Such coverage will replace state reimbursement income to human service agencies when a client is temporarily discharged to the hospital because of accident or illness, protecting nonprofits against the sudden loss of budgeted revenues. Additionally, some carriers are extending protection provided by the property form to also cover property and vehicle damage caused by a client placed by the insured not-for-profit organization. This type of protection would cover foster care agencies placing a child in the residence of a home health care provider. Later this year, The Hanover Insurance Group, which has a long and proud history of supporting local non-profit organizations through charitable donations and the valuable contributions of employee volunteers, will introduce Human Service Advantage, an expanded package of coverages strategically created for a broad range of not-for-profit organizations. Human Service Advantage expands existing offerings for not-for-profit organizations and will enable agent partners to offer an important safety net for those organizations that do so much to help others. Loss Control Besides advising non-profits on specific coverages to protect against their unique exposures, independent agents can deliver significant value to human services agencies through www.insurancejournal.com
counseling on loss control issues. Agents know that the only thing their customers want more than fast, efficient claims services, is to not have any claims at all. Working closely with loss control experts from their most experienced carriers, agents can provide a wide variety of valuable loss control services that will help reduce the likelihood of incidents that might result in a claim and, in this way, provide added financial protection for their customer. Appropriate loss control services may include seminars on exposures unique to human services organizations, such as helping clients employee effective de-escalation techniques to diffuse tense situations, reducing the need to use manual restraints which can lead to severe injuries and even death; risk transfer programs, to protect organizations from paying the price for someone else’s error or carelessness; discounted staff screening services (especially important in an industry that provides personal services and where there is a relatively high turnover rate). Together, these services can help organizations save money, and eliminate the need for claims before they even happen. Agents can work with their partner carriers, to offer loss control services unique to specialized organizations, like not-for-profits. A Unique Way to Help While insurance may not be the first thing that comes to mind when people consider how they can help local non-profits survive a severely strained economy, it can make a meaningful difference. In partnership with strong carriers, independent agents can help these organizations to take a more pro-active approach to understand and effectively manage their risks, while reducing costs and operating more efficiently, so they can continue to meet the needs of the most vulnerable members of the community. IJ Firstenberg is the commercial lines president for The Hanover Insurance Group.
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Idea Exchange Minding Your Business
Time Management 10 Tricks of the Trade
By Catherine Oak & Bill Schoeffler
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ime is the only resource we cannot recreate and we all have the same amount. How can you optimize your life by being “in control of time” rather than being “controlled by it?” Here are 10 tips to help you be time efficient.
1. Determine Your Time Wasters What are your biggest time wasters? Is it surfing the net? Email? Phone calls (on your cell phone of course)? Reading or sorting junk mail? Why is it we find these things essential when they did not exist for most of humanity? Trim down or eliminate the “time wasters” in your life. Make time for the truly important things — the big rocks — in your life (major work projects, family, personal time, etc.). Allocate only an hour a day on the “time wasters.”
2. Prioritize and Delegate Determine the key things to accomplish each day. Write them on a white board or in your day planner. Create a task list of secondary important items to do in between the scheduled primary important items. If possible, get through your big items first and you will feel better because you have finished the most important things each day. Delegate “large time — small gain” items. For example, yard work, which does not need your expertise, train or hire someone else to handle it.
3. Limit Tasks Most people put too much on their “to do” lists. For some people it is hard to say no, or they just want to be a “superhero.” Be realistic. Only schedule what is possible to accomplish on a given day and “double buffer” the time allocated. If you take on too much, you will feel let down at the end of the day because of all the things you did not accomplish. It is better to do less and be grateful for the things you actually did get done.
Oak
Schoeffler
4. Paper - Only Handle it Once One of the biggest “time killers” is how paper is mishandled. Someone a while back came up with a system for handling each piece of paper. There are only five options to handling each piece of paper when received. Decide to: 1) Toss it; 2) File it; 3) Read it; 4) Delegate it; or 5) Act on it. If possible, go paperless and get rid of the clutter. Start fresh and get rid of the old paper. Remember: O.H.I.O. — Only Handle it Once!
5. Improve the Hit Ratio Don’t practice quote. We don’t need the practice, nor do the underwriters. Track your “quote-to-write” or hit ratio. The closer the ratio is to 1.0 the better. The key is to pre-screen each prospect to see if they fit your program or book of business. Spend a few minutes pre-qualifying them so that there is a high likelihood of you writing the business.
6. Schedule Time for New Business Most salespersons don’t have much time to write new business because of daily pressures from existing accounts, such as service issues or account renewals. Time must be scheduled each day for producers to work on new business. Otherwise, they will not take the time to prospect and handle new accounts.
7. Streamline the Renewal Process In order for producers to focus on new sales, the renewal process needs to be streamlined and handled mostly by the service staff. Producers and CSRs should go over the list of renewals at least 90 to 120 days in advance to discuss the strategy for each account. From there, the CSRs or account executives should gather renewal information, submit for renewal or re-market the account and deliver the renewals to the client or to the producer for final review. Producers should work only on those accounts that need their expertise or relationship.
8. Staff Stratification Whenever possible, all persons in the agency should delegate tasks to the least costly, qualified employee who can handle that work. With automation, however, most service staff are doing it all themselves, including claims. But certain projects can be batched up, such as faxing, scanning, filing, all of
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which can be handled by a clerical person. Consider outsourcing work, such as certificates, which can be handled online or outsourced to third parties.
9. Plan Your Day Set up daily or weekly calendars on your desk that can be visible to you at all times. Plan when to make calls and appointments and fill the time in between the secondary tasks. Remember to make some time for your “time waster” as well. When out of the office optimize the time by scheduling more than one client or prospect in the same area. Plan the order of the visits based on the proximity to each other and the office. Try not to let new prospects or even existing clients, change your scheduled day. Changes will waste time and can cause you a lot of other problems.
10. Take Care of Yourself If you are one of those people that never get to the gym, or take the time to read, think or meditate, you need to make sure it is scheduled every day. The best thing for the body and the
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ficult because people tend to do too much, too mind is sleep. A good night’s sleep will leave fast. Change is accomplished by taking one you refreshed and feeling like you are ready to take on the day. And don’t forget to eat right, as step at a time. Just like building muscles, it can be challenging at first, but with small increwell. mental changes over time it gets easier. Invest some time for personal growth. Read Choose one thing you want to change and books that enrich one’s life, such as motivationmake one small adjustal tapes, biographies, histoment, today. Add one more ry, etc. Utilize open time to Discover how your step each day. As small as open your mind. Sign up life can be enhanced these changes may seem, for a (non-insurance) semiyou will see big results. nar, preferably in resort and made much Soon, when you look back, locations. Personal growth more enjoyable by the change will be notably cannot only be painless, making simple drastic. but also a pleasure. Listen adjustments. Start Oak & Associates is here to audio books (CDs, tapes to help guide your agency or iPods), while driving for now to design your to reach its full potential. maximum use of your time. use of time, now and We are offering agency in the future. owners and managers a Summary free half-hour consultation Discover how your life on issues impacting you and your agency. Give can be enhanced and made much more enjoyus a call today for your success for tomorrow! IJ able by making the simple adjustments outlined in this article. Don’t worry about the past because it’s gone. Start now to design your use Schoeffler and Oak are partners at the consulting firm of Oak of time, now and in the future. & Associates. Phone: 707-935-6565, E-mail: bill@oakand Change to one’s habit or behavior is often dif- associates.com. Web site: www.oakandassociates.com.
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Idea Exchange Carrier Watch
Insurers’ Stocks Down 14%; Middle Market Carriers Active in Intermediary Acquisitions Stock Price: Commercial lines stocks mirrored those of major indices in 2008, trading down 14 percent. Mergers & Acquisitions: Middle market carriers continue to be major players in the acquisition market as they look to wholesalers and managing general agencies (MGA) to add scale and distribution during the soft market. ProAssurance Corp. (NYSE:PRA) agreed to acquire Houston-based Mid-Continent General Agency Inc., an MGA that produces approximately $25 million a year in premiums from ancillary health care providers and other professional liability coverages. HCC Insurance Holdings Inc. (NYSE:HCC) also made two MGA/wholesaler acquisitions, picking up specialty divisions from Arrowhead General Insurance Agency and U.S. Risk Insurance Group Inc. Likewise, FCCI Mutual acquired Mississippi Insurance Managers. FCCI Mutual and Mississippi Insurance Managers jointly owned Brierfield Insurance Co. and as part of the transaction, FCCI acquired the remaining 20 percent of Brierfield. Also active in the carrier sector, the above mentioned HCC acquired Californiabased Surety Co. of the Pacific. HCC expects the acquisition to add $20 million of premium in 2009. ProAssurance Corp. also announced two carrier acquisitions during the quarter. The PICA Group will become part of ProAssurance through an all cash, sponsored demutualization. A provider of professional liability to doctors of podiatric medicine, the PICA Group insures approximately 9,800 podiatric physicians in 47 states and the District of Columbia. PICA also insures other health care professionals and provides errors and omissions liability insurance for a small, but growing, number of independent insurance agents through its PACO subsidiary. PICA wrote $99 million in premium in 2007, has $284 million in total assets, and has maintained an A.M. Best rating of “A-” (excellent) for the past 13 years. Earlier in the quarter ProAssurance announced it is expanding its legal profession-
al liability business by purchasing the Georgia Lawyers Insurance Co. ProAssurance is also establishing new relationships with agencies that produce legal professional liability business in 11 additional jurisdictions in the MidAtlantic and the West. These moves complement its existing $10 million book of legal professional liability business in the Midwest. GLIC insures approximately 2,700 lawyers in Georgia and had direct written premium of approximately $5.5 million in 2007. The fifth workers’ compensation transaction of 2008 was announced in October. Companion Property & Casualty Insurance Group announced that it has acquired all of the insurance and insurance-related service operations of AmFed Holding Co. Inc., the largest workers’ comp insurance and self-insurance administration company in Mississippi. The acquisition includes AmFed National Insurance Co. and AmFed Casualty Insurance Co., along with operating entities AmFed Cos. LLC and AmFed Insurance Services LLC. AmFed administers more than $75 million in annual premiums in Mississippi. In November, State Automobile Mutual
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Insurance Co. agreed to acquire Rockhill Insurance Group of Kansas City, Mo. With approximately $122 million in capital and surplus, Rockhill writes approximately $135 million in specialty property/casualty direct written premium through four insurance company subsidiaries. Key business segments include commercial property, general liability for residential construction, commercial umbrella and surety; a monoline workers’ compensation company, RTW; and Absentia, a third party administrator providing workers’ compensation claim and loss control services. Rockhill writes business on a non-admitted basis in 49 states and the District of Columbia and is licensed on an admitted basis in 42 states and the District of Columbia. Rockhill was started in November 2005 with $145 million in capital from private equity investors. IJ LMC Capital LLC is a national investment banking firm focused exclusively on the insurance industry. Services include qualified, industry-specific advisory relating to mergers and acquisitions, capital raises and valuations. Phone: 704-943-2600. E-mail Info@LMCCapital.com. Web site: www.LMCCapital.com. www.insurancejournal.com
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West Coverage News & Markets
Start-Up Stories: How New Agencies Are Competing Crop of New Agencies Is Defying the Hard Economy and Soft Market
T
he independent insurance agency small; few if any have the resources of a giant and emerging growth companies, which system is enjoying a resurgence. like Marsh, which is behind one new agency Butcher considers to be firms with revenues For years, the number of agencies in 2008. But new agency entrepreneurs are from about $75 million to $50 million and nationwide declined, but that not small in ambition. Insurance Journal intersome below that. He said Marsh does not trend has halted. There were 37,500 agencies views reveal they have big plans and, in some have a large customer base in this range, in 2008 — the same as instances, are showing although it does have some customers that in 2006, according to promising results. size, and some with the brokerage division New Agencies Fact: could become customers of the new agency. the “2008 Future One 20% in West South Central states New York: Marsh & “When we do operationalize, when we do Agency Universe Study,” Source: 2008 Future One Agency Universe Study McLennan Agency go live, this will be a national agency, meansponsored by the New York-based global insurance broker ing, I do expect to have a footprint that will Independent Insurance Agents and Brokers of Marsh, accustomed to handling large be attractive to carriers who are looking for America, Trusted Choice and several carriers. accounts, announced in October 2008 that it an effective distribution model,” Butcher said. The study attributes the stabilization to is setting up a separate retail agency to go He said Marsh will “almost certainly” be fewer mergers among larger agencies and after a share of the $80 billion in premium looking to hire producers to staff those locamore start-up agencies. Eleven percent of paid by smaller and emerging growth compations, in addition to using current employees. the agencies studied were founded after nies. The new entity, Marsh & McLennan The company also will be looking to acquire 2004, and about 4 percent were founded in Agency LLC, will be hiring producers as it agencies. 2007 and 2008. opens in select cities starting The new agencies appear to be concentratin the first quarter of 2009. California: ed in Florida, Louisiana, Texas and states New Agencies Fact: According to Jack Butcher, Timothy Gaspar where coastal concerns have prompted some 10% in West North central states president and CEO of the new Source: 2008 Future One Agency Universe Study Insurance long-established insurers to reduce writings, venture, the agency will conServices creating opportunities for other carriers to duct its business separately from Marsh’s Family — you can’t leave them, so you wade in and appoint agencies. Also, some insurance brokerage operations, although the might as well love them. Timothy Gaspar agents acquired years ago may be re-entering launch is part of the overall growth strategy. embraced this when he formed his properthe fray as their non-competes expire. The target market will be small business ty/casualty insurance agency — Timothy Not surprisingly, most new ventures are Gaspar Insurance Services — within the confines of his stepbrother’s and stepfather’s Los Angeles area financial planning firm. Gaspar built a book of P/C clients with another agency for five years before deciding service for a select number that need placen the current digital age, businesses are he wanted more control over his destiny and ment for difficult to place risks. relying less on offices filled with cubicles flexibility in dealing with clients. His step“We’re looking for a few dozen producers and more on technology to perform traditionbrother and stepfather owned Financial with whom we can work and give them peral tasks. Harn & Lechler Insurance Services Management Services, which has handled life sonalized service for their particular cases. LLC aims to prove this works for insurance and medical insurance, and financial planning When they call us, they will talk to a princitoo, with its “virtual” wholesale brokerage. issues for business owners for 34 years. Often, pal, not someone down the line that needs Former alumni of Los Angeles-based the family members would have clients who to check with upstairs. They can get immeAnderson & Murison — Lechler previously would need each other’s services, but Gaspar diate answers for their questions and placeserved as president of that agency and Sarn was unable to make referrals. So, he used his ment problems,” Lechler said. has 25 years of experience in production and own financing to buy his book of business Harn & Lechler brokers builder’s risk, underwriting — the two pooled their and joined his relatives in April 2008. course of construction (COC), commercial finances and started their wholesale insur“Because we’re family, we’re in the same general liability, contractors, difference in ance brokerage in August 2008. The owners social circles and network, and now I have conditions, earthquake and flood, employwork out of their home offices in Castro flexibility with who I can work with,” Gaspar ment practices liability, and property all Valley, Calif., and Sierra Madre, Calif., where said. “Previously, when I worked for another risks/special perils. The company focuses on they connect to producers and support staff firm, I was not able to refer business their product liability for imported products — through an online wide area network. way. This way, I can include them on a lot of anything including children’s toys, light Despite their reliance on technology, the accounts and referrals.” pharmaceuticals and cigarette lighters. IJ two maintain that their forte is personalized
California: Harn & Lechler Insurance Services
I
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From a product standpoint, Gaspar said he handles several types of business. Between his insurance agency and his stepfamily’s, they aim to handle all of the personal and business insurance for their clients, often upper income business owners and entrepreneurs. “Our whole strategy is about relationships and taking care of people,” maintaining 100 percent client satisfaction, Gaspar said. He said he will go to great lengths to provide privacy and protection for high-profile clients. “The best marketing strategy for new business is to provide good service. If you provide good service, your customers will do your referrals and you’ll keep business for the long-term. ... it’s expensive to get new clients,” he said. That strategy has helped Gaspar weather the economic downturn. Premiums are down, but “knock on wood, business is doing great,” he said. “It’s easy to use the economy to justify less business, but people are looking to save money more than ever on insurance and a lot of people are shopping and taking a look at what they currently have.” Nevada: Trenchant Insurance At first glance, it seems like Gina Russo’s new Las Vegas agency, Trenchant Insurance Co., has three strikes against it. First, Russo is a woman operating in a male-dominated industry. Second, she’s only 27 years old and has eight years of insurance industry experience. Third, New Agencies Fact: she’s jug80% grew between 2006 and gling the 2007 at an average of 55 percent demands of Source: 2008 Future One Agency Universe Study running a new business and being a parent to a ninemonth-old. But Russo is proving that she has the gumption, authority and knowledge to run an insurance agency. Trenchant opened in Las Vegas in Oct. 2008, catering primarily to clients in Clark County, Nev. Russo, a native Las Vegan, said building her business in the city was a natural progression. She attended the University of Nevada, Las Vegas, and started in the insurance field in that city in 2000. For three years, she worked for a captive insurance company, and then she transitioned to the independent channel, working for another agency that was owned by someone else, but where she acted as the agency manager. “Even though I didn’t technically own the business, I always felt like it was my baby,” Russo www.insurancejournal.com
said. That gave her the impetus to start her own agency. She received a business start-up grant from the Moms in Business Network and she secured financing from Oak Street Funding, which specializes in insurance agencies and commission redirection finance loans. Trenchant Insurance specializes in home, auto, life, health and flood insurance for residential and commercial clients, as well as handles
business insurance and bonds. “I have had circumstances inside and outside of my office where people have questions about my authority and knowledge,” Russo said. “But when the whole experience is complete, customers can see the job I’ve done, my level of expertise and professionalism, know that I’ve explained coverage well, and leave with the experience that I’ve done a good job.” IJ
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February 9, 2009 INSURANCE JOURNAL-WEST REGION | 41
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Closer Look Errors & Omissions
Certificates of Insurance and Agency Liability: What Agents Should Know By Curtis M. Pearsall
A
common practice by insurance carriers is to inform their agents that they should not send the company copies of certificates of insurance when they are issued. This is most likely the result of mail-flow issues with the carrier’s underwriting departments, many of which are now becoming “paperless” … not to mention that the task of naming and filing certificates into a computer system is cumbersome. That leaves the agent with the responsibility of issuing and filing certificates. However, if a copy is never sent to the carrier, the carrier can hide behind a “shield of ignorance” if a problem arises, by stating that it knew nothing about the certificate. In effect, the practice of refusing certificates can place a carrier in a
Pearsall
better defense posture when a claim is made, based on misrepresentations on a certificate. Also, the defense of an agency can be weakened when a carrier claims ignorance. A Common Pattern Certificates of insurance can and will be the basis of claims against agencies. Although there is language on a certificate that in effect states the certificate does not constitute a contract between the parties — nor does it amend, extend or alter coverage under the policies
listed — claims are made and suits are filed based on representations on certificates. A common pattern involves an entity (who is not party to an insurance contract) that receives a certificate of insurance from an agency’s client as a condition before business is conducted with the client. If the information on the certificate is incorrect, it leads the party doing business with an agency’s client to believe there is coverage. However, when it is discovered there is no coverage — and the party must pay for, or
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Sutter Insurance Company continues to write business. Helping Californians during these distressed times. 42 | INSURANCE JOURNAL-WEST REGION February 9, 2009
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suffers, a loss — a claim can be made against the agent based on the theory of detrimental reliance. It will be claimed that had the party known there was no coverage, it would not have done business with the agency’s client and, therefore, would not have suffered a loss. A Misunderstood Request Leads To … Consider a claim by a bank that loaned money to a golf course for the purchase of GPS devices to be used in golf carts. As part of the loan agreement, the bank wanted proof that there was coverage for the GPS devices. The agency’s customer service representative who handled the client’s request to provide proof of coverage misunderstood the request, thinking she was asked to provide proof of coverage for the carts. A fire occurred at the course’s main storage facility resulting in the loss of all of the golf carts and GPS devices. The carrier paid for the carts, but paid nothing for the GPS devices because they were not covered. The bank sued the agency, alleging that it would not have loaned the money if it knew there was no coverage for the GPS devices. The claim against the agency was settled for about $50,000. Be Aware Agencies should be aware of the pitfalls involved in sending out certificates of insurance that are inaccurate. For example, if an agency sends a certificate to a client that lists another party as an additional insured, the agency must be certain that the party is Send copies listed on the policy. If of certificates this requires a change to be to the carrier, endorsement sent to the carrier, send it. Even if the regardless carrier is sent a copy of whether of a certificate, do not expect it to add a the carrier party without a spewants them. cific request to do so. A certificate is not the proper vehicle for the request. Agencies also need to be familiar with certain types of vendor’s coverage or blanket additional-insured endorsements before stating a party is an additional insured. Not all parties or actions will trigger coverage under either a vendor’s endorsement or an additional-insured endorsement. If in doubt, call the carrier for an interpretation before a certificate is issued. It is www.insurancejournal.com
important, too, to never issue a certificate as a favor to an insured without knowing that the information stated on the certificate is accurate. When a lawsuit ensues as a result of inaccurate information on a certificate, all fingers will be pointed at the agency, especially if the carrier knows nothing of the certificate. It is advisable to send copies of certificates to the carrier, regardless of whether the carrier
wants them. Once receipt of the copies is confirmed, a carrier cannot claim ignorance — and the agency might have an additional avenue for recovery should a claim arise. IJ Pearsall is vice president with Utica National Insurance Group, where he is director of special programs and director of Utica Errors & Omissions operation. This is reprinted with permission from Utica’s E&O Communique.
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West Coverage News & Markets
Study Unveils Target Areas for Flood Policy Sales But Selling More at Subsidized Premiums Could Sink Flood Program By Andrew G. Simpson
T
here are a number of communities across the country where more flood insurance policies should be sold given their populations and flood risk. They include dozens of counties that have had multiple flood disasters but are not part of the federal flood insurance program. The “catch-22” for policymakers is that while the communities may need the coverage, selling more policies in these areas would likely add to the losses that undermine the financial stability of the national program. That’s because the premiums charged would not reflect the actual risk in those communities and would be subsidized, unless Congress changes the pricing formula. The U.S. Government Accountability Office
(GAO), which researches issues at the request of members of Congress, recently reported on the current subsidization of federal flood insurance premiums and options for reducing the subsidization. The GAO noted that while it constitutes a declining percentage of all National Flood Insurance Program (NFIP) policies, the number of properties receiving subsidized premium rates has grown since 1985; by 2007 it was
at its highest point in almost 30 years. The Federal Emergency Management Agency (FEMA) attributes the growth to several factors, including: • a growing number of mortgages with mandatory flood insurance, • the longer-than-expected life of the structures that are eligible for subsidies, • increased awareness of the dangers of floods from several major recent disasters, and
Areas with Flood Policy Sales Potential
G
AO compared the number of NFIP policies in a given area as of September 2006 with the total number of county flood declarations from January 1980 to June 2008, cumulative flood claims payments from January 1978 to April 2008, and population as of 2004 for counties and 2005 for states. The following are examples where there is flood policy sales potential, GAO found. 1. Some Midwestern and Northeastern states and counties that appeared to have a higher history of flood losses relative to policy counts than other areas of the country:
44 | INSURANCE JOURNAL-WEST REGION February 9, 2009
• The five combined states of Iowa, Michigan, Minnesota, Missouri, and Wisconsin, when compared to Collier County, Fla., had more county flood disaster declarations (2,092 versus 12), significantly more flood claims payments ($704 million versus $12.5 million), and a much larger population (28.9 million versus 297,000), but a similar number of NFIP policies (80,572 versus 85,246). • Maine, when compared to Idaho, had significantly more flood claim payments ($36.3 million versus $4.8 million) and county flood disaster declarations (159 versus 42), but a similar number of NFIP policies (7,891 versus 7,079). The states also had similar populations: 1.3 million for Maine and 1.5 million for Idaho. • Wisconsin, when compared to Rhode Island, had many more county flood disaster declarations (276 versus 11), but had similar flood claims payments ($32.7 million versus $34.2 million). Although Wisconsin has a much larger population (5.5 million versus 1 million), it has a similar number of NFIP policies (12,945 versus 14,432). • Iowa, when compared to New Mexico, had almost 10 times more county flood disaster declarations (558 versus 56), and about eight times more in flood claims payments ($65.9 million versus $8 million) but almost 30 percent fewer policies (10,185 versus 14,455). Iowa’s population was larger than New Mexico’s (2.9 million versus 2 million) • The four combined states of Kansas, Nebraska, South Dakota, and North Dakota, when compared to Oregon, had more county flood disaster declarations (1,346 versus 124) and three times more in flood claims paywww.insurancejournal.com
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• increased NFIP marketing efforts. According to the GAO, more than half of the subsidized policies are concentrated in five states with relatively high flood risk: California, Florida, Louisiana, New Jersey and Texas. Current low participation rates — around 50 percent of single-family homes in high-risk areas — leave room for substantial growth in the number of NFIP policies, many of which would be likely to receive subsidized rates. The policies receiving subsidized rates have been a financial burden on the program, with total claims exceeding premiums by $962 million from 1986 through 2004, before the large
ments ($244.8 million versus $76.7 million), but a similar number of policies (30,683 versus 29,780) for a much larger population (6 million versus 3.6 million). 2. Counties with flood disaster declarations but no communities in NFIP. GAO found 66 counties that had flood disaster declarations but no communities that had joined NFIP. Below are selected examples from those counties. • Clay County, Ala., (population 14,092) has had seven flood declarations. • San Francisco County, Calif.,(744,230) has had three flood declarations. • Henry County, Iowa, (20,258) has had six flood declarations. • Winneshiek County, Iowa, (21,188) has had seven flood declarations. • Adair County, Ky., (17,575) has had six flood declarations. • Dallas County, Mo., (16,328) has had eight flood declarations. 3. Counties with flood disaster declarations but very few NFIP policies. GAO found 14 counties, all with populations more than 100,000, with one or more flood declarations but very few NFIP policies. These included: • Potter County, Texas, (118,000) has had three flood disaster declarations but had only six policies. • Bibb County, Ga., (155,000) has had four flood disaster declarations but had only 13 policies. • Carroll County, Ga., (102,000) has had six flood disaster declarations but had only 83 policies. IJ www.insurancejournal.com
losses from the 2005 hurricanes, the report indicates. In reforming NFIP, Congress is expected to evaluate the effect of subsidized premium rates while balancing the public policy goals of charging actuarially honest premium rates, encouraging broad program participation through affordable rates, and limiting costs to taxpayers. GAO identified places (See “Areas with
Flood Policy Sales Potential” below) where sales of flood policies appear to lag behind the need; that is, areas of the country that appear to have higher populations and flooding risks relative to their policy volumes when compared to other areas, and thus have the potential for increases in the number of NFIP policies. Of course, an increase in market penetration would likely bring an increase in the number of subsidized policies, GAO noted. IJ
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Idea Exchange Managing an Agency
Systematic Sales Strategy Should Be Priority No. 2 for Agency Managers Andrade
I
n this hard economy coupled with the soft market, most agencies expect sales and revenues to go down. Even the best performers feel the downward trend in premiums. According to Juan Andrade, executive vice-president for sales and distribution at The Hartford, who oversees his company’s agency management consulting arm, Business Management Group, customer retention should be an agency’s first priority when managing in a troubled economy (see Insurance Journal’s Jan. 26, 2009, West region issue, page 120). As critical as it is, customer retention alone may not be enough. That’s why Andrade’s priority No. 2 for managing an agency in these troubled times is to follow a systematic sales strategy. While agencies may find it is difficult to maintain positive growth, they are most likely to grow if they are dedicated and disciplined about sales. Insurance Journal’s Andrew Simpson recently asked Andrade if his team had advice for agencies that would lead to growth even in today’s market. Following is what he had to say. Insurance Journal: Shouldn’t agencies expect that sales and revenues might go down in this time? Andrade: Yes, and I think most of the agencies that we deal with do see that. As I travel around the country and meet with our 10,000-plus producers, the best ones, the luckier ones — maybe not lucky but the savvier ones, if you will — have proba46 | INSURANCE JOURNAL-WEST REGION February 9, 2009
bly been able to maintain some single-digit growth rates in this economy. But I think even some of our best partners out there have suffered from basically just a downward trend in premiums. So part of what we deal with in the soft market is that people are lowering rates on renewals, on new business, and so that will have an impact on the company, on the agency and on the revenue that you bring at the same time. Being in the single digits these days is probably not a bad place to be, but it also depends on the line of business. Right? While for some of the commercial lines it is going to be a lot more difficult to maintain those positive growth rates, it might be easier in some of the other lines. So it really does vary depending on the mix of business that you have within the agency. Insurance Journal: You advise agencies to take a systematic approach to sales. What does that entail? Andrade: This is a strategy that is time and tested depending on the cycle. It works for both the hard market as well as the soft market. And you know at the end of the day, we are all salespeople. And so what we’ve got to keep our focus on really is No. 1, on the pipeline; No. 1 on ensuring that we have the right people within our organization, bringing in accounts, building that pipeline, etc., executing on that vision. This is not a strategy that we can afford to employ only in a hard market or a soft cycle. This is something that we’ve got to www.insurancejournal.com
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continue doing at all times within our market cycles and within the economy. But I’d say the focus on the pipeline is very critical; the focus on working accounts that you already have, working on cross-sell. What I mean is really getting leads from accounts that you already own within the agency. If you are thinking about going into a particular industry vertical or a particular segment that you may not have been in, for example healthcare, and you may already have a couple of accounts in that area, go talk to your contacts, to your relationships in these areas and find out who else they would recommend, what other areas might be that we are not looking at, etc. The whole science of selling becomes very important, and that discipline is critical, particularly to surviving a soft cycle. Insurance Journal: Is this a good time for agents to consider entering new markets, new states perhaps, or adding products to their portfolio? Andrade: It is a wonderful time to be looking at diversification, particularly given that the cycle has really impacted, particularly more of the commercial lines of insurance than anything else. Certainly, you wouldn’t want to minimize it and personalize it. We are seeing that across the board. But I think if you are a commercial specific quality agent you have been particularly affected by this. Diversifying is wise to do anyway. We are seeing a lot of our agents and brokers, basically, do that. We are looking at different industry verticals, different niches of the economy. There are pockets there. There are infinities. There are different programs that we can be involved in. As a whole, it makes sense to be able to diversify. Insurance Journal: Are there pockets of the economy that you think are really worth an agent looking at now, some that may be stronger than othcontinued on page 48
On the Web This is second installment in an Insurance Journal interview with The Hartford’s Juan Andrade. View the entire Insurance Journal video series, “Managing an Agency in a Troubled Economy,” at www.insurancejournal.tv. www.insurancejournal.com
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Ad Index Idea Exchange Managing an Agency
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— health care, energy — are very good ers given this economy where they places to be looking at right now. might be able to make some inroads? Andrade: Absolutely. Even though we are livInsurance Journal: What do you ing in unprecedented times, we are seeing think is a realistic goal for new sales things in the economy that we never in this economy for an agency? thought we would see in our lifetimes. Andrade: That’s a tough There are still areas that question because it really are very vibrant. I would This is a wonderful does depend on where say health care is one. time to be looking you are geographically in Energy is another one, the country in the segparticularly as you start at diversification ments that you’re in. If I looking at green energy, There are still areas owned an agency these alternative energy areas. days, from a revenue perThese are areas where that are very I would feel you are starting to see vibrant. Health care spective, probably OK about being smaller businesses make is one. Energy is flat with total written a lot more investment, premium at this point in and they are still growanother one. time, with a big focus on ing. I think those would retention in trying to be places that I would be grow new business in whatever areas I looking at. could. Areas like construction, depending on If I were in the mid-single digits I what part of the country you’re in, are probably either good or bad, depending on would feel pretty good about myself. If you, obviously, have reached the double what part of the economic cycle you hapdigits, you would feel really good about it. pen to be in. Nevertheless, there is such a It all depends, too, on where you are. substantial amount of our gross domestic Some agencies have had more of a focus on product (GDP) in the economy that is tied retention than new business. I would say to construction. That’s still an area to look, depending again, on the specific area flat to single digits is probably could be a good place to be, given market of the country you happen to be in. From what I have seen in my experience conditions. IJ
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Idea Exchange Closing Quote
5 Risk Management Challenges for Public Entities in Today’s Economy By Mary Stewart
L
ocal governments increased their commitment to risk management in the past decade, as they met the challenges posed by major natural disaster and terrorism events. Better local government loss prevention, crisis management and risk communication resulted. We now face a more prolonged national disaster: a major economic downturn. This latest disaster threatens to erode local government risk management. Risk management must demonstrate its centrality to the government’s mission and find ways to succeed with fewer resources. A key attribute of a strong risk management program is vision; the ability to anticipate and address emerging risk prior to a critical event. The following are a few difficult risk issues that the public sector should think about in the coming year:
1. Increased Demand for Services. One predictable outcome of an economic downturn is increased criminal activity. Another is an increased need for social services. The government must evaluate whether it has sufficient capacity to handle the Public risk increased responsibility. managers Are the courts able to handle an increase in case load? Will sheriffs and have faced police officers become more involved in disasters; non-core activities, such as foreclosures/ now they evictions or increased domestic disturface another bances? Can the jails accommodate an increase in population? Will non-sworn one: a major personnel (police aides, volunteers) be used to enforce codes/laws? Will economic unmarked cars be used to transport downturn. arrested persons and be used on other official business, due to a lack of marked police cruisers? Do social services agencies have the resources to provide added assistance to families in trouble? 2. Privacy Concerns. As local law enforcement agencies work with Homeland Security to protect against terrorist attacks, there may be more claims alleging breach of privacy. Have law enforcement policies been updated to reflect privacy issues under federal/state laws? Has the agency cre50 | INSURANCE JOURNAL-WEST REGION February 9, 2009
Stewart
ated special units to handle cyber crimes and to protect information related to those crimes? 3. Using Technology to Address Risk Issues. Technology is an important tool for addressing many societal risk issues, including disasters, dwindling natural resources and homeland security. But it must be used with care to avoid negative consequences. Will government be liable if the technology fails to achieve its purpose or causes damage? Will technology providers require liability protection in exchange for participation in efforts to manage societal risk? (i.e. telecommunications and vaccine providers.) 4. Public Health Emergencies. Local governments are closely involved in managing public health emergencies, such as pandemic illness or bioterrorism. They must know in advance the extent of their legal authority to quarantine individuals, close schools and public gathering places, shut down transportation, and take other steps to reduce the spread of communicable illness. Plans should be shared in advance with all government employees. Will mandatory quarantines or business closures result in lawsuits? How will emergency responders be protected from infection? Will the government be responsible for the safety and actions of volunteers who assist with care of the ill? How will jails manage a pandemic that threatens the incarcerated population? 5. Benchmarking and Performance Measurement. Benchmarking and performance measurement help risk management demonstrate its value by providing quantitative evidence to support its priorities, decisions, programs and results. Share documents, procedures and ideas with other governments to promote better performance. Use cost/benefit analysis and measurements to identify areas with high frequencies or severe claims. Maintain regular communication with a group of governments (peer group) that are similar to your organization. Join PERI’s Data Exchange to gain state/national comparison. IJ Stewart is director of research and development, Public Entity Risk Institute (PERI) based in Fairfax, Va.www.peri.org. www.insurancejournal.com
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