Insurance Journal West 2014-10-20

WEST Colorado Hail Storm’s National Impact $100M in Crop Losses in Idaho Disaster California’s Costly Workers’ Comp

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Inside This Issue

On The Cover

Special Report:

How Big Data Benefits Agents & Brokers

October 20, 2014 • Vol. 92 No. 20 • West

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18

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NATIONAL COVERAGE

WEST COVERAGE

IDEA EXCHANGE

10 Top 30 Private Auto Insurers: SNL

W1 California Costliest State for

Workers’ Comp, Report Shows

W6 Storm Watch: Latest Colorado Hail

Storm May Impact Insurance

Industry Nationally

16 P/C Insurers’ Net Income Rose

in First-Half of 2014 18 Closer Look: Is Ebola Compensable

Under Workers’ Compensation?

21 P/C Direct Premium Written Up

5.2% in First-Half of 2014 22 Special Report: Top 50

Commercial Lines Leaders 24 Special Report: How Big Data

Benefits Agents & Brokers 28 Spotlight: 10 Things to Know

About Commercial Property

W2 With $100M in Crop Losses USDA

Grants Eight Idaho Counties

Disaster Status W2 Idaho Fitness Company Sued

by State W7 Colorado Resort Files Trademark

Suit Over Salt Lake Ski Marketing W7 Southern California Agent

Arrested for Scamming Insurers

for $1.4M W7 Cold Onion Rings Sparked Attack

at New Mexico Burger King, Suit

Says

30 E&O Insights: Curtis Pearsall 34 Minding Your Business: Catherine

Oak 36 Growing Your Property Casualty

Agency: Alan Shulman 38 Closing Quote: New Technology

on Vehicles Is Working to Reduce

Crashes

DEPARTMENTS W4 People 11 Declarations 11 Figures 14 Business Moves 32 MyNewMarkets

10 | INSURANCE JOURNAL-WEST October 20, 2014

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Opening Note Hands-Free Distraction

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s the city in which I reside — Austin, Texas — gets ready for a new law to come into effect on Jan. 1, 2015, banning the use of hand-held cell phones while driving, I have been contemplating an investment in a blue-tooth enabled device to use while driving.

While I’m fortunate not to commute — telecommute is a blessing in Austin traffic — I do occasionally use a hand-held cell phone while driving. But it is a distraction; one that the insurance industry keenly understands.

But are hands-free cell phones really better to use than hand-held cellphones while driving?

While three out of four drivers believe hands-free technology is safe to use, one study shows they might actually increase mental distraction.

According to new research by the AAA Foundation for Traffic Safety, drivers using hands-free, voice-controlled infotainment systems in vehicles can distract drivers more than was previously believed.

“We already know that drivers can miss stop signs, pedestrians and other cars while using voice technologies because their minds are not fully focused on the road ahead,” said Bob Darbelnet, CEO of Are hands-free cell phones AAA. “We now understand really better to use? that current shortcomings in these products, intended as safety features, may unintentionally cause greater levels of cognitive distraction.”

The study’s results show: • The accuracy of voice recognition software significantly influences the rate of distraction. Systems with low accuracy and reliability generated a high level (category 3) of distraction.

• Composing text messages and emails using in-vehicle technologies (category 3) was more distracting than using these systems to listen to messages (category 2).

• The quality of the systems’ voice had no impact on distraction levels — listening to a natural or synthetic voice both rated as a category 2 level of distraction.

The study also assessed Apple’s Siri (version iOS 7) using insight obtained from Apple about Siri’s functionality. The research uncovered that hands- and eyes-free use of Apple’s Siri generated a high category 4 level of mental distraction.

When thinking about distraction consider that last year’s AAA research revealed listening to the radio only rated as a category 1 distraction. Talking on a hand-held or hands-free cell phone resulted in a category 2 and using an error-free speech-to-text system to listen to and compose emails or texts was a category 3 distraction.

To view the full report, “Measuring Cognitive Distraction in the Vehicle II: Assessing In-Vehicle Voice-based Interactive Andrea Wells Technologies,” and other materials on distracted driving, visit NewsRoom.AAA.com. Editor-in-Chief 8 | INSURANCE JOURNAL-NATIONAL October 20, 2014

Publisher Mark Wells | mwells@wellsmedia.com 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 MyNewMarkets.com Associate Editor Amy O’Connor | aoconnor@mynewmarkets.com Columnists Catherine Oak, Curtis Pearsall, Alan Shulman Contributing Writers Adrian Lund, Janet McConnaughey, Todd Richmond, Charee Voelz 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 Vice President of Education Christopher Boggs | cboggs@ijacademy.com 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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News & Markets Top 30 Private Auto Insurers: SNL

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SAA Insurance Ranking of private auto insurers for Q2'14 Based on direct premiums written Exchange, which Year-oversells private auto insuryear premium Direct incurred loss ratio Rank as of 3 months Direct premiums written change (%) for 3 months ended (%) ended for 3 months ended ($M) ance to AAA members 06/30/13 06/30/12 in about 25 states, expeto to 06/30/14 06/30/13 06/30/12 Top-tier entity* 06/30/14 06/30/13 06/30/12 06/30/14 06/30/13 06/30/14 06/30/13 06/30/12 rienced double-digit State Farm Mutual year-over-year growth in 1 1 1 Automobile Insurance Co. 8,791.0 8,299.1 7,942.4 5.93 4.49 67.40 62.45 63.27 2 3 3 GEICO Corp.

4,870.8 4,420.8 3,963.1 10.18 11.55 67.98 67.60 66.70 personal auto business, 3 2 2 Allstate Corp.

4,709.1 4,456.4 4,315.1 5.67 3.27 60.04 60.22 59.47 far outpacing other top 4 4 4 Progressive Corp.

3,978.7 3,766.0 3,543.2 5.65 6.29 63.86 63.10 67.26 writers in the second 5 6 6 Liberty Mutual Group Inc. 2,441.2 2,312.7 2,083.1 5.56 11.02 61.71 58.99 59.73 Farmers Insurance Group quarter, a new analysis 6 5 5 of Cos. 2,379.9 2,441.8 2,528.0 -2.53 -3.41 62.88 61.95 66.36

by SNL Financial shows.

7 7 7 USAA Insurance Group 2,328.2 2,164.6 1,996.6 7.56 8.41 77.89 73.12 76.32 8 8 8 Nationwide Mutual Group 1,878.2 1,856.2 1,819.7 1.18 2.00 67.17 60.08 69.68 SNL said CSAA 9 9 9 Travelers Cos. Inc. 905.5 922.6 975.6 -1.86 -5.43 57.73 59.66 61.37 Insurance Exchange American Family Mutual 10 10 10 Insurance Co. 882.8 865.9 816.2 1.95 6.08 65.47 68.16 68.95 logged $553.4 million in Hartford Financial Services private auto direct pre11 11 11 Group Inc. 652.2 634.4 625.3 2.81 1.45 67.39 62.16 63.55 12 12 12 Erie Insurance Group 649.1 607.1 570.2 6.93 6.47 71.69 61.70 65.53 miums written during 13 13 13 Auto Club Exchange Group 601.8 587.7 558.3 2.40 5.26 61.24 58.29 62.44 the quarter at the group 14 14 14 MetLife Inc. 571.0 582.5 525.7 -1.97 10.80 57.99 59.28 57.54 level as consolidated by 15 17 17 CSAA Insurance Exchange 553.4 449.7 472.5 23.07 -4.83 69.86 68.93 61.58 16 16 16 Auto-Owners Insurance Co. 539.5 514.7 488.3 4.83 5.39 92.10 97.12 65.40 SNL. That represented 17 15 15 Mercury General Corp.

538.0 518.3 516.0 3.79 0.45 59.92 61.76 66.54 the greatest year-over18 19 18 MAPFRE 405.7 405.9 384.0 -0.04 5.71 66.88 64.30 62.94 Auto Club Insurance year percentage increase 19 18 19 Association Group 394.0 416.7 375.8 -5.44 10.88 78.74 70.93 82.48 in private auto that 20 20 20 Integon National Group 317.9 318.0 322.3 -0.03 -1.32 66.16 65.24 68.66 Infinity Property and current members of 21 21 22 Casualty Corp.

310.1 304.9 274.2 1.71 11.18 63.24 64.56 64.48 the group collectively Amica Mutual Insurance achieved in any quarter 22 22 23 Co. 279.3 275.8 265.3 1.29 3.95 64.06 65.08 72.28 23 23 21 Hanover Insurance Group Inc. 266.4 266.3 275.4 0.04 -3.33 60.63 63.32 64.72 in at least the last 12 New Jersey Manufacturers years, according to the 24 24 25 Insurance Co. 265.1 260.6 249.5 1.72 4.47 55.50 55.55 57.99 25 26 27 COUNTRY Financial 248.5 245.2 241.8 1.35 1.42 64.07 60.84 65.52 analysis. The group’s 26 25 28 Sentry Insurance a Mutual Co. 229.9 247.0 234.3 -6.94 5.43 62.54 69.84 62.29 23.07 percent growth 27 27 24 Kemper Corp.

201.6 234.8 258.5 -14.13 -9.17 56.04 62.53 70.58 Southern Farm Bureau was primarily attribut28 29 30 Casualty Insurance Group 184.8 177.6 170.6 4.09 4.10 73.19 64.88 63.32 able to CSAA Insurance 29 28 29 Shelter Mutual Insurance Co. 180.9 177.8 173.0 1.76 2.72 71.29 71.83 75.27 Exchange and CSAA 30 32 34 Cincinnati Financial Corp.

173.8 161.0 145.4 7.98 10.73 74.75 74.51 71.81 Total 40,728.4 38,891.7 37,109.5 4.72 4.80 66.01 63.82 65.15 General Insurance Co. Industry 48,174.7 45,855.7 44,109.3 5.06 3.96 66.13 63.56 65.27 GEICO Corp. continAs of Sept. 8, 2014.

Based on NAIC statutory P&C second-quarter statement filings. U.S. filers only. May include business written outside of the U.S. if reported in NAIC statements. ued to grow premiums Data obtained from Part 1 - Loss Experience and Part 2 - Direct Premiums Written.

Rank based on direct premiums written for private auto line of business as defined by NAIC as reported lines of business for auto physical damage and at a fast pace. The private passenger auto liability. Auto physical damage can include commercial auto, though the vast majority is personal auto.

Berkshire Hathaway Inc. Rankings exclude certain New Jersey-domiciled P&C subsidiaries that do not file quarterly statements with the NAIC because of state regulations.

Generally based on SNL top-tier analysis, which includes SNL groups that represent the consolidation of data of the statutory filers within the SNL-defined unit, which ranks No. 2 group structure, as well as unaffiliated single companies. However, GEICO Corp. is used in place of Berkshire Hathaway Inc. because it writes the vast majority of the group's private auto premiums. in overall market share Figures are displayed on a pro-forma basis where data for historical periods is restated to reflect current SNL-defined group structures.

Source: SNL Financial for private auto, had the second-highest yearover-year growth rate at 10.18 percent in the rate in the second quarter. The growth was led private auto direct premiums written. second quarter, with direct premiums writby Esurance Insurance Co.and its affiliates.

GEICO’s 10.18 percent year-over-year ten totaling $4.87 billion for the quarter, According to data compiled by SNL, premium growth during the second quarter versus $4.42 billion in the year-ago period.

Farmers Insurance Group of Cos.’s private lagged the 10.51 percent jump it logged in Allstate Corp., which lost its secauto premiums continued to slip in the the first quarter and also fell short of the ond-place market share position to GEICO second quarter, allowing Liberty Mutual 11.30 percent hike in 2013. in 2013, came in next with $4.71 billion in Group Inc. to move up a rank.

Allstate grew at a 5.67 percent year-over-year 10 | INSURANCE JOURNAL-NATIONAL October 20, 2014

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News & Markets California Costliest State for Workers’ Comp, Report Shows

By Don Jergler

Oregon ranked 43rd on the list, the best performance state-by-state ranking of workers’ since the list first compensation premiums, one that started to be comstates reportedly use as a motivational call plied in the late to improve their systems, seems to call for 1980s, according to even more reform of California’s recently Jay Dotter, who put reformed system. together the report.

Despite major workers’ comp reforms When the state first signed into law in 2012 the Golden State began tracking premium easily tops the 2014 Oregon Workers’ rankings it was to show Compensation Premium Rate Ranking how much reforms were Summary, a list of average premiums paid needed to reduce workers’ comp by employers that the Oregon Department costs in Oregon, Dotter said. of Consumer and Business Services puts out “We knew that Oregon’s workers’ every two years. comp rates were high,” Dotter said.

The latest report was issued on Oct. 8.

The state ranked 6th on the first The 2014 median value was $1.85 per $100 of report. payroll, a drop of 2 percent from the $1.88 Following that Oregon initiated reforms median in the 2012 study, according to the that included reducing litigation and sendreport. ing contested workers’ comp cases through Premium rates ranged from a low of newly created administrative review pro88 cents in North Dakota to California’s cesses, according to Dotter. $3.48. In the next state behind California, “We got the attorneys out as much as posConnecticut, premiums paid are 61 cents sible,” he said. lower.

Oregon’s workers’ comp rates began drop It’s an unacceptable position to be in ping rapidly, falling well below average for considering all the reforms that were made the nation, according to Dotter. two years ago, said Workers’ Compensation “We dropped quickly over the next two Action Network spokesman Jerry Azevedo. studies down into the 30s,” he said.

“Try as we might to reform California’s Over the past few studies Oregon has workers’ compensation system, employers stayed comfortably in the here continue to bear the heaviest cost burden in ‘What’s clear is that high 30s to 40s in rankings.

Other states have taken the nation — by a wide California has more note of their rankings and margin,” Azevedo said. work to do to bring initiated reforms in the Azevedo noted that the employer costs more past, according to Dotter. same study has consis Hawaii’s workers’ comp tently ranked California in line with what administrators flagged their among the most expenemployers in other 15 ranking in 2006 by sive states for more than a states pay for work- top putting notice of the poor decade. performance on a state Azevedo said the report ers’ compensation.’ website and publicizing it reflects that any savings to help champion reforms that were eventucreated by the reforms enacted in 2012 with ally passed, Dotter said.

Senate Bill 863, designed to reduce litigation The state was ranked 27th on the latest and improve efficiency, were put toward report. increasing benefits for injured workers by In the 2012 report California was third on more than $1 billion.

See related story on InsuranceJournal.com: California’s Industrial Director Challenges Workers’ Comp Report

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October 20, 2014 INSURANCE JOURNAL-WEST | W1

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the list with $2.92 per $100 of payroll, so in the two years since Gov. Jerry Brown signed into law the reforms of SB 863 premiums have jumped 56 cents.

To be fair to California’s efforts to reform the system, aside from the increase in benefits to injured workers, many changes made

by SB 863 did not take effect immediately.

Still, Azevedo believes the state’s dubious ranking could mean more reforms are needed.

“What’s clear is that California has more work to do to bring employer costs more in line with what employers in other states pay for workers’ compensation,” he said. “SB 863 was clearly not a cost-cutting reform.”

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News & Markets With $100M in Crop Losses USDA Grants Eight Idaho Counties Disaster Status

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he U.S. Department of Agriculture has granted disaster area status to eight counties in central and eastern Idaho, clearing the way for farms to receive low-interest loans for operating costs.

USDA Secretary Tom Vilsack made the declaration for Bonneville, Jefferson, Bingham, Clark, Minidoka, Blaine, Cassia and Power counties earlier this month.

Fourteen other neighboring counties have already received disaster status.

Bonneville County Farm Bureau President Stephanie Mickelsen said that for some, the loans will be necessary to keep a farm in business until next year.

Farms across much of southern and eastern

Idaho suffered when ill-timed storms hit the region, causing grain to sprout before it could be cut and causing some harvested crops to mold before they could be stored.

Too much rain in recent months has caused an estimated $100 million in damages to barley crops in Idaho.

The wet weather ruined an estimated 15 million to 20 million bushels of barley, out of 48 million bushels of barley, said Kelly Olson, administrator for the Idaho Barley Commission.

The grain shortage will likely affect the brewing industry as well. Idaho produces more barley than any other state, with the bulk going to brewing beer. Some of the

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barley is sold to local craft brewers, but much of it goes to brewing giants such as Anheuser-Busch InBev, which processes 336,000 tons of malted grain each year at its Idaho Falls plant.

In August and September, nearly 5 inches of rain was recorded at the Idaho Falls Regional Airport. That rain caused sprout damage on barley fields throughout eastern and southern Idaho and wiped out entire crops.

Paul Patterson, an agricultural economist in Idaho Falls with the University of Idaho Extension office, said the damages to eastern Idaho’s barley crop are estimated from $60 million to $64 million.

Copyright 2014 Associated Press.

Idaho Fitness Company Sued by State

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daho Attorney General Lawrence Wasden has filed a lawsuit against a southwest Idaho fitness company.

Wasden contends in the lawsuit filed in Ada County District Court that Body Renew Fitness & Tanning and owner Dakota Routh charged customers for memberships and other fees just before closing the gyms on July 9.

Wasden also says Routh tried to collect unsubstantiated debts from consumers by sending bogus collection notices.

Wasden in the statement says the lawsuit is based on 54 consumer complaints filed with his office.

The company operated three gyms in Boise and one each in Meridian, Star and Garden City.

Copyright 2014 Associated Press. www.insurancejournal.com

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People Robert Atwell

Ron Guerena

Heather Garbers

Salt Lake City, Utah-based The Buckner Co. has named Robert F. Atwell as the firm’s healthcare practice leader.

Atwell’s primary focus will be on serving the region’s healthcare community.

Atwell has 40 years of experience in underwriting, risk and claims management and risk evaluation.

The Buckner Co. has six offices throughout the West.

Woodruff-Sawyer & Co. has named Ron Guerena senior account executive and vice president in the firm’s Southern California property/casualty practice.

Guerena will work on building the practice’s client base. His focus will be on larger complex clients.

Prior to Woodruff-Sawyer, Guerena was senior vice president at Marsh. He has experience in underwriting, insurance brokerage and risk management.

San Francisco, Calif.-based Woodruff-Sawyer is an active partner of Assurex Global and International Benefits Network. The firm has offices throughout California, and in Portland, Ore., and Denver, Colo.

Heather Garbers, a voluntary benefits executive with Leavitt Group’s Salt Lake City office, GBS Benefits Inc., was named to the Voluntary Benefits Association’s advisory board.

Garbers is a voluntary plan expert and works in partnership with a team of health care consultants to

enhance existing clients’ benefit packages.

Garbers’ experience with voluntary benefits includes product strategy, carrier selection, enrollment and administration.

The Voluntary Benefits Association is a national nonprofit trade association focused on voluntary benefits for employer groups and affinity groups.

GBS Benefits is part of the Leavitt Group, which provides employee benefits solutions, property/casualty insurance, risk management and other services.

State Compensation Insurance Fund has appointed Peter Guastamachio as its chief financial officer.

Guastamachio had been acting CFO since November 2013, and also serves as chief investment officer.

As CFO, Guastamachio will direct all of State Fund’s financial policies, including financial forecasting, accounting, budgeting and tax reporting.

Guastamachio joined State Fund in 2009 as State Fund’s chief investment officer.

He has more than 30 years of experience in the financial world having served as vice president-assistant portfolio manager for Bank of West and he’s held a variety of positions with Argonaut Insurance. Guastamachio sits on the board of directors for the California Insurance Guarantee Association.

State Fund is California’s largest provider of workers’ compensation insurance.

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Walnut Creek, Calif.-based CSAA Insurance Group, a AAA Insurer, has named Greg Meyer chief operating officer.

Meyer most recently served as the senior personal lines executive at Tower Group and president of its reciprocal exchanges.

Prior to Tower, Meyer was chief underwriting and product officer at Fireman’s Fund personal insurance division. He has worked for Zurich North America, Allstate and Progressive.

CSAA Insurance Group offers automobile, homeowners and other personal lines of insurance to AAA members through partnerships with AAA clubs in 23 states and the District of Columbia.

Reno, Nev.-based Employers has named Kimberly K. Hulse vice president of regional sales for its Western region. continued on page W8 www.insurancejournal.com

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Storm Watch Latest Colorado Hail Storm May Impact Insurance Industry Nationally

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insurers increase olorado’s insurance industry is weighing premiums, but its options after the latest hailstorm hit changes may be densely populated South Metro Denver — coming to the way unusual for the Rockies in late September. hail claims are cov What Coloradans might likely see down ered by insurance. the road is that hail As weather patand wind are no longer terns continue to covered in a basic homeworsen across the owners policy. If weather country, we will all patterns continue, the pay the price. After state may go the route that Superstorm Sandy Florida takes, in which and Hurricane hail and wind are add-on Katrina, people in policies similar to separate

By Charee Voelz the affected area policies for flood insursaw their rates go ance in Colorado. up and coverage According to the Rocky Mountain reduced.

Insurance Information Association, the Insurance comrecent storm took insurance adjusters by panies continuously surprise because Colorado’s damaging hail look at the risk associated with doing busiseason typically occurs from mid-April to ness in any area and make broader policy mid-August. decisions regardless of whether an area is in “Colorado’s Front Range is located in the the path of past or future storms. heart of ‘Hail Alley,’ which receives the high According to a PBS News Hour report, est frequency of large hail in North America “the pricing model that insurance companies and most of the world, so residents usually use is affected by not just individual events, can count on three or four catastrophic such as hurricanes, (defined as at tornadoes and hail least $25 million ‘Hail is an enormous headache but the in insured damfor consumers and the insurance storms, area’s history.” age) hailstorms industry in Colorado, much like Coloradans may every year,” find that insurance RMIIA stated. “In hurricanes are to those along companies begin the last 10 years, the Eastern Seaboard.’ offering coverage hailstorms have for hail as a separate policy, and no longer caused more than $3 billion in insured daminclude it in basic coverage. age in Colorado.”

Some insurers in Colorado are imposing a Many Colorado insurance carriers raised 1 percent deductible for wind and hail damtheir homeowner premiums by upwards of age. Homeowners may be shocked when 10 percent in 2013 — a result of Colorado’s they find out that their claim may only get wicked hailstorms that pummel homeownthem a percentage of the cost to replace their ers’ roofs year after year in the Centennial roof after a hailstorm. That means if a home State. is insured for $500,000, a 1 percent (roughly Hail is an enormous headache for consum$5,000) deductible must be paid before the ers and the insurance industry in Colorado, insurance company will pay out for a claim. much like hurricanes are to those along the Other Coloradans are finding out the hard Eastern Seaboard. Every time a storm hits, way that insurers may be settling roof claims our profit and loss margin turns topsy-turvy on an actual cash value basis, or may use a and claims skyrocket. To offset the costs, W6 | INSURANCE JOURNAL-WEST October 20, 2014

set depreciation chart to determine how much the roof will be covered. Depending on the roof material, and age of the roof, sometimes only a fraction of the full cost will be paid out to replace the roof.

The domino effect is another cause for higher premiums. After a significant weather event, neighborhoods hit hard by hail or other calamity create a domino effect where everyone on the block now wants a new roof, whether their roof has actual damage or not, as they see their neighbors having new roofs put on.

As a result of extreme weather-related patterns across the country, there are rumblings in the insurance industry that changes are coming. Insurance companies are beginning to put stricter policies in place for claims after a storm incident. Multiple claims may result in the insurer not renewing a policy or insuring new customers only if they have no more than one claim in the past five years.

Colorado’s latest hailstorm is only further confirmation that the insurance industry may begin leveraging its risk across the board.

Voelz is director of personal lines for Flood and Peterson. Email: CVoelz@FloodPeterson.com. www.insurancejournal.com

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News & Markets Colorado Resort Files Trademark Suit Over Salt Lake Ski Marketing

Cold Onion Rings Sparked Attack at New Mexico Burger King, Suit Says

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A

Salt Lake City, Utah tourism group is defending its new marketing campaign, saying the Ski City slogan doesn’t violate a Colorado ski resort’s Ski Town trademark.

Visit Salt Lake says in a statement that the $1.8 million Ski City campaign promotes a different, more urban ski vacation experience. The campaign is designed to lure tourists in the lucrative

Southern California Agent Arrested for Scamming Insurers for $1.4M

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ric Lee, 64, of Orange County, Calif., was arrested in late September by the California Department of Insurance and charged with 20 felony counts, including grand theft and allegedly providing false or misleading information to an insurer during a scheme that netted him over $1.4 million in fraudulent commissions.

CDI began its investigation of the insurance agent in 2011 after an audit revealed many of Lee’s policies failed to have any premium payments after the first policy year.

Investigators believe Lee directed policyholders to complete fraudulent applications with false or misleading information and insufficient financial means to pay for the insurance policies being written.

As a result, Lee received $1.4 million in fraudulently obtained commission payments between October 2009 and October 2010.

Lee is being prosecuted by the Orange County District Attorney’s Office with bail set at $1.4 million and is required to show that bail funds are not from money obtained through his scheme. www.insurancejournal.com

winter sports industry away from Colorado and other destinations.

Colorado-based Steamboat Ski Resort is suing the nonprofit tourism-promotion group and four Salt Lake Valley ski resorts for trademark infringement, arguing Salt Lake is cashing in on decades of work it did promoting the Ski Town, U.S.A. brand for Steamboat Springs.

No hearings were immediately set in the case, which was filed in federal court in Denver.

Copyright 2014 Associated Press.

New Mexico man is suing Burger King after he says a manager attacked him for complaining about cold onion rings.

KRQE-TV reported the lawsuit filed in state district court says Robert Deyapp was assaulted in June 2013 when he told a Bloomfield Burger King manager about his cold order.

The lawsuit claims when Deyapp asked for a refund, manager Francisco Berrera lunged at him with a stun gun and switchblade.

Court records show Berrera later pleaded no contest to aggravated assault. An attorney for Berrera did not immediately return a phone message from The Associated Press. A spokesman for Burger King also did not return an email.

Copyright 2014 Associated Press.

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People continued from page W4 Hulse will be based out of Employers’ headquarters in Reno, Nev. She will work under the direction of the senior vice president and chief sales officer, and focus on business opportunities that are consistent with Employers’ underwriting and financial objectives in the Western region.

Hulse has worked for more than 25 years in the insurance industry. She has experience in sales and agency management. She comes from Fireman’s Fund Insurance Co. Prior to that, she held various positions in the industry.

Employers Holdings Inc. is a holding company with subsidiaries that are specialty providers of workers’ comp insurance and services focused on select small businesses engaged in low-to-medium hazard industries.

Insurance is offered by Employers Insurance Company of Nevada, Employers Compensation Insurance Co., Employers Preferred Insurance Co. and Employers Assurance Co. Burns & Wilcox added Kathy Quick, Taylor Armitage and Amy Holt to its

growing Los Angeles, Calif., office.

Quick was named senior underwriter in personal insurance. Quick is responsible for driving increased coverage for high net worth and high value clients through Burns & Wilcox’s valued retail brokers across greater L.A. Quick has more than 15 years of personal insurance experience and was most recently chief operating officer of Gaspar Insurance.

Armitage was named a commercial insurance underwriter. Armitage will contribute to driving commercial property/ casualty insurance growth for the company.

Previously, Armitage was an account marketing executive at Momentous Insurance Brokerage.

Holt was named a commercial insurance underwriter and will be tasked with leading growth in the company’s commercial property/casualty insurance business.

Prior to Burns & Wilcox, Holt was an underwriter for Bass Underwriters.

Farmington Hills, Mich.-based Burns & Wilcox is an independent wholesale broker and managing underwriter.

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Edgewood Partners Insurance Center has named David Wiesner managing principle and regional director in EPIC’s employee benefits consulting division.

Wiesner will focus on growing EPIC’s employee benefits consulting business in the greater San Francisco Bay Area. He will be based in San Francisco and will report locally to John Connell, EPIC’s president of employee benefits of California.

Wiesner has 25 years of experience in strategic market planning, sales organizational leadership, new product/service development and health and welfare plan consulting.

Prior to EPIC, Wiesner was with Mercer Health & Benefits, most recently as a principal in the firm’s San Francisco Health & Benefits unit.

His responsibilities included managing the strategic and financial requirements of health and welfare programs for clients to help them to achieve their business objectives.

Prior to that Wiesner held senior positions at Gallagher Benefit Services and Keenan and Associates.

EPIC focuses on commercial property/ casualty, employee benefits, unique specialty program insurance, and private client services.

Stone Creek Insurance Agency in Lafayette, Calif., has hired Mia Pickens and George Lazar to help increase personal lines revenue and service.

Pickens will serve as the personal lines account manager. Her main role will be to re-quote and maintain the rapport with the firm’s high-value personal lines clients.

Pickens came from Allstate and prior to that she was with Schroder Insurance in Walnut Creek.

Lazar will also be a personal lines producer.

Lazar came from AAA, where he was a producer. He also has a background as a real estate agent.

Stone Creek offers commercial, personal and health and life insurance. www.insurancejournal.com

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FIGURES

$124-420 Million Per year can be saved in California by adopting a state-mandated workers’ compensation prescription drug formulary similar to systems in place in Texas and Washington, according to a study from the California Workers’ Compensation Institute.

DECLARATIONS

13,000 The approximate number of consumer complaints that the Health Care Bureau at the New York Attorney General’s Office has resolved since 2011, according to a report released on Oct. 6 by New York Attorney General Eric Schneiderman.

4,000 The potential number of homeowners eligible for further awards in a lawsuit over defective drywall from China, according to an order from U.S. District Judge Eldon Fallon. Notices of the order were sent to homeowners in Louisiana, Mississippi, Florida, Virginia, Texas and Alabama involved in the suit against Taishan Gypsum Co. Ltd. The company failed to show up in court and some observers doubt the homeowners will ever collect any awards in the case.

Insurance Scams

“Sadly, senior citizens are among our most vulnerable targets for insurance and financial fraud.”

— New Jersey Dept. of Banking and Insurance Commissioner Ken Kobylowski’s comment during a consumer awareness meeting with senior citizens in Sayreville, N.J., on Oct. 3. Kobylowski advised seniors to be cautious when considering insurance-related financial products such as annuities. He said that while many of these financial products are legitimate and useful, they can be wrongly directed toward seniors.

No Policy, No Lake Access “If you don’t have a million dollar liability policy, you are not allowed on a public lake.”

— Todd Thorson, the head of Aberdeen Aqua Addicts ski team in South Dakota. Like other ski groups, the Aqua Addicts have a $1 million liability policy through an organization called USA Water Ski. Every member of the Aberdeen Aqua Addicts has to contribute.

Each member pays $50 to $80 a year.

Intervenor Intervention

“When outside intervenors are allowed to come in and charge $675 an hour, of course that drives up rates.”

$300,000 The amount a contractor hired to remove a northern Michigan dam will pay to resolve a lawsuit and restore a river that was damaged when the dam failed. Under the settlement agreement approved by Traverse City commissioners, Molon Excavating Inc. will pay $120,000 to Boardman River property owners to cover costs from the October 2012 breach of the Brown Bridge Dam. The company will pay $180,000 to a River Settlement Fund to help restore about 10 miles of river.

— Robin Swanson, a campaign spokeswoman for No on Prop 45, pointed out many aspects of an initiative on California’s upcoming ballot to raise the medical malpractice cap on pain and suffering as being cost drivers.

69 The number of fire deaths so far this year in Alabama, according to the state fire marshal. Twenty-eight of those deaths occurred in January. Alabama recorded 81 fire deaths last year, 78 in 2012 and 86 in 2011. 2010 was one of the worst years on record with 122 deaths.

Highest Legal Burden

“It’s one of the highest legal burdens of any state in the country.”

— Joanne Doroshow, executive director of New York Law School’s Center for Justice and Democracy, comments on the difficult odds faced by plaintiffs in Texas who may wish to sue over medical errors, especially if they occurred in the emergency room.

A New Wrinkle

“In Florida this is a new wrinkle, where the state is going after people who haven’t even filed a workers’ comp claim, and is essentially taking enforcement of immigration laws into its own hands.”

— Rebecca Smith, deputy director of the nonprofit National Employment Law Project, comments on a raid on a Florida farm that resulted in the arrest of 100 farm workers.

www.insurancejournal.com

October 20, 2014 INSURANCE JOURNAL-NATIONAL | 11

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All products and services may not be available in all states and may be subject to change without notice. CNA is a registered trademark of CNA Financial Corporation. Copyright Š 2014 CNA. All rights reserved.

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Business Moves

Risk Strategies, DeWitt Stern, Crow Friedman Risk Strategies Co., an insurance brokerage and risk management firm based in Boston, and DeWitt Stern, a brokerage and risk advisory firm based in New York City, announced their merger.

The combined organization will be called Risk Strategies Co. and have nearly $100 million in revenues and almost 400 employees nationwide. DeWitt Stern will become a division of Risk Strategies and will be referred to as “DeWitt Stern a Risk Strategies Co.” The existing management teams of both firms will remain in place.

Risk Strategies and DeWitt Stern will continue to operate as they have been, and dayto-day roles will not change.

Jolyon F. Stern will remain as chairman of DeWitt Stern, and will be appointed vice chairman of the board of Risk Strategies, joining Risk Strategies’ CEO Michael Christian and Risk Strategies Executive Chairman Roger Egan. Further terms of the deal were not disclosed.

Founded in 1899, DeWitt Stern is an insurance brokerage and risk advisory firm, specializing in business, personal, fine art, entertainment and media, employee benefits and executive liability insurance.

DeWitt Stern provides insurance coverages for feature films, TV commercial produc14 | INSURANCE JOURNAL-NATIONAL October 20, 2014

tions, Broadway shows and cultural institutions.

In a separate deal, Risk Strategies Co. announced it also acquired Crow Friedman Group, a professional liability brokerage in Memphis, Tenn.

Founded in 1996, Crow Friedman Group provides insurance for architectural, engineering and surveying firms including workers’ compensation, commercial automobile, general liability, and group life and health employee benefits.

Crow Friedman Group has offices in Memphis and Nashville, Tennessee; Birmingham, Alabama; and Lawrenceville, Georgia. John Crow and Don Friedman, the founders of Crow Friedman Group, and their staff will remain with the firm and do business as Crow Friedman Group, a Risk Strategies Co. Founded in 1997, Risk Strategies is a brokerage with more than 260 employees and 12 offices. The firm specializes in property/ casualty and employee benefits, with several client specialty areas including higher education, real estate, environmental, professional liability, private equity, construction and healthcare. Kohlberg & Co., a Mount Kisco, N.Y.-based private equity firm, has been Risk Strategies’ majority stakeholder since June 2013.

country in New Jersey, Pennsylvania, Illinois, Texas, Arizona and California.

NSM Insurance Group, Specialty Aviation Underwriters NSM Insurance Group has acquired Specialty Aviation Underwriters (SAU), located in Addison, Texas. Founded over 20 years ago, SAU specializes in aviation products.

NSM Insurance Group underwrites more than 20 admitted and non-admitted insurance programs nationally in specific niche markets including architects and engineers, collector cars, coastal condominium associations, social service, hospitality, professional liability for lawyers and dentists, construction and workers’ compensation.

The group has nine offices across the

JLT, Alliant JLT Specialty Insurance Services Inc., the U.S. subsidiary of Jardine Lloyd Thompson Group plc, and Newport Beach, Calif.based Alliant Insurance Services announced that JLT USA will be purchasing part of Alliant’s energy business.

The portion of business being purchased focuses on larger and more complex major and international accounts.

Jardine Lloyd Thompson is a provider of insurance, reinsurance and employee benefits related advice, brokerage and associated services. Alliant provides P/C, workers’ comp, employee benefits, surety and financial products and services.

Hub International, FieldEddy Chicago-based global insurance broker Hub International Limited has acquired the assets of FieldEddy, a property/casualty, personal lines and employee benefits brokerage with four locations in and around Springfield, Mass. Terms of the acquisition were not disclosed.

FieldEddy has two divisions — Field Eddy Inc. and Your Choice Insurance Agency Inc. — that serve the Central and Western Massachusetts area. Hub International said FieldEddy’s operations will become part of Hub New England.

With the FieldEddy acquisition, Hub New England now has 22 offices and almost 500 employees throughout Massachusetts, New Hampshire and Rhode Island.

Hub International said FieldEddy’s strengths in the education, healthcare and energy industries, including oil and gas, would complement Hub New England’s expertise.

FieldEddy’s CEO Samuel Hanmer and President Timm Marini will both join Hub New England’s executive leadership team.

Within the region, Hanmer will focus on identifying potential M&A candidates and strategic growth initiatives, while Marini will coordinate sales strategies. They will both report to Charles Brophy, president and CEO of Hub New England.

www.insurancejournal.com

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Contact RSG Underwriting Managers at (855) 201-2000 or visit www.ryansg.com.

RSG Underwriting Managers, LLC, is a Delaware series limited liability company and a subsidiary of Ryan Specialty Group, LLC, specializing in underwriting management and other services for insurance products distributed through agents and brokers. In California: RSG Insurance Services, LLC, Lic. #0E50879. Direct Group Limited (Registered No. 2461657) and Millennium Insurance Brokers Limited (Registered No. 3566382) are insurance distribution businesses and are authorized and regulated by the Financial Services Authority. © 2014 Ryan Specialty Group, LLC

NATIONAL COVERAGE

News & Markets P/C Insurers’ Net Income Rose in First-Half of 2014

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.S. property/casualty insurers’ net income rose $1.6 billion to $26.0 billion in first-half of 2014 while pretax operating income fell $1.9 billion to $23.9 billion in first-half 2014, a decrease driven by lower gains on both underwriting and investments.

Net gains on underwriting fell to $0.3 billion from $2.2 billion in first-half 2013 including mortgage and financial guaranty (M&FG) insurers. The industry’s combined ratio deteriorated to 98.9 percent from 98.0 percent for first-half 2013, according to ISO and the Property Casualty Insurers Association of America (PCI).

The combined ratio for the industry excluding M&FG insurers deteriorated to 99.0 percent for first-half 2014 from 97.6 percent for first-half 2013. Commercial lines insurers’ combined ratio rose 1.8 percentage points in first-half 2014 to 95.4 percent as balanced insurers’ combined ratio increased 2.3 percentage points to 102.0 percent and personal lines insurers’ combined ratio climbed 0.7 percentage points to 100.0 percent, according to the analysis by ISO and PCI. Insurers’ net investment income dropped $0.3 billion to $23.0 billion.

Reflecting insurers’ net income after taxes, policyholders’ surplus grew to a record-high $671.6 billion at June 30, 2014, from $653.4 billion at year-end 2013.

With policyholders’ surplus rising more rapidly than insurers’ net income after taxes, insurers’ overall profitability as measured by their annualized rate of return on average policyholders’ surplus slipped to 7.8 percent in first-half 2014 from 8.1 percent in first-half 2013 despite the increase in insurers’ net income.

The property/casualty industry’s 7.8 percent annualized rate of return for first-half 2014 was the net result of double-digit rates of return for mortgage and financial guaranty (M&FG) insurers and single-digit rates of return for other insurers. Excluding M&FG insurers, the industry’s annualized rate of return fell to 7.7 percent in first-half 2014 16 | INSURANCE JOURNAL-NATIONAL October 20, 2014

from 8.5 percent in first-half 2013.

“Insurers are strong, well-capitalized, and well prepared to pay future claims,” said Robert Gordon, PCI’s senior vice president for policy development and research. “But it only takes one powerful storm to disrupt countless lives and cause tens of billions in damage, and this hurricane season is far from over.”

The figures are consolidated estimates for all private property/casualty insurers based on reports accounting for at least 96 percent of all business written by private U.S. property/casualty insurers.

Underwriting Results Insurers’ net gains on underwriting dropped to $0.3 billion from $2.2 billion in first-half 2013 as growth in premiums fell short of growth in the cost of providing insurance protection. Net written premiums rose $9.5 billion, or 4.0 percent, to $246.4 billion for first-half 2014 from $236.9 billion for first-half 2013. Net earned premiums rose $9.7 billion, or 4.2 percent, to $237.8 billion from $228.2 billion.

Net loss adjustment expenses (LLAE) after reinsurance recoveries rose $10.1 billion, or 6.4 percent, to $168.1 billion in firsthalf 2014 from $158.0 billion in first-half 2013 as other underwriting expenses rose $1.5 billion, or 2.2 percent, to $68.5 billion in first-half 2014 from $67.0 billion in first-half 2013.

The increase in overall net LLAE reflects

increases in both catastrophe and non-catastrophe losses.

ISO estimates that private insurers’ net LLAE from catastrophes rose $2.6 billion to $13.0 billion in first-half 2014 from $10.3 billion in first-half 2013. The $13.0 billion in net LLAE from catastrophes is primarily attributable to catastrophes that struck the United States. Net LLAE excluding catastrophes rose $7.5 billion, or 5.1 percent, to $155.1 billion through six-months 2014 from $147.6 billion through six-months 2013.

Second-Quarter Results Consolidated net income after taxes rose to $12.1 billion in second-quarter 2014, up $2.0 billion from $10.1 billion in second-quarter 2013. Property/casualty insurers’ annualized rate of return on average surplus increased to 7.3 percent in second-quarter 2014 from 6.6 percent a year earlier.

For the industry overall, net losses on underwriting shrank $0.2 billion to $2.1 billion in second-quarter 2014 from $2.3 billion in second-quarter 2013. ISO estimates that the net LLAE from catastrophes included in private U.S. insurers’ financial results rose to $9.8 billion in second-quarter 2014 from $7.9 billion a year earlier.

The combined ratio improved to 100.6 percent in second-quarter 2014 from 100.9 percent in second-quarter 2013. Net written premiums rose $5.1 billion, or 4.2 percent, to $125.0 billion in second-quarter 2014 from $119.9 billion in second-quarter 2013. www.insurancejournal.com

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CLOSER LOOK

Worker’s Compensation Is Ebola Compensable Under Workers’ Compensation?

By Christopher Boggs

T

wo tests must be satisfied before an illness or disease can be considered occupational and thus compensable under workers’ compensation.

First, the illness or disease must be “occupational,” meaning that it arose out of the course and scope of employment.

Second, ultimate compensability of an illness or disease is dependent upon the work or occupation of the employee; the illness or disease must arise out of or be caused by conditions “peculiar” to the work.

To arise out of and be in the course and scope of employment is a function of the activities of the employee. The simplest test toward judging “arising out of and in the course and scope of employment” is to ask: Was the employee benefiting the employer when exposed to the illness or disease? Be warned, this “test” does not consider the various state laws, interpretations and intricacies of this question.

Qualifying as “occupational” is the low hurdle to be cleared. The employee was at work when he contracted the illness or disease. The higher hurdle is test two, the illness or disease is “peculiar” to the work.

If the illness or disease is not peculiar to the work, it is not compensable.

Qualifying an illness or disease first as

occupational and secondly (though more importantly) as compensable may ultimately require industrial commission or court intervention to sort medical opinion from legal facts. There is no singular test that can be applied to every case to declare an illness or disease as compensable or non-compensable, thus each case is judged on its own merits and encompassing circumstances.

Medical opinion leading to the conclusion that an illness is occupational is not necessarily based on the disease but on the facts surrounding the patient’s sickness.

Physicians will investigate: • The timing of the symptoms relational to work: Do symptoms worsen at work and improve following prolonged absence from work (in the evening and on weekends); • Co-workers showing similar symptoms: Do co-workers show some of the same symptoms currently or in the past (may not be to the same degree as the patient as each individual has varying tolerances); • If such illness is common to employees in that particular industry; • If the employee has a predisposition that may lend itself to the illness such as an allergy; and • Personal habits and medical history of the patient.

Industrial commissions and courts: 1) compile the opinion of the treating physician and the opinions of other expert medical witnesses; 2) couple the medical evidence with the facts surrounding the case; and 3) compare the subject case with precedent to render a compensability ruling based on the facts. This process can sometimes take years.

But What About Ebola?

Judged against the qualifying factors presented, is Ebola a true workers’ compensation exposure for most employers? The short answer is, “no, not likely.” Other than the fact that

18 | INSURANCE JOURNAL-NATIONAL October 20, 2014

this illness has garnered intense attention in the news, it is no more occupational in nature than a non-pandemic, “no-name” flu.

Unless it can be proven that the employee has an increased risk of contracting Ebola because of a peculiarity of his job, this virus is not occupational. Employees working in the healthcare industry may be able to prove such increased risk as they have little choice but expose themselves to the bacteria as a regular part of their job duties. Beyond healthcare workers, not many employments will qualify for workers’ compensation protection due to Ebola.

Occupational illnesses and diseases generally have long “gestation” periods.

Employees may be exposed to the harmful condition for many years before the illness manifests. It is also possible that the employee doesn’t contract the disease until years after the exposure ends.

The workers’ compensation policy specifically states that the policy in effect at the employee’s last exposure responds to the illness — even if the employee is working for another employer at the time the disease manifests itself.

Conclusion Contracting Ebola is a humankind exposure rather than one that is peculiar to most employments. It is unlikely that both the “occupational” and “compensable” thresholds will be crossed by the vast majority of individuals succumbing to the virus. The key question is and will remain, is the illness peculiar to the job? If not, the illness is not compensable.

Information for this article is taken from “The Insurance Professional’s Practical Guide to Workers’ Compensation: From History through Audit – Second Edition.”

Boggs is the vice president for education for Insurance Journal’s Academy of Insurance. Since joining the insurance industry in 1990, Boggs has authored more than 300 insurance and risk management-related articles including six e-books. Email: cboggs@ ijacademy.com. Website: www.ijacademy.com.

www.insurancejournal.com

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News & Markets

P/C Direct Premium Written Up 5.2% in First-Half of 2014

D

irect premium written (DPW) for property/casualty insurance companies continues to increase, albeit gradually. At year-end 2013, nearly $545 billion of DPW was reported, a record high for the industry.

For 2013, total DPW for all P/C insurers aggregately increased 4.1 percent over 2012, an increase of nearly $22 billion. Through the second quarter of 2014, the insurance

By Douglas A. Powell industry’s growth trend has continued, as DPW for all P/C insurers aggregately increased 5.2 percent over 2013.

For the six months ending June 30, 2014, P/C companies comprising the Top 25 insurers in terms of DPW leveraged

their experience and increased their DPW 13.1 percent over the first six months of 2013. This continues the Top 25 insurers’ impressive display of premium growth and financial stability. The Top 25 accounted for over 45 percent of the growth in the P/C insurance industry’s DPW. The remainder of the industry reported an increase in DPW of approximately 3.5 percent, or $7.5 billion year over year.

It is important to note that while increasing DPW, P/C companies have aggregately maintained a sufficient level of policyholders’ surplus (PHS). One measure that indicates P/C companies are conservatively leveraged is the DPW to PHS ratio. An insurer’s DPW to PHS ratio is indicative of its premium leverage on a direct basis, without considering of the effect of reinsurance. Since 2010, this ratio for P/C companies has remained stable at approximately 70 percent.

Although the market continues to exhibit signs of firming and DPW continues to increase, P/C insurers should not expect a traditional hard market in the near future.

More importantly, it is possible that the double-digit premium growth experienced in the historical hard market cycles may have created unrealistic premium growth expectations for this current recovery.

It is more realistic that expectations should relate to gradual, stable growth. There is always a fair amount of uncertainty in making projections based on second quarter data, but if the industry holds to its 10 year historical pattern, growth in 2014 would again result in the highest level of year-end DPW ever reported by the P/C industry.

Powell is a senior financial analyst with Demotech, Inc. Email questions and comments to dpowell@ demotech.com.

Top 25 Property/Casualty Companies Based Upon Dollar Amount of Direct Premium Written (DPW) Growth Year-to-Date Results June 30, 2014 versus June 30, 2013

Company Name

DPW 06/30/2014

DPW 06/30/2013

$ Growth

% Growth

State Farm Mutual Automobile Insurance Co. American Bankers Insurance Co. of Florida Allstate Fire and Casualty Insurance Co. State Farm Fire and Casualty Co. GEICO Casualty Co. LM General Insurance Co. State Compensation Insurance Fund Wesco Insurance Co. USAA General Indemnity Co. Arch Insurance Co. Hudson Insurance Co. Continental Casualty Co. Allstate Vehicle and Property Insurance Co. Tokio Marine America Insurance Co. Ohio Security Insurance Co. GEICO General Insurance Co. National Liability & Fire Insurance Co. United Specialty Insurance Co. ACE American Insurance Co. Standard Guaranty Insurance Co. Liberty Insurance Corporation Zurich American Insurance Co. National Fire & Marine Insurance Co. USAA Casualty Insurance Co. Technology Insurance Co. Inc Top 25 by DPW Growth All Other P/C Companies Total

$16,793,558,731 $1,245,290,243 $2,931,423,656 $9,148,019,022 $1,331,213,630 $903,489,062 $729,835,464 $722,930,898 $1,088,983,608 $907,543,944 $417,459,803 $2,904,034,722 $388,187,272 $204,889,877 $418,137,544 $3,638,000,695 $299,466,426 $220,007,115 $2,076,490,243 $345,554,484 $1,184,923,184 $3,082,156,136 $263,887,064 $2,392,718,523 $499,791,754 $54,137,993,100 $224,117,050,812 $278,255,043,912

$15,990,640,978 $779,099,957 $2,541,468,840 $8,768,463,337 $1,004,636,559 $626,145,472 $462,998,068 $468,035,234 $844,568,991 $671,735,206 $185,699,060 $2,679,746,254 $170,489,189 0 $213,631,268 $3,453,211,814 $138,009,126 $63,487,634 $1,921,659,945 $190,979,516 $1,030,702,034 $2,928,098,985 $115,580,145 $2,255,772,060 $363,504,720 $47,868,364,392 $216,589,638,755 $264,458,003,147

$802,917,752 $466,190,286 $389,954,816 $379,555,685 $326,577,071 $277,343,590 $266,837,396 $254,895,664 $244,414,617 $235,808,738 $231,760,743 $224,288,468 $217,698,083 $204,889,877 $204,506,276 $184,788,881 $161,457,300 $156,519,481 $154,830,298 $154,574,968 $154,221,150 $154,057,151 $148,306,919 $136,946,463 $136,287,034 $6,269,628,708 $7,527,412,057 $13,797,040,765

5.02% 59.84% 15.34% 4.33% 32.51% 44.29% 57.63% 70.62% 28.94% 35.10% 124.80% 8.37% 127.69% NA 95.73% 5.35% 116.99% 246.54% 8.06% 80.94% 14.96% 5.26% 128.32% 6.07% 37.49% 13.10% 3.48% 5.22%

Data Source: The National Association of Insurance Commissioners, Kansas City, Mo., by permission. Information derived from an SNL product.

The NAIC and SNL do not endorse any analysis or conclusion based upon the use of its data. www.insurancejournal.com

October 20, 2014 INSURANCE JOURNAL-NATIONAL | 21

SPECIAL REPORT

Commercial

Lines Leaders Top 50 Commercial Lines Agencies

About the Commercial Lines Leaders: The 2014 Commercial Lines Leaders in this special feature are taken from Insurance Journal’s Top 100 Property/Casualty Independent Agencies as reported in August. This list utilizes only the 2013 commercial lines property/casualty revenue numbers of the privately owned agencies and brokerages that submitted data to the Top 100 agencies report. For more information on Insurance Journal’s Top 100 Property/Casualty Independent Agencies list, contact awells@insurancejournal.com.

Ranked by Total 2013 Commercial Lines P/C Revenue

2014 Rank Agency Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

2013 2013 Commercial Total Lines P/C P/C Revenue Revenue

Lockton Cos. $817,162,000 HUB International $550,282,000 Alliant Insurance Services Inc. $369,838,300 USI Inc. $319,831,439 AssuredPartners LLC $261,758,726 Integro Insurance Brokers $129,859,800 Leavitt Group $116,196,328 Crystal & Co. $96,700,000 BroadStreet Partners Inc. $93,400,000 Insurance Office of America $92,122,420 Wortham Insurance & Risk Management $89,396,000 The IMA Financial Group Inc. $87,582,622 Hays Cos. $80,200,000 Hylant Group Inc. $78,612,715 Heffernan Insurance Brokers $77,367,222 J. Smith Lanier & Co. $69,041,999 Capacity Group of Cos. $66,450,000 Mesirow Insurance Services Inc. $57,942,804 Woodruff-Sawyer & Co. $57,000,000 EPIC (Edgewood Partners Insurance Center) $56,667,000 PayneWest Insurance $52,157,241 INSURICA Insurance Management Network $51,700,262 Higginbotham $47,127,000 Acrisure LLC $46,521,919 Assurance $44,261,819 Frenkel & Co. $43,227,680 SterlingRisk $40,769,000 Risk Strategies Co. $39,702,000 NFP Property & Casualty Services Inc $38,674,752 The Graham Co. $37,876,153 Bowen, Miclette & Britt Insurance Agency LLC $34,499,827 The Mahoney Group $34,287,077 Houchens Insurance $34,117,410 MHBT Inc. $32,500,000 Marshall & Sterling Enterprises Inc. $31,979,643 InterWest Insurance Services Inc. $31,899,110 Propel Insurance $31,600,000 Robertson Ryan & Associates Inc. $31,151,936 Ascension Insurance Inc. $30,679,000 Andreini & Co. $26,957,201 Riggs Counselman Michaels & Downes Inc. $25,382,621 Moreton & Co. $25,235,000 Professional Insurance Associates Inc. $25,000,000 Parker Smith and Feek Inc. $24,779,000 Starkweather & Shepley Insurance Brokerage Inc. $24,540,000 The Horton Group $24,530,179 Gowrie Group $24,306,148 Lawley Insurance $23,396,057 James G. Parker Insurance Associates $23,183,461 LMC Insurance & Risk Management Inc. $22,911,876

22 | INSURANCE JOURNAL-NATIONAL October 20, 2014

$823,073,000 $784,669,000 $373,865,600 $394,791,752 $293,737,922 $132,510,000 $116,196,328 $121,400,000 $127,700,000 $96,562,551 $96,142,000 $90,229,281 $85,200,000 $61,859,856 $77,287,222 $77,909,199 $70,145,600 $62,335,860 $57,700,000 $58,262,000 $67,161,844 $58,335,010 $60,750,000 $54,610,605 $45,059,235 $47,403,011 $43,700,000 $46,902,000 $59,043,212 $38,169,799 $37,760,895 $36,449,994 $37,512,850 $34,350,200 $43,884,492 $33,948,645 $35,200,000 $31,151,936 $40,626,000 $30,150,000 $26,587,439 $25,365,000 $37,000,000 $27,023,000 $32,540,000 $27,759,271 $31,181,703 $30,570,587 $23,606,313 $25,739,984

2013 Other than P/C Revenue $302,526,000 $266,852,000 $177,689,200 $387,416,075 $60,560,078 $7,596,786 $51,679,367 $23,400,000 $12,600,000 $9,841,192 $21,693,000 $22,870,973 $69,400,000 $34,842,415 $16,694,937 $32,331,610 $6,198,167 $34,689,343 $26,400,000 $16,708,000 $18,287,844 $12,579,759 $47,266,000 $19,231,388 $17,776,525 $20,820,602 $6,900,000 $11,562,850 $4,782,415 $3,878,181 $9,966,428 $8,173,400 $13,700,150 $23,750,000 $12,804,606 $9,561,781 $12,000,000 $3,147,336 $45,707,000 $10,120,000 $12,180,517 $11,944,000 $0 $7,621,000 $4,185,000 $19,044,003 $1,600,000 $16,372,445 $4,617,519 $9,775,796

2013 Total P/C No. Premium of Main Written Employees Office $7,301,000,000 $5,962,435,439 $3,122,988,900 $3,638,307,736 $1,912,733,505 $1,790,000,000 $1,287,404,459 $1,349,800,000 $1,300,000,000 $976,292,058 $1,000,591,000 $1,200,000,000 $732,000,000 $831,068,985 $584,301,442 $916,578,811 $521,385,295 $499,360,455 $491,000,000 $826,581,000 $543,522,865 $402,743,878 $450,600,000 $497,776,561 $612,835,000 $387,602,822 $345,000,000 $575,000,000 $458,446,046 $221,177,007 $302,644,213 $229,666,448 $401,443,458 $323,600,000 $560,597,967 $264,905,374 $300,000,000 $283,525,000 $296,069,000 $240,387,000 $290,635,476 $451,954,000 $275,000,000 $224,927,000 $247,650,000 $243,496,394 $245,600,000 $234,895,240 $185,171,643 $245,303,065

5,300 6,923 1,695 3,324 1,985 612 1,434 365 1,000 669 511 556 733 623 409 567 270 335 335 418 599 421 605 557 300 257 210 250 241 157 219 192 253 288 363 268 218 220 436 185 237 190 50 182 192 253 130 300 195 238

Kansas City, Mo. Chicago, Ill. Newport Beach, Calif.

Valhalla, N.Y. Lake Mary, Fla. New York, N.Y. Cedar City, Utah New York, N.Y. Columbus, Ohio Longwood, Fla. Houston, Texas Wichita, Ka./Denver, Co. Minneapolis, Minn.

Toledo, Ohio Walnut Creek, Calif.

Atlanta, Ga. Mahwah, N.J. Chicago, Ill. San Francisco, Calif.

San Francisco, Calif.

Missoula, Mont.

Oklahoma City, Okla.

Fort Worth, Texas Caledonia, Mich.

Schaumburg, Ill. New York, N.Y. Woodbury, N.Y. Boston, Mass.

White Plains, N.Y. Philadelphia, Pa. Houston, Texas Mesa, Ariz.

Bowling Green, Ky. Dallas, Texas Poughkeepsie, N.Y. Sacramento, Calif.

Tacoma, Wash.

Milwaukee, Wis. Walnut Creek, Calif.

San Mateo, Calif.

Towson, Md. Salt Lake City, Utah San Carlos, Calif.

Bellevue, Wash.

East Providence, R.I. Orland Park, Ill. Westbrook, Conn.

Buffalo, N.Y. Fresno, Calif.

West Des Moines, Iowa

Website www.lockton.com www.hubinternational.com www.alliant.com www.usi.biz www.assuredptr.com www.integrogroup.com www.leavitt.com www.crystalco.com www.broadstreetcorp.com www.ioausa.com www.worthaminsurance.com www.imacorp.com www.hayscompanies.com www.hylant.com www.heffins.com www.jsmithlanier.com www.capcoverage.com www.mesirowfinancial.com www.wsandco.com www.edgewoodins.com www.paynewest.com www.insurica.com www.higginbotham.net www.acrisure.com www.assuranceagency.com www.frenkel.com www.sterlingrisk.com www.risk-strategies.com www.nfppc.com www.grahamco.com www.bmbinc.com www.mahoneygroup.com www.houchensins.com www.mhbt.com www.marshallsterling.com www.iwins.com www.propelinsurance.com www.robertsonryan.com www.ascensionins.com www.andreini.com www.rcmd.com www.moreton.com www.piainc.com www.psfinc.com www.starshep.com www.thehortongroup.com www.gowrie.com www.lawleyinsurance.com www.jgparker.com www.lmcinsurance.com

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SPECIAL REPORT

Data & Analytics

By Andrea Wells

24 | INSURANCE JOURNAL-NATIONAL October 20, 2014

www.insurancejournal.com

T

his is the era of big data and while it’s no surprise that insurance carriers are big players, the fact is that agents and brokers of all sizes also have a growing stake in big data.

While the insurance industry has always used data to evaluate risk and better understand exposures, today more players in the insurance chain are utilizing larger and more sophisticated data in new, faster and more efficient ways, according to the industry consulting firm, Strategy Meets Action (SMA).

Twenty-five percent of insurers are now investing in big data, according to a report from SMA titled, “Big Data in Insurance: Insurer Priorities, Projects, and Investment Plans for 2014 and Beyond.”

Most spending comes from larger insurers: 39 percent of insurers with more than $1 billion in premium are investing while 14 percent of insurers under $1 billion are investing.

SMA predicts that the percent of companies investing will continue to increase through 2016, leveling off between 40 to 50 percent — this includes all tier 1 and tier 2 companies (more than $1 billion) and up to 25 percent of tier 3 and tier 4 companies (under $1 billion).

But insurance carriers aren’t the only players reaping the benefits of the big data revolution. According to Mark Breading, SMA partner and chief research officer, global brokers and reinsurers are in some cases more sophisticated with analytics and big data than insurance carriers.

Intermediaries are using big data to benefit both their clients and themselves.

“If you look at the Marshes and Aons of the world, they have staffs of hundreds of data scientists and analytics professionals building models,” said Breading. “When you think about it, the larger brokers actually need to understand risk better than the carriers; it gives them an edge in negotiations and gives them value in those relationships.”

Breading said he sees big data investment in the next tier of insurance brokers as well — those in the $100 million-dollar range.

In short, everyone in the insurance chain www.insurancejournal.com

— including personal and small business customers — will eventually become beneficiaries of the insights gained from big data.

Big Data Defined In simple terms, big data uses advanced technologies to analyze vast amounts of data and produce results much more rapidly than traditional approaches. According to Breading, to be considered “big,” data must generally encompass three components.

First, big data is about volume.

Second, big data is about variety. “You are not just looking at one type of data; you are pulling from multiple places,” Breading said. The data might be considered “structured data” — data generated from transactions — or unstructured data — which could be considered something as simple as email from agents to underwriters.

Most important, big data is about velocity. Velocity really distinguishes “big data” from everything else, according to Breading.

“The insurance industry has always done analytics and the larger carriers did it with huge amounts of data, but sometimes they would build their models and it would take a week or two before the results get spit out,” he said. “Now big data approaches allow you to run huge amounts of data and different kinds of data where you get a result in an hour, or even within minutes.”

Velocity allows for experimentation and creativity. “Big data gives you a lot of chance to do more iteration, to try to find different combinations, to fine-tune your models, and keep finding different insights along the way,” he said.

Those high velocity insights into everything from risk models to pricing to the customer experience are driving the interest and investment into big data projects throughout the industry, the experts say.

Data Transformation “What data is giving pretty much all people in that cycle is a little bit more knowledge and a little bit better predict-

ability as to expectations — they’re getting smarter,” said Adam Kagan, chief marketing officer for RiskMatch, an analytics firm that delivers a suite of web-based solutions for insurance brokers and agents throughout the United States.

“The worst thing that can happen in the insurance renewal cycle is surprises,” Kagan said. “The client doesn’t want to be surprised; the broker doesn’t want to be surprised, nor does a carrier.”

The most important question that brokers are addressing now — and they’re using it very effectively — is how to connect the data together to get a better deal, or to package the risk better with a carrier, said Kabir Syed, founder and CEO of RiskMatch.

The data has always been there, Syed said. But now it’s become more efficient, cost-effective, and available. “Yes, you have telematics. Yes, you have modeling data but how do you package it to the advantage of a client? That’s more important. That’s where brokers are using it,” he said.

The use of big data can benefit brokers or carriers across a number of areas including their relationship with the insureds, said Jay Kingsley, senior vice president, CoreLogic, a global property information, analytics and data services provider.

“It can make the consumer experience better,” Kingsley said. “The data makes you more insightful and more efficient across the policy continuum — from your underwriting and your customer relationship all the way through the claims process.”

For global insurance broker Lockton Cos. and its clients, big data means digging into the wealth of data available to identify trends, then connecting those findings to practical action that helps make its clients’ businesses better, according to Justin VanOpdorp, senior vice president of Lockton’s analytics team based in Kansas City, Mo. “We have focused on sifting through various sources of data to find specific ways to continued on page 26 October 20, 2014 INSURANCE JOURNAL-NATIONAL | 25

SPECIAL REPORT

Data & Analytics continued from page 25 make the workplace safer, reduce costs, and improve operations,” he said.

Big data is a “great catch-phrase” that can mean a lot of things, VanOpdorp said. “It’s easy to be distracted by colorful charts and cool observations. Our focus has been to deliver actionable insights.”

Transforming data into “wisdom” drives a deeper relationship among the client, the carrier and the broker, he said. “Effective analysis can and should lead to more substantive discussions that bring all parties together to solve real business problems.”

Growth The need to grow in today’s competitive market is one driver of the big data revolution.

Jim Hearn, senior vice president, chief marketing officer, for Middletown, Conn.based MarketStance, a provider of information and analytics, says that big data helps guide the drive for growth.

“Everybody is identifying the need for growth and they know that in order to grow, they need to be more articulate about

26 | INSURANCE JOURNAL-NATIONAL October 20, 2014

their appetite and that which they want or that which they do not want with their distributors,” Hearn said. “Everybody wants more and better data. They want to grow, but they want to grow smarter rather than just growth for the sake of growth itself.”

For New York-based Crystal & Co., client data and the agency’s own data are key elements to developing risk strategies, but Jonathan Crystal, executive vice president, sees opportunities to stimulate growth and product development by adding outside data sources, as well.

“Today, what is most meaningful to our clients is how we use their historical and current loss data to drive actionable strategies to reduce their cost of risk,” Crystal said. “Looking ahead, we are incorporating data and analytical resources from outside the walls of our clients, so-called ‘big data,’ to anticipate future risk factors and trends that will impact shareholder capital. … We see opportunities to create whole new classes of products from sources of data that didn’t exist even three years ago.”

According to Hearn, one of the challeng-

es carriers have is figuring out what type of business they want to write, as well as where and in which classes are they performing well.

“That’s where the data comes in,” Hearn said. “As more carriers look for more and more data before jumping in, they’re being a little bit smarter about their jumping-off point.”

That’s good for brokers and clients, too. Brokers get frustrated when they keep submitting business to a carrier and it keeps getting rejected. “Carriers acknowledge that if they could do a better job of defining and communicating their appetite, first to their own field personnel and then to their distributors, there would be a tangible benefit for the distributors, the brokers, the agents, as well as the carrier.”

Hearn says that’s one of the things that MarketStance is doing with its own collection of data — meeting with the distributors to help better define the opportunities sitting around them.

Brokers are well-positioned to be data brokers for everyone involved.

“We all need to do a better job of using our business information and information exchanging between our trading partners needs to increase,” said Thomas P. Ruggieri, CEO and president of the North American operations for global wholesale and reinsurance broker Cooper, Gay, Swett & Crawford. “That means between the customers and the retail brokers, between the retail brokers and the wholesalers, the wholesalers and the underwriters and back.

We need to do a better job of capturing information as it passes through our fingers.”

Investing in collecting big data is one thing; using it wisely is another.

“There’s tons of information in our business, but most people leave it in documents; get it, put it in file cabinets or in drives as Word docs and Excel docs and we just have to harvest it,” said Ruggieri. “It’s all there; we just have to use it.” www.insurancejournal.com

Customer and Broker Experience No one questions the potential of using big data to better define risk. Interest in this area can be seen by the sheer number of new data sources on the market today.

“Every hazard you can think of is out there,” said SMA’s Breading. “If you want to know the coastal storm surge for very precise locations it’s there. You can go buy that kind of information. Risk and new product development are still the top areas for big data and there’s lots of opportunity.”

Big data analysts, however, are moving beyond perils and increasingly turning their attention to customers — both consumers and distribution channels.

“The customer experience and the producer experience is a huge overarching theme that we see in the industry,” said Breading. “There are a lot of carriers investing a lot of money and energy and rethinking the experience of the policyholder — when and how they interact with them.

Obviously the agent and broker have a big role in that given most insurance still flows through human intermediaries.”

For carriers to understand the customer and producer experiences, they have to understand more about their needs and behaviors. That’s where big data comes in.

Analytics around the customer experience has been picking up steam over the last two

to three years, Breading said.

“In fact, if you look at the tier 1 carriers and even mid-tier carriers there are a lot of senior execs in new posts that have the word ‘customer’ in their title,” Breading said. “These executives have broad authority and look across the enterprise. They are not just customer service people; they are customer experience executives reporting to the CEO. That’s indicative to this trend.”

According to Breading, this is the age of analytics. “The winners will be those that master data and analytics.” But there’s still plenty of time. “There’s certainly upswing in interest and investment in big data but we are just on the front edge of this trend.”

How Brokers Use Big Data ‘Data enables us to be customer-centric, enhancing the customer experience by personalizing every touch point specific to that customer. We are able to discern behavior patterns, build behavioral models based on customer profiles, and leverage consumer touch points to help us confidently identify customer preferences and guide them to the insurance products and services that they most likely need. With respect to carriers, our ability to mine our system to identify behavioral patterns in each carrier book of business has allowed us to be proactive in many instances and advise carriers when we begin to see patterns of adverse selection and/or abuse.’ — Valeria Rico, chief operating officer, Confíe Seguros based in Huntington Beach, Calif.

‘We have focused on sifting through various sources of data to find specific ways to make the workplace safer, reduce costs, and improve operations. For example, a reduction in the number of lost work days can be a meaningful metric to measure the effectiveness of workplace safety. By combining data from multiple sources, we are able to provide deeper insights around elements such as the effective use of return-to-work and the impact of employee morale.

This leads to greater awareness of why certain results occur and leads to more actionable information for the client.’ — Justin VanOpdorp, senior vice president of Lockton Cos. analytics team based in Kansas City, Mo.

‘In reviewing the opportunity for continually reducing the cost of risk going forward in areas of high loss frequency, we aggressively utilize USI’s analytic capabilities to combine client-specific data with industry data to quantify the potential favorable economic impact.’ — Robert Meyers, USI Corporate senior vice president, property-casualty.

‘In a field such as healthcare, with millions of interactions between members and providers happening every year, the ability to manage big data creates massive opportunities. USI’s proprietary data tool allows employer clients to identify trends, properly analyze risk and evaluate return on investment of cost avoidance programs.” — Arthur Hall, USI Corporate senior vice president, employee benefits practice leader based in Valhalla, N.Y.

‘We have created a system that captures vast quantities of data on properties to evaluate risk by our underwriters and carrier partners. Ultimately the data is consolidated into a large data set for various carriers involved in issuing a large property program policy.’ — Ilene Anders, chief information officer, Alliant based in Newport Beach, Calif.

www.insurancejournal.com

‘Today, what is most meaningful to our clients is how we use their historical and current loss data to drive actionable strategies to reduce their cost of risk. Looking ahead, we are incorporating data and analytical resources from outside the walls of our clients, so-called ‘big data,’ to anticipate future risk factors and trends that will impact shareholder capital.’ — Jonathan Crystal, executive vice president, Crystal & Co. based in New York, N.Y. October 20, 2014 INSURANCE JOURNAL-NATIONAL | 27

SPOTLIGHT

10 Things to Know About Commercial Property The cost of large commercial property and engineering claims is rising with the trend toward ever-higher values and risks concentrated in areas with exposure to natural hazards. Fire is the major cause of property losses, both by number and value (26 percent/28 percent). — Allianz Global Corporate & Specialty, Global Claims Review 2014.

Prices for commercial property insurance fell during the second quarter of 2014, marking the first time in three years that property prices fell, according to a recent Towers Watson survey. The survey showed that over half of commercial property respondents reported price decreases in the second quarter. — Towers Watson’s Commercial Lines Insurance Pricing Survey (CLIPS), Sept. 2014 Homeowners’ insurance policies generally do not cover home-based business losses. Depending on risks to the business, home-based small business owners may add riders to the homeowners’ policies to cover normal business risks such as property damage. — U.S. Small Business Administration Competition is rising for commercial property lines, particularly for shared and layered programs, and price increases could fall further and even decline over the year if there are no major catastrophes. — Moody’s Investors Service report, “U.S. P&C Insurers’ Earnings Lower in Q2 2014 on Higher Catastrophe Losses,” Aug. 21, 2014.

With green commercial building construction expected to rise significantly in coming years, a growing number of insurers are offering green commercial property insurance policies and endorsements, some of which are directed at specific segments of the business community such as manufacturers. — Insurance Information Institute

A standard commercial flood insurance policy covers direct physical losses caused by flood as well as losses resulting from flood-related erosion caused by heavy or prolonged rain, coastal storm surge, snow melt, blocked storm drainage systems and levee or dam failure. — Insurance Information Institute

There were some 99,500 non-residential structure fires in 2012, causing 65 civilian deaths, 1,525 civilian injuries and $2.6 billion in damages. — National Fire Protection Association

Flood and sewer back-up is excluded under most standard commercial property policies.

Sewer back-up can be added to a policy as an endorsement. Coverage for flood-caused damage to a business is available through the National Flood Insurance Program (NFIP) and a few private insurers. When used in tandem with private insurance, NFIP coverage can mitigate or “buy down” large deductibles associated with commercial flood policies or simply provide additional coverage. — Insurance Information Institute

28 | INSURANCE JOURNAL-NATIONAL October 20, 2014

Boiler and machinery/ equipment breakdown is an area often overlooked, yet it has the potential to cause significant property damage in the event of an explosion, electrical surge or other equipment-related losses not covered by the standard property forms. — Curtis M. Pearsall, president of Pearsall Associates Inc., a risk management consulting firm Because most agents insure a fair number of commercial buildings, this is an area in which agents would be wise to dedicate time and resources. Each commercial building has its own complexity and uniqueness — and failing to address this could lead to E&O issues.

— Curtis M. Pearsall, Pearsall Associates Inc. www.insurancejournal.com

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E&O Insights Exposure Analysis Checklists in Commercial Lines

F

or the last 25-plus years, the No. 1 cause of errors and omissions (E&O) claims has been “failure to provide the proper coverage.” In 2013, many E&O carriers reported that this accounted for more than half of their E&O claims.

Typically, when your insured suffers a loss that is either not completely covered or not covered at all, the customer may considBy Curtis M. Pearsall er bringing an E&O claim if he or she believes your agency was negligent. The most effective way for your agency to address this issue is through the use of an exposure analysis checklist.

The checklist is a great E&O prevention tool as it ensures that the coverage options are not overlooked. For those coverages that the customer rejects, require the customer to sign the document confirming his or her rejection. This documentation will be extremely valuable in your defense should a claim be made against you alleging that the client/prospect thought he or she had requested this coverage.

Gaining Efficiency Some exposure analysis checklists not only contain all of the necessary ACORD forms, but in many cases these forms are interactive, adding to the efficiency of the process. Some of the checklists have a feature enabling you to email the application directly to the various carrier underTremendous Benefits writers, with a built-in tracking system There are many benefits to using expoallowing you to know the status at any sure analysis checklists. For your staff time. This should result in (producers and CSRs), checklists are a fantastic Exposure analysis a significant gain in effieducational tool, providchecklists serve as a ciency, so staff members can meet more prospects ing solid information on great E&O risk and sell more insurance. more than 650 different management tool. A feature that can be classes of business and the especially beneficial is the exposures they present. ability to generate a proA narrative detailing the fessional-looking proposal, complete with background of that class as well as general color and graphics. To ensure that your cusunderwriting characteristics (by line of tomer/prospect clearly understands his or business) and the various coverage considerher insurance program and how it works, ations is provided. it is advisable to include definitions of the There are several checklists in the marvarious key insurance terms. This proposal ketplace. For new and veteran producers, feature will positively position your agency checklists are invaluable given the knowland may be vital in securing the account. edge they provide. Producers would no While many agencies use these checkdoubt benefit in doing some homework, via lists predominately for commercial lines a checklist, before visiting a new prospect. accounts, there is a place for them with Another benefit is that checklists provide your personal lines customers, too. Many all of the possible SIC codes for general agencies combine a well-written letter with liability and workers’ compensation, ensurthe checklist and mail them to their cusing that your submissions are complete, tomers, asking each customer to advise the thorough and contain the right information. agency of any change in exposures. Once There is a good chance this will result in again, this will serve as solid documentaa more competitive proposal, too, because tion in the event an E&O claim is brought the underwriter will better understand the against you by that customer. exposures.

30 | INSURANCE JOURNAL-NATIONAL October 20, 2014

An Unbeatable Combination While these exposure analysis checklists serve as a great E&O risk management tool, there is no doubt that using them will result in your agency writing more business. By interacting with your customers/ prospects and discussing the available coverages customers should consider, you will enjoy enhanced sales success that will more than pay for the cost of these systems.

If you are not currently using a checklist, it is well worth your time to explore them further. They provide solid knowledge for your staff and your customers, and provide a systematic approach to identify the exposures your customer should consider. With effective use, they will not only serve as key protection should your agency be faced with an E&O claim, but you will write more business. That’s an unbeatable combination.

Pearsall is president of Pearsall Associates Inc., a risk management consulting firm specializing helping agents protect themselves. He is also a special consultant to the Utica National Agents E&O program. Phone: 315-768- 1534. Email: curtis@pearsallassociates.com. Blog: www.agentseotips.com.

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Market Detail: Safehold Special Risk (www. safehold.com) offers standard NFIP flood coverage. Safehold is a program administrator offering national coverage for commercial & personal lines products on an admitted & non-admitted basis. Some programs can be quoted and bound online via the Online Policy Underwriting System (OPUS).

Available limits: As needed Carrier: Unable to disclose States: All states Contact: Customer Service at 800-842-8917 or e-mail: customerservice@safehold.com

Personal Auto Market Detail: Founders Insurance Co. (www.foundersinsurance.com) writes personal, private-passenger automobile insurance in Illinois, Indiana, Ohio and Wisconsin, Founders specializes in handling the most difficult risks, including poor driving record, poor credit score, an international or out-ofstate license, or coverage lapses.

Available limits: Minimum $20,400, maximum $300,000 Carrier: Founders Insurance States: Ill., Ind., and Ohio Contact: Patrick Vaulman at 847-768-2562 or e-mail: pvaulman@foundersinsurance.com www.insurancejournal.com

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IDEA EXCHANGE

Minding Your Business

Perpetuation Planning – Part One

L

ong before owners want to retire, perpetuation planning should begin. The four major techniques to transfer ownership of a business are: • Internal sale to key employees, including family members.

• Sale of the business to an outside firm.

• Merging with another agency with plans to eventually sell to the new partners.

• Passing the ownership to family or friends through inheritance.

A quick review of these four techniques shows that a perpetuation plan can either be internal or external. One should be chosen as the primary plan and anothBy Catherine Oak 34 | INSURANCE JOURNAL-NATIONAL October 20, 2014

er as the secondary. This article describes internal perpetuation options.

The Pros and Cons The successful internal transition of a business requires planning for the founding owners’ retirement, death or disability.

Without a good plan, the fate of the business is up to the whim of outside influences, such as the courts. Also, the lack of any plan may create a situation that will drastically lower the equity or value of the firm, thereby not preserving the family wealth.

Internal perpetuation is usually the most risky form of perpetuation. Recent statistics indicate that only 35 percent of family businesses survive past the first generation of ownership and about 20 percent survive to the third generation.

There are many reasons why small businesses do not always successfully pass down through the generations. Sometimes no family member wants to, or is able to manage the business. Not everyone is an entrepreneur capable of running a business successfully. This also applies to non-family employees as well. Typically, however, internal perpetuation fails because the buyers cannot afford to handle the buy-out.

For an insurance agency, there are some techniques that can be used to minimize taxes and ensure that the pay-out does not break the business. Like anything else that is worthwhile, these techniques will require planning and usually reduce the retiring owner’s return on equity. For many owners, however, the end results of successfully passing the business to the next generation www.insurancejournal.com

are more desirable than the sales price or the pay-out terms.

Pass Control Efficiently There are numerous options for passing the business to the next generation. The three most common are gifting, stock redemption and stock purchase. There are also many other tools, such as trusts that add to the variations that can be used to transfer business ownership.

Which “tools” are used and how the transfer is structured is based on three things: minimizing taxes, making sure it is affordable and ensuring that the seller has an adequate income stream. It is important, however, that the sale must be treated as an arm’s-length sale in order to avoid the IRS perceiving it as a gift or a “bargain sale.”

Create a Deferred Liability Establishing a deferred compensation plan is a tool one can use to lower the value of the firm in order to make the purchase affordable for the new owners. Deferred compensation is a way of saying that you are not currently receiving fair compensation for one’s current work and it is planned to take it out at a later date.

The deferred compensation becomes a liability on the firm’s balance sheet, since it is a debt that must be paid. Because it is a liability, the value of the firm is lowered by that amount.

There are two uses for this plan: 1) the owner’s deferred compensation and 2) a producer’s deferred compensation.

Owner Deferred Compensation The firm needs to file with the state that it is establishing a deferred compensation plan. This should be done years in advance of retirement. The plan can be funded or unfunded. However, for lowering the value of the firm it should not be funded. Since the deferred compensation is treated as regular compensation, it becomes deductible.

The retiring owner receives their equity in two components: the value of their business interest and the deferred compensation. The drawback is the deferred compensation is taxed as ordinary income (cur-

rently most people are in the 25 percent to maximum of 39.6 percent federal tax brackets alone, depending on their compensation plus payroll taxes), whereas, the income from the sale of the business is taxed as capital gains (which can be a 20 percent rate now for federal taxes if in the highest tax brackets or lower if in other brackets).

Producer Deferred Compensation In the insurance industry it is an acceptable practice for a producer to own their book of business. An axiom in business valuation is that one cannot sell what they don’t own. Therefore, producer-owned books of business are usually excluded in the valuation of an agency. This technique can be used for relatives as well as non-related employees.

First, the producer/heir signs a regular producer contract as an employee of the agency. This contract includes a clause that allows the producer/heir to own the

Oak is the founder of Oak & Associates, based in California. The firm specializes in financial and management consulting for independent insurance agencies, including valuations, mergers, acquisitions, sales, marketing and perpetuation planning.

Phone: 707-936-6565. Email: catoak@gmail.com.

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accounts that they produce. This way the next generation is not paying for their own effort (the book produced) and the cost of buying the agency is effectively reduced.

The drawback to the retiring owner is that their equity in the business is reduced.

On the other hand, taxes are minimized (due to the lower value), and the buy-out is less likely to cause a drain on the business.

The heirs will also not resent having to pay for their efforts since their books are excluded from the value of the firm.

TO BE CONTINUED: Other perpetuation options commonly used will be explored next month in the “Minding Your Business” column, stay tuned.

10/1/14 10:47 AM

October 20, 2014 INSURANCE JOURNAL-NATIONAL | 35

IDEA EXCHANGE

Growing Your Property Casualty Agency Three ‘Common Sense’ Tactics for Commercial Lines Prospecting

P

rospecting for fresh insurance leads is the soil of sales. And as any horticulturist can tell you, good earth is required to grow anything — including your agency.

You can delegate this core function to a third party and buy prospect information from a commercial lead provider — or you can discover and develop your own

By Alan Shulman leads in-house. I prefer number two, although there are plenty of advocates for the farm-it-out approach, too.

With all of the free information available online, it is easier than ever to spot potential P/C leads. Below are three “common sense” tactics for today’s do-it-yourselfers.

There are hundreds more as well.

Suppliers and Buyers Even a one-person business isn’t a standalone operation. It needs suppliers on one end and buyers on the other. This simple fact makes every commercial insured a potential source for vetted referrals.

Start by asking your most satisfied clients to identify their primary suppliers,

buyers, and professional advisors. These vary by business type, but it’s likely there are plenty of crossovers. When you uncover the same names selling to or buying from multiple insureds, they may well be worth approaching. If so, gather some client recommendations and use these relationships-in-common as your door opener.

relationship instead of overtly selling. You can segue into sales during a follow-up.

Spot the Directory Commercial office buildings are everywhere. And that’s great because every tenant needs P/C insurance. Plus, you have something basic in common with them: your operation is office-based as well.

Ask Advertisers Older municipalities also have collections Businesses advertise to survive. By doing of former factory buildings, ex-armories, so, they put themselves out there, both etc., all repurposed with interesting assorttraditionally and digitally. This assertive act ments of small owner-run businesses. And requires investments in time and money. of course, there are indoor and strip malls, When successful, they are worth that and packed with locally-owned businesses more. So why not piggyback on their boldalongside national/regional chain stores. ness? Ask advertisers in local publications, All three of these locales have something in trade magazines, and seemingly minor in in digital media (Google, common: a guiding Good prospecting isn’t Facebook, Twitter, directory that lists rocket science; it’s mainly each business and Pinterest, Yelp, etc.) common sense. whether they’d recompinpoints its location. mend the venue for your It can be a sign near agency’s ads. an elevator, a standalone kiosk, or a digital Here’s an easy place to start. Cut your signboard. It can also be a brochure or a teeth on selected advertisers in the Yellow link-filled page on a website. Regardless Pages. Since many question the value of this of its format, it’s a compact list of adjacent once popular directory, they’ll likely take possibilities that are worthy of prospecting. your call. Focus on building a cooperative Making a sale or two from one of these directories comes with a bonus: the potential to write adjacent businesses. Ask satisfied buyers to introduce you, in person, to their commercial neighbors or to suggest your services in writing or in a testimonial video. The more businesses you insure within each “neighborhood list,” it’s likely you’ll write even more.

Good prospecting isn’t rocket science; it’s mainly common sense. The act involves identifying potential buyers, pre-qualifying them, and knowing from the start exactly how you’ll approach them.

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.

36 | INSURANCE JOURNAL-NATIONAL October 20, 2014

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October 20, 2014 INSURANCE JOURNAL-NATIONAL | 37

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Closing Quote

The insurance industry, through the research of the Institute, will help drive the spread of crash avoidance technologies.

New Technology on Vehicles Is Working to Reduce Crashes

A

utonomous or “driverless” cars generate a lot of media buzz because of the public’s fascination with new technology and what vehicles may be like in the future.

Yet, there’s a revolution underway that is changing vehicles right now that has more immediate implications for drivers and for insurers than autonomous cars do. Increasingly, vehicles are equipped with advanced safety technologies that research shows are preventing some common crashes.

By Adrian Lund

Crash Avoidance Technology As with any new technology, crash avoidance systems started out as options on a few luxury models and have steadily spread to more of the fleet. The goal is to assist the driver with a warning or even automatic braking to help avoid or mitigate a crash. Systems include front crash prevention, lane departure warning, blind spot detection, adaptive headlights, park assist and back-over prevention.

Advances also are being made in intelligent transportation systems that allow vehicles to communicate with one another or with road infrastructure to help avoid crashes.

The Institute’s long-running crash test program has helped drive major improvements in how well vehicles protect people when crashes happen. Crash avoidance technology promises to prevent many crashes from hap38 | INSURANCE JOURNAL-NATIONAL October 20, 2014

pening altogether. So far, Institute research shows significant benefits from front crash prevention features such as forward collision warning and automatic braking.

Front crash prevention systems use various types of sensors, such as cameras or radar, to detect when a vehicle is getting too close to the one in front of it. Most systems issue a warning and precharge the brakes to maximize their effect if the driver responds by braking. Many systems can brake the vehicle autonomously if the driver doesn’t respond. The aim of the technology is to either prevent the crash if possible, or at least reduce its severity.

This technology is working on the road. Institute research finds that automatic braking systems are reducing property damage liability claims by around 14 percent.

The systems are typically optional, often included in technology or safety packages with other features.

Forward collision warning systems, without auto-brake, also are reducing crashes, but the effect typically isn’t as large. Systems without auto-brake probably have more modest benefits because they rely on drivers to respond to the warning and can’t directly avoid crashes.

We’re also seeing crash reductions with adaptive headlights, which are designed to pivot with steering wheel input to help drivers see better on dark, curved roads.

When researchers looked at adaptive headlights offered by Mazda, Mercedes and Volvo, they found property damage liability claims fell as much as 10 percent. That’s surprising because only a small percentage of multiple-vehicle, nighttime crashes occur on curves, where adaptive headlights would have an effect.

VRC Expansion To help better understand how various crash avoidance systems are working, insurers have embarked on an exciting, $30 million project to expand the Institute’s Vehicle Research Center (VRC) facility near Charlottesville, Va., to enable researchers to undertake more rigorous scientific evaluations of these technologies. Work is nearly completed on a 300-by-700 foot covered track where engineers will evaluate vehicle-based systems year-round using robotic targets and vehicle controllers. An existing outdoor track has already been expanded to conduct higher speed maneuvers than were possible before.

Fully “driverless” cars are a long way off, but the technologies that are the building blocks for the vehicles of the future are on the road right now. The insurance industry, through the research of the Institute, will help drive the spread of crash avoidance technologies.

Lund is president of the Insurance Institute for Highway Safety, located in Arlington, Virginia.

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Expect big things in workers’ compensation. Expect to save a third of your clients 30% or more. Most classes approved, nationwide.

For information call (877) 234-4450 or visit auw.com/us. Š2014 Applied Underwriters, Inc., a Berkshire Hathaway company. Rated A+ (Superior) by A.M. Best.

Insurance plans protected U.S. Patent No. 7,908,157.