WEST Policies Spiked After March Quake Allstate Recruiting Agency Owners California City Warms to Hot Sauce
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WEST On The Cover
Inside This Issue
Special Report:
Construction Renovation: Property Flips and Insurance
June 16, 2014 • Vol. 92 No. 12 • West
W2
W4
24
32
NATIONAL COVERAGE
WEST COVERAGE
IDEA EXCHANGE
10 How Healthcare Reform Is Challenging Medical Malpractice
W2 California Chicken Plant Sues Orkin over Cockroaches
30 Customer Service and Sales: John Graham
14 Spotlight: 10 Things to Know About EPLI
W2 Allstate Recruiting Agency Owners in California
32 Growing Your Property Casualty Agency: Alan Shulman
16 Special Report: Property Flips and Insurance
W2 Hot Sauce No Longer in Hot Water with California City
34 Closing Quote: Are You Hiring and Managing Like Your Father’s Generation?
22 Closer Look: MRM’s Kelly on Medical Professional Liability Emerging Risks
W4 CEA: Policy Sales Spiked Following California March Temblor
24 Spotlight: Beware of Dwindling Excess Umbrella Limits 26 E&O Insights: Why Are Umbrellas Causing E&O Claims? 28 Spotlight: Personal Umbrella Coverage Needed More Than Ever
DEPARTMENTS 8 Opening Note W6 People 11 Declarations 11 Figures 12 Business Moves 20 MyNewMarkets
6 | INSURANCE JOURNAL-WEST June 16, 2014
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NATIONAL COVERAGE
Opening Note
Publisher Mark Wells | mwells@wellsmedia.com
Look Beyond Salary
M
any Americans who leave their jobs to improve their financial situation fail to consider their total compensation package when making the decision, according to a consumer survey. The survey by the National Association of Insurance Commissioners (NAIC) found that many job-hunters consider only salary and end up in worse shape after taking a new job because they overlooked the value of total compensation including benefits. According to the NAIC survey, 40 percent of voluntary job switchers cited “improve my financial situation” as a key influence on their decision to quit. However they encountered problems when they took a narrow view of what affects their financial conditions. While 73 percent of job switchers spent some or significant time thinking about salary, only 41 percent spent as much time considering insurance benefits, and less than 30 percent thought as much about out-of-pocket costs or insurance coverage effective dates before making the switch. According to the Bureau of Labor Statistics, insurance benefits can average nearly 10 percent of total compensation. The NAIC survey found that ignoring the benefits Total compensation is more component can be costly. complex than salary alone. Nearly 25 percent of job switchers surveyed said after accepting a new job, insurance-related changes either “slightly or greatly worsened” their overall financial situation. “We urge consumers to consider all the financial implications of a job change, including insurance. Total compensation is more complex than salary alone,” said Adam Hamm, NAIC president and North Dakota insurance commissioner. Young people are particularly likely to jump jobs after just a few years in employment. Some 60 percent of Millennials are expected to leave their employers within the first three years, according to The Jacobson Group. So what can organizations do to keep employees, young and old, engaged? Here are a few things that The Jacobson Group recommends. Offer desirable perks and benefits, and develop a comprehensive rewards strategy that encompasses several components, including performance recognition, work/life balance and career development opportunities. Fast track high-performing employees. If you want to keep young, talented individuals within your company, make sure you are placing your best and brightest on the road to success. Foster an inviting and inclusive culture. Don’t overlook the importance of employee morale. Engage in community service and volunteer activities. Employees that find their work to be fulfilling and meaningful are much more connected to their employer. Andrea Wells
Editor-in-Chief
8 | INSURANCE JOURNAL-NATIONAL June 16, 2014
EDITORIAL 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 Mark Desrochers, Mark Dugle, John Graham, Sharon Emek 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 Ly Nguyen (800) 897-9965 x125 | lnguyen@insurancejournal.com MARKETING/NEW MEDIA Marketing Administrator Gayle Wells | gwells@insurancejournal.com Advertising Coordinator Erin Burns (619) 584-1100 x120 | eburns@insurancejournal.com New Media Producer Bobbie Dodge | bdodge@insurancejournal.com DESIGN/WEB V.P. of Design Guy Boccia | gboccia@insurancejournal.com V.P of Technology Joshua Carlson | jcarlson@insurancejournal.com Audience Development Elizabeth Duffy | eduffy@wellsmedia.com Marketing Director Derence Walk | dwalk@insurancejournal.com Web Developer Jeff Cardrant | jcardrant@insurancejournal.com Web Developer Chris Thompson | cthompson@insurancejournal.com IJ ACADEMY OF INSURANCE Online Training Coordinator Barbara Whiffen | bwhiffen@ijacademy.com ADMINISTRATION Chief Executive Officer Mitch Dunford Chief Financial Officer Mark Wooster | mwooster@wellsmedia.com
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NATIONAL COVERAGE
News & Markets How Healthcare Reform Is Challenging Medical Malpractice
T
hough the impact of the Affordable Care Act (ACA) on medical malpractice insurance remains a bit of a puzzle, three insurance experts pieced together likely effects at an insurance conference for actuaries in late May. Forecasting a coherent future from sparse data can be difficult, but it’s a skill casualty actuaries have gained through years of experience. There aren’t a lot of data yet — and the facts that do exist are subject to more political spin than usual. Still, two casualty actuaries and a veteran medical malpractice underwriter were able to use demographic and health industry trends to predict how the medical malpractice world could change over the next decade. They gave their forecasts at the Casualty Actuarial Society’s Seminar on Reinsurance in New York, in a session titled “The Impact of the Affordable Care Act on Medical Professional The doctor-patient Liability - an Update.” relationship is Through becoming diluted. early April, seven to eight million people had signed up for healthcare insurance through exchanges, noted Elke Kirsten-Brauer, executive vice president and chief underwriting officer of MGIS, a national insurance program manager for medical professionals. She said about onefourth did not have insurance before; with10 | INSURANCE JOURNAL-NATIONAL June 16, 2014
in a few years, more than 22 million people will gain health insurance. The mere presence of more insureds will increase the number of medical malpractice claims, Kirsten-Brauer said. Compounding the issue is the fact that they are largely unfamiliar with the healthcare system. “We need to educate them” on matters that will seem trivial, she said. Another important trend: The doctorpatient relationship is becoming diluted. The old model of a single doctor diagnosing a patient’s problem and then participating heavily at every step of treatment is giving way to expanded-care teams. This is best seen with a new sort of doctor: the hospitalist. As casualty actuary Kevin Bingham of Deloitte Consulting explained, the term was coined in 1996 and is just now coming into vogue. These are doctors who monitor the hospital stays of patients — a job that the patients’ physician would have taken on in the past. The hospitalist is part of the new paradigm, with some parts looking familiar but others less so. The physician still diagnoses outside the hospital; the surgeon still operates. But nurses are taking on larger roles in the doctor’s office, and the hospitalist picks up medical center duties. The physician re-enters for out-of-hospital follow-up. Under this new model, patients are far less likely to be treated by a single professional. The series of professionals they move through is part of an accountable care organization, or ACO. Thanks in large part to the Affordable Care Act, ACOs are growing rapidly. Hospitals are buying small physician practices countrywide, hiring the doctors and
nurses, and blending them all into ACOs. The new model bears a new set of risks for medical malpractice insurers, Bingham said. There is no continuity of care, as patients are handed off from professional to professional. They lose the personal connection to the medical community. “That’s how most med mal claims start,” Bingham said, “with a loss of connection with the patient.” On the other hand, as hospitals buy up practices, the market for med mal for physicians shrinks. The exposure shifts to the hospitals that employ them. Hospitals, being much larger than a physicians’ practice, will absorb more of that risk, leaving insurers to compete harder for malpractice premiums, said Brian Ingle, an executive vice president at Willis Re and Fellow of the Casualty Actuarial Society. Meanwhile, the ACO will standardize treatment methods. Usually the standardized method will be sound. Occasionally, Ingle noted, it will not be. Responsibility could trace back to the deep-pocketed hospital. Suddenly, med mal insurers could be facing a mass tort — at an extreme, the “next asbestos” the property/casualty industry dreads. In response, Ingle said, insurers are considering expanding their medical malpractice coverage to handle exposures usually left to errors and omissions or directors and officers policies. While the ACA plays out, important demographic trends also will affect medical malpractice. • Americans are aging, and older patients often have more complaints, which translates into more care needs in an already overburdened system and an ever growing provider shortage • Physicians are getting older and want to enjoy a better work-life balance, moving from a 60-hour work week to 45 or so. • Americans are getting heavier, leading to more cases of diabetes and more joint ailments like bad knees and hips. All of these trends portend higher med mal exposures, Bingham pointed out. www.insurancejournal.com
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News & Markets California Chicken Plant Sues Orkin over Cockroaches
Allstate Recruiting Agency Owners in California
A
A
Central California chicken-processing plant has filed a lawsuit against a pest-control company over a cockroach infestation that caused the plant to close for two weeks. Foster Farms in Livingston filed a lawsuit last month against Orkin LLC and its subsidiary Orkin of California in Merced County Superior Court. The lawsuit seeks damages for what the company called a failure to fulfill a cockroach-control contract. U.S. Department of Agriculture inspectors closed the plant Jan. 8 after finding cockroaches five separate times in four months. Last fall, the agency had notified Foster Farms that the presence of cockroaches was a sign of unsanitary conditions at the plant. The closure in January came after inspectors threatened a shutdown because of salmonella problems at the Livingston plant and two other Foster Farms sites. The Centers for Disease Control and Prevention recently said that there were 574 reported antibiotic-resistant salmonella illnesses tied to Foster Farms. The outbreak has been going on for over a year, and none of the company’s products have been recalled. Foster Farms said it has put new measures in place. Copyright 2014 Associated Press.
llstate Insurance Co. plans to add additional agency owners in California in 2014, the company recently announced. The Northbrook, Ill-based company is expanding its recruiting campaign for the sixth consecutive year. Allstate signed 73 new agency owners in California in 2013. It added 58 in 2012 and 2011, 44 in 2010 and 17 in 2009. Candidates for Allstate agency ownership need a minimum of $50,000 of liquid capital to invest in their agency. The investment is to cover operating expenses, according to Allstate. Allstate is also encouraging its agencies across the state to hire licensed sales professionals, and the carrier says it’s moving to strengthen its California presence in the boat, motorcycle and recreational all-terrain vehicle insurance markets. Interested candidates can visit www.allstateagent.com or by contact recruiters Linda Black or Angie Garcia at (916) 859-8804 or (916) 859-8851, or by email at Angie.Garcia@Allstate.com or Linda. Black@Allstate.com. The Allstate Corp. (NYSE: ALL) reports serving 16 million households through its Allstate, Encompass, Esurance and Answer Financial brand names and Allstate Financial business segment.
Hot Sauce No Longer in Hot Water with California City
T
he fiery fight is apparently over between the makers of a popular and tasty hot sauce and a small Southern California city that said its factory’s smells were unbearable, after the Irwindale City Council voted to drop a public nuisance declaration and lawsuit against the makers of Sriracha hot sauce. The dual moves earlier this month brought an effective end to the spicy-air dispute that had Sriracha devotees worried about future sauce shortages and had suitors including the state of Texas offering its producer, Huy Fong Foods, a friendlier home. The closed-session council vote was unanimous with one councilman abstaining due to a conflict of interest. Residents and business leaders praised the vote that some called overdue. “Thank you so much for saving Irwindale because we were headed in the wrong direction,” Irwindale Fred Barbosa, who lives in Irwindale, said after the vote. Bob Machuca of the Los Angeles County Economic Development Corp. said the resolution showed California is “open for business” and is “what we needed to do a long time ago.” W2 | INSURANCE JOURNAL-WEST June 16, 2014
The city of about 1,400 people had been at odds with the company, which recently moved its main operations there, after residents complained last year of spicy odors burned their throats and eyes. It wasn’t immediately clear what prompted the council to change its position, but the company had been asking the city for more time as it worked with regional air-quality officials on a plan to make the smell go away. City officials met behind closed doors with company CEO David Tran and representatives of Gov. Jerry Brown’s Business and Economic Development Office, then afterward Mayor Mark Breceda said he would ask the council to end the fight. Tran, an immigrant from Vietnam whose company produces several chili sauces based on the flavors of his native country, said that he has installed stronger filters at the plant, and he’s confident they will block fumes when the chili-grinding season begins in August. Copyright 2014 Associated Press. www.insurancejournal.com
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News & Markets CEA: Policy Sales Spiked Following California March Temblor
C
alifornia Earthquake Authority insurance policy sales jumped following the March 29 magnitude 5.1 La Habra
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earthquake by nearly as much as the spike in policy sales following the March 11, 2011, magnitude-9.0 Tohoku earthquake in Japan,
6/2/14 11:10 AM
CEA reported in late May. CEA CEO Glen Pomeroy in April said there was a spike in sales and visitations to CEA’s website following the quake, but he didn’t know at the time exactly how many more policies were sold. According to CEA, an additional 8,176 policies were sold in April. Following the earthquake in Japan 8,474 policies were sold. CEA is a publicly managed, privately funded, nonprofit organization. This is the most polices that have been in force since 2000, according to CEA. “Earthquakes in California, or elsewhere around the world, serve as the best reminder of the risk for residential earthquake damage,” Pomeroy said in a statement. The Southern California quake occurred at a shallow depth of 4.6 miles, with hundreds of aftershocks reported afterward, according to the United States Geological Survey. Little damage was reported. The magnitude 6.7 Northridge earthquake in 1994 is the last shake that caused significant residential damage in California. Since that time, however, the number of residents with earthquake insurance has dropped dramatically, according to CEA, which reported that roughly 11 percent of California residents with a residential policy also have a separate policy to cover earthquake damage. CEA reported it has paid numerous claims for damage to properties that sustained relatively minor damage from the La Habra earthquake. CEA offers earthquake insurance policies through 19 participating insurance companies.
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People Greg Dobson
Scott Ferguson
Ted Rice
Edgewood Partners Insurance Center has added Greg Dobson as a principal in its employee benefits division. Dobson will be based in the company’s San Ramon office. His responsibilities will include the acquisition of new clients, as well as the design, placement and administration of employee benefits programs. Dobson has 30 years of employee benefits expertise. His industry specialties include mid-market and large-case benefits production, team selling, risk management consultation and employer cost mitigation. Prior to EPIC, Dobson served as senior vice president of employee benefits at Suhr Risk Services for seven years. Before that he was vice president of sales and marketing for Designed Benefits of California Inc. Before insurance, Dobson was a crew boss with the USDA Forest Service, leading a team in fire suppression and project work in the Chelan Ranger District of the Wenatchee National Forest. EPIC has locations in California, Colorado, Georgia, Illinois, Massachusetts and New York. Scott Ferguson and Norma Cervantes have joined the Leavitt Group’s San Diego, Calif., office. Ferguson is a senior vice president and practice leader on risk management accounts specializing in construction, environmental contractors, staffing and professional employer organizations. Cervantes is an account executive supporting the risk
M.J. Hall Covers Professional Liability
management practice. She will focus on restaurants and hospitality, food, manufacturing, construction, professional employer organizations and the staffing industry. Ferguson has more than 25 years of experience in insurance, including experience in large restaurants and the food industry. Cervantes has more than 15 years of insurance industry experience, she’s bilingual and has extensive knowledge of policy coverage. Leavitt Group is a privately-held insurance brokerage and provides services including property/casualty insurance, risk management strategies and employee benefits solutions. Leavitt Group of Boise has promoted Tessa Moore to marketing specialist and Ted Rice to claims advocate. Moore will focus on supporting sales initiatives, marketing materials, and planning seminars and events. Rice is responsible for overseeing clients’ insurance portfolios, including researching available traditional and captive programs, monitoring trends in the industry, and providing risk management and claims advocacy to clients. Moore started with Leavitt Group Benefit Services of Boise in 2012 as an intern on the benefit’s team. She then became the marketing specialist for the Leavitt Group of Boise and Leavitt Group Benefit Services of Boise. Rice joined the Leavitt Group in May 2012 to open the Portland, Ore., office as a commercial account executive. He has experience in the private sector. The Leavitt Group is a privately-held insurance brokerage, and provides services including property/casualty insurance, risk management, employee benefits solutions.
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Carriers: Various admitted or surplus lines A rated carriers Minimum Premiums: Varies from $500 upward
Now Serving: AK, AZ, CA, HI, NV, & TX LIC #0488901 www.mjhallandcompany.com (209) 870-2953 Send submissions to:
Alaska@mjhallandcompany.com Arizona@mjhallandcompany.com California@mjhallandcompany.com Hawaii@mjhallandcompany.com Nevada@mjhallandcompany.com Texas@mjhallandcompany.com
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Grass Valley, Calif.-based Networked Insurance Agents has promoted Tammy Magliola to vice president of business development. Magliola will direct sales initiatives for expanding affiliate membership and increasing member production. She will report to Larry Oslie, executive vice president and principal. Magliola has more than 13 years of experience in insurance sales management. She joined the company in 2011 as a sales vice president. Previously, she worked for The Dentists Insurance Co., where she was continued on page W8 www.insurancejournal.com
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People continued from page W6 responsible for implementing changes to the sales and service structure and she oversaw product development. Networked has offices in Northern and Southern California, and its staff serves more than 1,200 affiliate members in 10 western states.
Tessa Moore
Tammy Magliola
CMR Risk & Insurance Services Inc. named Grisell Sparkman an account manager for the construction division, as well as manager for the small business unit. Sparkman has more than 10 years of experience in the commercial lines field, where she worked primarily with construction clients. CMR Risk & Insurance Services writes property/casualty, employee benefits and specialty insurance programs with a focus on real estate, construction and manufacturing business divisions. Lockton has hired Veronica Fuentes and Svenja Dahlstrom in the company’s Gaming, Entertainment & Sports Practice, a new practice launched as part of Lockton’s Pacific operations in April. Fuentes in an account executive, responsible for developing, placing and expanding business within the gaming and hospitality industries. Fuentes has experience in the Las Vegas market, which includes her most recent position as risk and safety director for the M Resort Spa Casino. She specializes in
California Domiciled Insurance Company
risk management, safety training, workers’ compensation claims, event planning and legal document review. Dahlstrom is an account manager. She will be responsible for advising clients on risk management strategies, developing and deepening relationships with underwriters, as well as developing new business opportunities She was formerly a risk manager for the Tropicana Las Vegas. She has managed loss control, workers’ compensation, and litigation claims and was responsible for all insurance renewals at Tropicana. She also held leadership positions with the resort’s safety committee and facilitated programs for departments requiring specialized safety training. Kansas City, Mo.-based Lockton has 35,000 clients around the world. USG Insurance Services Inc. has added to its Irvine, Calif., office Dennis Coleman and Jessica Haller as producer/brokers, and Jodi Parker as a senior production assistant. Coleman most recently was an underwriter/producer at Yates & Associates. Past positions include underwriter/broker at AmWINS Insurance Brokerage, senior underwriter at UCA General Insurance, commercial account manager at Bachmann Insurance and commercial CSR at Narver & Associates. Haller most recently was at Brookside General Insurance Services. Past positions she’s held were at Yates & Associates, Burns & Wilcox, Faris Lee Investments and BNC Mortgage Inc. USG is a national wholesaler and managing general agent with 15 offices across the country.
Established in 1978 Goldenbear.com
Rated A- (Excellent) by A.M. Best Company 709 N. Center Street Stockton, CA 95212 (209) 948-8191 GOLDBEA15610.indd 1
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Worldwide Facilities Inc. named Jeremy Huang to its Irvine, Calif., team. Huang specializes in financial services products. Huang began his insurance career in 2007 with Chubb Group of Insurance Cos. He started off underwriting management liability for small organizations. He was also involved in several sectors including media/entertainment, financial institutions and small healthcare. Most recently he was employed with NSM Insurance Group as a program manager. Worldwide Facilities is a national wholesale insurance broker and managing general agent. www.insurancejournal.com
NATIONAL COVERAGE
FIGURES
$22.5 Million The amount the Oklahoma Insurance Department (OID) has been able to return in unspent funds to the state legislature since 2011. Insurance Commissioner John Doak credits the department’s fiscal responsibility. OID returned $8 million in fiscal year 2014, $5 million in fiscal year 2013 and $4 million in fiscal year 2012. For 2015, $5.5 million in OID funds will be returned for allocation to other state agencies.
DECLARATIONS
$6.8 Million The amount an Iowa company has agreed to pay in fines for crimes that include selling the tainted eggs that caused a nationwide salmonella outbreak in 2010. A plea agreement filed on June 2 by federal prosecutors calls for Quality Egg to plead guilty to charges of bribery, selling misbranded eggs and introducing adulterated food into interstate commerce. Between 2006 and 2010, the company intentionally sold eggs to customers in Arizona, California and elsewhere with false labels that disguised how old they were. Company employees twice bribed a U.S. Department of Agriculture inspector in 2010 to approve eggs that didn’t meet federal quality standards, according to court documents.
10
The number of years since the devastating 2004 hurricane season, when there were 15 named storms, nine of which were hurricanes. Florida was hit by Charley, Frances, Ivan and Jeanne—the first time four hurricanes have hit one state since record keeping began. Hurricane Ivan also rolled through Grenada, damaging nearly all of the tiny island’s homes. And Jeanne killed more than 1,550 people in Haiti.
Powerful Confirmation
“A few years ago, we wouldn’t see the instant pictures (on the internet) of damage. … Now, we are seeing pictures of what the tornado looks like immediately. It’s powerful confirmation.”
— John Robinson, the warning coordinator for the National Weather Service’s Little Rock office, said Facebook, Twitter and other social media as well as smartphone apps are helping people learn about storm warnings faster.
Hail Claims
“So, in one day we got more than a year’s worth of hail claims in Pennsylvania.”
— A State Farm spokesperson describing the insurer’s claims figures in Pennsylvania following the May 22 hail storm that caused widespread damage in the state. State Farm said that, as of May 28, it received 1,228 homeowners/structural claims and 9,105 auto claims in Pennsylvania from the May 22 hail storm activity. In comparison, State Farm had 6,324 total auto and homeowners/structural claims related to hail storm activities in Pennsylvania for all of 2013.
Midwest Economic Growth
463,400 The number of workplace injuries and illnesses among private sector employees in New York state from 2010 to 2012, according to the U.S. Bureau of Labor Statistics. Of these, 245,600 workplace injuries and illnesses were considered serious incidents of worker injury that caused days away from work, job transfer or restriction of duties.
“This is the highest overall reading that we have recorded in more than three years. … Strong growth in new orders over the past two months was the prime factor pushing the overall index higher.”
— Creighton University economist Ernie Goss, who oversees the Mid-America Business Conditions Index, which tracks economic conditions in nine Midwestern and Plains states. The index, which is based on a survey of supply managers, rose to 60.5 in May from 60.4 in April. Any score above 50 suggests growth.
Wildfire Attention
“Agents are getting a lot of calls from policyholders making sure they have the proper coverage.”
— Kathleen Stalter, risk services manager at Fireman’s Fund Insurance Co., reported the recent fires have gotten policyholder attention.
53.1%
The percentage of votes incumbent Democrat Dave Jones garnered in his bid for re-election as California’s insurance commissioner in the primary. He faces off against Republican Ted Gaines, a state senator, in November.
www.insurancejournal.com
Stocked Up
“We like to have 20 to 30 shelters of each size in stock so when a storm hits, we have a large inventory to start pulling out of.”
— Manager Chris Koehn of Lee’s Precast, a storm shelter manufacturer in Aberdeen, Miss., says the storm shelter business has been brisk since 23 tornadoes hit the state on April 28.
June 16, 2014 INSURANCE JOURNAL-NATIONAL | 11
NATIONAL COVERAGE
Business Moves
Marsh & McLennan Agency, Senn Dunn Marsh & McLennan Agency LLC has acquired Senn Dunn Insurance in North Carolina. Terms of the transaction were not disclosed. Founded in 1927, Senn Dunn has annual revenue of approximately $30 million and 155 employees. In 2013, the agency reported more than $13 million in property/casualty revenues and was listed as the 80th largest privately held property/casualty insurance agency in Insurance Journal’s Top 100. Headquartered in Greensboro, N.C., Senn Dunn has specific expertise in the construction, education, environmental, social services and financial services industries. According to the announcement, all of Senn Dunn’s employees and leadership, including CEO T. Gray McCaskill, will join MMA’s mid-Atlantic region and continue to operate out of the firm’s five existing offices in North Carolina: Greensboro, Raleigh, Charlotte, High Point and Wilmington. United Insurance, Sunshine State United Insurance Holdings Corp. (UPC) has agreed to acquire 100 percent of Sunshine State Insurance Co. (SSIC), a Florida-domiciled property/casualty insurance company. SSIC, based in Jacksonville, Fla., offers homeowners, dwelling fire and federal 12 | INSURANCE JOURNAL-NATIONAL June 16, 2014
flood insurance through 500 independent agents primarily in the Northeast and North Central territories of Florida. St. Petersburg-based UPC said the combination is expected to significantly improve its overall spread of risk and foster growth in a key part of Florida where UPC currently has very limited exposure. SSIC was founded in 1997; UPC in 1999. SSIC reported $68 million in gross written premium in 2013. UPC Insurance is a property/ casualty insurance holding company. United Property & Casualty Insurance Co., the primary operating subsidiary of UPC Insurance, writes in Florida, Massachusetts, New Jersey, North Carolina, Rhode Island, South Carolina and Texas and is licensed to write in Louisiana, Georgia and New Hampshire. UPS said it will also make a capital infusion into SSIC to restore its Demotech financial rating and satisfy regulatory requirements. The closing of UPC’s acquisition of SSIC is subject to a number of conditions, including regulatory approvals. Brown & Brown, Agency Management, Recreational Protection Management Insurance agency Brown & Brown has acquired the assets of two agencies specializing in the recreational vehicle market. The businesses acquired are Agency Management Corp. (AMC) and its affiliate, Recreational Protection Management Inc. (RPI), both of Bradenton, Fla., and both owned by Clay S. Purton. Following the transaction, Purton and the rest of the AMC and RPI team will join Brown & Brown’s branch location in Tampa, Fla. Brown & Brown’s National RV Center is based in Columbia, Ky., and also has locations in Simi Valley, Calif., and Albany, N.Y. AMC and RPI have combined annual net revenues of $1.6 million, according to the announcement.
Motorists Mutual, Consumers Insurance USA Ohio-based Motorists Mutual Insurance Co. has agreed to buy the stock of Consumers Insurance USA, based in Murfreesboro, Tenn. Consumers Insurance will become a wholly owned subsidiary of Motorists Mutual under the agreement that is subject to stockholder approval and regulatory approval by Tennessee and Ohio regulators. Consumers Insurance, which was formed in 1995 by a group of independent insurance agents, markets niche-oriented products including standard and non-standard personal auto, a program for used-car dealers, commercial auto for small trucks and utility vehicles, repair garages, towing firms, and short-haul trucking. It sells through independent insurance agencies. The company writes $45 million in premiums annually and has assets of about $60 million. Towne Insurance, Southern Insurance Towne Insurance, a subsidiary of Virginia-based TowneBank, has acquired Southern Insurance Agency Inc. in Kitty Hawk, N.C., in a deal that continues Towne’s expansion in North Carolina. Southern Insurance will continue operating under its present name and leadership, serving Kitty Hawk, Corolla, Elizabeth City, Greenville, Wilmington, Columbia and Graham in North Carolina. York, Bickmore Parsippany, N.J.-based York Risk Services Group Inc., a national provider of risk management, claims management and managed care services, has acquired Sacramento, Calif.-based Bickmore. Bickmore is the operator of a risk management, pool management and actuarial consulting firm and has clients in 36 states. Bickmore focuses on public entities, such as municipalities, counties and special districts, as well as municipal risk pools. York Risk Services provides risk management and managed care solutions to a variety of strategic partners, including carriers, self insureds, brokers, wholesalers, MGAs, programs, risk pools and public entities. www.insurancejournal.com
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CLOSER LOOK
10 Things to Know About Employment Practices Liability Insurance 7,764 Fair Labor Standards Act (FLSA) cases were filed during the yearlong period ending March 31, 2013, up 10 percent from the prior year, according to the Federal Judicial Center.
According to a study of employment practices litigation data released by Hiscox in April 2014, the average U.S.-based business with at least 10 employees has a 12.5 percent chance of having an employment liability charge filed against it.
As of March 31, 2014, wage and hour lawsuits increased to 8,126, up 4.7 percent over the prior 12-month period (Federal Judicial Center).
California, Illinois, Alabama and Mississippi, as well as the District of Columbia, are the top five riskiest areas for employee lawsuits (Hiscox).
During fiscal-year 2011, 15,796 individuals filed 16,974 complaints alleging employment discrimination against the federal government (Equal Employment Opportunity Commission Annual Report on the Federal Work Force Part I, EEO Complaints Processing). Large insurers focused on all sizes of insureds raised rates for EPLI coverage by 10 percent in 2013, according to The Betterley Report’s December 2013 “Employment Practices Liability Market Survey.”
The U.S. market of EPLI premium totaled about $1.7 billion in 2013 (Betterley Report).
The lowest-risk states for EPL charges include West Virginia, Massachusetts, Michigan, Kentucky and Washington (Hiscox). Wage and hour lawsuits in federal court have increased for seven straight years and have gone up 438 percent since 2000, according to information from law firm Seyfarth Shaw LLP. 14 | INSURANCE JOURNAL-NATIONAL June 16, 2014
Total capacity in the EPLI market — including the United States, Bermuda and London — is around $500 million but could go as high as $800 million (Betterley Report). www.insurancejournal.com
SPECIAL REPORT
Construction Construction Renovation: Property Flips and Insurance By Andrea Wells
T
he number of U.S. single family home sales attributed to flipping is on the decline but that isn’t deterring investors. Despite the percentage of flipped homes shrinking to 3.7 percent of the total homes sold, the profits from flipping a house are up to 30 percent, according to a recent report by RealtyTrac. The share of flipped house sales was down from 4.1 percent in the fourth quarter of 2013 and down from 6.5 percent in the first quarter of 2013. The average sales price of single family homes flipped in the first quarter was $55,574 higher than the average original purchase price, according to the “Q1 2014 U.S. Home Flipping Report.” That gross profit provided flippers with an unadjusted ROI (return on investment) of 30 percent of the average original purchase price. The average gross profit per flip a year ago was $51,805 for an unadjusted ROI of 28 percent. “Slowing home price appreciation early this year in many of the most popular flipping markets put some investors in danger of flying too close to the sun,” said Daren Blomquist, vice president at RealtyTrac. “But investors appear to have recalibrated their flipping strategy, accounting for the slower home price appreciation even if that means fewer flips.”
Then there’s the contractor and investor that is looking at property flipping as big business, he says. They may be flipping 10, 20, or 100 flips a year. Unlike the days of the 1980s where financing to buy properties was much easier to secure, Brecht says today most people can’t flip houses on a large scale unless they have a lot of money and look at it as an investment opportunity. “They have to pay a pretty good price up front,” he says. Brecht says while the total number of property flips is lower in today’s market, the value of the flip is much higher. “Some are pretty high property values now, $500,000 just to buy. Then they do a remodel and sell it for a couple of million.” Brecht says he still sees remodels and flips of smaller houses but not at the same level as they used to be.
our carriers are excited by it.” Even in the upscale market, renovations appear to be up, says Jake Morin, program manager for ProSight Specialty Insurance. “I’m seeing a lot more renovation going on,” Morin says. “We have a luxury homebuilders program and luxury remodelers program. We are starting to see the luxury remodelers program become more active than the home builders.” Morin attributes some of that growth to the number of baby roomers retiring and moving to better tax advantage states. That trend is creating a lot of opportunities in the construction renovation market. When it comes to providing the right insurance protection for property renovators, it’s important to understand the person behind the project, says Bill Brecht, president and owner of Brecht & Associates, a Grapevine, Texas-based a managing general agency. There are all kinds of people that take on property renovations and flips, he says. “There’s the little contractors, they do four or five houses a year and they might have just contractors insurance and take on all the other risks. They work on the project and buy an annual contractors policy.”
Insurance Interest The insurance market has taken note of the flipping activity, says Dena Martin, vice president of commercial lines for Los Angeles based Anderson & Murison, an independent property/casualty wholesale firm. Martin has seen quite a few construction markets interested in property renovation and flips. “Renovation and property flipping was an extremely popular trend prior to the financial crisis,” she said. “After the crisis, we saw policies that were strictly for vacant properties and no renovation. Now we are starting to see renovations coming back and
Flips for Rentals Robert Kelly, producer and vice president for Arroyo Insurance Services, an independent retail agency based in California, stumbled upon a prospective client that renovated and flipped about 50 properties per year. The prospect needed an insurance market that would allow him to do up to 100 flips per year, maybe more, covered by a master insurance program. Kelly, who has been in the industry just eight years, on both the carrier and retail agency sides of the business, put out “some feelers” with his agency’s markets. “Right now, he has about 15 homes in his inventory being worked on. The average amount of time for each purchase/flip is four months, some more, some less,” Kelly said. The goal: Get one policy that can cover property and general liability on all of the prospect’s house-flipping operations as opposed to buying insurance one-by-one. On average, the prospect revealed to Kelly that the current insurance program costs between $300 to $700 per house, or about $15,000 to $25,000 in premium per year. Roughly 95 percent of the renovated continued on page 18
16 | INSURANCE JOURNAL-NATIONAL June 16, 2014
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DECEMB ER 2ND, 3:52 P.M .
THERE’S NO REPL ACEMENT FOR A REL ATIONSHIP IN AN INS TANT, J IL L SA NTOS K NE W A N U N DER W R ITER CO U L D M A K E A D IFFER EN CE
An insurance agent contacted CNA underwriter, Jill Santos. The account required special attention due to the client’s planned business expansion. Jill cleared her schedule, made a trip to visit the business with the agent and put together a customized coverage package — ultimately helping her agent retain a long-held relationship. Great job, Jill.
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SPECIAL REPORT
Construction continued from page 16 properties are in the Las Vegas area and after the remodeling is complete most sell for about $100,000 to $200,000. After some initial searching, Kelly found most of his current market contacts didn’t have an option available. “One program told me that the values weren’t big enough,” Kelly said. “Another said they could write the property but not the liability.” Kelly turned to MyNewMarkets.com and posted a note on the site’s public forum. “Our overall assumption is that there are lots of investors out there doing the same thing, so there should be a program/market for this,” he wrote. At least one person wrote back. That was Kenneth Kukral, vice president of special risks for International Excess Alliance, who said he might have a market. According to Kukral, his firm’s MVPScheduled Dwelling Program, a program developed for residential property owners, investors, renovators and property managers, seemed like a good fit. “We have a product but it’s geared toward the owner, landlord and tenant type of exposure,” he said. “It’s really an investor product.” The USA12043.qxd 1/4/08 2:26 PM Page program is ideal for investors and con-
18 | INSURANCE JOURNAL-NATIONAL June 16, 2014
tractors looking to buy houses and small habitational properties where they can be rehabbed and turned into rental properties. “We can do 10 to 500 properties on a schedule through a monthly reporting form,” he says. “It’s not a true builder’s risk so it’s not going to pick up your supplies that are sitting out there. There may be builder’s risk solutions that would be better solutions if the contractor’s going to have a lot of stuff laying around where he’s worried more about theft exposures.” This is just one solution for renovators seeking to build real estate inventory, he says. The program is backed on American Modern Insurance Group non-admitted paper and allows for one of six different valuations. “It allows you to write with coinsurance, either on ACV, replacement cost or an agreed amount basis. Or it also allows you to write on a ‘no-co’ basis also on an agreed amount, replacement cost or ACV.” The program is open to property renovators doing primarily cosmetic rehabs such as kitchen replacements or new drywall, but not structural renovations such as mov1 ing walls or major build-outs, explained
Bryan Gulley, International XS Program Managers. The paper depends on the state, but it’s all part of the American Modern Insurance Group. The program is national and is available for single family units to a small six-unit apartment building but Gulley says 80 percent of the program is currently single or two family dwellings. “We are even able to entertain some mixed use structures.” Find the Right Market A good majority of Anderson & Murison’s carriers seem to have an interest in property renovators right now, Martin says, but the type of renovation is a factor. The first thing carriers want to know is what phase of renovation the project is in, she says. “That’s first and foremost. Some projects will be out if the project has already started.” The length of vacancy of a property is also important. “Something that is more recently vacant is less of a risk than something that’s been vacant for years,” she says. They’d also like to know whether the contractor is the owner-builder or if everything is subcontracted out to spread the risk. “Contractors can be a little more challenging for general liability for owner-builder because the carrier wants to spread that risk out a little bit.” Pricing is higher if the risk is not spread out, she adds. Carriers also want to know simple things like how long the lights stay on or off? How often does somebody look in on the risk? If there’s major renovation work being done, carriers want to know if there’s a licensed architect on the project. The renovation market, while not booming, seems poised for more growth and profit — good signs for contractors and insurance experts serving this market.
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MyNewMarkets Contractors’ Equipment Market Detail: Western World Insurance Group (www. westernworld.com) offers coverage using standard ISO policy forms including custom manuscript endorsements where applicable. Webenabled program administration applications and processing systems are also available to help better manage and build a program. Available limits: As needed Carrier: Unable to disclose States: All states except D.C. and N.H. Contact: Customer service at 201-847-8600
Laundries Market Detail: Align General Insurance Agency LLC (www.align general.com) offers business income, bailee/customer goods, business interruption, GL, property, and real & business personal property. Available limits: As needed Carrier: Unable to disclose, admitted and non-admitted available States: Calif. only Contact: Customer service at 888-254-4608
liability, property damage extension (CCC), limited product withdrawal expense and professional liability, and hired and non-owned auto. Eligible exposures include concealed carry instruction, safety instruction and tactical training instruction. Available limits: Minimum $1 million; maximum $2 million Carrier: Unable to disclose, non-admitted States: All states except Hawaii and Alaska Contact: Anitta Valdez at 509-462-1151 or email: avaldez@ cochraneco.com
Special Events Market Detail: Milton O. Johnston & Co. Ltd. (www.moj-co.com) program features a 96 ISO – form, no contractual limitation, blanket AI's and waivers, and no action over exclusion. Available limits: As needed Carrier: Various, non-admitted States: Ill., La. and Texas Contact: Jeff Johnston at 281-444-5167 or email: quotes@moj-co.com
Products Liability Market Detail: Wright Insurance Services’ (www.robertwright insurance.com) products liability coverage includes bodily injury and property damage by failure of product. Can include hazardous or new products sold, manufactured or distributed. Available Limits: As needed Carriers: ProSight Specialty States: All states Contact: Robert Wright at 949-489-1833 or email: robert@ robertwrightinsurance.com
Transportation for Trucking Industry Market Detail: TIP National Inc. (www.tipnational.com) coverage offers commercial automobile liability, commercial general liability, commercial physical damage, motor truck cargo and excess liability. Available limits: As needed Carrier: Munich Re companies; Travelers, National Indemnity and Lloyd’s States: All states except Alaska, Hawaii, Mass. and R.I. Contact: Customer service at 877-848-8883
Limited Service Hotel Umbrella Program Market Detail: National Specialty Underwriters Inc.’s (www. nsui.com) program is designed specifically for the limited service hotel industry. The product insures more than 2,800 properties and 224,000 rooms. Limits of $5 million each occurrence/$5 million aggregate; $15 million each occurrence/ $15 million aggregate. Available limits: As needed Carrier: Unable to disclose States: All states Contact: Jim Maggiacomo at 845-452-3763 or e-mail: jmaggiacomo@ nsui.com
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Market Detail: Cochrane & Co.’s (www.cochraneco.com) ARMS program specializes on the shooting sports industry, including ammunition, firearms manufacturing and all supporting specialties, and now combines comprehensive and competitive general liability and property insurance. Commercial property coverages build upon the special form to include theft, property in-transit (including exhibitions, sales samples, etc.), equipment breakdown and specific property enhancements to include crime, among many others. Proprietary endorsements include AFT proceedings, professional
Market Detail: AFC Insurance’s (www.afcins.com) group homes insurance is included on the social services insurance program. Eligible classes may include group homes, developmentally disabled youth at-risk, mental health facilities, alcohol and drug rehabilitation, home for girls, home for boys, and traumatic brain injury. Available Limits: As needed Carriers: Unable to disclose, admitted and non-admitted available States: All states except Alaska and Hawaii Contact: Customer service at 877-456-5323
20 | INSURANCE JOURNAL-NATIONAL June 16, 2014
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CLOSER LOOK
Medical Liability Medical Professional Liability: MRM’s Kelly Tackles Emerging Risks
M
edical professionals and hospitals are grappling with some of the most dramatic changes they have seen in years. Many physicians feel they can no longer succeed in private practice, and they are either moving to become part of hospital systems or are joining large group practices. And there are also emerging risks from adopting electronic health record systems, the changing payment methodology and other new technologies. Kevin Kelly is CEO at Medical Risk Management, a Hartford, Conn.-based risk management education and consulting firm for healthcare organizations and insurers. He recently spoke with Insurance Journal at the PLUS Medical Professional Liability Symposium in Atlanta to discuss these emerging exposures. Following are excerpts from the interview.
Kevin Kelly
Insurance Journal: Could you describe some of the structural changes that you are seeing in the industry? Kevin Kelly: The changes that are occurring today in the healthcare industry are probably the most dramatic that we’ve seen in the industry for a quarter-century. From a structural point of view, what’s happening in the industry right now is that physicians no longer are finding that they can succeed in private practice, as one- or two- or three-physician groups. That’s been the structure for the last half-century. What’s happening now faster than it’s ever occurred in the past is that physicians are moving into one of two arrangements: They’re either moving to join or be employed by large hospital systems — healthcare providers, hospitals — or they’re looking to join multi-specialty group practices or large single-specialty group practices. The point being, there’s an aggregation of physicians. 22 | INSURANCE JOURNAL-NATIONAL June 16, 2014
When 70 percent of the care being rendered to patients today is happening outside the four walls of the industry, we need to upgrade and continue to improve our risk management infrastructure within the hospitals so that we’re ahead of the curve in understanding what the private practice physicians’ exposures are and how when we integrate them in, either through employment or otherwise, we can support their efforts to reduce malpractice exposures and improve patient safety. IJ: How does the adoption of new technologies impact medical malpractice? Kelly: From a technology point of view, think of the impact of transitioning from an entirely paper world to an electronic health record world. Physician groups, hospitals, the ambulatory care facilities, the ambulatory surgery facilities at a breakneck speed right now are looking to adapt and implement electronic medical records. But in doing so, what we’re finding are unintended consequences of the rapid deployment of the EHR (electronic health records), so let’s examine them really quickly, just a few. • The cut and paste function. We’re seeing exposures that are growing now of
residents who have come in the institution. They’re rounding on the patients every day, cutting and pasting or using a carry-forward function within the EHR so that we may have five or six days of exactly the same notes within that — exactly the same notes, cut and paste and move forward. Whether or not that’s good medicine is almost...you can put that aside, but imagine in the event that something adverse occurs, and now we’re going into a litigation scenario, and the plaintiff’s attorney pulls out the patient chart and says, “There’s six days of exactly the same notes. What did you do, cut and paste? Did you really pay any attention?” Medical malpractice defense attorneys tell me, “I can’t defend that. We have to settle it.” Think about issues like incidental findings. A patient enters the emergency room with lower right quadrant pain. It’s diagnosed as acute appendicitis. He needs to go up for a laparoscopic surgery. The emergency department physician sends him up to radiology to get cleared for surgery. He’s cleared for surgery. The surgery’s completed, he’s discharged the next day and is happily on his way. One issue: when the radiology work was done, there was an incidental finding, a
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lung nodule. It had nothing to do with the appendectomy, but because of the electronic record structure that we have in place, that incidental finding showed up on page 23 of the discharge report. Five years later, that patient’s back with lung cancer, and the fact that that incidental finding that showed up on page 23 of the medical record for that appendectomy never got into the patient’s hands results in a huge medical malpractice exposure. • The Affordable Care Act, the notion of changing a physician and institution’s payment structure from fee for service to either the Medicare Shared Savings Program or global capitation. In either of those scenarios, the entire payment structure has moved from the government or the insurer paying the physician for work that they render on a fee-for-service basis to giving them a lump sum of money and saying: “Take care of this population, and every time a service is rendered, you’re going to pull out of that bank account, if you will, the money necessary to cover the cost of that service.” At some point, you get to one of two scenarios at the end of that year: One is you pulled more money out than necessary, and therefore you’re running at a loss; or there’s money left in the account at the end of the year and you provided a much more efficient delivery of care, in which case you have a profit. Now imagine an adverse event occurs and you’re in that group that has profit at the end. The allegation that comes now toward you as a physician is you denied care to this person so you could profit, so it’s a very different landscape. There are others: robotic surgery for the da Vinci and others. There’s not a town in this country that you can drive through that you won’t see a billboard that says, “Were you injured by the da Vinci robotic surgery?” They’re ubiquitous. Why? Because there’s an exposure there. IJ: What can carriers, brokers and health care providers do to get in front of the curve? Kelly: We need to help the policyholders, whether they’re physicians, or hospitals, or www.insurancejournal.com
systems. We need to help and support their efforts to, one, identify emerging risks and, two, identify techniques with which to educate on a specialty-specific basis the providers, whether they’re a physician, a nurse, an APRN (advanced practice registered nurse), a PA (physician assistant). We need to educate them at each of their roles, and then we need to help them introduce mechanisms and tools to reduce those exposures and then measure the effectiveness. There’s variability within insurance companies. Some are very progressive; some have very focused efforts to support. But it’s difficult for an insurance company alone to really become a part of the fabric of an institution. It has to be a partnership. The broker’s typically in between the insurance company and the insured, the
hospital or the physician, so the broker has to become part of that. So generally speaking, I guess I’d say some carriers are doing a good job. Most of them are not aware of what the real ramifications of these emerging risks are. Web Resource To watch the video of Kelly’s interview, visit www.InsuranceJournal.tv.
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SPOTLIGHT
Commercial Umbrella Beware of Dwindling Excess Umbrella Limits
By Mark Dugle
W
ith verdicts, judgments and defense costs rising steadily in the United States, the limits of insurance on standard business liability insurance policies may not be high enough to provide sufficient financial protection for a mid-sized or small company. Excess and umbrella insurance policies are designed to address this potenBy Mark Dugle tial insufficiency by providing additional limits of insurance above the primary policy. For example, a commercial general liability policy may provide a business with a $1 million limit of insurance, but a company may wish to supplement those limits with an excess or umbrella policy with a limit of $5 million, $10 million or more. Buyers should be wary. With both an excess and an umbrella policy, terms, conditions and limits that appear appropriate when a policy is purchased can fall unex24 | INSURANCE JOURNAL-NATIONAL June 16, 2014
pectedly short when needed most — as a claim is resolved. For excess policies, the average time from when a loss occurs to when a claim is adjudicated is about five years, meaning a limit that seems suitable when the policy is purchased in 2014 may not provide the expected protection down the road. Understanding the Differences While excess and umbrella policies are similar, there are differences to consider. Excess insurance will generally provide insurance for the same exposures as those in the underlying, or primary, liability policy. The scope of the excess insurance will follow the terms and conditions of the primary insurance policy, but at a higher limit. Some umbrella policies will offer higher limits than a primary liability policy while also addressing gaps in the insured’s liability program by providing insurance for exposures not addressed by the primary policy. Excess and umbrella insurance can play an important role in guarding a company’s balance sheet by offering higher limits and,
in some cases, broader insurance protection than is available in underlying policies. Limit Devaluation A variety of factors are combining to inspire small and mid-sized companies purchasing excess and umbrella insurance to consider higher limits. One important factor is more stringent contractual requirements. For example, a growing number of commercial lenders are requiring higher liability limits that are more appropriate and cost-effective to insure through an excess or umbrella policy. Similarly, more companies are requiring higher limits from those with whom they do business. For example, before launching specific projects or products, a growing number of companies are asking vendors or subcontractors to demonstrate the financial ability to defend themselves against liability claims — increasing the potential importance of excess and umbrella insurance in protecting a company’s balance sheet. Determining the value of these higher limits can be challenging. Inflation can www.insurancejournal.com
affect insurance limits and, although inflaEvaluating Carriers tion trends have been low in the United In addition to guarding against the States in recent years, that trend can shift potential devaluation of policy limits, it’s in an unfavorable direction during the lifeimportant to understand the less-tangible span of an insurance claim. considerations that can play an important In addition to broad inflarole in the insurance purtionary factors, insurance chase decision. A limit that seems severity trends can also While financial strength suitable when the influence the future value and industry experience policy is purchased in of the insurance carrier of a policy limit. Higher 2014 may not provide are always key factors to verdicts, defense costs and settlements can increase the expected protec- consider when buying loss trend factors. In turn, insurance protection, the tion down the road. those trends may mean that high-severity (and often the future value of an excess long-tail) nature of excess policy limit is decreasing more rapidly than claims makes choosing the proper carrier general inflation rates. For instance, a 3 especially important. An insurer that’s percent inflation rate and higher litigation only provided liability insurance for a few costs may combine to create an effective years, for example, may not have experience 7 percent annual reduction in the future defending complex liability claims. value of a policy limit. Therefore, a $5 mil It’s also important to understand the relalion limit in 2014 dollars may provide only tionship between the company’s primary $3 million or less in protection in 2020. insurance program and its excess umbrella
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insurance and the roles their respective carriers are likely to play in the event of a large loss. Agents, brokers and companies need to evaluate whether an excess and umbrella insurance carrier will have the industry experience, international capabilities and financial resources to adjust the client’s insurance portfolio as the company grows and its needs change. All of these factors can provide reasons for companies to consider adding or enhancing excess and umbrella insurance. As trusted risk management advisors, agents and brokers can also play an important role in helping companies determine the most appropriate policy limit and the terms and conditions best suited for each company’s unique needs. Dugle is global practice leader, excess casualty, and senior vice-president for the Chubb Group of Insurance Cos.
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SPOTLIGHT
Umbrellas E&O Insights: Why Are Umbrellas Causing E&O Claims?
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hen initially thinking about umbrella coverage as it relates to generating errors and omissions claims, most would probably believe the main issue is the lack of an umbrella. In other words, a customer has a significant loss only to find out that he or she didn’t have an umbrella to provide added protection. The matter then focuses on the agent and why he or she didn’t recommend an umbrella policy in the first place. By Curtis M. Pearsall While this issue still occurs, it’s probably not with the frequency of some other issues. The most prevalent issues center on “gaps” between the actual underlying limit and the required limit per the carrier’s underwriting guidelines. Proper Underlying Limits The following claim clearly shows the problems that can develop when there is a gap between the actual underlying limits and those specifically required. This claim arises out of allegations that the agency left a $250,000 gap in coverage between the primary auto and the umbrella coverage. The claimant had personal auto
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coverage with liability limits of 250/500 and a $5 million personal umbrella. The umbrella was written with a different carrier than the underlying coverage and was subject to an underlying bodily injury limit of $500,000. The son of the agency’s client sustained serious injuries when he was involved in an automobile accident while using his father’s vehicle. The underlying carrier afforded defense and indemnification protection for the agency’s client subject to the underlying $250,000 bodily injury limit. The umbrella carrier advised that its policy would not be triggered for any judgment, settlement or verdict rendered between the $250,000 actual underlying bodily injury limit and the $500,000 required limit mandated under the excess policy. The agency was sued for negligence for the $250,000 shortfall. The producer acknowledged that the agency failed to comply with the umbrella carrier’s underlying insurance requirements. Avoiding Claims How can an agency avoid claims like this and E&O claims involving umbrellas in general? Here are some suggestions: • Have a common effective date for the umbrella and the various underlying
coverages. • Write the umbrella with the same carrier as the underlying coverages, at least the auto and homeowners. • Be aware of the underBe aware of the lying limits underlying limits required by required by the the umbrella carriers you umbrella carriers use. There you use. is a good chance there will not be a consistent approach among carriers. Carriers can modify the required underlying limits, too, so keep up with any changes. • Don’t delay if you must increase the limits when writing a new or renewal umbrella. Order the change immediately. • Review the umbrella policy to make sure it resembles what was requested once the policy is received. This is also a great time to review the actual underlying limits “just one more time” to verify that they meet the required limits. If not, get the proper underlying limits in place. • Note any differences on the required underlying limits and advise the customer accordingly if your agency is moving the umbrella to another carrier.
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Claims Handling Item No. 2 above suggests having all of the underlying coverages with the same carrier, at least the auto and homeowners. While this helps the situation, there is an additional scenario generating some E&O activity. It involves claims handling and, more specifically, when to put the umbrella carrier on notice. Suppose you have an insured that has his or her auto, homeowners and umbrella policies with your agency and all of these coverages are with the same carrier. The 7.25X4.75 insured was involved in an auto accident, JGS-PPP and there are Umbrella some injuries. Program Your agency ad INSURANCE filed an auto claim JOURNAL but not an umbrella claim because the injuries did not appear to be significant. Yet, now the injuries have become much worse than originally thought, and it appears the underlying
limits will not be sufficient to pay the full amount of the claim. Do you believe that because the auto and umbrella coverages are with the same carrier, that the carrier’s umbrella claims division is essentially “officially on notice” if the underlying claim develops adversely? Perhaps you may be thinking (or hoping) that the auto claims person will advise his or her umbrella counterpart. Since it is probably best not to count on either of the above two scenarios taking place, what is the potential when you now put the umbrella carrier on notice? Depending on the degree of the time lapse, the umbrella carrier could take a tough position and deny it for “late reporting.” The E&O carrier would probably argue that the primary carrier is in the best posi-
tion since it has all of the specific claim knowledge, although it is difficult to know how successful it will be. The best approach is for the agency to take a more active role and to automatically put the umbrella carrier on official notice, especially when bodily injuries are part of the claim. Hopefully, most of your agency customers have umbrella coverage. However, as noted earlier, this definitely does not mean that your E&O exposure has been completely addressed. Pearsall is president of Pearsall Associates Inc., a risk management consulting firm specializing in helping agents protect themselves. He is also a special consultant to the Utica National Agents E&O program. Contact him at 315-768-1534 or curtis@ pearsallassociates.com. Blog: www.agentseotips.com.
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SPOTLIGHT
Personal Umbrella Why Customers Need Personal Umbrella Coverage More Than Ever By Mark Desrochers
as social media, umbrella policies are now truly a must-have for most. Banks require the purchase of home insurance to authohat we live in a litigious society is not rize mortgages, and virtually all states something new; we’ve been there for require drivers to buy auto insurance. Yet decades. Lawsuits have long followed auto there is no mandate to buy a policy that accidents and mishaps that occur in homes, could turn out to be the most important very often causing defendants to dig so part of a customer’s insurance coverage. deep to pay restitution that they jeopar In this environment, the personal dize, or lose, their hard-earned financial umbrella policy becomes a strategic differindependence. In recent years, however, the entiator for independent agents, providing increasing transparency of our actions has an opportunity to accentuate the role of created even more exposure than the traditrusted counselor and widen the service tional risks. gap with the direct channel. The “value Today, parents can be sued because dialog” for the independent agent converof something their teenagers write on sation is about the exposure clients have Facebook. A blog post about a CEO or in their everyday lives versus naming their celebrity could result in a defamation suit. own price. It’s about walking them through Whether these lawsuits from traditional the risks and explaining the potential or newer risks are valid or not, customers consequences versus a quote for insurance often end up having to defend themselves, in 15 minutes. which can cost thousands of dollars in out While the amount of coverage an indeof-pocket expenses if an umbrella policy is pendent agent recommends should bear not in place. some relation to their customers’ net worth, With 13 percent of personal injury liabilvirtually all customers with a home and ity awards IJ andStand settlements at $1 million Alone quarter ad.pdf 1 1/31/14 12:02 PM auto have a need for the protection that an or more, and with lawsuits as widespread
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umbrella provides. How protected is your average customer who suddenly is facing a $2 million legal judgment? What protection would they have if a judge were to order a liquidation of their investments, personal property, or even garnish wages or future assets such as an inheritance? Umbrella Needs We know that well over one-half of personal lines customers do not have an umbrella. Today, the best independent agents are taking time to review physical and financial assets and create a risk profile to help clients find exactly the right policy or blend of policies for their lifestyles. Coming out of a recession, as people buy new cars, new homes and add recreational toys, there is an increased interest for them to protect their hard-earned assets. Also important is minding the gap between the umbrella policy and the auto and home www.insurancejournal.com
that covered the total settlement with the injured claimant. Most people don’t appreciate how much exposure they have until an independent agent walks them through the potential risks they face — from a fun day of boating to a car accident to the handyman that gets hurt while on their property. More account managers today are taking the time to educate customers about the potential value of an umbrella policy, and as a result, selling more of this coverage. Here are three natural client conversation tracks that agents can use to infuse a value discussion about umbrella policy coverage. Renewals Coverage that may have been perfectly sufficient only a few years ago may not fully protect a client’s assets today. Renewal is probably the most opportune point to have a conversation about increased exposures and the need for an umbrella at the right policy limits. The best agents systematically incorporate this into the renewal handling process. They do training and role plays that create a mindset with their entire personal lines staff that umbrella coverage is a regular part of the renewal conversation.
policies so customers Umbrella don’t end up inadvertentpolicies secure ly self-insuring for the long-term value spread. One recent claim illusand greater custrates the value of this tomer loyalty, important coverage. A two core growth suit was filed against an strategies for insured whose teenage son was driving a jet ski erratindependent ically on a lake. A passenagents. ger was thrown, sustained multiple internal injuries and needed to be air lifted from the scene. New Business Her year-plus recovery included multiple Another important client interaction surgeries. While the jet ski owner had is new business. We see better agents not primary watercraft coverage with liability just completing the quote — instead they limits of up to $500,000, that was insuffiare having a discussion about risks first. We cient to cover all of the injuries and related see some agents starting the umbrella disexpenses. The insured owned a successful cussion by asking new clients about their business and had other significant assets current umbrella limits, as often there is no that would have been at stake. Fortunately, in-force umbrella. Most customers are surthis person had a personal umbrella policy www.insurancejournal.com
prised at the relative low cost for so much protection. Since umbrella is generally not offered by low-cost sellers, this approach becomes another key differentiator. Luxury Items More and more customers are purchasing luxury items like boats, motorcycles or rental property — and they should always have an umbrella policy. Some agents are designing marketing programs that directly target these customers, with account managers reaching out to them individually. Customers appreciate the education and expertise, and they value those agents who are creating a differentiated experience from direct-channel providers. Industry research supports this valueselling model as being lock-step with today’s consumer expectations and supports the benefits of improved account retention. A 2013 Accenture study revealed that 40 percent of consumers are willing to pay more for personalized advice or assistance when purchasing personal insurance — a number that has increased in the last three years. More and more consumers appreciate the expert advice that helps them protect their hard-earned assets. Retention is several points higher for customers who purchase an umbrella, which can be the difference between an agent posting acceptable margins and achieving great margins. A value-selling strategy to evaluate risk and recommend umbrella takes direct aim at the weaknesses of lowtouch, limited-coverage, remote-service competitors. Actively selling the total account, including the umbrella, is a winning strategy that differentiates agents and also increases retention and margins. Umbrella policies secure long-term value and greater customer loyalty, two core growth strategies for independent agents in 2014 and beyond. Desrochers is president, personal lines, at The Hanover Insurance Group Inc., based in Worcester, Mass.
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IDEA EXCHANGE
Sales ‘All I Want to Do Is Sell’
If This Is Your Mantra, Your Customers Will Vanish
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t was an early morning meeting, and the atmosphere was relaxed. A sales manager was the last to arrive, whispering to the person next to him as he sat down, “All I want to do is sell.” The meaning was clear: He viewed meetings and all other “non-selling” tasks as unnecessary interruptions keeping him away from the job of selling. His intolerance was palpable, as By John Graham he announced at the start that he would be leaving early for an appointment. Taking a strong stand against all the stuff that interferes with making sales may seem long overdue to many in the business. But, the “all I want to do is sell” message
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cuts another way. Often, the greater the emphasis on “making the sale,” whether of a product or an idea, the more customers pull back mentally, physically or both. It doesn’t need to be this way. By following four actions, salespeople can position themselves where they belong — high on the trust scale. 1. Manage the selling process instead of trying to control it. What drives customers crazy — and away — is a feeling of impotence when faced with someone who is skilled at taking control. However, savvy salespeople have a unique opportunity to manage, rather than control, the sales process and win customers by: • Asking questions to engage the customer. • Listening intently and reflecting back to clearly understand customer issues. • Encouraging feedback.
• Clarifying objections for gaining insight into what a customer is thinking. 2. Talk about what your company can do for customers. Articulating what your company does should be second nature. But, if you rely on a “sales pitch” or “elevator speech,” it’s time to get rid of it. The ability to express clearly and with enthusiasm what your company can do for customers holds far more interest and value. 3. Cultivate self-doubt to enhance your self-confidence. No one questions the immense role of self-confidence in sales. However, when self-confidence morphs into overconfidence, customers back off. Self-confidence needs to be balanced with a healthy amount of self-doubt, as too much self-confidence makes it easy to dismiss criticism, ignore the need for
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improvement and disregard suggestions from others. Most importantly, it keeps us from asking the important sales questions: • Do I understand what the customer is looking for? • Am I sufficiently prepared for this presentation? • What have I missed? What don’t I know that I should know? • Do I have a clear understanding of the competition’s solution? • What could go wrong, and am I ready to handle it? • Do I have the answers to the questions the customer is likely to ask? 4. Cultivate the response you want. Bill Pineo at The Tile City in Avon, Mass., is not an average salesperson. He came up to a couple looking at bathroom tile and gently entered the conversation. He asked a few questions and listened intently to what they said. He then guided them to several displays, where he asked more questions and pointed out certain tile characteristics while encouraging them to take pictures of their choices. When finishing up, Bill asked for the order, and the couple let him know where they were with their project. “Would you mind if I stayed in touch with you?” he asked. And he followed through, checking in with them regularly for several months. A few days after they hired a contractor, Bill called again, and the couple placed the order. Bill Pineo did two important things right. First, by positioning himself as a facilitator or helper, someone who knew the tile business and wanted to assist his customer, Bill managed the sale. Second, by staying in touch, he let his customers know he was going to be there when they were ready. The process convinced the couple that Bill was serious and wanted the sale. www.insurancejournal.com
This story is an example of what persuasion expert Dr. Robert B. Cialdini calls “The Principle of Reciprocation.” It’s what occurs when the salesperson helps customers and manages the sales process so they want to respond positively by placing the order or
making referrals. Graham of GrahamComm is a marketing and sales strategist-consultant and business writer. Contact him at johnrg31@me.com, 617-774-9759 or johnrgraham.com.
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IDEA EXCHANGE
Growing Your Property Casualty Agency Top 10 Reasons to Write Recreational Vehicle Insurance
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t’s summertime, and that means millions of active people are outside enjoying their recreational vehicle of choice. Virtually all RVs require some form of insurance protection, whether it’s for the vehicle itself or the potential liability that arises from it. It’s a mistake, on multiple levels, to blow off RV insurance as low-premium protection that doesn’t warrant careful consideration. There are By Alan Shulman many valid reasons to take it seriously. Recreational vehicles, for the broad purposes of this column, include all-terrain vehicles, classic cars, boats,
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motorhomes, snowmobiles, travel trailers... almost any conveyance that’s used primarily for fun. Here are my top 10 reasons to write RV insurance. There are others as well. • Door opener. Successfully selling monoline RV policies opens doors to additional insurance sales, particularly when the insured is made to feel comfortable during the sales process. It’s called the “halo effect.” • Door closer. Writing RV policies helps to lock out competitors who try to use it as an entry vehicle to your insureds. So make certain you know which of your personal and commercial clients own recreational vehicles and whether or not you insure them. Do this during renewal-time reviews, by conducting RV-specific surveys, asking whenever an insured contacts the agency, through CSR email signature links and via various socialmedia postings. • Commercial lines sales. Some boat owners own businesses and use their watercraft as their floating “getaway vehicle.” Do a good job of insuring their boat policy, and you may earn a shot at their business insurance. • RV clubs. Today, it seems there is a club for everything. So, it’s likely there is one for every type of RV you insure. Ask happy clients to refer you to other club members. Once you successfully write their individual recreational vehicle policies, go after their other personal and commercial lines. Solicit the club’s commercial insurance as well. • Carrier referrals. Seek referred leads from
direct-writing personal lines companies that don’t underwrite certain types of RVs. Offer to write these policies for their insureds, as a convenience to them and an easy sale for you. • Give credit. Discounts abound on boat and other RV policies. Typical watercraft premium credits include those for safety equipment and educational classes, lay-ups, and more. Make sure that your insureds enjoy all of the discounts to which they’re entitled. It keeps them happy and helps keep your rivals at bay. • Umbrella sales. Cross-sell new umbrella policies to RV owners who qualify for the contract. If they already have an umbrella, offer them a higher policy limit. • Monitor claims. Each RV owner values the time they spend with their favorite toy. This means when something insurable happens to it, they want indemnity to kick in quickly. So, carefully monitor RV claims to see that they are promptly and fairly settled. (They usually are.) • Work with MGAs. A managing general agent (MGA) or specialty carrier may offer you an excellent RV program for boats, classic cars, jet skis, etc. Check them out, along with your standard companies, for your new and renewal RV business. The MGA may be able to competitively write vehicles that your primary carriers can’t. As a result, you may initiate a fresh and mutually rewarding relationship that expands to other policy types. • It’s fun. Quoting and insuring the various types of recreational vehicles is a nice change of pace from writing more ordinary personal lines. Not that placing auto and homeowners insurance is boring, but it’s a lot more routine than, say, a hang glider liability policy. 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. Contact him at 800-724-1435, alan@agencyideas.com or www. agencyideas.com.
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Advertisers Index Readers, browse, contact, or do product searches on any of our full page advertisers at: www.insurancejournal.com/adshowcase/ Abram Interstate www.abraminterstate.com W4 ACE Insurance www.acelimited.com 13 American Reliable www.assurantspecialtyproperty.com 21 Anderson & Murison, Inc. www.andersonmurison.com 28 Applied Underwriters www.applieduw.com 36 Astonish Results www.astonishresults.com 15 Burns & Wilcox Brokerage www.burnsandwilcox.com 7 Burns & Wilcox Ltd. www.burnsandwilcox.com FL15 California Earthquake Authority www.earthquakeauthority.com/mvp 3 Catlin US www.catlinus.com 3; W1 Century National www.cnico.com W3 City of Hope www.cityofhope.org 33 CNA Insurance www.cna.com 17 First Florida Insurance Network of St. Augustine, Inc. www.ffipartnership.com FL5 FSLSO www.fslso.com SE9
FUBA Workers’ Comp www.fubaworkerscomp.com FL3 GIC Underwriters, Inc. www.gicunderwriters.com FL9 Golden Bear Insurance Company www.goldenbear.com W8 Great American Corporate www.greatamericaninsurancegroup.com 19 Heritage Property & Casualty Insurance Company www.heritagepci.com FL11 Insurbanc www.insurbanc.com 31 Ironshore www.ironshore.com 2 JM Wilson www.jmwilson.com SE3; M3 Johnson & Johnson www.jjins.com FL2 M.J. Hall & Company, Inc. www.mjhallandcompany.com W6 MacNeill Group, Inc. www.macneillgroup.com FL13 Monarch E & S Insurance Services www.monarchexcess.com W5 Nautilus Insurance Company www.nautilusinsgroup.com 35 PersonalUmbrella.Com www.personalumbrella.com 4,5 Preferred Property Program www.umbrellaprogram.com 27
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Closing Quote and educated people. But sometimes it seems like, today, this industry is hiring and managing in a way that’s as modern as the “Happy Days” era. The United States might have the world’s biggest economy, but finding and keeping the right people to keep it going is a weak link. Only 44 percent of human resources pros said their organizations use objective data on employees' competencies and skills to make workforce decisions, according to a survey of 600 by SHL. Note these findings reported in a recent article in The Atlantic Monthly magazine: 74 percent of 500 hiring managers surveyed by the Corporate Executive Board said their most recent hire had a personality similar to theirs. A “shared leisure interest” was a key criteria used by hiring managers at investment banks, consulting firms and law firms, according to a three-year study by Lauren Rivera of Northwestern University, who said this showed that bosses lack reliable predictors of job performance.
Are You Hiring and Managing Like Your Father’s Generation?
A By Sharon Emek, Ph.D., CIC
major complaint from agency/brokerage leaders is that recruiting and keeping the right producers and staff is difficult, time-consuming and expensive — and doesn’t even result in having the right people on the job. Hiring the right people is tough, and keeping the right people can be even tougher: • Demand for insurance professionals is strong. • Boomers are on the out-route of their careers. • Many insurance professionals are satisfied in their current jobs and not moving. • The industry doesn’t seem to appeal to young people in significant numbers. But are insurance employers getting in their own way by using practices that harken back to yesteryear? Let’s put that question another way: When was the last time you reinvented your recruiting and retention processes? If it’s more than 10 years ago, you’re in trouble. Happy Days The modern science and art of evaluating workers in the business world dates back to the 1950s, when the economy was humming along and businesses began to view their workforces as a competitive edge. America’s universities, supported by the GI Bill, were pumping out skilled, eager
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Rethink Isn’t it time to rethink how to assess agent and employee candidates? Here are a few cutting-edge ideas I’ve read about recently that might just work their way into the insurance industry: • Knack, a startup company, created two problem-solving games that apparently are both enjoyable to play and yield a “high-resolution portrait of ... psyche and intellect, and an assessment of ... potential as a leader or an innovator,” according to The Atlantic Monthly. Sound far-fetched? Royal Dutch Shell (the world’s biggest-revenue company) When was the last through its venture-capital time you reinvented arm uses Knack’s approach your recruiting and to identify strong innovators who might yield new retention processes? business ideas. • Xerox switched to an online tool in 2010 to evaluate cognitive skills, personality and how job candidates handle work scenarios. It cut its turnover by 20 percent. • A study of 2,500 people conducted by the Human Dynamics Laboratory of the Massachusetts Institute of Technology found that one-third of team performance could be predicted by the number of face-to-face interactions among team members. With the business risk presented by a shortage of skilled labor, the industry needs to reboot, reinvent and retool for future success in hiring and retention. Emek is founder and CEO of Work At Home Vintage Employees, which provides outsourced staffing to insurance firms. Website: www.WAHVE.com
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