Umbrellas - Personal & Commercial; Construction; Environmental by Insurance Journal

JUNE 17, 2013 | Vol. 91, No. 12

SoCal Agency Earns B Corp Status Farmers V. Monsanto Over Biotech Wheat Calif. Workers’ Comp Insurers’ RONW Up

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16 On The Cover

Inside This Issue

Special Report: Solar Construction: Too Hot to Handle?

June 17, 2013 • Vol. 91, No. 12 • West Region

NATIONAL COVERAGE

WEst COVERAGE

Idea exchange

10 U.S., Global Natural Disasters Exact Heavy Toll in May

W1 Immigrant Driver’s Licenses Signed in Colorado

19 Growing Your Property Casualty Agency: Shulman

10 Property Crime Down, Violent Crime Up in 2012: FBI

W1 San Onofre Nuclear Power Plant in Southern California to Close

12 Commercial Insurance Rates Up 5% Again in May

W1 Report: California Workers’ Comp Insurers’ Return on Worth Up

20 Four Strategies to Make Producer Lifecycle Management a Priority

16 Special Report: Construction Solar Construction: Too Hot to Handle?

34 Closing Quote: The Art of Communication

W1 Washington Public Employee Fired Over Fruit Pie Suing City

24 Closer Look: Solar Storm Threats Pose Emerging Risk for Industry

W6 Tiny Southern California Agency Earns B Corp Status

26 Closer Look: Environmental Damage Fines

W8 Farmers, Safety Group Sue Monsanto Over Biotech Wheat

28 Spotlight: Pearsall on Why Personal Umbrellas Generate E&O Claims 30 Spotlight: 10 Things to Know About Commercial Umbrellas

DEPARTMENTS 8 W2 W2 W4 14 32

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Opening Note Declarations Figures People Business Moves MyNewMarkets

www.insurancejournal.com

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Opening Note Can You Have It All?

ne question often asked of women but not of men in the business world is: Can you have it “all”? Is it possible to have both a successful career as an independent agent and a family? That’s something men never get asked, according to a panel of women insurance industry executives who were also asked their views on what women and the insurance industry can do to improve gender diversity in the executive ranks. Four successful insurance executives discussed the critical factors for success in a podcast jointly produced by the event’s sponsor, the Insurance Industry Charitable Foundation (IICF), and Wells Media Group’s Insurance Journal. During the hour-long podcast, IICF Women Executive Roundtable: Gender Diversity in the P/C Insurance Industry, IICF CEO Bill Ross interviewed Pina Albo, president of the reinsurance division at Munich Re-America; Trish Henry, executive vice president, Is it possible to have a government and industry affairs, career and family? ACE Group; Joan Woodward, executive vice president for public policy at Travelers and president of the Travelers Institute; and Seraina Maag, chief executive for XL Insurance North America Property & Casualty. Whether women — or anyone — can have it all depends on a number of things, according to the panelists. “[I]t depends on what your definition of ‘all’ is,” said Albo. Henry has no doubt that women can have it all. “I think you certainly can have a good marriage and be a good parent and also have a significant career,” she said. Having it all — or trying to — is a choice for some. The idea of someone choosing not to have it all is fine, too. “[W]hether you are male or female… you should not get too consumed with the notion of getting ahead. You are more likely to be successful if you do something you enjoy and you are good at it rather than doing what you think you should do in order to get to that next level in your career,” Albo said. But Woodward said she is concerned about the number of young women who leave their careers because they believe they can’t have it all. “I think it’s the responsibility of senior women, even those without children, to absolutely tell young women they can have both, a family life and a career at the same time,” Woodward said. What do you think? Can agency owners have it all, men and women alike? To listen to the full IICF Women Executive Andrea Wells Roundtable, visit: http://www.insurancejournal.tv. Editor-in-Chief 8 | INSURANCE JOURNAL-NATIONAL REGION June 17, 2013

E D I TO R I A L

Editor-in-Chief Andrea Wells | awells@insurancejournal.com V.P. Content Andrew Simpson | asimpson@insurancejournal.com East Editor Young Ha | yha@insurancejournal.com Southeast Editor Michael Adams | madams@insurancejournal.com South Central Editor/Midwest Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Don Jergler | djergler@insurancejournal.com International Editor Charles E. Boyle | cboyle@insurancejournal.com Senior Editor Susanne Sclafane | ssclafane@insurancejournal.com ClaimsJournal.com Editor Denise Johnson | djohnson@claimsjournal.com MyNewMarkets.com Associate Editor Amy O’Connor | aoconnor@mynewmarkets.com Columnists Curtis Pearsall, Alan Shulman Contributing Writers Julien Combeau, Molly M. Fleming, Joan Lowy, Brian S. Martin, Tim Owen, Paul Rainey, Geoff Williams

SALES

V.P. Sales & Marketing Julie Tinney (800) 897-9965 x148 jtinney@insurancejournal.com West Dena Kaplan (800) 897-9965 x115 dkaplan@insurancejournal.com South Central Mindy Trammell (800) 897-9965 x149 mtrammell@insurancejournal.com Midwest Lauren Knapp (800) 897-9965 x161 lknapp@insurancejournal.com Southeast Howard Simkin (800) 897-9965 x162 hsimkin@insurancejournal.com East Dave Molchan (800) 897-9965 x145 dmolchan@insurancejournal.com New Markets Sales Manager Kristine Honey | khoney@insurancejournal.com Classifieds, Jobs, Agencies Wanted/For Sale (800) 897-9965 x125 Ly Nguyen | lnguyen@insurancejournal.com

MARKETING/NEW MEDIA

Marketing Administrator Gayle Wells | gwells@insurancejournal.com Advertising Coordinator Erin Burns | eburns@insurancejournal.com (619) 584-1100 x120 New Media Producer Bobbie Dodge | bdodge@insurancejournal.com Videographer/Editor Matt Tolk | mtolk@insurancejournal.com

DESIGN/WEB

Vice President/Design Guy Boccia | gboccia@insurancejournal.com Vice President/Technology Joshua Carlson | jcarlson@insurancejournal.com Design and Marketing Executive Derence Walk | dwalk@insurancejournal.com Web Developer Jeff Cardrant | jcardrant@insurancejournal.com Web Developer Chris Thompson | cthompson@insurancejournal.com

IJ ACADEMY OF INSURANCE

Director of Education Christopher J. Boggs | cboggs@ijacademy.com Online Training Coordinator Barbara Whiffen | bwhiffen@ijacademy.com

A D M I N I ST R A T I O N

Chairman Mark Wells Chief Executive Officer Mitch Dunford Accounting Manager Megan Sinclair | msinclair@insurancejournal.com

FOR QUESTIONS REGARDING SUBSCRIPTIONS: Call: 855-814-9547 or you may subscribe or change your address online at: insurancejournal.com/subscribe Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semimonthly by Wells Publishing, Inc., 3570 Camino del Rio North, Suite 200, San Diego, CA 92108-1747. Periodicals Postage Paid at San Diego, CA and at additional mailing offices. SUBSCRIPTION RATES: $7.95 per copy, $12.95 per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this publication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended to be legal, accounting, tax, technical or other professional advice. Readers are advised to consult competent professionals for application to their particular situation. Copyright 2013 Wells Publishing, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. Insurance Journal is a publication of Wells Publishing, Inc. POSTMASTER: Send change of address form to Insurance Journal, Circulation Department, PO Box 3618, Northbrook, IL 60065-3618 ARTICLE REPRINTS: For reprints of articles in this issue, contact Rhonda Brown at 1-866-879-9144 ext. 194 or rhondab@fosterprinting.com. Visit insurancejournal.com/reprints for more information.

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News & Markets U.S., Global Natural Disasters Exact Heavy Toll in May

evere weather in May caused an estimated $4 billion in insured damage in the U.S. alone and billions more in economic losses around the globe, according to an Aon Benfield report. The Global Catastrophe Recap by Aon Benfield’s catastrophe modeling center, Impact Forecasting, reviews the natural disaster perils that occurred worldwide during May 2013 including tornadoes in Oklahoma, Italy and Russia; flooding in the Midwest and central Europe; and drought conditions in Brazil. Several regions of the U.S. were hit with severe windstorm events during the month, including Moore, Oklahoma, where a catastrophic EF-5 tornado killed 24 people, injured 387 others, and damaged or destroyed up to 13,000 homes and structures. Total economic losses from the event,

which comprised at least 61 confirmed tornado touchdowns, were preliminarily estimated at $5.0 billion, amid insured losses of at least $2.5 billion. In a second prolonged severe weather event, at least 76 tornadoes touched down, including an EF-5 tornado with 295 mph (475 kph) winds and a U.S.record 2.6-mile (4.2-kilometer) path width that struck El Reno, Oklahoma. Large hail (including a major hailstorm in Amarillo, Texas that resulted in a $400 million insured loss), flash flooding in the Plains and Midwest, and damaging winds in the Northeast were also recorded. Total economic losses are expected to exceed $2.0 billion, with insured losses above $1.0 billion. Two additional stretches of severe weather also affected parts of the Plains

and the Southeast, causing a combined economic loss of $700 million and insured losses of $375 million. “Images from the aftermath of the EF-5 tornado in Moore, Oklahoma show the destructive power of the peril and how devastating impacts can be when tornadoes track through densely populated areas.,” said Steve Jakubowski, president of Impact Forecasting.

Property Crime Down, Violent Crime Up in 2012: FBI

he nation experienced a 1.2 percent increase in the number of violent crimes and a 0.8 percent decline in the number of property crimes in 2012 when compared with data from 2011, the FBI said. Violent crime increased in three of the four regions (3.3 percent in the West, 1.3 percent in the Midwest, and 0.6 percent in the South). There was a 0.6 percent decrease in violent crime offenses in the Northeast.

Burglary decreased 3.6 percent in 2012 compared to 2011. Motor vehicle theft increased 1.3 percent, and larceny-theft offenses remained virtually unchanged. The FBI’s Preliminary Annual Uniform Crime Report is based on information the FBI gathered from 13,770 law enforcement agencies that submitted six to 12 comparable months of data for both 2011 and 2012. Nationally, the property crime offense of burglary decreased 3.6 percent in 2012 when compared with 2011 data. Motor vehicle theft increased 1.3 percent, and larceny-theft offenses remained virtually unchanged. Property crime increased 0.4 percent in cities with 50,000 to 99,999 inhabitants. Decreases of 1.0 percent in property crime were reported in cities with 25,000 to 49,999 in population and in cities with 1 million or more in population. Property crime decreased 3.5 percent in nonmetropolitan counties and 2.1 per-

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cent in metropolitan counties. Burglary offenses decreased in all city groups. Burglaries decreased 4.3 percent in nonmetropolitan counties and 3.1 percent in metropolitan counties. Larceny-thefts decreased 3.2 percent in non-metropolitan counties and 2.2 percent in metropolitan counties. Motor vehicle thefts increased 4.9 percent in cities with 250,000 to 499,999 inhabitants, but decreased 5.1 percent in cities with 1 million or more inhabitants. Metropolitan counties reported a 2.1 percent increase in motor vehicle thefts while non-metropolitan counties reported a 2.1 percent decrease. Three of the nation’s regions had decreases in property crime in 2012 when compared with data from 2011. These offenses declined 3.5 percent in the South, 2.1 percent in the Midwest, and 1.6 percent in the Northeast. However, property crimes increased 5.2 percent in the West. www.insurancejournal.com

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News & Markets Immigrant Driver’s Licenses Signed in Colorado

San Onofre Nuclear Power Plant in Southern California to Close

mmigrants living illegally in Colorado will be able to get driver’s licenses under a bill signed by Gov. John Hickenlooper, adding the state to a handful of others that provide a legal way for immigrants to use the roads. The issue has picked up momentum this year, with Oregon and Nevada passing laws recently. Hickenlooper, a Democrat, said he saw the proposal as a step toward changing the nation’s immigration laws. Supporters of the bill argued that everyone on the roads should know the rules and be insured, regardless of their immigration status. The licenses would be labeled to say they are not valid for federal identification and can’t be used to vote, obtain public benefits or board a plane. Hickenlooper said immigrants should have licenses that allow them to drive to work, get insurance, and be identified in car accidents, while at the same time making clear they are not U.S. citizens. Colorado’s bill takes effect Aug. 1, 2014. Legislative analysts who worked on the bill estimate that more than 45,000 immigrants will apply for licenses the first year. Copyright 2013 Associated Press. All rights reserved.

he troubled San Onofre nuclear power plant on California’s coast is closing, after a 16-month battle over whether the twin reactors could be safely restarted with millions of people living nearby. Southern California Edison, which operates the plant, said in a statement it will retire the reactors because of uncertainty about the future of the plant, which was facing regulatory hurdles and investigations. With the reactors idle, the company has spent more than $500 million on repairs and replacement power. U.S. Sen. Barbara Boxer in late May called for the Justice Department to investigate if California utility executives deceived federal regulators about an equipment swap at the San Onofre nuclear power plant that eventually led to a radiation leak. The plant between San Diego and Los Angeles hasn’t produced electricity since January 2012, after a small radiation leak led to the discovery of unusual damage to hundreds of tubes that carry radioactive water. San Onofre is owned by SCE, San Diego Gas & Electric and the city of Riverside. Copyright 2013 Associated Press. All rights reserved.

Report: California Workers’ Comp Washington Public Employee Fired Insurers’ Return on Worth Up Over Fruit Pie Suing City

alifornia workers’ compensation insurers’ average return on net worth increased for the second year in a row in 2011, according to the latest National Association of Insurance Commissioners report on insurer profitability. The report shows California insurers’ 2011 return improved from 5.2 percent in 2010 to 7.4 percent in 2011, making California 15th out of the 46 states that operate without a monopolistic state fund. NAIC represents insurance commissioners from all 50 states, the District of Columbia, and four U.S. territories. California’s 10-year average for workers’ comp insurers is 7.1 percent. For all lines in the state it’s 9.8 percent, according to the report. The report shows the U.S. average for workers’ compensation insurers was 6.7 percent, while the average for all lines was 7.7 percent. www.insurancejournal.com

Bridgeport, Wash., public works employee who was fired by the mayor for shoplifting a $1.69 fruit pie is filing a wrongful termination lawsuit against the city. Mayor Marilynn Lynn said the value of the theft didn’t matter, but that she fired David Greer for committing a crime. Greer’s wife says he put the cherry pie in his pocket as his arms were full of other snacks that he paid for at a market. The 55-year-old was caught and cited for shoplifting. After he wrote a letter of apology to the store owner the ticket was dismissed in April in Bridgeport Municipal Court. Greer has worked for the city for 21 years. His firing prompted a protest demonstration last month at a city council meeting. Copyright 2013 Associated Press. All rights reserved. June 17, 2013 INSURANCE JOURNAL-WEST REGION | W1

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Declarations Driving Privilege

No Steam

Good News, Bad News

“It’s going to provide for safer roads.” — Nevada Gov. Brian Sandoval said a bill allowing people in the country illegally to obtain driving privilege cards in the state was good for Nevada.

“SCE would never, and did not, install steam generators that it believed would impact public safety or impair reliability.” — Pete Dietrich, SCE senior vice president and chief nuclear officer, defended the company’s equipment swap at the San Onofre nuclear power plant that eventually led to a radiation leak.

“Recent precipitation across much of the West has delayed fire season by only a couple of weeks.” — Wildfire analyst Jeremy Sullens said the wet weather has delayed, but not averted what is expected to be a challenging fire season.

Figures

85 MPH Is what you can’t drive in Nevada. A bill authorizing speed limits of up to 85 mph on some Nevada highways died in the Legislature in late May.

400,000

Is what Idaho State University is paying to the federal government to settle allegations it improperly exposed confidential medical records. In August 2011, ISU told the U.S. Department of Health and Human Services of a breach of its unsecured electronic protected health information.

$50 Million Is what an audit says Pacific Gas and Electric Co. did not use, money that was intended to improve its gas pipeline network in the decade leading up to a deadly explosion in a San Francisco Bay area suburb.

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People Laura Cali

Wilma LaVoie

Robert Jordon

Joe Cotugna

Oregon Insurance Commissioner Lou Savage is leaving the Insurance Division to work on legal reform in emerging democracies overseas after nearly two years at the post. Laura Cali, the division’s chief actuary and manager of product regulation, will replace him. Savage was initially appointed as a temporary replacement to head the division, then agreed to serve in the permanent position a year ago. The division hired Cali in mid-2011 as a casualty actuary specializing in workers’ compensation and medical malpractice. She was a consulting actuary for Towers Watson in San Francisco, and she started her career at Liberty Mutual’s home office in Boston, building rating models for workers’ compensation and general liability lines of business. Savage and Cali are working together to ensure a smooth transition to new leadership and a consistent approach to insurance regulation, including rate review. Insurance companies recently filed proposed rates for small employer and individual health plans that take effect in 2014. The division will make rate decisions by the first week of July, a project Savage wanted to complete before leaving. The Insurance Division has an annual budget of roughly $11 million and a staff of nearly 100 and is part of the Department of Consumer and Business Services. Swett & Crawford’s property/casualty underwriting department has added Wilma LaVoie in the firm’s Honolulu, Hawaii office as senior underwriter. Swett & Crawford also named Shelbi Nicholson as a property broker to its property practice group in Seattle, Wash. LaVoie has 15 years of underwriting experience. She joins the firm from Hawaii Employers’ Mutual Insurance Co., where she spent her time as a commercial lines underwriter. Previous experience includes serving as a relationship specialist with Aon Risk Services of Hawaii and an assistant underwriter with Island Insurance. Nicholson has more than 20 years of insurance experience with primary, excess and quota share placement experience.

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Nicholson began in insurance as a property underwriter with Commonwealth Insurance Co., and later was a senior property underwriter with Fireman’s Fund Insurance Co. In recent years, Nicholson worked as a property broker and then as a property specialist with Ultra Risk Advisors Inc. Atlanta, Ga.-based Swett & Crawford serves independent agents and brokers through specialized property/casualty, oil & gas/energy, professional services, transportation, reinsurance, marine and underwriting practice groups as well as the newly added accident and health division. Robert Jordan has joined the Southern California operations of Lockton Insurance Brokers as health risk solutions consultant. Jordan has nearly 20 years of experience, including corporate human resources, risk management and business leadership. Lockton Insurance Brokers is the Southern California operation of Kansas City, Mo.-based Lockton Cos. Edgewood Partners Insurance Center added Joe Cotugna as a property/casualty insurance producer in its Inland Empire Division in Southern California. Cotugna’s responsibilities will include the acquisition of new clients as well as the design, placement and management of risk management and P/C programs. He reports to Dan Ryan, managing principal of EPIC’s Inland Empire Division. Cotugna has 23 years of experience in risk management, with a focus on the food industry and construction. Prior to EPIC, Cotugna was a producer for Hays Cos. in Ontario. He began his career with the State Compensation Insurance Fund as a claims adjuster and sales representative, and he subsequently owned his own brokerage, and also served in management at a large regional brokerage. EPIC has nine California offices: Los Angeles, Irvine, Ontario, Inland Empire, Folsom, San Francisco, San Mateo, Petaluma and San Ramon, as well as in Denver, Colo.

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News & Markets Tiny Southern California Agency Earns B Corp Status a way to provide proof that some firms are operating beyond just benefiting the bottom line, and the list of companies becoming erely bringing your A-game may not certified as a benefit corporation, or B Corp, be enough to entice certain compais growing. nies to give you their business, especially Recently one small Southern California those who are looking for environmentally insurance brokerage joined that growor socially conscious partners. ing list. Insurance brokerage Griswold & Following the challenging recession Griswold announced in late May that it was period the “green” movement seemed to the first B Corp in the city of Torrance, and take a backseat to mere survival, but as of one of only a handful of firms in the insurlate there seems to be once again growing ance industry, to become a certified B Corp. interest in doing business with companies Sort of like Fair Trade Coffee, or LEED interested in topics like sustainability, corcertification, being a B Corp stamps a label porate giving and social consciousness. on an entire com However, a busi‘It’s all over the map and it’s pany that says that ness can go to great company has met efforts to make its really starting to expand.’ certain social and operations more susenvironmental standards. tainable, earn awards from various organiza Currently there are 759 B Corps in 27 tions for treating employees well, donate countries and across 60 industries, according to social causes, and make efforts to be to B Lab, the nonprofit organization that transparent, yet to some those things may certifies companies as B Corps. just be considered lip service without proof Among those are several big names that the company is actually carrying out such most probably already associate with some stated initiatives. sort of social or environmental progressive A few years ago a nonprofit figured out By Don Jergler

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ness, such as Ben & Jerry’s, Patagonia and eyewear designer Warby Parker. While the majority of B Corps are from the service industry, there are a growing number of companies in manufacturing, organic foods, banking and lawyers, according to B Lab spokeswoman Katie Kerr. “It’s all over the map and it’s really starting to expand,” Kerr said. In 2008, one year after the inception of B Corps, there were 125 companies that had earned the certification. Since then there has been steady growth: 212 B Corps by 2009, 370 by 2010, more than 500 by 2011. B Corp laws have been enacted in 16 states and B Corp laws are moving forward in nearly 20 others, according to B Lab. The laws recognize new legal structures that give company directors legal cover to consider social and environmental goals instead of just financial returns. “It creates a new corporate form called the benefit corporation and gives businesses the freedom and legal protection to pursue the triple bottom line,” Kerr said. “Under current corporate law, the only legitimate purpose for a business is to maximize profits.” Large states where legislation has passed include California and New York. Delaware, the home of corporate law, is set to sign benefit corporation legislation into law in July. Gov. Jack Markell recently joined members of the General Assembly to introduce draft B Corp legislation. So far there are few in the insurance industry certified as B Corps. Beside Griswold, agencies to become B Corp www.insurancejournal.com

to participate in some type of community certified include: BayPoint Benefits in San service. The company also donates nearly 5 Francisco, G2 Insurance Services in San percent of its sales back to the community Francisco, NRG Insurance in Seattle and or social causes. Clark-Theders Insurance Agency in West Having a strong environmental stance Chester, Ohio. is another area that B Lab looks closely at, B Lab evaluates and certifies applicants and Griswold excelled in this area with its based on company governance, worker and recycling program and energy conservation other stakeholder interest, community policies. engagement and impact, environmental “We hardly use any printing or paper,” resource and energy consumption, and other benchmarks like accountability, transparency and diversity. B Lab allows companies to self-report activities they believe will qualify them as a B Corp, then the organization verifies a certain percentage of that information through requested documentation, such as asking for written human resources policies, or written proof of socially consaid Melissa Griswold, the firm’s marketing scious policies, like providing employees director. She also said efaxing is preferred, paid time off to volunteer in the community and documents to be signed are sent to or donations made to community organizasignatories via PDF. “We don’t like to waste tions. paper.” Firms are required to meet a minimum The paper the firm does purchase is of 80 points out of 200 on a B Corp impact only recycled paper, which they buy from assessment. They are required to change Staples, and the their bylaws to ensure their mission of being ‘We’re a business, but we office has a reusable paper bin where socially and environmengot this nonprofit-esque scratch paper and tally friendly survives kind of seal.’ other partially used past the existing leaderor unused paper can ship, they must sign a be placed for reuse, according to Griswold. term sheet, and then pay an annual fee of Griswold was asked why she goes to all between $500 to $25,000 based on sales. the trouble. Griswold scored an 86. One of its top “Because it’s the right thing to do,” she performance areas was in worker practices, answered. according to B Lab. Griswold pays 100 Making the company more environmenpercent of its fulltime workforce’s health tally and socially active was a natural step premiums, although that may not be a for Griswold because she and her partner, stretch for a firm with only four fulltime husband Steve Griswold, were already employees. actively involved in the community. Giving is another area that boosted Griswold was started in 1948 by Steve’s Griswold to B Corp status. According to father Bill, a diaper delivery salesman who Griswold, on top of the standard 10 vacation augmented his income by selling life insurdays and five sick days each year, employance policies to clients on his diaper route. ees get two paid “volunteer days,” in which www.insurancejournal.com

The firm’s ownership was for a time in the hands of his wife Keiko, who took over when Bill died in 2006. The agency deals a lot with medical practices, and has lately been doing a lot of cyber liability business, working with carriers like Philadelphia, Lloyd’s of London, Chubb and Chartis, according to Griswold. Beyond having the “doing the right thing” mentality, there is marketing value in being a certified B Corp, Kerr of B Lab said. “It’s so difficult for a normal consumer or just someone looking for a business investment to tell what’s marketing and what’s true,” Kerr said. And that marketing value in the eyes of Griswold is particularly important in insurance, a relationship-building business in which she believes customers are increasingly placing greater importance on what sort of firm they are dealing with. “I think it’s letting people know that you are doing what you say you’re doing,” Griswold said, adding that she believes the B Corp certification will help solidify the firm’s relations with existing customers who place importance on social or environmental standards, as well as to add new clients for whom those issues may hold importance. Griswold, who considers herself a “conscious consumer,” likes the example being set by Warby Parker, which donates a pair of glasses for each one sold. The company reports having donated more than 250,000 pairs. “They have that whole one-for-one mentality, which I think is brilliant,” Griswold said, adding that such a status imparts to a firm like hers and to Warby Parker the kind of standing in the community not enjoyed my most for-profit firms. “We’re a business, but we got this non profit-esque kind of seal,” she said. June 17, 2013 INSURANCE JOURNAL-WEST REGION | W7

weST COVERAGE

News & Markets Farmers, Safety Group Sue Monsanto Over Biotech Wheat By Carey Gillam

merican wheat farmers and a food safety advocacy group filed a lawsuit earlier this month against biotech seed developer Monsanto Co., accusing the company of failing to protect the U.S. wheat market from contamination by its unauthorized wheat. The petition, filed in the U.S. District Court for the Eastern District of Washington, seeks class-action status to represent other farmers it says were harmed by lower wheat prices as some foreign buyers have shied away from U.S. wheat. It names Clarmar Farms Inc., farmer Tom Stahl, and the Center for Food Safety as plaintiffs. The suit follows a similar actionpg.pdf filed by1 IJ Self Serve ad third a Kansas wheat farmer, alleging that he and

other growers have been hurt financially by the discovery of an unapproved biotech wheat that Monsanto said it stopped testing and shelved nine years ago. Two other farmers lodged a similar lawsuit in federal court in the western district of Washington state. The lawsuits come after the U.S. Department of Agriculture announced May 29 that a wheat farmer in Oregon had discovered Monsanto’s experimental wheat growing on his farm. “It risks one of the U.S.’s most important export markets unnecessarily,” George Kimbrell, senior attorney with the Center for Food11:50 Safety. 4/24/13 AM Buyers in Asia and Europe shunned U.S.

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wheat purchases after the discovery of the rogue wheat in Oregon. South Korea and Japan have suspended some U.S. wheat purchases, while the European Union said it would step up testing. The wheat was developed by Monsanto to withstand treatments of its Roundup weed killer, but the firm never commercialized the product because of widespread industry opposition. International buyers threatened to boycott U.S. wheat if the biotech wheat was introduced to the marketplace. Monsanto said in 2004 that it would end efforts to commercialize the “Roundup Ready” wheat. Monsanto said it instructed test participants to destroy the GMO wheat or ship it to the U.S. Department of Agriculture’s seed storage facility in Colorado. Company officials have said they have no idea how their biotech wheat could be growing in Oregon. In the suit filed in Spokane, Wash., plaintiffs say Monsanto’s failure to contain the wheat amounts to “wrongful conduct” that has potentially contaminated “the entire wheat farming and production chain,” and places many wheat farmers at risk for continued harm through cross-pollination and contamination of their crops. The suit does not seek specific monetary damages but asks for “compensatory damages,” as well as punitive damages. Kimbrell said regulators do not provide proper oversight of experimental biotech crops. “The lawsuit underscores the continuing risk to consumers and farmers from unregulated genetically engineered crops,” Kimbrell said. “This is not the first time this has happened. We have a broken regulatory system.” Copyright 2013 Reuters. All rights reserved. www.insurancejournal.com

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NATIONAL COVERAGE

News & Markets Commercial Insurance Rates Up 5% Again in May: MarketScout

he average composite rate for commercial property/casualty insurance in the U.S. was up 5 percent for May 2013.

This marks the third month in a row for a 5 percent increase, according to MarketScout’s analysis.

By coverage classification, business owners policies (BOP) and crime and fiduciary were down slightly from April. Directors and officers (D&O), general liability and employment practices liability insurance (EPLI) policies all experienced higher rates compared to last month.

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Dallas-based MarketScout said medium-sized accounts ($25,001 to $250,000) increased in premium in May compared to April as did large accounts ($250,001 to $1 million). Classification By industry classification, Commercial manufacturing and public entities measured a small pre- insurance mium decrease from the prior rates have month. increased Premiums for transporta5% for three tion accounts went up. According to Richard Kerr, consecutive CEO of MarketScout, this months. month’s results continue the steady trend of rate increases in commercial lines. “There is ample capacity but underwriters continue to increase rates as appropriate,” he said. The National Alliance for Insurance Education and Research conducted pricing surveys that MarketScout uses to corroborate its findings. MarketScout is an insurance distribution and underwriting company. NBISGA16615.indd 1

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Southport Lane, Imperial Fire & Casualty Southport Lane, a New York City-based private equity firm, has completed its acquisition of Louisiana-based Imperial Management Corp., along with its larg-

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Willis, T.E. Burke & Associates Willis of Maryland, a unit of Willis Group Holdings plc, acquired accounts and certain personnel formerly associated with T.E. Burke & Associates Inc., an employee benefits insurance broker based in Rockville, Md. Willis of Maryland includes more than 100 associates and serves clients from its office in Potomac, Md. As a result of the acquisition, former T.E. Burke & Associates personnel Terence Burke, Brian Burke and Connie Ertel will join Willis of Maryland. Cross Insurance Cross Insurance, an insurance brokerage and subsidiary of Bangor, Maine-based Cross Financial Corp., announced the establishment of a new division specializing in surety bonds. Cross Surety Inc., with offices in Dalton, Mass., and Lewiston, Maine, will employ seven specialists. Cross Insurance said its new division will handle the bonding and surety needs for a diverse group of businesses, contractors and construction companies. Founded in 1954, Cross Insurance currently has approximately 500 employees. SIAA The Strategic Insurance Agency Alliance signed six new agencies in the West in May, which brings SIAA’s total for the month to 30 new agencies. May’s new West members include: Clear Lakes Agency of Buhl, Idaho; MEB Insurance Services of Greely, Colo.; Adam Hansen Insurance of San Clemente, Calif.; Valley Center Insurance Agency of Valley Center, Calif.; Kitty L. Johnson Insurance Agency of Keizer, Ore; Nevada Insurance Solutions of Las Vegas, Nev.

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South Carolina, and West Virginia. Imperial Fire & Casualty has offices in Florida, Louisiana and Texas. The Imperial Fire & Casualty deal follows the acquisition of Dallas National Insurance Co., a Delaware-based property/ casualty insurer specializing in general liability and workers’ compensation.

4/30/13 12:26 PM

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Construction

By Andrea Wells

he solar construction industry has been extremely hot in recent years. Perhaps, too hot. The sector’s rapid growth has led to an oversupply of solar panels, which has turned up the heat on manufacturers to lower prices. Now some experts are questioning whether these manufacturers have compromised the quality in some of the millions of solar panels installed across the country and, if so, whether this will lead to a giant wave of defect litigation for this fledgling industry and its insurers. The prospect of a solar defect litigation

explosion is by no means certain but people are talking about the possibility. That the industry is growing is certain. There are 7,700 megawatts (7.7 gigawatts) of solar in operation in the United States today — that’s enough energy to power 1.2 million households. Solar power usage has risen by 600 percent since the early years of mass production in 2008. And more than 40 percent of all solar power capacity in the United States came online in 2012 alone. Solar industry experts expect the growth to continue. The Solar Energy Industries Association (SEIA), an industry trade group

16 | INSURANCE JOURNAL-NATIONAL REGION June 17, 2013

that represents more than 1,000 member companies doing solar business in the United States, expects to see at least 5.2 gigawatts of new solar generation to come online in 2013. And this growth is happening in what the industry calls a “solar downturn.” “There’s mass amounts of oversupply in the solar market,” says Andy Klump, CEO of Shanghai, China-based Clean Energy Associates, an advisory firm that provides quality assurance and other services to manufacturers, project developers, EPC contractors (engineering, procurement and conwww.insurancejournal.com

struction), and investors in the solar energy sector. Klump says the photovoltaic (PV) solar panel market is still quite young, and while it is growing, insiders consider current conditions to be a solar economic downturn. “The solar industry is not mature yet. Growth less than historical average of 40 percent is seen as a downturn in solar.” Klump says that growth has led to a huge oversupply. “A number of manufacturers are losing money right now because they are massively oversupplied. They have far more capacity than what the threshold demands,” Klump says. Quality Concerns This growth in the industry has led to concerns over quality. “The concern is that factories are shortcutting their work and quality to save costs and that they are actually producing a bad quality product,” Klump says. A recent article in the New York Times reported that the $77 billion solar industry is “facing a quality crisis just as solar panels are on the verge of widespread adoption.” The article cited multiple reports of doubledigit defect rates for installed components, mostly manufactured in China. While all solar panels degrade over time, generating less electricity, the Times article said a review of some 30,000 installations in Europe by the German solar monitoring firm Meteocontrol found 80 percent were underperforming. “Testing of six manufacturers’ solar panels at two Spanish power plants by Enertis Solar in 2010 found defect rates as high as 34.5 percent,” the article said. Dave Williams, CEO of the San Franciscobased solar developer Dissigno, told the Times that his company has experienced “significant solar panel failures at several of its plants.” He was quoted by the Times: “I don’t want to be alarmist, but I think quality poses a long-term threat.” According to the article, some executives at companies that inspect Chinese factories on behalf of developers and financiers have said that over the last 18 months even reputable manufacturers are substituting www.insurancejournal.com

module still works. If you call that a defect, cheaper, untested materials to save on costs. that’s fine, you can do that. But do you But not everyone agrees with that assessreject that product entirely when it’s going ment. in a huge utility field installation? It’s just “The one thing that the article did not not that straight forward.” highlight sufficiently well, in my opinion, The opposite scenario could also be true, is that this is a problem and it’s true, but he says. it’s not as pervasive as the article laid it “A lot of manufacturers will claim that out to be,” says Jenya Meydbray, CEO of PV they only have a 0.2 or 0.3 percent defect Evolution Labs based in Berkeley, Calif., an rate but they are excluding the product advisory firm that specializes in technical that’s already been taken off the shelf by due diligence for solar project sponsors, their quality control team,” Klump says. including banks, developers and EPC firms. “That also is not exactly a fair metric,” he Meydbray says that only recently — in says. the last 12 to 24 months — has the solar In any event, no manufacturer could surindustry matured enough to embark on vive with a 34 percent defect rate, Klump technical due diligence testing in projects. says. “They would be out of business in a That means outsourced testing by firms like heartbeat,” he says. “The numbers in that PV Evolution Labs for the long-term reliabilarticle are not realistic. You have to have a ity and quality assurance of solar modules. more accurate description However in a young about what defect means industry, like solar, not ‘The concern is before you can make that everyone relies on technical statement.” due diligence. Adding to the that factories are the discrepancy challenge is a lack of well shortcutting their overDespite what classifies a defecdefined, industry wide critive solar panel among teria for panel rejections, he work and quality industry players, the New says. to save costs.’ York Times article hit a “In some specific cases it nerve. (defects) could be 34 per “If the situation is as bad as the Times cent. But that does not mean the panels are article implies, a wave of large lawsuits nonfunctional,” Meydbray says. That could could be coming against solar panel manusimply mean for a specific group of modfacturers, the component manufacturers ules, based on the project owner’s criteria, that supplied parts or materials used in 34 percent were failing. “Those modules the making of those panels, the panel were in all likelihood sent back to the distributors and dealers and the contracmanufacturer and were sold to somebody tors who installed the panels,” says Scott else. They were not land-filled, I can almost Turner, a construction insurance attorney at promise you that.” Anderson Kill, who specializes in securing Another consideration is that defects in insurance recoveries for property losses and solar panels can be classified differently in securing defense and indemnification from manufacturer to manufacturer, accordfor liability resulting from construction dising to Klump. There’s no industry standard putes and defects. which can be misleading. What is a defect? “Given the pace at which solar panels he asks. have been installed worldwide in recent For example, there are different grades years, and the pressure on manufacturers to of PV cell color. “One may be medium blue, cut prices and hence corners, this litigation the other may be dark blue, and another wave could make the battles over liability may be black.” There are various texturizaand insurance coverage for Chinese drywall tion steps in the manufacturing process seem like a small claims dispute,” Turner which causes those different discolorations, says. he explains. “Some may get mixed up and The insurance industry is watching, says you don’t have a totally same coloration scheme but the overall performance of the continued on page 18 June 17, 2013 INSURANCE JOURNAL-NATIONAL REGION | 17

SPECIAL REPORT

continued from page 17 facturer with no additional backing are “more or less discounted completely” in today’s strained market. One provider that offers a specialized warranty insurance product for solar panel makers is PowerGuard Specialty Insurance Services based in Irvine, Calif. While purchasing warranty insurance is voluntary, solar panel manufacturers have been getting pressured to buy the coverage by lenders and contractors, says Scott Gunnison of PowerGuard. Without warranty coverage, solar projects often can’t get launched, says Steve Sawyer, executive vice Solar Warranties president, at Woodruff-Sawyer & The solar construction industry’s growth Co. based in San Francisco, Calif. in the past few years appears to be at the “The insurance is often a key comheart of some of the concerns, the experts ponent particularly for developers, say. and maybe EPCs as well, to get a “We are in a market where we have global project financed.” overcapacity in the module production side, But securing warranty coverage so significantly more modules are being in the solar market is difficult and manufactured than are being consumed,” often takes many months to write, says John Smirnow, vice president of SEIA. Sawyer says. “Over the last six months or so we are right Warranty coverage “needs to be customin the middle of some fairly significant ized to the needs of a particular buyer,” industry consolidation on the module side.” Sawyer says. The coverage can be written Meydbray says that just one or two years for a manufacturer, a developer, or an EPC, ago stakeholders found that project conand is tailor-made for that buyer, he says. tracts, manufacturers’ warranties and the “There’s not a one-size-fits-all policy. Every balance sheets of equipment suppliers were one of these is unique. enough security to move To the product, to the projects forward. But that ‘There’s not a manufacturer, maybe it’s just doesn’t exist today, he one-size-fits-all a developer, maybe it’s says. somebody trying to get “Most of these equipment policy. Every one financing, it’s the furthest suppliers have very strained of these is unique.’ thing from an off-thefinancials. It’s very uncershelf product,” Sawyer tain if they are going to be says. around in a year let alone 20 years so inves There are limited markets willing to do tors really have to gain a higher degree of business in the solar warranty market as confidence in the actual cash flow generatwell. Aside from PowerGuard, Munich Re ing engine of their investment — which is also offers a performance warranty product the solar panel itself.” for solar panels. But with reports over the quality and Some solar manufacturers provide wareffectiveness of solar panels hitting the ranties for solar panel systems of 25 years headlines, industry partners are looking for for power performance. If any product added confidence in solar panel products. fails to meet the specifics of this warranty That confidence appears to be coming in then the warranty insurance product will the form of warranty insurance. respond. Meydbray says that solar panel manufac Gunnison says the PowerGuard warranty turer warranties backed solely by the manuMichael Hamilton, partner at Nelson Levine de Luca and Hamilton based in Blue Bell, Pa. They are watching to see whether solar construction defect and product defect claims are likely to result in a significant amount of litigation around the country. “Right now it seems this potential issue is in its infancy, and observers are unsure of how widespread it’s going to be in terms of litigation,” he says. But if solar panel defect claims develop into significant litigation across the country, the insurance industry will take notice. “It’s just going to depend on how widespread the problem is,” Hamilton says.

18 | INSURANCE JOURNAL-NATIONAL REGION June 17, 2013

product doesn’t follow the manufacturer’s warranty exactly, but it’s pretty close. “If in fact there is a valid defect that makes the panel inoperable, or it’s not outputting the amount of electricity it’s supposed to, most of the manufacturers will replace the panel or negotiate some cash settlement,” he says. What the warranties don’t provide is consequential damage liability, Gunnison says. “If there was a fire (because of the defective panel), and it burned a building down, the manufacturer’s warranty isn’t going to remedy that building burning down.” Sawyer says while warranty markets are limited in solar, so are the customers. There are a limited number of buyers, he says. Coverage is expensive and often some buyers can’t get it. “Some prospective buyers simply won’t make the time and invest what’s necessary to get a program completed,” he says. “Many companies or developers do not have the performance data to give underwriters confidence in the product that they are trying to insure.” “Lots of people don’t buy the product,” Gunnison says. However, with the attention focused on solar panel defects that may very well change. www.insurancejournal.com

IDEA EXCHANGE

Growing Your Property Casualty Agency Grow Your Independent Agency by Activating ‘Hit Teams’

n many independent agencies, production Your hit team might consist of a personal is left to lone wolves who professionally lines producer, CSR, and marketing intern. prowl among neighborhoods, businesses, and Together, they identify the most needy and the Internet. These offices encourage their salable internal prospects, develop marketproducers to work ing materials (or review and modify existing alone in pursuit of fresh stuff), and approach insureds with their messales, intentionally or sage. otherwise. Such self The producer handles any required outreliance works out well side visits, the CSR fields calls and emails for certain agents, but and prepares quotes, while the intern manit’s not for everyone. ages and monitors all promotional approachOthers prefer prospectes. ing and selling within The umbrella team concept can also be a team structure, as it used to target new personal and commercial By Alan Shulman makes the sales process lines prospects using the policy as a door more efficient and opener. enjoyable. And there is only one rule about teams: they must consist of more than one New and Old person. So, be as creative as you want when It’s classic sales management to team building them. a new producer with a A “hit team,” in the con- Working in teams grizzled old veteran. How text of this column, is two helps you to get more well this works out depends or more agency staffers mainly on the personalities from your staff. tasked with targeting a involved. If your seasoned particular policy or group pro is of the lone wolf variof buyers. It’s not an assassination squad, as ety, he won’t appreciate the hook up, as it the name suggests, unless its sole mission is distracts him from his primary job. to target the business of a particular agent, Plus, if he has poor work habits and is agency or carrier (not recommended). overly cynical, you don’t want these traits Here are three ideas for teams. There are passed on to the next generation. many more as well. Still, a new-old hit team can be successful. Just don’t rush them headlong into selling Umbrella Hit Teams together. Instead, start them off slowly with A basic example of the concept is a perjoint prospecting for leads within a niche sonal umbrella hit team. Its mission is to market. This way, they both cross-sell million dollar (or greater) polican learn techcies to auto and homeowners insureds. The niques (tradiumbrella demands attention because it tional sources, affordably protects insureds against jumbo pre-qualifying, lawsuits and is relatively easy to underwrite, etc.) and techrate and sell. It also enhances your retention nologies (online ratio, because buyers of these policies tend to tools and social keep them. media) Plus, they require you to gather basic from each details on any underlying policies that you other don’t write, which you can simultaneously before solicit. And of course, there are plenty of jumping umbrella markets for you to use, including into sales. monoline.

New and New Another potential pair up is a hit team composed of two new producers. They can learn the business together while working and competing in tandem. The art of production is something that’s best learned in the field, supported by helpful training and information. So, when you have two or more young producers in your agency, assign them a variety of hit team missions (both online and off) for teaching purposes and to generate leads and revenue. Create Synergy Working in teams helps you to get more from your staff. “Mix and match” producers, CSRs, and others to build temporary alliances to uncover new prospects and sales that might otherwise be missed. Synergy can arise from combinations of employees who have never worked together before. Hey, if alliances like these work on those reality TV shows, why not in your agency? Shulman, CPCU, is the publisher of Agency Ideas, a subscription-only sales and marketing newsletter. He is also the author of the many tools posted on the Agency Ideas Instant Download Store. Phone: 800-724-1435. Email: alan@ agencyideas.com. Website: www.agencyideas.com.

IDEA EXCHANGE

Technology 4 Strategies to Make Producer Lifecycle Management a Priority

aintaining a top-notch sales organization is harder than ever. One key reason is the growing challenge of keeping up with state and federal insurance regulations that focus on sales. The multiple tasks involved — changing regulations across all 50 states, agents vs. brokers, licenses that need to be renewed — can be confusing and require constant updating. It’s easy to get lost in the details, making proBy Tim Owen ducer lifecycle management (PLM) systems more important than ever to agencies, agents and carriers. To operate at peak efficiency and profitability, it’s essential for producers and carriers to stay focused on one key question: are my sales channels perpetually authorized to sell business? Judging from a 2012 survey of 40 insurance businesses, the answer is a definite no. Nearly 60 percent of respondents say their PLM effort “needs improvement,” according to the Vertafore Producer Lifecycle Management Survey. Looking closer, it becomes apparent where improvement is needed. While 85 percent of carriers and agencies report verifying producer authorization during producer onboarding, only 40 percent are authorizing at the time that it really matters — when new business is being submitted. Furthermore, when authorization errors are detected, only 5 percent are able to

automate the resolution. While every business needs efficient, reliable and fast PLM, the reality is that many don’t have what they need. Managing the producer lifecycle often involves disjointed processes, manual and redundant data entry, and inefficient transactions across multiple internal systems. The consequences of inadequate PLM can be serious, including lost revenue, compliance gaps, exposure to audits and fines, lost commissions (for agencies and brokers) and reputational risks. A lack of appropriate credentials and relationships can cause serious delays. In an April 2013 survey of insurance professionals, nearly 20 percent said between 16 percent to more than 21 percent of their business had been held up because of authorization gaps. Forty-three percent said 6 to 15 percent of their business had been delayed. With so much at stake, why has PLM not emerged as an urgent priority and, more importantly, what can be done to ensure that every producer is fully authorized for each sales opportunity that arises? One barrier to implementing better PLM systems, according to the survey, is that business decision makers don’t see projects aimed at making producer sales authoriza-

tions more efficient as important as other initiatives and expenditures. Respondents listed a number of projects that were placed ahead of PLM, including agency management systems, compensation systems, agency portals, claims, and policy administration applications. Licensing, compliance and contracting team members also acknowledge being largely siloed within their respective businesses. PLM functions are often spread across functions in multiple departments, including sales, marketing, underwriting, policy administration and claims. Purchasing decisions are similarly spread across departments, making it even more difficult to generate a critical mass of support. But there are a number of strategies that can give PLM more visibility and help move continued on page 22

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Technology continued from page 20 it to the front of the priority list. They include: 1. Prove the value of PLM to the rest of the organization. PLM purchasing decisions aren’t made in a vacuum. The

teams tasked with enabling sales authorizations must be well prepared to articulate the hard dollar impact and other benefits of their PLM project recommendations. They should also include the quantifiable impact on other departments outside of

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their function. 2. Speak about PLM in terms of the overall agent experience. Speaking the language of the business, rather than the language of regulators and individual departments, will help convey the strategic urgency of making PLM procedures more efficient, enabling the business to meet its bottom-line objectives. 3. Incorporate Producer Lifecycle Management as a driver toward strategic growth initiatives. PLM functions within carriers, agencies and brokers offer tremendous potential for delivering substantial cost savings while mitigating reputational risk to the organization. Implementing efficient, automated, exceptions-based producer lifecycle management processes should be strongly considered as part of strategic growth initiatives. Whether launching new products, expanding geographically, completing mergers and acquisitions, or adding new distribution channels, it is critical that producer authorization activities are planned and managed well. 4. Seek the backing of IT. The IT departments of carriers and agencies have traditionally been given the charter to conduct independent research to support their internal business user. They will be more outspoken supporters of PLM projects if: • Their application, services, and support and recovery systems are technically sound • The addition of this project/product will not unduly burden their resourceconstrained staff • The application and/or service will not cause long-term maintenance issues • They will be viewed favorably should they recommend it Carriers and agencies must evolve from the current reactive approach, where they respond ad hoc to changing regulations and use an often-piecemeal approach to keeping producers authorized to sell. Instead, by adopting an automated, PLM initiative, they have the opportunity to transform their business, productivity and profitability. Owen is vice president of product management for Vertafore. Email: towen@vertafore.com.

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www.insurancejournal.com

Closer Look

Environmental Solar Storm Threats Pose Emerging Risk been even bigger and potenfor Industry: Lloyd’s tiallyTheremorehavedisruptive events in the past,

and events of this sort could be repeated. large solar storm could leave tens of The report describes the Carrington millions of people in North America Event of 1859, which is widely regarded as without electrical power for several the most extreme space weather event on months, if not years, potentially costing record. Such an event today would affect trillions of dollars. between 20 million to 40 million people in That’s according to Lloyd’s emerging the United States with power cuts lasting risks report: “Solar Storm Risk to the North from several weeks to one to two years. The American Electric Grid.” economic costs would be “catastrophic,” The report was produced in coaccording to Lloyd’s, which estimated losses operation with U.S.-based Atmospheric at between $0.6 trillion and $2.6 trillion. Environmental Research. It notes that Fortunately, Lloyd’s says, a Carringtonwhile large geomagnetic storms are relativelevel extreme geomagnetic storm is rare, ly rare, they “can create a massive surge of with historical records suggesting a return current, potentially overloading the electric period of 50 years for Quebec-level storms, grid system and damaging expensive, and and 150 years for very extreme storms, such critical, transformers.” as the Carrington Event. According to the report, a large solar storm in 1989 triggered the collapse of Weak Storms Still Risky Quebec’s electrical power grid, leaving Far weaker storms still pose a signifisix million Canadians without power for cant risk. “Aging power infrastructure and nine hours. A smaller storm in 2003 caused increasing reliance on electricity make the blackouts in Sweden as well as damage to world more vulnerable, especially at times transformers in South Africa (transformers of heightened solar activity — 2013 is a solar at that latitude were previously thought to USA12043.qxd 1/4/08 2:26 PM Page 1 maximum, the peak of the sun’s 11 year cycle be immune from such damage).

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of activity,” the report says. If such an event occurred it might cause damage to only a small number of transformers. However, if it were to happen in the densely populated U.S. Atlantic coast, the Lloyd’s report says it would be of particular concern. “Physical and technological risk factors along the East Coast — such as magnetic latitude, distance to the coast and ground conductivity — make it a high risk for power outages, although the Midwest and the Gulf Coast states are also at risk,” the report warns. Given the chaos a major power outage could bring, the power industry, policymakers and insurers need to evaluate preparatory and mitigation measures, the report says. The warnings are being heeded. The Lloyd’s report indicates that governments are “waking up to the risk and taking the threat of geomagnetic storms seriously.” In April the White House Office of Science and Technology Policy released a report assessing U.S. capacity to monitor and forecast space weather, while the UK added space weather to its National Risk Register in 2012. “Most space satellites that can provide warnings of incoming geomagnetic storms are past their mission lives and replacewww.insurancejournal.com

ments will soon be needed,” according to the report. “Power infrastructure can also be hardened against geomagnetically induced currents in regions with the highest risk of outage. While these measures come at a cost, prevention is much more cost-effective than paying for huge damages caused by a severe storm.” Insurance Fallout Any fallout from a solar storm, particularly one that hits North America, would inevitably affect the insurance industry. It would cause sustained power outages, which could expose insurers to significant business interruption claims, “although exactly how cover for such an event would respond is uncertain,” the report says. Business interruption is likely to be only one aspect of potential insurance exposure. “A space weather event could disrupt supply chains, lead to wide scale cancellation of major events and conceivably result in liability claims if employee or public safety was compromised, or if directors failed to take necessary steps to limit damage,” the report says. Lloyd’s warns that a major event would have wider implications for the insurance industry and society in general, potentially causing widespread disruption to infrastructure, social unrest and disruption to financial markets. Extreme solar weather would also be a direct threat to power companies and their insurers, according to John Chambers, deputy active underwriter at Aegis London, a specialist insurer of power companies. He said that insurers and risk managers have made “some progress” in identifying geographical areas and types of equipment that could be more susceptible to loss. However, the lack of recent claims has meant that the issue is lower down the agenda for insurers than perhaps it should be and has made it harder for risk managers to get the appropriate budgets for risk mitigation. “Specialist power insurers should be looking at wordings and the use of sub-limits and stand-alone coverage, although they are open to engaging with other bodies to look www.insurancejournal.com

at ways of improving resilience and managresearch at Lloyd’s. ing risk,” Chambers said. “Insurers need to evaluate the potential “Geomagnetic storms present a huge impact of geomagnetic storms on the marpotential risk with important implicaket, as well as work with governments and tions for both insurers and society,” said energy companies on ways to mitigate the Neil Smith, manager of emerging risks and R3_I J_Half_Ins Journal 4/9/13 12:21 PM Page 1risk at a society level.”

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Closer Look

Environmental The Tip of the Iceberg: Environmental Damages Fines

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n a recent report, the UK International Underwriting Association (IUA) provided several useful illustrations By Julien Combeau of the potential environmental exposures facing all kinds of businesses. These scenarios have one thing in common. They highlight the fact that criminal fines are really just the tip of the iceberg when it comes to the costs associated with an environmental incident. Businesses are worried about environmental fines for a variety of reasons: A fine is proof that somehow pollution prevention and protection systems, which may have taken years to build, have failed. It is embarrassing from a reputation point of view. It is an unanticipated cost that directly affects the business’ bottom line. But any analysis that purely focuses on the financial consequences of a regulatory penalty risks missing the overall impact. Over the past decade, environmental regulations have been strengthened in several jurisdictions around the world. China is just one in a long line of countries that has recently strengthened its environmental enforcement framework. For the most part these rules follow the “polluter pays” principle. The Polluter Pays… for What Exactly? This begs the question: the polluter pays for what and to whom? Third-party indemnification, such as neighboring populations which suffer from exposure to the gradual release of carcinogens, is one of the first risks to consider. Under tort or civil laws businesses who become the victim of a spill on their land

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that causes disruption are also entitled to claim compensation. Secondly, with the introduction of the ecosystems restoration concept, statutory remediation is no longer limited to cleanup of the damaged area. Businesses are required to restore the environment back to the “baseline” where it was before, and to compensate for interim or irreversible losses. These compensation schemes employ new types of valuation models that have barely been tested in Europe. Similar liabilities have, however, been in place for a long time in the U.S. and those who have had to bear them have the scars to prove it. Companies should also consider disruption to their own processes, which stem from a pollution event. When regulators issue an emergency stop order during an investigation or a site remediation, for example, there may be considerable lost production and income before the operation can start up again. Given all these risks and the highlights of the IUA report, now is probably a good time to think about transferring environmental risks. Affordable and broad cover is currently available from specialist environmental insurance markets for what is anticipated to be complex, long and costly proceedings. Combeau is an executive director for Willis’ Environmental practice, with responsibility for UK and Europe. Based in London, he has 15 years of operational experience in the environmental health, safety, and insurance fields. He is a regular contributor to the WillisWire (http://blog.willis.com/)

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SPOTLIGHT

Personal Umbrella E&O Insights: Why Personal Umbrellas Generate Claims

ow many of your personal lines accounts have an umbrella? Some recent surveys have indicated that insurance agencies write, on average, 1.6 personal lines policies per account. Based on this number, there is a good chance a personal umbrella is not one of those policies. Serious claims can occur at any time with any customer, so agencies should look to ensure that By Curtis M. their clients have a Pearsall personal umbrella. That could save those clients from significant financial consequences if a major claim happens to them.

A good starting point is developing a personal lines sales campaign to educate customers on what a personal lines umbrella covers and what the approximate premium would be. It can be as simple as sending customers an informative letter. In all likelihood, some clients may not believe a major claim could happen to them, so include claim examples to “gently persuade them.” Check with your personal lines carriers for sample claims. These claims could involve situations where a personal lines umbrella was in place and responded to the loss — or instances where there was no umbrella and the client was

responsible for considerable financial responsibilities. To complement this sales campaign, as your agency customer service representatives (CSRs) interact with your personal lines customers, encourage and incentivize those CSRs to broach the issue of a personal umbrella. Document those conversations not only in the agency system but also with some type of written communication back to

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example, include a statement noting that the customer. tice” involves putting the umbrella carrier higher limits are available. As you interact with new agency cuson notice, even if it is for “record purposes tomers and prospects, discuss the issue of only” on third-party/liability claims. Conditions or Limitations? umbrella and/or include it on proposals for There is the possibility that the umbrella every new customer. The file should reflect Solid E&O Protection carrier may impose specific conditions or the final decision. If the customer does not By reaching out to your customers to limitations which could secure the umbrella, notify them of the benefits and cost of a have the customer pro- Do not suggest a certain involve a host of issues, personal umbrella, you have further proso be on the lookout vide a signature noting umbrella limit. tected yourself if a customer is involved in for any stipulations and his or her rejection or a significant claim. bring these to the customer’s attention. An send the customer a letter/e-mail confirm Developing an umbrella campaign is exclusion for youthful operators is possible. ing the decision. If your client states “let a great way to identify exposures your me think about it,” confirm in writing that agency does not insure and “round out an Claims Handling coverage has not been bound. account.” Additional sales will probably It is strongly recommended for an agency result, plus it’s an effective way to enhance to know under what circumstances each Underlying Coverages your agency’s errors and omissions protecof its umbrella carriers should be put on A significant number of E&O claims arise tion. notice when an underlying loss occurs. from gaps between the limits the agency Underlying claims often develop adversely customer should have versus what he or Pearsall, CPCU, ARM, is president of Pearsall Associates and “blow through” the underlying limits. If she actually has. This situation should be Inc., a risk management consulting firm specializing the umbrella carrier believes it was notified somewhat mitigated if the agency writes the helping agents protect themselves. He is also a special “too late,” it may be able to deny the claim underlying coverages. As you interact with consultant to the Utica National Agents E&O program. based on “late reporting.” A solid “best praccustomers, make it clear what underlying Phone: 315-768- 1534. E-mail: curtis@pearsallassociates. limits must be maintained on all respective exposures (auto, home, wet marine, etc.). When communicating with customers, advise them of any pricing issues to get the underlying limits at the proper level. As you look to finalize the umbrella proposal, don’t assume you know all of the IT’S NOT A PROBLEM, IT’S OUR SPECIALTY. underlying exposures your client would want scheduled on the umbrella policy. If possible, sit down with the client to guarIf your clients are unable to obtain malpractice insurance, then it’s time to call the antee you have correct information, just experts. We specialize in providing malpractice insurance for medical professionals, in case your agency doesn’t insure all of including physicians, surgeons, podiatrists, and dentists who, for whatever reason, have these exposures. For exposures your agency doesn’t insure, secure the declarations page difficulty obtaining coverage. Features of our program include: for these coverages. If the limits are not at • Rated A by A.M. Best Company the required level, advise the customer that • $1 million/$3 million claims-made coverage, the specific exposure cannot be scheduled up to $2 million/$6 million on the umbrella policy until those required limits are in place. Confirm in writing. • Broad policy form • Superior claims management Even when your customer has an umbrel• Choice of a more restrictive policy for a reduced price la a problem can develop if there is a gap between the actual underlying limits and • Quick turnaround time to meet your needs those specifically required.

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Don’t Recommend a Limit While it is acceptable to recommend an umbrella, do not suggest a certain limit. Provide options, perhaps ranging from $1 million to $5 million. If you only provide a customer with a proposal for $1 million, for www.insurancejournal.com

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SPOTLIGHT

Commercial Umbrella 10 Things to Know About Commercial Umbrellas Commercial umbrellas can be an answer for business owners with significant assets or those especially vulnerable to lawsuits. Umbrellas may provide supplementary coverage for lawsuits, legal fees and settlements as well as for bodily injury and property damage claims not covered by other liability policies.

There is no “standard” form. Each has its own “flavor.”

Not all qualify as umbrellas; some are only excess forms.

Underlying endorsements don’t apply to the umbrella/excess forms (important E&O tip).

A “following form” excess may not actually “follow form.”

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Layering umbrella/excess forms CAN create unintended gaps in coverage or interpretation (get agreement up front)

Most business umbrella policies exclude employment practices liability, professional liability, product recall coverage, workers’ compensation and coverage for asbestos-related claims, pollution, war and terrorism. (But they may extend over the employer liability portion of workers’ comp.) Typical commercial umbrella liability insurance policy limits range between $1 million to $5 million but may go higher.

Regarding a home business, a commercial umbrella only provides extra coverage above any base coverage. So if the home business is not covered by a general liability or homeowners policy, an umbrella won’t cover it either.

A search for “commercial umbrella” products on MyNewMarkets.com turns up 1,634 entries.

www.insurancejournal.com 3/18/13 11:58 AM

NATIONAL COVERAGE

MyNewMarkets Insurance Agents E&O

Accident & Health Market Detail: Catlin US’ (www.catlinus.com) accident and health coverage targets: employer groups, associations, unions, affinity organizations, and financial institutions. Products highlights include: customized plan design options; 24 hour accident protection; benefits paid in addition to any other group or individual coverage; mandatory and voluntary coverage offered; and private branding available. Available limits: As needed Carrier: Unable to disclose States: All states Contact: Jason Denechaud at 908-918-2310 or e-mail: jason.denechaud@ catlin.com This section brought to you by Insurance Journal’s sister website, www.mynewmarkets.com

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Market Detail: Association Insurance Administrators (www. toaia.com) offers the Liberty Mutual Agency Underwriters Insurance Agents E&O program with competitive pricing and flexible coverage options for independent P/C agencies. This program offers professional liability insurance for property/ casualty agencies who have been in business for more than three years and whose books of business are over $1 million. P/C premiums should represent 75 percent of the agency’s book of business. Available limits: As needed Carrier: General Insurance Co. of America States: Pa., Va., Dela., Md., R.I., Conn., Mass., and D.C. Contact: Mary Smith at 800-523-6004 or e-mail: mary@toaia. com

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Market Detail: Hagerty Insurance Agency Inc. (www.hagerty. com) offers collector vehicle insurance with agreed value coverage and flexible usage at competitive rates. For agents, Hagerty offers online download, direct bill, direct deposit and online policy management. Coverage includes: uninsured motorists, medical payments, physical damage, Readers, browse, contact, or do product searches on any of our full page advertisers liability, emergency towing and service. at: http://www.insurancejournal.com/adshowcase/ Available limits: As needed M.J. Hall & Company, Inc. ACE Insurance Carrier: Unable to disclose www.mjhallandcompany.com W6 www.acelimited.com 21 MacNeill Group, Inc. States: All states except Alaska, D.C., and Hawaii AIG www.macneillgroup.com FL11 www.aig.com 13 Contact: Customer service at 800-922-4050 McClelland & Hine Anderson & Murison, Inc.

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www.andersonmurison.com W8 Applied Underwriters www.applieduw.com 9; 36 Astonish Results www.astonishresults.com W4; SC4; SE5; E3; M3 Beacon Hill Associates www.b-h-a.com 26 Brecht & Associates www.brechtassoc.com SC2 Brightway Insurance www.brightwayinsurance.com SC7; SE7 BuildFax www.buildfax.com/faia 9; FL10 Burnett & Company www.bcoinc.com SC8 Burns & Wilcox Ltd www.burnsandwilcox.com W3; SC2; SE3; E3; M3 Burns & Wilcox Ltd www.burnsandwilcox.com FL9 California Earthquake Authority www.calquake.com 2 Century National www.cnico.com W3 Florida Surplus Lines Association www.myfsla.com SE3 Freberg Environmental www.feiinsurance.com 27 FSLSO www.fslso.com FL17 FUBA Workers’ Comp www.fubaworkerscomp.com 17FL3 GIC Underwriters, Inc. www.gicunderwriters.com cover; FL23 Great American Corporate www.greatamericaninsurancegroup.com 11 Insurance Technologies Corp. www.insurancewebsitebuilder.com 15 Insurbanc www.insurbanc.com 22 JM Wilson www.jmwilson.com FL6 LAAIA Show www.laaia.com FL21 Liberty Mutual www.libertymutual.com 35

www.mhi-tx.com SC6 Midlands Management Corporation www.midlandsmgmt.com 14 Monarch E & S Insurance Services www.monarchexcess.com W5 Morstan General Agency of Florida www.morstan.com FL7 Navigators Management Company, Inc. www.navg.com 23 NBIS - NationsBuilders Insurance Services, Inc. www.nbis.com 12 PersonalUmbrella.Com www.personalumbrella.com 4-5 Preferred Property Program www.umbrellaprogram.com 28 PULIC - Professional Underwriters Liability Insurance Company www.pulic.com 29 Quirk & Company www.quirkco.com W2; SC3 Regency Insurance Brokerage Services www.regencyinsurancebrokerage.com FL24 SIAA www.siaa.net 7 St. James Insurance Group www.stjamesinsurance.com FL5 St. Johns Insurance Company www.stjohnsinsurance.com SC INSERT; FL15 TAPCO www.gotapco.com FL13 Tejas American General Agency www.taga1.com 3 Texas Mutual Insurance Company www.texasmutual.com 5 Tower Hill Insurance www.thig.co FL INSERT; FL ONLY COVER United Contractors Insurance Agency www.ucisg.com 20 Universal Service Agency, Inc. www.universalbonds.com 24 Volunteers Insurance Services Association, Inc. www.cimaworld.com 30 Westrope www.westrope.com 25 Wright Flood www.wrightflood.com FL2

Commercial Auto, Motor Truck Cargo, Excess Market Detail: Bliss & Glennon Inc.’s (www.bgsurplus. com) coverage includes: garage liability; excess garage and excess auto liability; garage keepers legal liability; dealers open lot and physical damage; ocean marine; motor truck cargo; non-standard auto; commercial auto Available Limits: minimum $10,000, maximum $1 million Carriers: Various, admitted and non-admitted States: All states Contact: Jerry Conwell at 800-922-7587 or e-mail: Conwell@bgsurplustx.com

EPLI for Insurance Agents & Brokers Market Detail: Belmont Underwriters LLC, (www. belmontunderwriters.com) is an MGA focusing on EPLI for insurance agents and brokers as well as architects & engineers. Other classes welcome as well. Coverage features including: minimum premiums starting at $1,250, wage and hour coverage; and defense outside limits available. Available limits: Minimum $500,000, maximum $2 million Carrier: Unable to disclose States: Calif., Nev., Utah, Colo., Ore., Texas, Ga., Mo., Ill., Ohio, Pa., Ga., Va., N.J., Mass. and Md. Contact: Customer service at 888-533-5177

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Closing Quote

The Art of Communication in the Modern Era, All Is Not Lost

By Paul Rainey

he following is a fictional communication that in reality could be taking place in your office today. Retail Agent: I nd a qte asap on this prop (I need a quote as soon as possible on this property) Broker: addy and val (address and value) Retail Agent: 1250 Jones St $1 mil TIV (1250 Jones St. $1 million Total Insured Value) Broker: DD is done emailing u now (Due Diligence is done emailing you now) Retail Agent: 12.5% Comm and u got a dl (12.5% Commission and you have a deal) Broker: 10% Lol nice try (10 percent Laugh out loud, nice try) Retail Agent: Bnd It and FYI grt jb 10q (Bind it and For Your Information Great Job Thank You) Broker: DMI and TTUL (Don’t mention it and Talk To You Later) The art of communication has changed drastically in our business, or has it really? It is a question that many of us struggle with on a daily basis. Twitter, Facebook, SMS, Instagram and Snap Chat to name a few, all words that were foreign to us just a few years ago. It wasn’t that long ago that email was the big buzz word in business. To our shock today, some of the next generation believe email is a dying way of communicating. We all are facing many

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challenges as we perpetuate our companies. Not only from a recruitment point of view, but also from how our next generation of team members will communicate moving forward. To survive, it is important that we are able to learn from our past generations and our future generations, including blending the art of old school communication skills with modern communication technology of the present day. While this isn’t an easy challenge, it is one that we dare not ignore. Remember back to just several years ago when you heard the word email. At first, like many, I thought this new technology would never work, but yet in a few months it seemed like magic. No longer were we tied to being available on the phone, we could send our message electronically! Then it got even better, we could attach items to our email … applications, pictures, loss runs, our business was changed forever. Within a few short years, SMS became the big buzz word, and text messaging was the new hot way to communicate. Gone were the days of our kids being over the allotted minutes allowed, and in were the days of unlimited texting. This is the way the current generation knows how to communicate, and hence the door is open for a potential problem. To me, there is an art to being able to answer that phone call, being able to hold a verbal conversation, and being able to dedicate that time directly to the needs of your client without interruption. It is this one-on-one personal communication that we all need to fight for to ensure it never goes away. There is something to be said about knowing how to communicate in every situation. Our business is a “people” business, based on relationships and trust. Along with that comes a responsibility to ensure we share our experiences with future generations. It is important that we don’t get lost in technology and forget how our business was established — personal relationships. As we teach our team about how there is no tone in email, we also need to ensure they have the ability to walk into that room full of people, shake a few hands and to look people in the eye. We need to arm our next generation with the ability to hold and conduct an in-person meeting, and share with them the art of reading body language. There is no greater moment when holding that meeting and you look across the table and you see that smile that tells you, yes they got it; and of course the arms crossed when you think this is going nowhere. Ensuring that team members can handle that dispute on the phone, and turn it in to a positive situation, is every bit as important as them being able to upload the latest insured data to their underwriter on the cloud. These are exciting times in our industry, and if we keep alive a little bit of the way we used to conduct our business, the new technology will only enrich our future. Rainey is president of RSI International Inc., a managing general agency based in Arlington, Texas. www.insurancejournal.com

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