Insurance Journal West 2015-07-06 by Insurance Journal

WEST EDITION Farmers Rideshare Coverage in Utah 2M California Homes at Wildfire Risk Earthquake Protection Incentives

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WEST

Inside This Issue

On The Cover

Special Report:

Disaster Risks in Review

July 6, 2015 • Vol. 93 No. 13 • West

NATIONAL COVERAGE

WEST COVERAGE

IDEA EXCHANGE

10 How Supreme Court Gay Marriage Ruling Affects Employee Benefit Plans

W2 Farmers Introduces Rideshare Coverage in Utah

28 Tech Talk: How to Prioritize ‘Going Digital’ in a Digital Age

10 Supreme Court Opinion to Have No Effect on Health Insurers: S&P

W2 Nevada Governor Wants Officials to Support Self-Driving Cars

36 The Competitive Advantage: Chris Burand

15 Crop Insurance Payments for Drought More Than for Flooding

W6 Wildfire Report Shows 2 Million California Homes at Risk as Drought Continues

38 Closing Quote: The New Normal in EPLI

16 Spotlight: 10 Things to Know About Taxis & Limos

W8 California Funds Incentives for Earthquake Protection

17 P/C Direct Premium Written Up Nearly 4 Percent: Demotech 18 Flood Insurance Claims Underpayments Not Widespread: Senate Study 19 Special Report: Business Income: Why Worksheets Alone Don’t Work 20 Special Report: Reinsurers Ponder the Impact of Human-Caused Earthquakes 22 Special Report: How Hurricane Katrina Changed Business Preparation Planning for Disasters 24 E&O Insights: Will Your Files Help or Hurt You in a Disaster?

DEPARTMENTS W4 People 11 Declarations 11 Figures 12 Business Moves 34 MyNewMarkets

26 Special Report: Plugging the Hole in the U.S. Flood Market 30 2015 Digital Product Guide 6 | INSURANCE JOURNAL-WEST July 6, 2015

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NATIONAL COVERAGE

Opening Note

Publisher Mark Wells | mwells@wellsmedia.com

Data Breach and Suppliers

ith some four-out-of-10 mid-sized businesses having had a cyber breach in the past three years, it’s no wonder that the take up rate for cyber insurance is rising. And it’s expected to jump even further in the next 12-24 months. According to a recent survey by The Hartford of midsize business owners and C-level executives, 43 percent of mid-sized businesses say they have experienced a data breach in the past three years and 13 percent have had a supplier’s data breach impact their business information. Most midsize business leaders (82 percent) consider a data breach at least a minor risk to their business, while nearly one-third (32 percent) view it as a major risk. A majority (53 percent) consider IT security and data protection practices “very important” when selecting a suppliers. “All types of businesses have networks and networks can be vulnerable to a breach,” said Joe Coray, vice president of The Hartford’s Technology & Life Science Practice. “As we have seen in recent years, a breach involving a supplier or vendor can impact a business as much as a breach of its own IT systems. Whether businesses are hosting their data internally or entrusting it to external business partners, it is important that they vali‘All types of businesses have date how their information networks and networks can is being secured.” be vulnerable to a breach.’ Even so, only 36 percent consider a supplier’s contingency planning and 28 percent view a supplier’s location relative to their business as very important. “Given what is at stake in terms of a company’s operations and reputation, evaluating a prospective supplier or vendor‘s IT security and data protection protocols against current best practices should be a critical part of a company’s due diligence process,” said Coray. Of those risk managers buying cyber insurance today, reputational harm (79 percent), business interruption (78 percent) and data breach response and notification costs (73 percent) are the chief exposures they are trying to address, revealed a new survey by the Risk Management Society (RIMS). The RIMS survey also looked at cyber insurance buying practices and found: • 51 percent of respondents purchase stand-alone cyber insurance policies. • 58 percent of those with cyber insurance policies carry less than $20 million in cyber coverage, while 49 percent of those are paying over $100,000 in premium. • 74 percent of those without cyber coverage are considering procuring coverage in the next 12-24 months. • 77 percent of respondents credit enterprise risk management for identifying cyber risk.

Andrea Wells Editor-in-Chief

8 | INSURANCE JOURNAL-NATIONAL July 6, 2015

EDITORIAL Chief Content Officer Andrew Simpson | asimpson@insurancejournal.com Editor-in-Chief Andrea Wells | awells@insurancejournal.com East Editor Young Ha | yha@insurancejournal.com Southeast Editor Amy O’Connor | aoconnor@insurancejournal.com South Central Editor/Midwest Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Don Jergler | djergler@insurancejournal.com International Editor Charles E. Boyle | cboyle@insurancejournal.com Senior Editor Susanne Sclafane | ssclafane@insurancejournal.com ClaimsJournal.com Editor Denise Johnson | djohnson@claimsjournal.com Columnists Chris Burand, Curtis Pearsall, Douglas Powell, Thomas Wetzel Contributing Writers Randy Crawford, Lisa Doherty, Sarah Lynch, Matthew Nielsen, Mark Weinraub SALES Chief Marketing Officer Julie Tinney (800) 897-9965 x148 | jtinney@insurancejournal.com Sales Manager Lauren Knapp (800) 897-9965 x161 | lknapp@insurancejournal.com West Dena Kaplan (800) 897-9965 x115 | dkaplan@insurancejournal.com Allison Steinkamp (800) 897-9965 x172 | asteinkamp@insurancejournal.com Midwest Lisa Whalen (800) 897-9965 x180 | lwhalen@insurancejournal.com South Central Mindy Trammell (800) 897-9965 x149 | mtrammell@insurancejournal.com East (NY, PA and CT only) Dave Molchan (800) 897-9965 x145 | dmolchan@insurancejournal.com Southeast & East (except for NY, PA and CT) Howard Simkin (800) 897-9965 x162 | hsimkin@insurancejournal.com New Markets Sales Manager Kristine Honey | khoney@insurancejournal.com Classifieds, Jobs, Agencies Wanted/For Sale Kelly De La Mora (800) 897-9965 x125 | kdelamora@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 Chief Technology Officer/Chief Innovation Officer Joshua Carlson | jcarlson@insurancejournal.com V.P. of Design Guy Boccia | gboccia@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 Tim Layer | tlayer@wellsmedia.com IJ ACADEMY OF INSURANCE V.P. of Education Chris Boggs | cboggs@ijacademy.com Sales Executive Romeo Valdez | rvaldez@ijacademy.com Online Training Coordinator Barbara Whiffen | bwhiffen@ijacademy.com ADMINISTRATION Chief Executive Officer Mitch Dunford | mdunford@wellsmedia.com Chief Financial Officer Mark Wooster | mwooster@wellsmedia.com

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NATIONAL COVERAGE

News & Markets How Supreme Court Gay Marriage Ruling Affects Employee Benefit Plans

ollowing the historic Supreme Court decision that same-sex couples have a national right to marry, employers offering domestic partner benefits to unmarried couples may pull back on that offering now that employees in all states can marry. The 77 percent of companies offering same-sex healthcare coverage should be able to streamline their benefits administration, while those not offering coverage to samesex employees may have to make changes to do so, according to Aon Hewitt. The Supreme Court ruling (Obergefell v. Hodges) overturned same-sex marriage bans in four states — Michigan, Kentucky, Ohio and Tennessee — and effectively legalized same-sex marriage across the country. With the June 26 ruling, employers will need to consider how best to design their employee benefits plans to attract and retain the best talent, said J.D. Piro, senior vice president and national practice leader in the Aon Hewitt Health Law Group. “Some employers may move toward offering spousal benefits under one common umbrella. Others will continue to offer benefits coverage to both same-sex and opposite-sex domestic partnerships, while

also recognizing the broader definition of marriage endorsed by the Supreme Court,” he said. “As companies decide on a strategy, they will also want to consider the impact of state and local laws requiring employers to offer domestic partner benefits.” According to Aon Hewitt, allowing samesex marriage across the country will likely ease the administrative burden on employers by providing consistency across states. Today, same-sex spousal benefits coverage largely varies depending on the legality of same-sex marriage in that state. Gay married couples will now be able to file joint state tax returns and have other financial options available to heterosexual married couples. Aon Hewitt says there are other changes to consider, including:

employer-provided benefits could change for individuals with same-sex spouses. It will eventually be unnecessary for employers to calculate imputed income. Changes for Workers • Eligibility rules for employer-provided benefits could change to include same-sex spouses in all states. Employees should check with their employer about necessary administrative steps they may need to take to ensure coverage. • With anticipated changes to the state income tax treatment, workers with samesex spouses covered by employer plans will no longer need to pay imputed income.

Changes for Employers • Employers may need to make administrative changes to cover same-sex spouses in states where they were not previously covered. Employers will need to modify enrollment processes and create or modify consent and eligibility forms. • The state income tax treatment of

Supreme Court Opinion to Have No Effect on Health Insurers: S&P

he Supreme Court opinion upholding current tax subsidies under the Affordable Care Act (ACA) will not have any impact on rated U.S. not-for-profit and for-profit health insurance firms because it continues the current operating environment, according to a rating agency. The June 25 ruling is “a positive for the U.S. health insurance industry, especially for insurers that have invested heavily to compete on the insurance exchanges,” Standard & Poor’s Ratings Services said in a statement. “This will help resolve an uncertainty that has been a pain point not just for insurers, but for the ACA as a whole.” S&P’s Ratings Services added that the subsidized exchange business benefits U.S. 10 | INSURANCE JOURNAL-NATIONAL July 6, 2015

healthcare providers. The Supreme Court in King v. Burwell, validated the legality of federal subsidies under the ACA in states where the state did not set up its own insurance exchange, but rather relied on the federal exchange. The loss of the subsidies could have jeopardized the affordability of coverage for as many as 6.4 million lower-income Americans in 34 states who purchase private health insurance through the federally run exchanges, according to the Centers for Medicare and Medicaid Services. “While some of the conditions that gave rise to the ACA in the first place — medical costs that are too expensive; dwindling levels of employer sponsored care; huge num-

ber of underinsured/uninsured with limited access points — still burden the healthcare delivery system and remain potent concerns for the United States, the ACA and the insurance exchanges are helping to alleviate some of these concerns,” S&P said. As the ruling is an affirmation of the status quo, S&P does not expect it to have any credit implications for the state sector. S&P said the ruling reduces ACA’s uncertainty, which is good for the industry. “Uncertainly is generally bad for credit, and makes it harder for insurers to price appropriately. The resolution of this issue does somewhat reduce the previously elevated industry risk and also puts the ACA on a stronger footing,” S&P said. www.insurancejournal.com

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WEST COVERAGE

News & Markets Farmers Introduces Rideshare Coverage in Utah

armers Insurance has launched what is believed to be the state’s first rideshare insurance coverage designed to provide seamless coverage for ridesharing drivers in Utah. The coverage comes less than two months after Utah Gov. Gary Herbert signed a bill that creates new statewide regulations for ridesharing companies like Uber and Lyft, which will require drivers to be covered with at least $1 million in liability insurance. Under the state’s new law, ridesharing drivers will be required to have insurance coverage from the moment they turn on their rideshare app. Since personal automobile insurance policies were not designed to provide rideshare drivers with coverage while they are working, the introduction of this new coverage

will help to fill a potential gap in coverage. Farmers launched a similar product in California in late May. Farmers Rideshare will provide Farmers customers coverage during period 1, which begins once a driver turns on the ridesharing application and is awaiting a match. The coverage will extend a driver’s Farmers auto insurance coverage until they accept a ride, at which point their TNC affiliate’s insurance coverage applies. Farmers Rideshare enables a driver to select the coverages that fits their needs, which includes comprehensive and collision coverage that pay for damages to their own vehicle, uninsured/underinsured motorist coverage and medical payments coverage. Farmers Rideshare will provide customers period 1 coverage to drivers for any ridesharing company operating in the state. The endorsement will add roughly $15 per month to a customer’s premium, according to Farmers.

Nevada Governor Wants Officials to Support Self-Driving Cars

evada Gov. Brian Sandoval voiced his support for self-driving cars. Sandoval said this month he wants state transportation officials to consider adding support for self-driving cars as part of a multimillion-dollar highway widening and expansion project in Las Vegas. The Republican governor said he wants Nevada to be at the forefront of the emerging self-driving vehicle industry. He also said he wants Nevada to host a conference centered on self-driving car manufacturers by the end of the year. Members of the state Department of

W2 | INSURANCE JOURNAL-WEST July 6, 2015

Transportation’s board of directors were updated on Project Neon. Project Neon is a multi-year project to widen and improve a 3.7-mile stretch of Interstate 15 between Sahara Avenue and the Spaghetti Bowl connection with U.S. 95 near downtown Las Vegas. Transportation officials said that the project is six to eight months from beginning initial construction. The state has spent more than $102 million in acquiring land to expand the highway. Copyright 2015 Associated Press.

Montana Court Rules Using Inhalants Can Lead to DUI Charge

motorist can be charged and convicted of driving under the influence for being in control of a vehicle after inhaling aerosol propellants, the Montana Supreme Court has ruled. The 5-0 decision in June rejected a Butte man’s efforts to have a case against him dismissed. Taylor Nelson Pinder was charged with felony DUI after a toxicology report indicated he was under the influence of difluoroethane when he crashed his car into a utility pole in February 2013 Difluoroethane is an ingredient in aerosol dust remover and other products. Pinder had three previous DUI convictions, making the fourth charge a felony, court records said. Pinder wanted the DUI charge dismissed, arguing state law prohibits being in control of a motor vehicle while under the influence of alcohol, drugs or a combination of the two. He argued the laws only define the word “drug” in the context of pharmacy regulation. The state Supreme Court agreed with the judge who found the plain meaning of the word drug — a substance that alters one’s perception or consciousness — applied to DUI laws. The ruling also notes the purpose of the DUI statutes is to protect public safety by punishing individuals who cause their ability to safely operate a vehicle to be diminished. Copyright 2015 Associated Press. www.insurancejournal.com

If you can think it, we’ll think of a way to insure it.

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Lexington Insurance Company, an AIG company, is the leading U.S.-based surplus lines insurer. AIG is the marketing name for the worldwide property-casualty, life and retirement, and general insurance operations of American International Group, Inc. For additional information, please visit www.aig.com. Products and services are written or provided by subsidiaries or affiliates of American International Group, Inc. Not all products and services are available in every jurisdiction, and insurance coverage is governed by actual policy language. Certain products and services may be provided by independent third parties. Insurance products may be distributed through affiliated or unaffiliated entities. Surplus lines insurers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds.

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People Andrew Doll

Marty Watkins

Vanessa Mitilier

Cory Whitfield

Jean Stevens

Preston Guthrie

Monterey, Calif.-based Capital Insurance Group has named Andrew Doll vice president and chief actuary. Doll began his insurance career as an actuarial analyst in 1990. Following that he began working for a national insurance company as a senior actuarial analyst, and eventually a regional actuary. He later joined a regional property/casualty insurance provider and was eventually promoted to vice president and chief actuary. Doll has since held executive management positions for national insurance carriers. CIG is a regional property/casualty insurer serving the Western United States. Glatfelter Public Practice has named Martin Watkins a sales executive for California water-related accounts. Watkins will work in the Stockton, Calif., office and focus on developing business with water entities — those that treat, store and distribute water. Watkins has more than 25 years of insurance industry experience, with an extensive background in sales, marketing and relationship development. Glatfelter Public Practice is a division of Glatfelter Insurance Group. It provides insurance and risk management products for more than 4,000 public entities. Edgewood Partners Insurance Center has named Vanessa Ruiz Mitilier a senior consultant and producer in the firm’s Southern California employee benefits consulting practice. Mitilier will be based in EPIC’s Irvine, Calif., office. She will be responsible for new business development and the design, implementation and management of employee benefits programs for her clients. She will report to Tiffany McClellan, Southern California regional director of employee benefits. Mitilier comes from Mercer, where she spent the last three years as a senior associate and sales professional. Before that Mitilier held a range of benefits consulting positions at Lockton Insurance Brokers, Alliant Insurance Services and Humana. San Francisco-based EPIC offers services including commercial property/casualty, employee benefits, specialty program insurance and private client services. LP Insurance Services Inc. has named Cory Whitfield as a risk management consultant in its risk management services division in Sacramento, Calif. At LP Insurance, he is responsible for on-site inspections, safety program development, and management training and employee education.

W4 | INSURANCE JOURNAL-WEST July 6, 2015

Whitfield has nearly 30 years of experience in the insurance industry including various safety, loss mitigation and risk assessment positions throughout California and Arizona. He was most recently a loss control consultant for Loss Prevention Specialists in Northern California Reno, Nev.-based LP Insurance Services specializes in property/casualty, surety, workers’ compensation, employee benefits, medical/professional practice, personal and risk management services. McDonald-Leavitt Insurance Agency in Santa Rosa, Calif. hired Jean Stevens as an agent licensed in commercial insurance and employee benefits. Stevens has 25 years of insurance experience. Stevens specializes in serving the agriculture, food processing, and lumber industries. Leavitt Group is a privately-held insurance brokerage. Preston Guthrie has joined Leavitt Insurance Agency’s St. George, Utah, office. Guthrie will focus on employee benefits and life insurance. He has a strong background in sales and life insurance. Leavitt Group Insurance is part of Leavitt Group, a large largest privately-held insurance brokerage. Barney & Barney Insurance Services LLC has named Sam Quigley director of property/casualty. Quigley will work in the firm’s Orange County, Calif., office, where he will focus on building the firm’s presence in the region, as well as recruiting, training and developing personnel. Quigley joined Barney & Barney in 2003 as a client executive in the property/casualty department. Since then, he has worked to develop customized risk management programs. Before Barney & Barney Quigley worked for UBS Financial Services in San Diego. Barney & Barney is a Marsh & McLennan Agency LLC company. Navion Insurance Associates Inc. has named Pam Meisl director of marketing and distribution. Meisl will be working out of the firm’s Anaheim Hills, Calif. office. She has 23 years of insurance industry experience. Meisl previously worked for CNA Insurance as a West Coast small business sales director. Navion is an independent insurance broker. continued on page W10 www.insurancejournal.com

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News & Markets Wildfire Report Shows 2 Million California Homes at Risk as Drought Continues By Don Jergler

Samanta acknowledged the periodic weather pattern could bring more storms early on in the fall, report issued in June shows California California’s traditional wildfire seahas more than 2 million homes at son, and make for potentially more “high” or “extreme” wildfire risk, as the wildfires. However, it could just multi-year drought continues to stoke fears bring more rain and fewer wildamong some experts of a potentially devasfires, he said. tating wildfire season. Heath Hockenberry, national fire Verisk Insurance Solutions’ 2015 FireLine weather program manager for the State Risk report summarizes wildfire National Weather Service, said it’s risk in 13 wildfire-prone states in the West likely El Niño will bring more rain. and Southcentral U.S., and it includes “California this summer is enterthree states not in past reports: Montana, ing into a predictive strong El Oklahoma and Wyoming. Niño,” Hockenberry said. According to the report, more than 4.5 Because of the potential El Niño, million U.S. homes are rated at “high” or Hockenberry’s current outlook is “extreme” risk of wildfire. for a normal fire season for most The report rates California as the nation’s of California, except for areas of biggest wildfire risk. Of the state’s 13.68 Northern California where vegmillion homes, more than 15 percent are at etation (fuel) growth has been “high” or “extreme” wildfire risk. More than strong in the last few years, as 1.66 million homes are considered to be at well as some parts of Southern “moderate” risk. California. He’s also forecasting Arindam Samanta, senior manager of above normal fire seasons for ‘California this summer is entering Washington, Oregon, parts of Arizona, Idaho and Hawaii. into a predictive strong El Niño.’ The latest U.S. Drought Monitor report shows most of underwriting products and analytics at California and some of Nevada to Verisk, pointed to that 15 percent figure as be under “exceptional” drought a particular concern, because the brunt of conditions, the most several rating in that losses in wildfires typically occur to properreport. Even the normally wetter northern ties in those riskiest categories. portion of the state is under “extreme” or “Historically, what we have seen is a very “severe” drought categories. high percentage of losses — close to the 90 Rains in May and an unusually drizzily percent range — in the ‘high’ to ‘extreme’ June didn’t help much, according to the category,” Samanta said. drought report. Neil Spector, Verisk’s president of under The report shows that no improvements writing, was equally concerned about the were made to the four-year-and-counting pervasive drought. drought picture and it called the long-term “Worsening drought conditions in the hydrologic conditions “dire.” western states indicate that 2015 has the “In fact, the green-up of vegetation and potential to be one of the most devastating sprouting of grasses will most-likely provide wildfire seasons on record,” Spector said in a extra fuel for wildfires,” the report states. statement. The Verisk report shows the top five An El Niño pattern appears more than California counties with the most homes in likely, but it’s debatable whether that will the riskiest categories are: yield greater or fewer big wildfire outbreaks • Los Angeles (444,200) in California.

W6 | INSURANCE JOURNAL-WEST July 6, 2015

• San Diego (251,100) • San Bernardino (112,200) • Ventura (81,600) • Alameda (76,800) After California, Texas has the next highest number of homes (706,200) considered high to extremely high wildfire risk, followed by Colorado (363,900), Arizona (227,100), Idaho (163,500), Washington (157,900), Oregon (153,400), Oklahoma (148,800), Montana (130,200) and Utah (128,800). The report shows states with the highest percentage of households at high or extreme risk of wildfire are Montana (27 percent), Idaho (25 percent), Colorado (16.4 percent), California (15.0 percent) and New Mexico (13.9 percent). www.insurancejournal.com

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News & Markets California Funds Incentives for Earthquake Protection

hen California Gov. Jerry Brown signed the 2015-2016 budget, it included $3 million in funding to expand the Earthquake Brace and Bolt program and clarified that the program’s grants are income-tax exempt at the state level. California Insurance Commissioner Dave Jones said this expansion represents an important public investment in the protection of Californians from the dangers of earthquakes.

“Over a million homes in California should be retrofitted to better survive the next earthquake,” Jones said in a statement. According to the United States Geological Survey, many of the state’s faults are overdue for an earthquake, and they predict that a major temblor is likely to strike California within the next 30 years, which could cause serious damage to millions of homes and residential structures. Recovery from a disaster of this magnitude will be even more costly, considering less than 12 percent of homes are protected with earthquake insurance, according to the

California Department of Insurance. The earthquake brace pilot program launched in September 2013, and 650 homes in Alameda, Los Angeles and Napa counties are targeted for retrofits this year. However, there are roughly 1.2 million vulnerable homes in high risk earthquake zones throughout the state that are potentially eligible for the program. The earthquake brace program is administered by the California Residential Mitigation Program, which is a joint powers authority of the California Earthquake Authority and the governor’s Office of Emergency Services.

7 in California and Washington Charged with 100+ Counts of Auto Insurance Fraud

even people in California and Washington were arrested for allegedly conspiring to defraud eight insurance companies by submitting fraudulent auto insurance claims totaling more than $175,000. Detectives from the California Department of Insurance, assisted by Snohomish County

Marshall’s Office and federal officers, made the arrests in late June. Arrested from California were: Ismael Chavez, 32, of Vallejo; Juan Carlos Chavez, 36, of Hayward; Jose Luis Ramos-Mercado, 37, of Martinez; Maria Ortiz, 29, of Oakland; Jose Guadalupe Ramos, 50, of Pittsburg.

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W8 | INSURANCE JOURNAL-WEST July 6, 2015

License #0488901 6/24/15 4:58 PM

Two arrested from Washington were Joel Palestino, 27, and Carmen Vazquez, 39, both of Everett. All face more than 100 criminal counts of felony insurance fraud. According to detectives, the suspects were involved in an organized auto insurance fraud ring, submitting more than 70 fraudulent claims to multiple insurance companies for damage to vehicles that occurred prior to the vehicle being insured. The suspects allegedly used multiple aliases on the insurance claims to avoid detection by insurers. The investigation also revealed Mirage AutoCraft, owned by Jose Guadalupe Ramos, inspected the vehicles and was also involved in the conspiracy. If convicted on all counts, the suspects face five to 35 years in state prison. Suspects arrested in Washington are being extradited to California for prosecution. The Contra Costa District Attorney’s office is prosecuting this case. Contra Costa District Attorney Inspectors, Immigration and Customs Enforcement agents and the National Insurance Crime Bureau assisted with the investigation. www.insurancejournal.com

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Together, we’ll help keep California working. Inquires accepted from California only. State Compensation Insurance Fund is not a branch of the State of California. Copyright © 2015 State Compensation Insurance Fund of California.

WEST COVERAGE

People Jason Ferree

continued from page W4 Jason Ferree has joined Leavitt Great West Insurance Services’ Missoula, Mont., office as a benefits agent. Ferree began his career in insurance in 2001 as a district sales manager marketing health plans, later working as an employee benefits consultant. Leavitt Great West Insurance Services is a Leavitt Group agency, a large privately-held insurance brokerage.

LP Insurance Services Inc. named Virginia Bolman claims and contracts specialist in its risk management services division in Sacramento, Calif. Bolman is responsible for contract review, compliance and risk transfer as well as complex claims support. Bolman was most recently a regulatory compliance attorney for Esurance in Rocklin, Calif. She has more than Virginia Bolman 15 years of experience in the insurance industry, including various underwriting, claims and leadership positions with Allied, Nationwide Insurance and Wells Fargo Insurance Services. Reno, Nev.-based LP Insurance Services specializes in property/casualty, surety, workers’ compensation, employee benefits, medical/professional practice, personal and risk management services. John Finston was named general counsel for the California Insurance Journal West Department of 3570 Camino del Rio North, Ste. 200 Insurance. San Diego, CA 92108-1747 Finston, who has email: classifieds@insurancejournal.com Fax: 619/584-1200 served as deputy Phone: 800/897-9965 x125 commissioner for corFor Ad rate and Information porate and regulatory affairs for three years, The City of Veneta is soliciting Requests for will replace outgoing Proposals for an Insurance Agent of Record. General Counsel Adam Generally, the services being sought include, but are not limited to assisting with the City’s Cole. risk management program; obtaining and Finston has pracadministering multiple types of insurance ticed regulatory law including employee benefits; and other risk for 35 years, and management services. currently serves on the Conservation The RFP can be downloaded from and Liquidation www.venetaoregon.gov Office Governance The point of contact for all questions as well as Committee, and as protests is Shauna Hartz, Finance Director. a board member of the Federal Crop Proposals are due AT 88184 8th St. Veneta, Insurance Corp. Oregon by 4:00 p.m. on July 23, 2015. Before joining CDI,

Classifieds

W10 | INSURANCE JOURNAL-WEST July 6, 2015

Finston was a partner in two insurance law firms for more than 25 years. During that time his practice emphasized insurance regulation, reinsurance, corporate transactions and insurance company insolvency matters. He began his new assignment on July 6. NSM Insurance Group has named Victoria Millard director of the Western Region. Millard began her programs career 25 years ago in the MGA space, later migrating to the carrier side and managing programs nationally. Millard has worked for Lexington Insurance Co., GE Employers Reinsurance Co. and Fireman’s Fund Insurance Co. Most recently, Millard was the senior vice president of Global Distribution for QBE North America. NSM Insurance Group specializes in the development, implementation, marketing and underwriting of industry-specific insurance programs. Gov. C.L. “Butch” Otter has appointed state Sen. Dean Cameron of Rupert to oversee the Idaho Department of Insurance. The 13-term Republican lawmaker is co-chair of the Joint Finance Appropriations Committee. Cameron also owns an insurance and securities investment company in Rupert. The insurance position has been open since former Director Bill Deal left at the end of 2014. A Republican legislative committee from Cameron’s legislative district will nominate candidates to succeed him in the Senate. The governor will then choose one of those candidates to complete Cameron’s term. Starr Cos. reported that Robert Cruz has joined the firm as national branch officer, director of field operations. In his new role, he will lead the growth and distribution strategy of Starr’s field organization. He will report to Chuck Dangelo, president and chief operating officer of Starr Insurance Holding. Cruz has been in the insurance industry for 11 years. Previously, he was with Hiscox as regional executive for the Southwest, and as product head for Hiscox war, terrorism and political violence underwriting in the United States. He also worked for AIG as a program director for homeland security solutions, and as the assistant director of corporate security. Prior to his insurance career, Cruz spent eight years as an officer in the U.S. Army and was awarded the Bronze Star for his service in Afghanistan. www.insurancejournal.com

NATIONAL COVERAGE

FIGURES

$3 Million

The amount a Portland, Ore., man seeks in a lawsuit against an acupuncturist who allegedly left two needles in his skin, including one that later broke off and became embedded in his groin. The suit says acupuncturist Lihua Wang of the China Acupuncture and Herb Center in Portland didn’t inspect Robert Shipp’s body for leftover needles before sending him home.

169

The number of workers’ comp claims filed by Baltimore police officers and other city staffers who reported injuries following the Baltimore city riots in late April, according to figures released last month by Bob Cenname, Baltimore’s deputy budget director. Cenname says a total projected cost for these claims is $1.7 million.

$11.5 Million

The amount of a settlement between the state of Ohio, Morton Salt Inc. and Cargill Inc. over claims the companies conspired to drive up prices for road salt. A lawsuit alleged the two companies inflated prices for more than a decade, resulting in Ohio and local governments paying above-market prices for rock salt to de-ice roads, highways and bridges. The state now has an online claims process to allow local governments to claim a share of the settlement.

www.insurancejournal.com

DECLARATIONS

$10 Million

The amount Georgia is spending on adding officers to its state-law enforcement division focused on watching and inspecting commercial trucks. Governor Nathan Deal announced June 11 the Georgia Department of Public Safety will hire 60 officers to its commercial-truck enforcement division to regions where crashes involving big trucks are common. The move is an effort to lower the number of wrecks involving big trucks, which is up about 4 percent since 2012, according to the Department of Public Safety.

Montana Microcosm

“What we are seeing in Montana is a reflection of what is happening around the world. Temperatures are increasing.”

— Montana State University researcher Fabian Menalled said widespread infestation of wheat crops by pests in 2014 could be linked to climate change.

It Works in Nashville

“If it can work in Nashville, if it can work in Charlotte, then it can work in Montgomery and Mobile, and all of these other major cities.”

— Montgomery, Ala., Mayor Todd Strange on Uber and other ridesharing companies. Strange and Hunstville Mayor Tommy Battle want ordinance changes to allow the app-based ridesharing services to launch operations in their cities. Mobile passed such regulations in midJune and Uber is now operating there. However, Birmingham and the college towns of Auburn and Tuscaloosa tightened restrictions, resulting in Uber’s decision to leave those areas.

Dangerous Drivers

17,500 The number of Texans as of mid-June who had signed up for federal aid for help in the aftermath of deadly storms that hit the state in May. Thirty Texas counties have been declared eligible for disaster aid from the Federal Emergency Management Agency. As of June 20, FEMA said nearly $29 million had been approved for claims linked to recovery since severe weather began May 4.

“We will not tolerate drivers who repeatedly put others in danger.”

— New York Gov. Andrew Cuomo said that since September 2012, the Department of Motor Vehicles has permanently denied relicensing for 3,942 individuals because they have either: at least five alcohol/drug-related driving convictions in their lifetime; or three or four alcohol/drug-related driving convictions in the past 25 years, plus at least one other serious driving offense.

Unrecoverable Assets

“The actual assets/funds derived from this scheme were depleted and are, therefore, largely unrecoverable.”

— Assistant U.S. Attorney Nick Chase writes in a court document that North Dakota farmers, Aaron and Derek Johnson, who were convicted of federal crop insurance fraud and ordered to repay $900,000 for intentionally destroying potatoes, spent all the money and made no restitution in the case. The government is seeking proceeds from an auction sale of the Johnson’s property.

Voices and Votes

“Initially it was about health and safety and protecting our neighborhoods, and those continue to be our goals, but it’s now also about democracy and supporting people’s voices and their votes.”

— Adam Briggle of the Frack Free Denton movement on a push to repeal Texas House Bill 40 that bars local ordinances that prevent fracking and other oil and natural gas activities unless they are deemed commercially reasonable. July 6, 2015 INSURANCE JOURNAL-NATIONAL | 11

NATIONAL COVERAGE

Business Moves

Patriot National, Brandywine Fort Lauderdale, Fla.-based Patriot National Inc. has acquired Brandywine Insurance Advisors, a specialty insurance brokerage focusing on the construction industry. Patriot National said the total purchase price, assuming all earn-out criteria are met, would be $4.2 million. The projected 2015 revenue for Brandywine is $2.8 million. Brandywine President Rennie Rodriguez will continue to operate the business with his team, and will become part of Trigen Insurance Solutions, a subsidiary of Patriot National. ITC, Multico-Online Insurance Technologies Corp., a provider of marketing, rating and management software and services, has acquired MulticoOnline from Multico Rating Systems Inc., a large Seattle, Wash.-based comparative rating vendor. The move will expand ITC’s insurance rating and sales system TurboRater, the firm said. Multico provides rating products to improve efficiency for more than 200 insurance agencies and more than 60 insurance carriers. ITC’s acquisition of Multico’s automobile and home comparative rating system will extend TurboRater’s market share 12 | INSURANCE JOURNAL-NATIONAL July 6, 2015

with the addition of the Idaho, Oregon, Utah and Washington markets. “Acquiring Multico is part of our overall strategic vision to provide nationwide rating for independent agencies, aggregators and insurance carriers,” said Laird Rixford, president of ITC. “This acquisition will fuel growth of ITC’s online consumer driven comparative rating platform used for quoting and selling insurance directly to the consumer.” Multico-Online will be called Multico by ITC. Development and support staff will remain in Seattle and operate as ITC’s West Coast office. Multico’s netPOSitive point-of-sale solution will continue to be managed and operated under netPOSitive Corp. Vertafore, QQ Solutions Insurance software provider Vertafore has acquired QQ Solutions Inc., a provider of agency management systems and a comparative rater offering. The move expands Vertafore’s portfolio of agency management systems and rating products, and expands Vertafore’s rating capabilities in Texas and Florida, according to the company. QQ offers a SaaS (software as a service) cloud-based agency management system nationwide and a personal lines rater that is available primarily in Florida and Texas. QQ Solutions is headquartered in Deerfield Beach, Fla., and has been owned by Mark Malis and his wife, Candace, for more than 27 years. QQ Solutions also offers a comparative rating system that is focused on Texas and Florida, where it has numerous partnerships with niche-focused carriers. Vertafore plans to keep the QQ Solutions name. Vertafore’s suite of agency management systems already in their portfolio, in addition to the AMS360 management system, includes the Vertafore Agency Platform cloud-based solution, and Sagitta manage-

ment system. The addition of QQ Solutions will provide agencies an additional choice for their business, the company said. Arthur J. Gallagher, William Gallagher Associates Arthur J. Gallagher & Co. has signed a definitive agreement to acquire the assets of William Gallagher Associates Insurance Brokers Inc. (WGA), headquartered in Boston, which has annualized revenues of approximately $50 million. The transaction is subject to customary closing conditions and is expected to close in the third quarter of 2015. Additional terms were not disclosed. Founded in 1983, WGA provides commercial retail property/casualty and employee benefits insurance brokerage and consulting services to middle-market and large, fastgrowth clients with complex insurance needs. It specializes in coverage for the high tech, life science, financial institution, healthcare, real estate and renewable energy industries. WGA’s employee benefits business provides specialty expertise in underwriting, communications, data analytics, and compliance and wellness services. WGA CEO Philip Edmundson, WGA President Patrick Veale and their associates will operate from their Boston; Atlanta; New York; Columbia, Md.; Hartford, Conn;. and Princeton, N.J. locations, under the direction of Douglas Brown, head of Gallagher’s Northeastern retail property/ casualty brokerage operations, and David Ziegler, head of Gallagher’s Eastern employee benefit consulting and brokerage operations. Additionally, Arthur J. Gallagher & Co. announced its acquisition of Solid Benefit Guidance (SBG) in Montvale, N.J. Terms of the transaction were not disclosed. Established in 2005, SBG is an employee benefits brokerage and consulting firm that provides pharmacy benefits and employee benefits consulting services to large to mid-market employers and managed care clients throughout the United States. continued on page 14 www.insurancejournal.com

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NATIONAL COVERAGE

Business Moves continued from page 12 Prime Risk Partners, Cook Maran Prime Risk Partners Inc., a national insurance distribution firm in Atlanta, has acquired Cook Maran & Associates Inc., an independent agency with offices in East Hampton, Southampton and Melville, N.Y., as well as in Marlton and Fairlawn, N.J. Financial terms of the transaction were not disclosed. Cook Maran will continue as Cook Maran & Associates Inc. and will retain all five offices in New York and New Jersey, with plans to expand. The leadership team and the firm’s 160-plus employees will continue in their current roles. Prime Risk Partners said this is its first strategic acquisition since its launch last year. Cook Maran provides a strong regional insurance brokerage platform and Prime Risk Partners plans to grow it both organically and through acquisitions of property/ casualty and employee benefits firms, the

announcement said. Prime Risk Partners is an Atlanta-based national insurance distribution firm formed in May 2014 by private equity firm Thomas H. Lee Partners and two former Beecher Carlson executives, Bret Quigley and Adam Meyerowitz. Cook Maran & Associates, which traces its roots to 1946, is an insurance brokerage and consulting firm providing a range of personal and commercial insurance services, employee benefits, surety, and credit risk services. Philadelphia Insurance, Allen J. Flood Philadelphia Insurance Companies, a Bala Cynwyd, Pa.-based commercial property/ casualty and professional liability insurer for niche markets, announced its acquisition of all outstanding shares of The Allen J. Flood Companies (AJF), a managing general agent for the group accident and

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health insurance business in Larchmont, N.Y. Terms of the transaction were not disclosed. Philadelphia Insurance Companies said the acquisition is intended to give the insurer a new platform to provide group accident and health products to a variety of niche markets that it currently serves, including schools, nonprofits, volunteer groups and sports teams. AJF has been serving agents, brokers, and customers since 1959. Michael Flood, who has been president of AJF since 2011, will continue leading AJF’s operation as the head of the accident and health division for Philadelphia Insurance Companies. Stahlka Agency, Prahovic Agency Stahlka Agency Inc., an independent insurance agency with offices in Williamsville and Orchard Park, N.Y., announced its acquisition of the Prahovic Agency in Lake View, N.Y. Terms of the transaction were not disclosed. The Prahovic Agency has been providing small-business and personal insurance services to the Southtowns region, an area of towns south of Buffalo, N.Y. As part of the transaction, Stephen Prahovic, former principal of the Prahovic Agency, has joined Stahlka Agency at Stahlka’s Orchard Park office in the Southtowns region. Stahlka Agency has been providing commercial and personal insurance and financial products since 1957. Stahlka Agency is a member of the EMS Group, a group of affiliated agencies based in Williamsville. USI, Construction Agency Professionals USI Insurance Services has acquired the construction insurance and surety business of Chester, N.J.-based KORE Group Inc., doing business as Construction Agency Professionals (CAP). This business and its employees will join USI’s West Orange, N.J., office. Terms of the transaction were not disclosed. CAP is a retail insurance broker providing insurance and surety products to construction companies and contractors.

6/24/15 3:51 PM

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NATIONAL COVERAGE

News & Markets Crop Insurance Payments for Drought More Than for Flooding By Mark Weinraub

armers are reaping higher yields and ranchers’ feed costs have fallen sharply since flooding swept across the southern U.S. Plains in May, with the record rains providing tangible benefits to agriculture despite causing damage that will likely cost billions of dollars to repair. The storms inundated fields across Texas and Oklahoma but they broke a years-long drought that wreaked havoc on the profitability of growers and cattlemen. Even though floods tend to grab more headlines, drought is actually much more costly in terms of its impact on agriculture. “The thing that differentiates it (drought) from all other natural hazards is the fact that it covers such a wide swath or spatial extent,” said Don Willhite, climatologist in the School of Natural Resources at University of NebraskaLincoln. “Floods are much more localized. (Drought) goes on for so long. The impacts accumulate year to year.” Floods also are less costly for the U.S. government. Between 2012 and 2014, a period when the U.S. Southwest and other major crop production areas suffered from drought, the U.S. Agriculture Department paid out $23.892 billion in crop insurance claims due to dry soils. The peak came in 2012, when the government paid out $15.672 billion after dryness and heat ravaged production in both the Plains and the Midwest. During that same time, crop insurance claims related to floods totaled $6.209 billion. In 2011, the last time a major flood caused heavy damage to a key agriculture www.insurancejournal.com

region, crop insurance claims related to excess water totaled $3.476 billion, which was still less than that year’s $5.646 billion in drought claims. Insurance payments have not yet been calculated for the damage inflicted by the recent flooding in the Southwest. “Most producers are working on making sure their families have a roof over their heads and are taken care of first,” the USDA said in an email. “There is no way to predict what those numbers will end up being. When producers have an opportunity to access their situation and the damage, I am sure they will reach out to USDA for help.” In addition to causing property damage,

the rains may lower the protein level of the wheat, which will cost farmers in payments received from elevators on a per-bushel basis. The excess moisture raises the risk of disease pressure on crops. And the Southwest is still prone to dryness, so the benefits from the rains could be short-lived. ‘Floods are much more localized. (Drought) goes on for so long.’ But most forecasters do not expect the drought to return this year thanks to an El Nino weather pattern, which typically brings cooler temperatures and rain to southern areas of the United States. “It wouldn’t take a whole lot of dryness to spark things up again,” said Southern Regional Climate Center climatologist Luigi Romolo. “I am not expecting that, because this pattern of wet weather is expected to continue at least through the summer,” he said. Ranchers already were seeing tangible benefits from the rain. Hay costs have fallen to $35 a bale from a peak of $130 during severe drought in 2012 and 2013, even with some soaked bales rendered useless by the excess moisture and supplies somewhat limited by harvest delays. Grass also is abundant, allowing animals to graze in pastures that had long been dormant and further cutting in to feed costs. But even in areas where the rain was welcomed as long overdue, the inundated fields have caused challenges. “I park at the road and walk in mud boots about a quarter of mile in one place,” said Oklahoma rancher Kent Donica, who also has to navigate through waist-high grass on parts of his property to find his animals. Copyright 2015 Reuters. July 6, 2015 INSURANCE JOURNAL-NATIONAL | 15

SPOTLIGHT

10 Things to Know About Insuring Taxis & Limos Taxi operators are required to have commercial insurance that protects passengers and third parties (i.e., pedestrians and other drivers) in the event of an accident. — National Association of Insurance Commissioners

In 2014, California Gov. Jerry Brown signed legislation requiring certain types of limousines to have two fire extinguishers and undergo regular safety checks. The bill was in response to a limousine fire that killed five women on the San Mateo-Hayward Bridge in 2013.

In R Street’s 50 city “Ridescore 2014” study, Las Vegas had the worst grade (F) of any city in the study because of its harsh approach to transportation network companies, most burdensome taxi regulations, and among the worst structures for limos as well. Taxi medallions in New York City, which drivers are required to have to operate a cab in the city, have been purchased for as much as $1 million (R Street).

New York taxis are outnumbered by Uber cars with 13,587 registered yellow cabs in the city versus 14,088 Uber cars. However, N.Y. taxis still see more business with 440,000 yellow cab rides a day compared to 20,000 to 30,000 Uber rides per day.

The 2014 Edition of the Taxicab, Limousine & Paratransit Association’s (TLPA) Limousine & Sedan Fact Book reported only 18 percent of companies indicated their chauffeurs were independent contractors, and more than 84 percent of the respondents’ chauffeurs were classified as company employees. The average insurance premium per car for limousines was $4,217 in 2014, according to the TLPA. The average company premium per taxi cab in 2013 was $5,498.

In a 2014 New York crackdown on unsafe taxi drivers, the city’s Taxi and Limousine Commission issued nearly 5,000 safety-related summons through October, a 95 percent increase over the same period in 2013.

The San Francisco Municipal Transportation Agency reported in 2014 that taxi trips logged by the average taxi dropped 65 percent in 15 months, from 1,424 per month to just 504 — R Street Policy Study, “Ridescore 2014; Hired Driver Rules in U.S. Cities”

TLPA’s 2014 report stated 37.7 percent of limousine company respondents saw increased insurance premiums. 16 | INSURANCE JOURNAL-NATIONAL July 6, 2015

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NATIONAL COVERAGE

News & Markets P/C Direct Premium Written Up Nearly 4 Percent

irect premium written (DPW) for property/casualty insurance companies continues to increase, albeit gradually. At year-end 2014, more than $570 billion of DPW was reported, a record-high for the industry. For 2014, total DPW for all P/C insurers aggregately increased 4.5 percent By Douglas A. Powell over 2013, an increase of $24.7 billion. Through the first quarter of 2015, the insurance industry’s growth trend has continued, as DPW for all P/C insurers aggregately increased nearly 4 percent over 2014. For the three months ended March 31, 2015, P/C companies comprising the Top 25 insurers in terms of DPW growth increased

their DPW 11.3 percent over the first three months of 2014. This continues the Top 25 insurers’ impressive display of premium growth and financial stability. The Top 25 accounted for more than 56 percent of the growth in the P/C insurance industry’s DPW. In contrast, the remainder of the industry reported an increase in DPW of 2.2 percent, or $2.4 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 consideration of the effect of reinsurance. Since 2010, this ratio for 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. 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 first-quarter data, but if the industry holds to its 10-year historical pattern, growth in 2015 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 March 31, 2015 versus March 31, 2014 Company Name

DPW 03/31/2015

DPW 03/31/2014

$ Growth

% Growth

Allstate Northbrook Indemnity Co. Allstate Fire and Casualty Insurance Co. Wesco Insurance Co. State Farm Mutual Automobile Insurance Co. American Bankers Insurance Co. of Florida Lexington Insurance Co. GEICO Casualty Co. Illinois National Insurance Co. LM General Insurance Co. USAA General Indemnity Co. GEICO General Insurance Co. Allstate Vehicle and Property Insurance Co. State Farm Fire and Casualty Co. GEICO County Mutual Insurance Co. Nationwide Agribusiness Insurance Co. Ohio Security Insurance Co. Continental Casualty Co. Auto-Owners Insurance Co. Everest National Insurance Co. Standard Fire Insurance Co. Liberty Insurance Corporation Zurich American Insurance Co. National Liability & Fire Insurance Co. Travelers Property Casualty Co. of America Federal Insurance Co. Top 25 P/C Companies by DPW Growth All Other P/C Companies Total

430,591,119 1,659,918,122 537,793,696 8,622,236,818 724,980,328 962,253,841 830,180,551 298,115,532 559,994,370 653,881,486 1,991,935,361 265,105,845 4,218,815,298 157,254,018 313,901,259 281,763,640 1,545,515,803 620,611,350 235,581,672 353,036,054 640,275,448 1,469,935,339 188,445,060 1,277,855,495 1,440,168,702 30,280,146,207 112,469,773,164 142,749,919,371

30,438,449 1,436,826,763 348,054,629 8,439,283,783 562,378,060 810,462,762 699,437,911 168,811,467 437,129,219 535,202,567 1,878,585,205 154,155,819 4,117,098,066 56,587,943 222,648,678 193,333,502 1,457,238,962 535,625,734 154,152,097 271,994,831 561,391,233 1,400,424,617 123,173,484 1,219,163,659 1,383,968,589 27,197,568,029 110,101,579,889 137,299,147,918

400,152,670 223,091,359 189,739,067 182,953,035 162,602,268 151,791,079 130,742,640 129,304,065 122,865,151 118,678,919 113,350,156 110,950,026 101,717,232 100,666,075 91,252,581 88,430,138 88,276,841 84,985,616 81,429,575 81,041,223 78,884,215 69,510,722 65,271,576 58,691,836 56,200,113 3,082,578,178 2,368,193,275 5,450,771,453

1314.63% 15.53% 54.51% 2.17% 28.91% 18.73% 18.69% 76.60% 28.11% 22.17% 6.03% 71.97% 2.47% 177.89% 40.99% 45.74% 6.06% 15.87% 52.82% 29.80% 14.05% 4.96% 52.99% 4.81% 4.06% 11.33% 2.15% 3.97%

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

July 6, 2015 INSURANCE JOURNAL-NATIONAL | 17

NATIONAL COVERAGE

News & Markets Flood Insurance Claims Underpayments Not Widespread: Senate Study By Sarah N. Lynch

he U.S. government’s appeals process for reviewing flood insurance claim disputes is riddled with flaws, but there is no evidence of systematic underpayments by insurers to flood victims, an investigation by U.S. Senate staffers has found. “Despite widespread concerns, it does not appear that systematic incentives exist for any participant in the program to underpay on claims,” according to a copy of a draft overview of the Senate Banking Committee’s investigation reviewed by Reuters. The panel’s investigators presented the overview of their findings to committee member staffers. A copy of the final report was released in late June, followed by a public hearing. The Senate Banking Committee’s investigation was fueled by allegations of widespread underpayment of claims to the victims of Hurricane Sandy, a 2012 Atlantic storm that generated 144,484 flood insurance claims and caused more than $68 billion in damage. Last year, numerous flood victims filed lawsuits alleging that insurers and engineering firms had doctored reports about the causes of damage to their homes in an effort to reduce insurance payouts. In response, the Federal Emergency

Management Agency (FEMA), which oversees the flood insurance program, created a task force to review the victims’ claims, settle pending litigation and reform the flood insurance program. New York and New Jersey’s state attorneys general, along with the Department of Homeland Security’s inspector general, are conducting criminal investigations into the matter. The report is the first by a group of new investigators hired recently by Senate Banking Committee Chairman Richard Shelby, an Alabama Republican. The probe did not examine specific allegations of fraud by victims. It focused on the structure and management of FEMA’s flood insurance program. Using FEMA audit data, investigators did not detect any evidence that the system creates incentives for write-your-own insurance carriers or other vendors to reduce payouts to victims. In addition, data on Sandy flood claims that were re-inspected by a second adjuster showed “low overall error rates.” Investigators believe underpayments that did occur can likely be attributed to the “scale of Sandy,” which overwhelmed the program and outstripped the number of engineers and adjusters available to handle claims, the overview says.

The report called on FEMA to improve how it plans for similar future catastrophes to help reduce problems with the claims process. The report also takes aim at the appeals process, because FEMA does not force write-your-own insurance carriers to increase payments to policyholders, even when the agency believes it is appropriate, or track the outcomes of appeals. In the case of Sandy, FEMA is now requiring that people who were underpaid be made whole. The report will say this is unfair to victims in other disasters, such as the recent Texas and Oklahoma floods, because they do not have the same recourse. A FEMA spokesman, Rafael Lemaitre, said the agency looks forward to seeing the Senate report. “We share the same concerns Congress has about underpayments or claims of fraud, regardless of whether they are systematic or not,” he said. The panel’s investigators will call for a better appeals process that will permit “mandatory payments” when FEMA officials side with policyholders, stronger internal record-keeping and better processes for correcting errors. Since the recent floods in Texas and Oklahoma, FEMA has taken some steps to

‘Despite widespread concerns, it does not appear that systematic incentives exist for any participant in the program to underpay on claims.’ cut red tape, including a new telephone hotline for victims to report problems. Victims of those recent floods also have more time to file proof-of-loss claims, and insurance companies were instructed to make certain advance payments for claims of $5,000 or less. Copyright 2015 Reuters.

18 | INSURANCE JOURNAL-NATIONAL July 6, 2015

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SPECIAL REPORT

The Disaster Issue Business Income: Why Worksheets Alone Don’t Work

redicting the impact of a catastrophic event on an organization’s future income or profit is an exhaustive risk management exercise when done correctly. Typically chief financial officers, risk managers and intermediaries have sought to determine potential lost income By Randy Crawford with worksheets that request information on payroll and compensation, overhead and facilities expenses and other fixed charges. However, as businesses have become operationally more complex, the worksheet has proven to be an inadequate assessment tool. A more accurate way to assess business income is to perform an actual risk management evaluation on how a loss may occur, how long it may last, and think through the many different elements of the business to determine what the value of that risk is. That type of detailed information doesn’t make it onto a worksheet. Piecing Together a Puzzle The first piece of the puzzle is allotting a significant amount of time and resources to properly evaluate all the categories of risks, including the different ways a loss could manifest itself in a given region or industry. This means assessing the more common sources of catastrophic losses such as hurricanes, tornadoes, or hailstorms as well as seemingly minor disruptions such as power failures, loss of computer data or even frozen pipes. Second, it is important to have a thorough review and understanding of a company’s business continuity plan — if one exists. Some hastily prepared contingency plans end up being ineffective and could be the determining factor as to whether or not a business will reopen following a major loss event. If a company doesn’t have a contingenwww.insurancejournal.com

cy plan, one should be created, where warranted as part of the evaluation process. Interestingly, a study conducted by Travelers Insurance Co. found that 48 percent of small businesses are operating without any type of business continuity plan even though 95 percent felt they were prepared for a disaster. The third piece of the puzzle involves reviewing the numbers typically collected through worksheets — profits and continuing expenses, among others — in order to determine an appropriate business solution for the client. These figures, however, cannot be evaluated in a vacuum. Risk Management-Driven Solutions A broad yet in-depth approach to a business income solution should be designed that helps a business deal with common operational challenges. For example, a manufacturer of electric motors and switches, with annual revenues of $40 million, experienced a two-week long power interruption that caused loss of revenue. It was determined that the company’s property policy had a standard limitation requiring power outages to occur on the manufacturer premises for resulting income loss to be covered. Offpremises utilities interruption coverage was negotiated at no additional cost, eliminating the manufacturer’s uncovered loss exposure of $350,000 per week. Another example: one of three pieces of customized equipment at a skin gel manufacturer’s factory was damaged. The company was able to receive reimbursement for lost wages of approximately $250,000 — $100,000 more than it would have received had management not been alerted to the significant risk to their income stream if critical equipment was damaged or destroyed. A risk management evaluation resulted in

an agreed limit for critical equipment and earnings replacement when production is interrupted. Even though the company increased its coverage by a significant amount the premium only increased by 2 percent. This small increase, as it turned out, was well worth the money. Recent studies show 25 percent of businesses do not reopen following a major event. Still, many companies do not know how to correctly calculate business income limits. With businesses becoming more operationally complex and catastrophic events becoming more costly, it’s time to place an accurate value on business income risk by implementing an actual risk management evaluation. Crawford, based in Houston, Texas, is USI Insurance Services’ national industrial practice leader, specializing in alternative risk structures product development and risk consulting. Email: Randall. Crawford@usi.biz.

SPECIAL REPORT

The Disaster Issue

‘Seismicity’ Re/insurers Ponder the Impact of Human-Caused Earthquakes By Charles Boyle

arthquakes, the natural kind caused by the movements of vast tectonic plates, have been occurring since the dawn of time. But now there is a new type of quake, the study of which has been labeled “seismicity,” which is being caused by human activity. Although they are usually at a shallower depth, and of less intensity than the ones nature produces, they nonetheless have caused a lot of damage, and are a growing concern for the re/insurance industry. Naturally they have become a subject for catastrophe modelers to study, collect data on, and eventually produce models to gauge their destructive loss potentials for brokers, insurers and reinsurers. One of the breakout sessions at the Aon Benfield/ Impact

Forecasting catastrophe modeling conference in London featured an extended discussion of this new hazard. Banu Mena Cabrera, who normally develops earthquake and tsunami models for Japan, described the most common causes of seismicity as reservoir impairment, geothermal systems, and mining activities. Reservoir Impairment Reservoirs contain a lot of water, and it’s heavy — a liter (roughly the same size as a quart) weighs a kilogram, or 2.2 pounds; a gallon weighs 8.8 pounds. The pressure on the land that contains the water sometimes causes “ground motion” triggering a seismic event. In China and India 50 percent of seismicity events are caused by this type of action. Usually they are mild, but in some instances they have measured at more than magnitude 6.0, and have caused serious damage.

Geothermal Systems While geysers and hot springs occur naturally and are sometimes the source of natural earthquakes, when they are tapped to produce energy it can alter the natural balance and cause man-made quakes. Cold water is pumped into the earth, where it heats up naturally; it is then pumped back up to the surface to produce clean energy. In the United States, Germany and Switzerland this has been the direct cause of seismicity, to the extent that several projects, notably a large one in Basel, have been cancelled. A geo-thermal system quake in the U.S. was measured at M4.6. Mining (Fracking) Any type of mine that alters the interior structure of the earth can create seismicity, but the practice of injecting chemically treated water into seams in the rock to produce gas and oil — hydraulic fracturing, or “fracking” — has become a subject of intense debate, as it seems to have increased seismicity events, which are caused, not by the injections, but by the

removal of the products and the water used in the process. Events directly related to fracking “have tripled in the last three years,” Cabrera said. In addition construction sites and waste disposal sites have also produced instances of seismicity. How does one model seismicity events? The immediate problem is deciding whether a tremor is, or isn’t caused by one, and that’s not easy, as “you can’t tell whether the cause is seismicity or not,” said John Douglas of the University of Strathclyde (Glasgow), who specializes in seismic hazard and risk evaluation. The main reason for this inability is the lack of enough data monitoring devices in place to help make the determination. Douglas pointed to “threshold cracks in buildings” as a possible sign of seismic activity, but he added that in order to properly monitor it there would “need to have 100 instruments per square kilometer,” which would mean more than 200 per square miles. Conducting “pre-injection surveys” might help he said. This would at least make it possible to create a before and after comparison. If cracks in buildings that didn’t have any before operations began, but then developed them, it would be strongly indicative that the cracks were being caused by the process. Anselm Smolka, the secretary general of the GEM Foundation, based in Pavia, Italy, is highly skeptical that real certainty on whether seismicity is a direct cause of damages will ever be obtainable.

As examples of past events he cited the 1,100 claims made in South Africa, where it proved almost impossible to determine whether they were the result of damages caused by human activity, or simply natural ones, even though the country is not primarily noted as being in an earthquake prone region. China experienced a magnitude 7.9 earthquake, which could have been induced by human activity, but there is no sound scientific evidence for that conclusion. The most serious effort so far to recover damages from seismicity is in Groningen, The Netherlands, where a class action has been filed seeking U.S. $4.5 billion from energy companies and contractors for damages caused by the extraction of natural gas from Western Europe’s largest gas field. While the debate about the causes of these damages continues, the insurance industry and its clients are also concerned over the fallout that the claims might cause. These include the loss of production when sites are shut down or limited (as was the case of one earthquake in the city of Basel, Switzerland, which was thought to have been caused by geo-thermal activity), the reputational damages companies can suffer from accusations of wrong doing, and the loss in the value of the properties concerned.

Smolka pointed out that, while damage coverage for these kinds of events is usually excluded from property policies, it isn’t excluded when it comes to liability. All of these concerns impact the creation of cat models to assess the risks that seem to be inherent in energy production. Smolka said modelers need to “identify the hazard and the vulnerability,” or exposure level at any given site, and then have sufficient “insurance penetration” to have coverage available. In conclusion Goran Trendafiloski, Impact Forecasting’s head of earthquake model development, said when “more energy” production is being carried out there’s also “more risk,” depending on where the search for energy is being done. “You need different samples [data] from different sources,” in order to produce more models. There also needs to be “synergies with the academic community” to provide some additional input that would augment the available data. In addition he said insurance companies would thereby be “able to create new lines, based on better underwriting.”

SPECIAL REPORT

The Disaster Issue How Hurricane Katrina Changed Business Preparation Planning for Disasters By Denise Johnson

early 10 years ago, wind and storm surges as a result of Hurricane Katrina caused $41 billion in insured losses and $108 billion in total economic losses. Many of the lawsuits filed as a result of the fifth hurricane of 2005 have only recently been decided. During a recent webcast, Lessons Learned From Hurricane Katrina: Looking Back, Planning Ahead, several Marsh experts weighed in on how risk management has evolved as a result of Hurricane Katrina. James Labode, Marsh’s New Orleans Office head, recalled the storm had a major impact on communication. “The ability to communicate was so constrained,” Labode said. He noted that the common goal of recovery and rebuilding stood out to him. One Business’ Personal Account Steve Pettus, managing partner of Dickie Brennen & Co., which runs four highend restaurants in New Orleans’ French Quarter, said the scale of the storm was unbelievable. “We never evacuate. But this time we did,” said Pettus. Recounting his personal story, he said he left the day after Katrina hit New Orleans, on Sunday. “It took about seven hours to drive 70 miles,” said Pettus. He explained that the normal practice during these types of evacuations was to pack just a few things since most evacuations only lasted a few days. However, this was not what happened after Katrina. Pettus stayed with his business partner’s family for a night and then was taken in by a family he had never met before. Due to the mandatory evacuation in New Orleans, a pass was needed to get back into the city. Pettus acquired one about six days after the storm but that was not the only 22 | INSURANCE JOURNAL-NATIONAL July 6, 2015

The 2005 Atlantic Hurricane season closed with a record number of storms. - FEMA hurdle to overcome. “The challenge was that all of the resources were being consumed,” Pettus said of trying to get the restaurants back up and running. Pettus made sure the payroll system was up and running, allowing the employees to be paid during the five week period the restaurants remained closed. The restaurant group also paid its purveyors off which, in turn, led to an incredible loyalty among its vendors that Pettus said remains today.

time. As an example, he said many businesses were surprised to find out they were not covered for storm surge losses, the main coverage issue resulting from the storm. Ellis and Paul McVey, Marsh’s U.S. Property Claims Practice leader, developed a list of the top 10 tripwires in a property policy arising as a result of a major loss. Business interruption – The main questions related to whether business interruption was covered and how it was calculated. “Probably the most misunderstood coverage,” said Ellis. He added that

10 Commercial Property Policy Tripwires At the onset, Hurricane Katrina didn’t initially appear significant, according to Duncan Ellis, Marsh’s US Property Practice leader. Once the levies broke, that changed. While most don’t read an insurance policy until after a loss, Ellis said it’s imperative to know what’s covered ahead of www.insurancejournal.com

it’s important to note that business interruption coverage does not replace revenues, but rather it replaces profits that are lost. According to McVey, another area of confusion is related to the indemnity period, which is intended for the time frame to reinstate and repair a property to its preloss condition. Sublimits – McVey said this usually applies to flood coverage and includes such things as pure extra expense, expediting expense and time sublimits for civil authority. Deductible applications – Ellis said the most common questions had to do with whether a deductible applied by occurrence or location. Separate deductibles can also apply to time element loss, by unit of insurance and even by percentages. Service interruption – McVey said businesses should understand the scope of the coverage and understand causation and indemnity period. A service interruption must be caused by peril that is insured against. There can be distance limitations, qualifying or waiting periods which may apply to each location. He emphasized there is no coverage for cutting off service voluntarily. Contingent business interruption – Ellis said businesses need to understand which suppliers or customers — direct or indirect — are covered. McVey recommended reviewing what constitutes a direct supplier and the contractual relationship that exists. Perils purchased for a business’ locations will apply to suppliers but if a peril isn’t insured against, suppliers won’t have coverage. www.insurancejournal.com

Wide area impact or idle period – Allianz Global Corporate & Specialty outlined the top three causes of global property losses during 2009-2013 as fire, earthquake and machinery breakdown. These remain the main causes of wide area impact and idle periods. Civil authority, ingress/egress – It’s important to know how this can trigger coverage, Ellis said, noting that there is typically a limitation around the number of days covered. Named windstorm or flood – Determine if it includes or excludes storm surge, McVey said. Flood definition of special high hazard flood zone – Ellis explained that a special hazard flood area (SHFA) and a 100year flood zone/plain are the same things. He pointed out that there will likely be an internal sublimit for flood with a further sublimit for SHFA. Loss management planning and communication protocol – Pre- and postloss management planning as well as a communication protocol is critical, said McVey. Businesses should consider such things as alternate vendors, partial payments, public relations, etc.

Disaster Plan Best Practice Tips Some key rebuilding concerns following a disaster, according to Pettus, include: • Staff – personal issues, housing, communications, meetings, ads, phone trees; • Physical properties – assess disasters and construction needs; • Customers and suppliers – order equipment; and • Contractors. Pettus explained what he does now to prepare for disasters: • Build healthy cash reserves. • Direct pay for staff. • Carry smaller inventories, even more if a storm is forecast. • Review insurance coverages. • Review emergency preparedness manual each year, and identify and secure extra housing for employees. • Have generators and redundant systems on hand, and have VOIP office phones and offsite computer services. • Secure access passes each year from the mayor’s office. Johnson is the editor of ClaimsJournal.com.

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July 6, 2015 INSURANCE JOURNAL-NATIONAL | 23

SPECIAL REPORT

The Disaster Issue E&O Insights: Will Your Files Help or Hurt You in a Disaster?

ypically, there’s not much warning when a disaster strikes. No one knows the “when,” “where” and “how severe” of the next big weather event. Yet catastrophes include more than just what Mother Nature dishes out, such as tragedies like the 9/11 attacks. This is why agencies must be proactive in addressing the issues that will minimize the potential for the agency to face errors-and-omissions litigation when By Curtis M. Pearsall disaster strikes its community. If your agency waits until the event appears in the news, it’s too late. What the File Says If an agency knew the “when” and “where,” it is likely the agency would do whatever is necessary to prepare customers for the potential exposure and make every effort to ensure customers are covered. Unfortunately, this is not how life works. Because we are largely dealing with the unknown, it is virtually impossible to know which customer files will be affected when a disaster occurs. Suppose a disaster struck your community and some of the files you personally handled came into play. What would those files say about you and the job you did? It is important for every agency staffer to realize that when a customer suffers a loss that is not covered, the potential for some form of E&O litigation to develop is raised. When that happens, the agency will be asked to provide a complete copy of the 24 | INSURANCE JOURNAL-NATIONAL July 6, 2015

specific customer file to which the claim pertains. This includes all correspondence such as emails, faxes, letters, insurance proposals, etc. This material is discoverable and admissible, and will now find its way to the attorney representing your agency and the attorney representing the party suing the agency. Back to the key question: If the file in question is one you personally handled, what will that file say about you and your performance? • Will it say you were a consummate professional who documented all communication timely and professionally? • Will it reflect the precision and detail with which you approach your responsibilities? • Will it include documentation back to the customer detailing the conversation to ensure there were no misunderstandings?

• Will it say you are organized, with everything in its proper place, allowing a fellow team member to pick up that file and know exactly what has been done and what items are still open and unresolved? • Will it reflect that policies were reviewed for accuracy when they were received? If the answers to these questions are “yes,” pat yourself on the back. This type of file is paradise for the defense counsel assigned to your agency by the E&O carrier and should bode well for your agency as the E&O claim develops. If the file does not speak highly of you, there is now a greater potential in the event of E&O litigation that your agency will not prevail. To a large degree, what’s done is done. While it may not be realistic to go back and upgrade the quality of the files you worked on last month or last year, today is a new day and a great time to

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commit to making the necessary changes to ensure a quality file.

If the client never responded to the questionnaire, your effort will still positively position the agency. How to Enhance the Agency’s Defense Sign-off on declined coverages. If Documentation. This is a crucial coverages were discussed and the customer element in an E&O matter. Is the docuchose not to pursue them, there should be mentation of high quality, evidence of the declinaWhen disaster strikes, tion. This can be through entered promptly and sufficiently detailed? If the your files will ‘tell a written communication answer is “yes,” this should story.’ Make the necfrom the customer or, if help in your agency’s conversation is verbal, essary effort today to the defense. If the answer is the agency should send “no,” you could be in trou- ensure that the story the customer corresponble. The goal is to ensure dence that memorializes is a positive one. that your file documentathe verbal conversation. tion helps, not hurts, you. Proposals. Most insurance profession Exposure analysis. This can be done als look at proposals as one of the primary via an annual survey questionnaire asking tools that will determine whether they land the customer to advise you of any changes the account and, in actuality, proposals do in his or her life and the mention of other play this role. In addition, a quality insurcoverages he or she should consider. This ance proposal can also provide some solid shows that the agency made an effort to E&O benefits. educate the customer about other coverages. Typically, insurance proposals are bro-

ken down by line of business and list the coverages offered/proposed with the corresponding premium. They probably use abbreviations or phrases such as “ACV” or “RC,” “co-insurance,” or “time element” or “business interruption coverage.” Look for your proposals to educate your prospects and help them understand their insurance program. They may know their business, but do they really know the finer points of the insurance business? Educating customers and prospects has shown to be a vital to minimizing E&O claims activity. When disaster strikes, your files will “tell a story.” Make the necessary effort today to ensure that the story is a positive one. 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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SPECIAL REPORT

The Disaster Issue Plugging the Hole in the U.S. Flood Market: How Risk Modelers Can Help to De-Risk the NFIP

he National Flood Insurance Program (NFIP) has long been the dominant player in the U.S. flood insurance market, providing subsidized flood insurance based on actuarially unsound rates for millions of property owners, in turn discouraging the private market. Until now, this status quo has By Matthew Nielsen remained unchallenged, resulting in the NFIP accruing debt to the tune of $23 billion. The federal government accepts the situation is unsustainable and is intent on cutting back the program, however this will leave millions of property owners without flood cover. The journey to de-risk the NFIP requires a major overhaul of the program, needing cooperation between the Federal Emergency Management Agency (FEMA), which manages the NFIP, state and federal legislators, insurers, and risk modeling firms. Plugging the coverage gap and enabling homeowners to access continued cover requires private insurers to enter the market with attractively priced insurance products. But there are barriers to entry: consumers are accustomed to paying capped premiums and private insurers need sophisticated flood risk management tools to help them understand the risk and price it competitively. Companies eager to grow their flood portfolio are being enticed into the market by the availability of new flood maps, data products and models that more comprehensively capture flood risk beyond existing FEMA products. The suite of new products, being developed by modeling firms, will help companies to differentiate pricing, understand flood accumulations, visualize catastrophic flood events and diversify risks. 26 | INSURANCE JOURNAL-NATIONAL July 6, 2015

New Risk Models in the Private Market Studies show that private flood insurance can be more affordable than the NFIP, particularly in less risky portions of select flood zones. Flood is a high-gradient risk, however, and in order to make this pricing differentiation, flood models and hazard data products must be able to resolve down to the individual property level. This degree of high-resolution modeling requires tremendous computing power and advances in software design, which is only recently possible due to advances in technology. To effectively manage the risk requires knowledge beyond a locationâ&#x20AC;&#x2122;s inclusion in the 1-in-100 or 1-in-500 year flood zone. Model vendors, such as RMS, are addressing this need by creating hazard maps that show not only the 1-in-100 year floods, as FEMA does, but different return periods and also the severity metrics (i.e. depth) associated with those floods. Portfolio management also demands a deeper understanding of the corresponding frequency, hazard, and severity of potential flood events, and requires the ability to capture correlations across catchments and river basins throughout the country. The pipeline of new flood risk products being released by modeling companies, particularly the probabilistic flood models, will arm companies with the ability to understand the impact of flood hazard and severity on exposures at risk. The flood models also provide full exceedance probability analysis, enabling companies to dissect flood risk in the same way they do today with earthquake, wind and severe convective storm hazards. This will also enable companies to understand how to diversify a portfolio beyond a companyâ&#x20AC;&#x2122;s current geography, something models are well suited to quantify.

Even with an influx of more sophisticated flood models and maps to help open up the private insurance market, there are several challenges that need to be addressed. Reforming the NFIP The private market needs a baseline of actuarially sound rates to work from. The obvious move for the NFIP would be to raise its pricing to sustainable levels, and position itself as the insurer of last resort. A move like this would enable private insurers to set rates that will cover the risk they are writing, avoiding the huge debts that accrued by the NFIP. However, the NFIPâ&#x20AC;&#x2122;s current portfolio of 5.6 million policies covering $1.3 trillion

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Where Did NFIP’s Debt Come From?

S in exposure makes depopulation no small task. Congress attempted to do this via the Biggert-Waters Flood Insurance Reform of 2012. The resulting rate increases that were experienced by policyholders over such a short timeframe unfortunately angered many voters and impeded progress. In response, two years after BiggertWaters, new legislation under the Homeowner Flood Insurance Affordability Act (HFIAA) of 2014 was introduced to delay and cap the annual price increases. The 2014 act didn’t completely reverse the rate changes introduced as a result of Biggert-Waters, but it delayed the move to actuarially sound rates. In some states, such as Mississippi, the affordability of flood insurance is such a contentious issue that legislation to repeal Biggert-Waters is now being considered. Alongside federal initiatives, individual states are also attempting to nurture the private market. In Florida, for example, the legislature tasked the Florida Commission on Hurricane Loss Projection Methodology to develop flood standards, establishing that insurers can submit rates based on state-approved probabilistic flood models beginning in 2019. This echoes Florida’s policy for encouraging private firms to provide hurricane insurance. Claims Data, Alternative Flood Maps Even with the more progressive rate increases, however, encouraging private insurers to enter the market with realistic pricing requires them to have access to historical claims data, which is critical for accurate risk modeling. In addition to private flood insurance feasibility studies, FEMA is working with the insurance industry and risk modelers to facilitate the release of high-resolution historical claims information from the NFIP. This is an extremely important initiative since FEMA has the most historical claims data for flood in the U.S., which will be needed by companies to validate and calibrate their flood modeling. Risk modelers are also developing alternative flood maps to overcome the limitations of the FEMA Flood Insurance Rate www.insurancejournal.com

tudying how the National Flood Insurance Program (NFIP) became more than $23 billion in debt reveals some interesting dynamics about U.S. flood risk. • Of the top 15 loss events, 14 are related to tropical cyclones. The top three loss events (in order) arose with Hurricanes Katrina, Sandy and Ike. • Over NFIP’s more than 40-year history, just two years are responsible for more than 50 percent of its losses: 2005, following Hurricanes Katrina, Wilma and Rita, and 2012 following Hurricanes Sandy and Isaac. • This tropical cyclone-dominated loss is partly because the penetration in coastal states is much higher than in inland areas. In other words, by virtue of how the NFIP has underwritten, it is more exposed in coastal areas.

Maps (FIRMs), the primary source of U.S. flood zone and hazard information. While FEMA invests heavily in producing the FIRMs to inform flood policy rating for the NFIP, the maps provide only one view of flood risk and their consistency from region-to-region is often questioned since they are not produced using standardized modeling methodologies across flood basins. To add another wrinkle, the FIRMS are often subject to local community review, resulting in appeals being submitted to redraw the inundation boundaries, adding in a human-influence factor that is very apparent at high resolution. Another issue with the maps is the binary nature of the flood zones — you are either in a flood plain or not. While this is helpful in underwriting, it does not

provide sufficient input to the portfolio management or risk transfer process. To effectively assess flooding severity, insurers need return-period flood depths in addition to the inundation that is provided in the FEMA maps. The market for U.S. flood insurance offers an ocean of untapped opportunity for private insurers, which until now has remained out of reach for most companies. The continuing regulatory reforms combined with access to more sophisticated modeling and data products from modeling firms will help to create a friendlier landscape for the private market and help increase their confidence to embrace the growth opportunity. Nielsen is senior director, global governmental and regulatory affairs at RMS.

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Tech Talk How to Prioritize ‘Going Digital’ in a Digital Age

By Tom Wetzel

oing digital for any agency may seem overwhelming, however experts point to strategies that help set priorities, ease the transition and simplify the process. “One of the biggest hurdles for agents is simply knowing where to start,” said Ron Berg, executive director for the Agents Council for Technology / Independent Insurance Agents & Brokers of America, Inc. “Most agents understand the need for an agency portal and to give consumers easier and more immediate access to services and information and to reach out with social media. But because the tasks seem so large, some agents never take the first step.” “First, don’t try to do it all yourself,” said Paul Peeples, vice president and chief informa-

28 | INSURANCE JOURNAL-NATIONAL July 6, 2015

tion officer, Florida Association of Insurance Agents. “The day of the agent doing it all is long gone. Don’t be afraid to outsource.” Second, agents must buy into the idea of going digital, says Peeples. “Understand its value so you can approach it enthusiastically.” Peeples says technology has become much easier and lets the agency do what it does best, sell insurance and service clients. “You need to step out of your agency and look back at it to see where you are and then ask the question: How far behind are we in going digital? Look at the top agencies and learn best practices,” he said. Going digital, in simple terms, means transitioning to a paperless office and being able to communicate on digital platforms, said Trace Meek, vice president of CondonMeek Inc. of Clearwater, Fla. According to Meek, the challenge with going digital is twofold. “Many agents are so used to print so it is hard to take that away,” Meek said. A good way to start is to invest in a high-quality, large capacity scanner and scan all files at once.

On social media, Meek advises agents to pick one social networking site and learn how to use it well before adding others. Condon-Meek (www.condon-meek. com) participates on Facebook, LinkedIn, Twitter, YouTube, Google+ and Pinterest. Ryan Hanley, head of marketing at TrustedChoice.com, agrees with the idea of reducing the task of going digital by taking smaller steps. “You should not try to do everything at once unless you’re willing to completely change your culture,” he says. Hanley puts two tasks at the top of the to-do list. The first investment for an agency is “a clean, crisp, clear website that’s mobile-optimized and uses up-to-date computer language,” he says. “Having an outdated, bland website is like having no sign on the front door. The second investment is creating your own, original content for social media. Buying content is a waste of time and money.” Social media is becoming the “front porch” for agents, a platform in which the agency’s programs, passion and dedication to their clients must be on full display. If that front porch is warm, inviting and responsive, prospects are more likely to contact the agency or be more receptive to contact from the agency. Similarly, clients’ positive impressions of their agency will be reinforced. An agency with no social media presence may not be found at all. There are excellent resources for agents to get started. Berg recommends several comprehensive documents on the ACT website (www.independentagent. com). These include papers on Customer Experiences, Going Paperless, and Great Agency Websites. Another excellent resource is the just-published “Customer Service Is Just Foreplay” by independent agent Jason Cass. The book is available on Amazon. Wetzel heads his own insurance marketing firm that specializes in social media programs for agents. Email: twetzel@wetzelandassociates.com

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2601 N. 3rd St., Ste. 109 Phoenix, AZ 85004 Contact: Jason Ruel Phone: 888-744-9998 X-1 Fax: 888-846-8650 www.nexuslinx.com jruel@nexuslinx.com

Insuresoft - The Diamond System

Policylinx™

Insuresoft is a Microsoft Gold Certified independent software vendor delivering insurance software to the property and casualty insurance industry. Insuresoft’s flagship solution, The Diamond Suite, is a fully automated and integrated policy, billing & claims processing platform which can be configured to meet the unique needs of both personal and commercial insurance companies. From point of sale, to back-office underwriting, Diamond is an innovative, scalable and cost-effective solution for carrying out all business critical insurance processing functions.

Increase performance, profitability, and create peace of mind. Policylinx™ is a secure, user-friendly Management System for Agents, MGA’s, and Claim Administrators. Gain all the benefits of a single entry system with access to your data anytime, anywhere. Experience the convenience of a full Accounting module, Reports, Policy and Claims Tracking, Document Management, and much more. Need a customized rater, policy issuance, or data feed for a company? We can build that. The possibilities are endless. Check us out today, and let us help you grow your business. Profitability Performance Peace of mind

Agency Management Systems

Decision Management

SHIFT INSURANCE APPLICATIONS

DEMOTECH, INC.

P.O. Box 233 Solana Beach, CA 92075 www.modgic.com info@modgic.com

2715 Tuller Pkwy. Dublin, OH 43017 Contact: Joseph Petrelli Phone: 614-761-8602 Fax: 614-761-0906 www.demotech.com jpetrelli@demotech.com

Modgic Modgic is a software application used by insurance agents, brokers, carriers, risk managers and consultants. Modgic accurately calculates and predicts workers comp X-mods (experience modifications) nationwide while providing an in-depth analysis of a businesses workers compensation insurance. Modgic provides many tools that turn agents into highly educated and powerful consultants. MODGIC is a product of SHIFT Insurance Applications llc. Providing the future technology for the commercial insurance industry.

Demotech, Inc.

The Agents Tool for Workers Comp

Demotech, Inc. is a Columbus, Ohio based financial analysis and actuarial services firm providing a wide range of services including pricing analysis, state filings assistance, Financial Stability Ratings® and support for other required regulatory reporting. Having worked with insurers of all sizes, Demotech possesses broad experience addressing actuarial and financial analysis issues, whether the issue is unique to a particular insurer or faced throughout the industry.

Document Management

Insurance Lead Source

FUJITSU COMPUTER PRODUCTS OF AMERICA, INC. 1250 E. Arques Ave. Sunnyvale, CA 94085 Phone: 888-425-8228 http://us.fujitsu.com/scanners

Fujitsu Fujitsu Computer Products of America, Inc., is an established leader in the document imaging market, featuring state-of-the-art scanning solutions and services in the workgroup, departmental, and production-level scanner categories. Fujitsu offers the industry’s most comprehensive and competitive product offering. With scanning solutions from 15-120 pages per minute (ppm), Fujitsu possesses an extensive scanner lineup to meet the functional needs of customers at affordable price points. 30 | INSURANCE JOURNAL-NATIONAL REGION July 7, 2015

InsuranceQuotes 1860 Blake St. #900 Denver, CO 80202 Phone: 855-715-0710 sales@insurancequotes.com

Smartest Insurance Lead Source for Modern Agents InsuranceQuotes is the most comprehensive, effective and trusted insurance lead source with over 70 years of industry expertise. We work tirelessly to attract high-intent insurance shoppers across auto, home, health, life, commercial, renters and final expense verticals. Our innovative products and tools are designed with today’s modern agent in mind, to help you successfully manage business inside and outside of the office. Try the new insuranceQuotes today and see the difference!

insurancequotes.com/agents www.insurancejournal.com

2015 Digital Product Guide ** The following are paid advertisements.

Claims

MGA / Wholesaler Website

INSURESOFT

BURNS & WILCOX

2500 Bond Street University Park, IL 60484 Contact: Josh Hall Office: 708-534-1775 Mobile: 704-999-3327 www.insuresoft.com sales@insuresoft.com

120 Kaufman Financial Ctr. 30833 Northwestern Hwy. Farmington Hills, MI 48334 Phone: 248-932-9000 www.burnsandwilcox.com

Burns & Wilcox

Insuresoft - The Diamond System Insuresoft is a Microsoft Gold Certified independent software vendor delivering insurance software to the property and casualty insurance industry. Insuresoft’s flagship solution, The Diamond Suite, is a fully automated and integrated policy, billing & claims processing platform which can be configured to meet the unique needs of both personal and commercial insurance companies. From point of sale, to back-office underwriting, Diamond is an innovative, scalable and cost-effective solution for carrying out all business critical insurance processing functions.

Internationally recognized for its expertise, Burns & Wilcox is North America’s leading and most capable independently owned insurance wholesale broker and underwriting manager. Burns & Wilcox provides property, casualty and other specialty business lines of insurance for more than 14,000 retail brokers and agents. In addition to adhering to the highest standards of service, the depth and acumen of its underwriting and management talent is unsurpassed in the industry.

www.burnsandwilcox.com

MGA / Wholesaler Website INSUREZONE

QUALCORP, INC.

1612 Summit Ave., Ste. 100 Fort Worth, TX 76102 Phone: 817-704-2287 www.agentsecure.com membership@insurezone.com

PO Box 803280 Santa Clarita, CA 91380 Contact: Allen Beggs Phone: 661-799-0033 Fax: 661-799-0020 www.QualCorp.com abeggs@QualCorp.com

AgentSecure The AgentSecure technology platform provides producers with the industry’s best sales workflow management tool. Our comparative rating tool, for personal and commercial lines, features a secure single-entry multi-carrier quoting platform. The result is that we return real-time quotes from national and specialty carriers, in order to save you time while making the sale. With AgentSecure, independent insurance agents are able to provide the coverage and carrier options in a time frame that your clients have come to expect.

QualCorp, Inc. Since 1992, we have been providing software for MGA’s/Carriers that afford them with the ability to: RATE and ISSUE POLICIES in all 50 states ISO and Non-ISO Programs and LOB Commercial / Personal and Workers’ Comp All Microsoft-based - latest technology

www.agentsecure.com

www.QualCorp.com

Policy Administration / Processing EPIC-PREMIER INSURANCE SOLUTIONS, INC.

GARVIN-ALLEN SOLUTIONS LIMITED

4223 S. Pipkin Rd. Lakeland, FL 33811 Contact: Mike Cross Phone: 888-999-7736 info@epic-premier.com

155 Chain Lake Dr., Unit 12 Halifax, NS B3S1B3 Phone: 877-325-9062 www.garvin-allen.com sales@garvin-allen.com

ConceptOne™

Leaders in Insurance Solutions

ConceptOne™ is a fully developed, highly configurable Enterprise Management Solution for MGAs, Program Administrators, Wholesale Brokers and Specialty Carriers with the flexibility to manage both up and down stream business in the P&C market. ConceptOne™ provides a single-entry, fully integrated Policy, Accounting, Claims, Correspondence, and Document Management solution. The SDK provides the ability to develop integration with 3rd Parties and custom web portal apps utilizing the XML transaction processing engine. ConceptOne’s open SQL DBMS enables flexible access for reporting and data analysis.

Garvin-Allen has been providing insurance software solutions to carriers since 1992 with a focus on technology, business intelligence and streamlining operations. With the infrastructure to rapidly deliver, Garvin-Allen empowers our clients to use data to analyze information, make decisions and manage performance while growing their business. Our Advanced Insurance Software (AIS) is a highly configurable product that serves global clients in the insurance industry while providing an affordable software solution for personal and commercial products. Garvin-Allen has the right combination of technology and insurance professionals to ensure time to market is paramount while maintaining a focus on quality and innovation. We consider our clients partners and understand their success is critical to our own. We are consistently chosen for our our technology, personal service and vision.

WWW.EPIC-PREMIER.COM www.insurancejournal.com

WWW.GARVIN-ALLEN.COM

July 6, 2015 INSURANCE JOURNAL-NATIONAL REGION | 31

2015 Digital Product Guide ** The following are paid advertisements.

Policy Administration / Processing INSURESOFT

QUALCORP, INC.

2500 Bond Street University Park, IL 60484 Contact: Josh Hall Office: 708-534-1775 Mobile: 704-999-3327 www.insuresoft.com sales@insuresoft.com

PO Box 803280 Santa Clarita, CA 91380 Contact: Allen Beggs Phone: 661-799-0033 Fax: 661-799-0020 www.QualCorp.com abeggs@QualCorp.com

Insuresoft - The Diamond System

QualCorp, Inc.

Since 1992, we have been providing software for MGA’s/Carriers that afford them with the ability to: RATE and ISSUE POLICIES in all 50 states ISO and Non-ISO Programs and LOB Commercial / Personal and Workers’ Comp All Microsoft-based - latest technology

www.QualCorp.com

Quotes

Rating Software

InsuranceQuotes

INSUREZONE

1860 Blake St. #900 Denver, CO 80202 Phone: 855-715-0710 sales@insurancequotes.com

1612 Summit Ave., Ste. 100 Fort Worth, TX 76102 Phone: 866-243-5934 www.insurerater.com membership@insurezone.com

insurancequotes.com/agents

InsureRater By using InsureZone’s commercial and personal lines comparative rating tools, your agency can streamline the way it handles the small account which will allow your producers to focus on larger accounts. This is the only comparative rating platform in the industry that works for BOTH commercial lines (23 carriers) and personal lines (100 carriers) using the same interface.

Workers’ Compensation COMPLINE

SHIFT INSURANCE APPLICATIONS

PO Box 2610 Granite Bay, CA 95746 Contact: Dale Debber Phone: 916-774-4000 Helpdesk@Compline.com www.Compline.com

P.O. Box 233 Solana Beach, CA 92075 www.modgic.com info@modgic.com

Compline Compline, since 1982, makes you money by making you look good to clients and prospects. It provides the information you need to be successful at every point in the sales and placement process. It provides X-Mod lookups, X-Mod calculation, and comparative premium rating for all 294 carriers filed in California and even includes schedule credits. All if this is integrated so you don’t have to enter data more than once. Compline has easy to use interface and is familiar, credible and authoritative to all markets. Targeted lead generation provides opportunities and information closes the sale.

X-Mods * Comparative Premium Rating * X-Mod Calculator * Leads * Many Sales Tools 32 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2015

The Agents Tool for Workers Comp www.insurancejournal.com

Need a market?

FIND IT. FAST!

765 results for "workers comp"

NATIONAL COVERAGE

MyNewMarkets Workers’ Compensation Market Detail: Stonehenge Insurance Solutions (stonehengeis.com) offers a variety of master program offerings and pay-as-you-go products. Most programs common are guaranteed cost, large deductible and captives. Available limits: As needed Carrier: Unable to disclose States: All states Contact: Troy Reynolds at 561-951-4315 or e-mail: treynolds@ stonehengeis.com

Risk Point Used Car Dealer Physical Damage Insurance Market Detail: Risk Point LLC (www.riskpoint.com), a managing general agency, is accepting applications from independent agents and brokers throughout the U.S. to provide automobile physical damage coverage for qualified non-franchised dealerships. Program is designed for non-franchised auto dealers and features: same day underwriting turnaround time; Risk Point Alert weather app sends push notifications to a mobile device when severe weather is within 30 miles, 20 miles, and 5 miles of a target auto dealership; weather loss aggregate deductibles available; limited false pretense (trick, scheme or device) available; an aggregate deductible on collision losses. In addition, the “margin clause” provides coverage equal to 125 percent of the limit shown in the event that a loss exceeds the limit of insurance shown on the policy. The average monthly value is the limit of insurance shown on the declaration page that will be used as the rating basis. The “margin clause” does not apply to flood or earthquake coverage. Payment plans available with 15 percent down and 10 monthly payments. No monthly reports of values required by dealers. Claims Service is provided by Risk Point and managed from the Dallas headquarters. Program commission starts at 10 percent. Available limits: As needed Carrier: Unable to disclose, non-admitted States: All states Contact: Brian Atkinson at 469-310-9142 or e-mail: batkinson@ riskpoint.com

Surety Market Detail: Philadelphia Insurance Cos. (www.phly.com) offers financially sound bonding options for well qualified contractors and commercial surety accounts for small to medium-sized contractors and commercial accounts. Available limits: Minimum $100,000, maximum $2 million Carrier: Various, admitted States: All states except La. Contact: PHLY Marketing Dept. at 800-873-4552 or e-mail: phlysales@phly.com

Marina/Boat Repair & Service Centers Market Detail: TCA Inc., Marine Insurance Services’ (www. 34 | INSURANCE JOURNAL-NATIONAL July 6, 2015

tca-insurance.com) offers professional liability, commercial excess, builders risk, CGL, pollution liability, hull, GL, pollution, property, protection & indemnity (P&I), piers & docks, liability, marina operators legal, boats, wet marine, commercial marine, excess liability, tools & equipment, contractors Equipment, and ship repairers legal. Available limits: As needed Carrier: Unable to disclose, admitted and non-admitted States: All states Contact: Carl Peterson at 770-205-2958 or e-mail: carlpeterson@ tca-insurance.com

Non-OwnedRISK Market Detail: Program Risk Specialists’ (www.programrisks.com) offers non-owned and hired auto coverage for food delivery, couriers and construction risks. No expedited services. Available limits: Minimum $100,000, maximum $5 million Carrier: Various, non-admitted States: All states Contact: John Ware at 678-802-4032 or jware@geneseeins.com

Umbrella Insurance Market Detail: Northbrook Insurance Associates Inc. (www.northbrook-ins.com) offers umbrella insurance to protect from liability issues that go beyond the liability limits of standard insurance policies, such as homeowner’s insurance, car insurance, etc. Available limits: As needed Carrier: Unable to disclose States: Wis. only Contact: Robert Butzke at 800-948-8570 or e-mail: bobb@northbrook-ins.com

Developmental Disability Facilities Market Detail: Negley Associates (www.jjnegley.com) is the underwriting manager for A+ rated carrier with coverages that include: professional and general liability; directors & officers (including EPLI); excess liability; and property. Target classes include: alcohol/ drug rehabilitation, mental health facilities; group homes; sheltered workshops; and related organizations. Available limits: As needed Carrier: Unable to disclose, admitted and non-admitted available States: All states except D.C. Contact: Customer service at 973-830-8500 www.insurancejournal.com

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IDEA EXCHANGE

The Competitive Advantage The Age of Big Data and Agencies — Not

his is the age of big data. The concept is to collect all kinds of data and then use various statistical techniques, usually some sophisticated form of regression analysis, to identify correlations between the data, trends and opportunities. The data has to be big because searchers are seeking data relationships that exceed By Chris Burand a human’s ability to identify, because either the data point is minute, the relationship defies common sense, or there is so much data it just overwhelms a brain. The information can then be used to entice people to buy things, vote a certain way, or perform better, etc., through a variety of means. It is absolutely fascinating. Of course, the key is having quality data, and this is a major issue for agencies for many reasons. The first reason is simple: If poor or wrong data is input into an agency’s management system, something is likely to go wrong. Examples include CSRs having to take extra time to understand what is happening on an account, fixing the data, backing out data, and sharing the fixes with the producer, accounting, carriers, and/or clients, all of which reduces productivity and efficiency. Another example is that bad data can cost agency money. The wrong commission amounts either input from the carrier (i.e., entering 11 percent instead of 12 percent) or paying producers too much. Every agency owner always tells me that paying producers too much is impossible, but my firm has been collecting information on producer compensation for 20 years and comparing their compensation to their supposed commission splits. At least 50 percent of the time, the producers’ actual compensation differs from what they’re supposed to be paid. The majority of time, they’re paid more. 36 | INSURANCE JOURNAL-NATIONAL July 6, 2015

Another example where bad data costs an agency is an errors and omissions (E&O claim. Bad data is a common cause of agencies losing E&O claims. A common example that involves extra work, less commission and E&O exposures is when CSRs enter the wrong writing company on brokered business. I see this mistake often, and not just once or twice when looking at a book of business. Bad data in agency management systems is significant and expensive, and I don’t see it getting better based on the data I am seeing from agencies around the country. Bad Data and Benchmarks Bad data also negatively affects agencies through the benchmarks that consulting firms use. These firms are given information by agents, and if the data in the agents’ systems is poor, then the benchmarks will be lacking. (The bad data provided does not include the cooked-up data some agents give to these firms so they can look better and “win” recognition.) This is one reason — although not the only reason by any means — that agents often look at these benchmarks and wonder if they are correct. Benchmarks can be useful if they are accurate representations, although the best benchmarks by far are milestones on a journey of constant improvement. I have seen agencies wrecked trying to meet these faulty benchmarks. If agency owners/executives understood the quality of data going into the benchmarks they would never use them or they would use them more generally. It is not even that the ones using the benchmarks have better data and think everyone is up to their standard. Most often, they do not understand how poor their own data is. Poor Data Threats Managing an agency using poor data is an awfully brave or foolish endeavor, and yet most every agency owner I meet thinks their data is far better than it is. Likely

The opportunity to use big data is here. The only question is if you and your agency will join the era. close to 50 percent of the agencies that hire my firm cannot provide an accurate, even within 10 percent, count of their policies and accounts for the past three years. This is an extremely basic and important metric, and almost always the owner thinks he or she can provide this data. But owners can’t, because they don’t use their agency management systems correctly. Account and policy counts are simple examples but exemplify www.insurancejournal.com

agents in the near future. Other firms with high quality data may have built a new revenue stream by selling their data en masse. Bad data also usually encompasses data agencies are not supposed to keep or need to keep. Because agencies do not have governmental immunity for data breaches and can instead be prosecuted for a breach (makes sense that a crook breaks into your property and you can be prosecuted for inadequate barriers, right? Only attorneys and government employees can think this stuff up.), the less data an agency has, the better within reason. This means purging old data. Purging old data also improves the quality of big data because the data is more current and the agency has more resources with which to manage the current data. Another threat is cost. My studies show that agencies with better data are also more efficient, often by 10 percent to 30 percent more efficient. The opportunity is that with so much more efficiency, agencies can invest much more in organic growth and acquisitions. The threat is that if it cost your agen-

cy 10 percent to 30 percent more to service accounts, the ability to compete in a soft market will be minimal. Another threat is thinking you can do this yourself. Big data and regression analysis may seem easy on the surface, especially if you see “Moneyball.” But the work and expertise required is significant. I find some agencies going through the motions thinking they’re being adequately thorough, but agencies, even big ones, rarely employ people with the specific education required to use this data correctly. A common theme throughout is quality of data over quantity of data, even in the age of big data. Junk in is still junk out, and even quality in but used incorrectly is still junk out. The opportunity to use big data is here. The only question is if you and your agency will join the era. Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719485-3868. Email: chris@burand-associates.com.

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how endemic the data problem is. The opportunity here is significant, and the threat if agents don’t join the times is significant. The opportunity to use big data is fantastic because agencies have big data. Almost no agency owners have enough mathematical education or knowledge to complete data analysis themselves, but hiring someone to do it for them using their data will provide the results they will know how to use. But it can’t be done without quality data. The threats of not fixing the data problem are significant. Big firms, insurance and non-insurance, are already mining higher quality insurance databases, and they’ll use this data against www.insurancejournal.com

Abacus Insurance Brokers, Inc www.abacus.net W5 Access Home Insurance www.accesshomeinsurance.com SC1; SE10, SE11 Agency Ideas www.agencyideas.com 27 Applied Underwriters www.auw.com 4, 5, 40 Atlas Financial Holdings www.atlas-fin.com 25 California Earthquake Authority - Civilian www.earthquakeauthority.com/mvp 3 Century National www.cnico.com W7 Golden Bear Insurance Company www.goldenbear.com W12 ICAT Managers www.icat.com 14 Insurance Technologies Corp. www.getitc.com 29 JM Wilson www.jmwilson.com SE7; M4 LAAIA www.laaia.com SE5 Lexington www.lexingtoninsurance.com E3; M3; SE3; SC3; W3 Liberty International Underwriters www.liu-usa.com 39

Lighthouse Holdings, LLC www.lighthousepropertyins.com SC9; SE9 Louisiana Commerce & Trade Assoc. www.lctacomp.com SC10 M.J. Hall & Company www.mjhallandcompany.com W8 McClelland & Hine www.mhi-tx.com SC4; SE8 Monarch E&S Insurance Services www.monarchexcess.com W1 National General Insurance www.nationalgeneral.com 2 Network Claims System, Inc. www.networkclaimssystems.com 23 Pacific Gateway Insurance Services www.pgiainsurance.com W11 PersonalUmbrella.Com www.personalumbrella.com 7 Quirk & Company www.quirkco.com SC7 South & Western www.southandwestern.com SC1 State Compensation Insurance Fund www.statefundca.com W9 Texas Mutual - Safety Group www.texasmutual.com SC5 Vertafore, Inc. www.vertafore.com 9

July 6, 2015 INSURANCE JOURNAL-NATIONAL | 37

IDEA EXCHANGE

Closing Quote

The New Normal in EPLI

I By Lisa Doherty

t’s been interesting to watch the growth of employment practices liability insurance (EPLI) during more than 25 years of working in the specialty insurance industry. Twenty years ago EPLI was rare in the United States and, even a decade ago, most companies didn’t buy it. Today, however, many firms have stand-alone EPLI coverage: 41 percent of those with more than 1,000 employees, 34 percent of those with 500 to 750, 23 percent of those with 200 to 500 employees, 32 percent of those with 50 to 200 employees, and about 20 percent having fewer than 50 employees, according to Advisen. Because these numbers don’t include the sizeable portion of EPLI coverage bundled with other lines of insurance such as directors and officers, even more firms are actually covered. Yet plenty of EPLI selling opportunities remain for astute agents and brokers. Traditional thinking says that EPLI claims increase during economic downturns, because even legitimate terminations and layoffs have a way of turning into lawsuits during times of financial insecurity. But instead, as the economy rebounds, an EPLI uptick is likely to continue for a variety of other reasons that have led to a new normal. With job growth comes increased competition for workers. Millennials are demanding greater work-life balance.

38 | INSURANCE JOURNAL-NATIONAL July 6, 2015

At the same time, less than half of Millennials expect to be in their current position three years down the road. Higher expectations and less loyalty have converged to create an environment in which employees are inclined to take action if they think they aren’t being treated well. A complaint can be filed with the Equal Employment Opportunity Commission, which handles nearly a dozen types of discriminatory employment practices. In 2013, the EEOC handled more than 100,000 complaints, filed more than 130 lawsuits and recovered more than $370 million, a record high. Even in the throes of economic recovery, there has been only a slight dip to 89,000 complaints with $300 million recovered in 2014. Forty-three percent of total complaints were for retaliation, an all-time high. Employees today are far more aware of their rights. Media has publicized many high-profile disputes —Silicon Valley’s sexism, unpaid interns to raising the minimum wage, the nationwide movement among retail workers for a “bill of rights.” Companies have also increased the frequency of employee training on appropriate conduct — knowledge that can be later turned against the company. And the Internet provides employees a treasure trove of information. Search wrongful termination lawsuits and Google returns 316,000 hits, and 424,000 on workplace harassment cases. Digging a little deeper, employees can find that most lawsuits are settled out of court so employers can avoid defense costs ranging from $200,000 to $300,000 and litigation that drags on for 18 to 24 months. Along with private-party lawsuits, the increase in claims brought by federal, state and city regulators ‘…as the economy gives companies reason to rebounds, an EPLI consider EPLI protection. uptick is likely to con Last year was a record year and the seventh continue for a variety of secutive year of increased other reasons that federal wage and hour lawhave led to a new suits. Motivated by large normal.’ settlements in California, copycat lawyers have created a cottage industry seeking out potential claimants to file wage and hour lawsuits in Florida, New Jersey, New York, Illinois, which are EPL-litigious states — and more recently in Pennsylvania, Michigan and Massachusetts. With the ongoing evolution of employees, workplaces and employment laws, companies of all sizes and in all industries will soon consider carrying EPLI insurance, as indispensable as having cyber liability insurance. Lisa Doherty is president of Windsor, CT-based Business Risk Partners. Phone: 860-903-0002. Email: ldoherty@businessriskpartners.com.

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