Insurance Journal West 2015-10-19 by Insurance Journal

WEST EDITION Chasing Mobile Consumers Best Agency in West – Silver Calif. Workers’ Comp Reforms

FUTURE-READY Looking ahead, we feel optimistic and excited. We have a strong foundation. We have talented, experienced, and dedicated associates and partners. And we have a laser focus on driving growth and value. Additionally, we are a wholly owned subsidiary of Nationwide® and, with an A.M. Best

a Nationwide Insurance® company

rating of A+ (Superior) FSC XV, we’re ready for the future and everything it has in store.

A.M. Best Rating of A+ (Superior), FSC XV

www.scottsdaleins.com

Let’s do this.

Scottsdale Insurance Company and design is a federally registered service mark of Scottsdale Insurance Company.

5,500 Member Agencies Signed

celebrating

years

1995-2015

Approaching $6 Billion of In-Force Written Premium

Visit us online at siaa.net or email us at info@siaa.net

APPLIED PROTECTS THE TITANS OF INDUSTRY. ®

Accepting large workers’ compensation risks. Most classes. All states, all areas, including New York City, Boston, and Chicago. Few capacity and concentration restrictions. Simplified financial structure covers all exposures.

EXPECT THE WINNING DEAL ON LARGE WORKERS’ COMPENSATION. Call (877) 234-4450 or visit auw.com to get a quote.

WEST

Inside This Issue

On The Cover

Special Report: The Price of Price Optimization

October 19, 2015 • Vol. 93 No. 20 • West

NATIONAL COVERAGE

WEST COVERAGE

IDEA EXCHANGE

10 Assessing First-Half P/C Insurance Results: A.M. Best

W1 Industry Chasing Mobile Consumers with Ads, Apps, Self Service Options

28 Insuring against Terrorism: America’s Post-9/11 Recovery

10 Auto Injury Claims Frequency Falls, But Claims Costs Rise 14 New Catastrophe Coverage Covers Gaps in Wind Policies 15 Spotlight: 10 Things to Know About Commercial Property

W2 A.M. Best Turns Outlook to Negative for Greenpath in California W4 Marijuana Pesticide Flap Draws Product Liability Suit in Colorado

20 Special Report: Top 50 Commercial Lines Leaders

W6 Los Angeles City Council Votes for Quake Retrofit on Older Buildings

22 Special Report: The Price of Price Optimization

W8 A Best Agency to Work For: SES About Community, Employees

24 Special Report: States Probing Insurers’ Use of Price Optimization in Rating

W10 Another Report Shows California Workers’ Comp Reforms Working

26 E&O Insights: How Well Are You Managing Your Agency’s Commercial Lines Accounts?

6 | INSURANCE JOURNAL-WEST October 19, 2015

W12 California Commissioner OKs Metlife Ridesharing Insurance for Lyft Drivers

31 Growing Your Property Casualty Agency: Alan Shulman 32 Analytics: The Industry Game Changer 34 Closing Quote: Just My Analytical Opinion

DEPARTMENTS 12 12 16 30

Declarations Figures Business Moves MyNewMarkets

www.insurancejournal.com

IMPATIENCE IS A VIRTUE.

Clear your desk. Your mind, too.

Quote and order standalone personal umbrellas online in 3 minutes 100% direct bill No MVRs No signed applications Admitted, rated A+ XV by A.M. Best Family-owned and operated. Proudly dog-friendly. Available nationally. Underwriting criteria varies by state. Visit us online for guidelines. California Insurance License 0D08438 A.M. Best rating effective September 2015. For the latest rating, visit ambest.com.

NATIONAL COVERAGE

Opening Note

Publisher Mark Wells | mwells@wellsmedia.com

Consumer Risks & Worries

oe Public has joined U.S. business owners in worrying about cyber risk more and more. Cyber-related concerns grew by more than 20 percentage points among consumers from last year, moving from the fifth-ranked to the third-ranked concern overall, in the third annual Consumer Risk Index conducted by The Travelers Cos. One in four Americans say they have been the victim of a data breach or cyber attack, according to the survey. “Cyber threats are joining the ranks of the conventional issues that individuals have worried about for decades,” said Patrick Gee, senior vice president for claims at Travelers. “Many may be feeling more vulnerable to cyber risks as Americans are becoming increasingly reliant on technology in nearly every aspect of their daily lives.” Of the cyber risks listed as potential concerns, respondents worried the most about their bank accounts being hacked. Other results from the new Travelers consumer survey indicate that a majority of Americans (57 percent) continue to believe the world is becoming riskier. Women, more than men, see the world becoming Cyber-related concerns grew riskier, as do people over by more than 20 percentage the age of 40. points among consumers. Financial security is the top concern among consumers for the third consecutive year. Distracted driving remains a major concern, as well. Ninety percent of respondents are concerned about getting into an accident due to someone else’s distracted driving, yet only 37 percent of respondents are concerned about getting into an accident due to their own distraction. Seventy-six percent of respondents are concerned about their children driving while distracted, up from 68 percent in 2014. Over the past three years, a consistent two-thirds of consumer respondents have indicated that they believe severe weather is becoming more frequent in the U.S. Consumers reported taking basic steps to reduce some of the risks in their lives. Seventy-six percent of respondents said they have annual car safety checks, and 77 percent have installed carbon monoxide or smoke detectors, which is consistent with previous surveys. Storing food, water and flashlights is a common preparation tactic for respondents. Americans appear to be taking action to prepare for cyber threats as well. Seventy-eight percent of consumer respondents reported that they create strong passwords and keep them private; 76 percent limit the amount of personal information shared on the Internet and 69 percent keep their browsers updated with security features. But just 41 percent admitted to frequently changing online Andrea Wells banking/financial account passwords.

Editor-in-Chief

8 | INSURANCE JOURNAL-NATIONAL October 19, 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 Curtis Pearsall Contributing Writers David Coons, Alissa Legenza, Teresa Miller, Steven Plitt, Laird Rixford, Zack Schmiesing 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

FOR QUESTIONS REGARDING SUBSCRIPTIONS: Call: 855-814-9547 or you may subscribe or change your address online at:

insurancejournal.com/subscribe Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Media Group, Inc., 3570 Camino del Rio North, Suite 200, San Diego, CA 92108-1747. Periodicals Postage Paid at San Diego, CA and at additional mailing offices. SUBSCRIPTION RATES: $7.95 per copy, $12.95 per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this publication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended to be legal, accounting, tax, technical or other professional advice. Readers are advised to consult competent professionals for application to their particular situation. Copyright 2014 Wells Media Group, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. Insurance Journal is a publication of Wells Media Group, Inc. POSTMASTER: Send change of address form to Insurance Journal, Circulation Department, PO Box 708, Northbrook, IL 60065-0708 ARTICLE REPRINTS: For reprints of articles in this issue, contact: Ly Nguyen at 1-800-897-9965 ext. 125 or lnguyen@insurancejournal.com Visit insurancejournal.com/reprints/ for more information.

www.insurancejournal.com

Even the office coffee tastes better with Burns & Wilcox. PERSONAL INSURANCE

Your traditional insurance markets can handle most of your clientsâ&#x20AC;&#x2122; personal insurance needs, but not all. Even wholesalers have their limits, unless your wholesaler is Burns & Wilcox. As the largest personal insurance wholesaler, our unequaled access to markets means quick solutions for all your hard-to-place risks. Donâ&#x20AC;&#x2122;t call just any wholesaler. Just call Burns & Wilcox. 800.521.1918 | burnsandwilcox.com Commercial | Professional | Personal | Brokerage | Binding | Risk Management Services

NATIONAL COVERAGE

News & Markets Assessing First-Half P/C Insurance Results: A.M. Best

he property/casualty insurance industry is likely to post a third consecutive year of underwriting profits, considering its performance in the first half of the year and barring any late year catastrophic losses, according to rating agency A.M. Best. The P/C industry grew its net premiums and improved its underwriting results and net income in the first half of the year over 2014 results. Also, loss trends continued in insurers’ favor during the first six months of the year, A.M. Best said. According to the Best Special Report, titled, “Property/Casualty Posts Improved Underwriting Results and Net Income During First Half of 2015,” these improvements were offset by increased stockholder dividends and other changes in surplus and unrealized capital losses. As a result, policyholders’ surplus was essentially unchanged at June 30, 2015, at $683.7 billion, from its prior-year position despite the improved

net earnings. Earnings for the personal lines segment through the second quarter of 2015 increased substantially from the prior year. Some of the highlights from this first-half report by A.M. Best include: • Underwriting expense growth has outpaced premium growth through the first two quarters of 2015, with total underwriting expenses for the industry up 4.5 percent, to $71.7 billion; • The combined ratio for the total P/C industry in first-half 2015 was 97.8, a slight improvement from the 99.0 recorded in the same period in 2014. • The commercial lines segment recorded a 5.4 percent increase in direct premiums written through June 30, 2015, to approximately $134.7 billion, up from approximately $127.8 billion during the same period last year. Key drivers of this increase continue to be workers’ compensation, other (general) liability, auto liability and inland marine.

• Earnings for the personal lines segment through the second quarter increased substantially from the prior yearto-date. After-tax net income was $9.9 billion for the six months ended June 30, 2015, compared with approximately $7.3 billion for the first six months of 2014. • Pretax operating income of nearly $7.0 billion was up by 17.1 percent at the end of the second quarter of 2015, compared with just under $6.0 billion for the second quarter of 2014. The underwriting loss at mid-year 2015 was almost $745 million, compared with an underwriting loss of $2.3 billion for the same period in 2014.

Auto Injury Claims Frequency Falls, But Claims Costs Rise

uto insurance bodily injury claims costs are still increasing in the United States, even though better vehicle safety has helped reduce claims frequency, according to the Insurance Research Council (IRC). The insurance organization said improved vehicle safety, graduated licensing laws and other safety factors have not been enough to offset substantial increases in the cost of injury claims. The average cost per paid liability claim has jumped more than 30 percent from 2005 to 2013, the researchers found. The IRC said the results point to a need for further scrutiny of what is driving these costs. “Documenting the specific drivers of cost in the states where cost growth is greatest will be a priority for the IRC in the years 10 | INSURANCE JOURNAL-NATIONAL October 19, 2015

ahead,” Elizabeth Sprinkel, an IRC senior vice president, said in prepared remarks. Bodily injury liability claims frequency fell nationally by 14.5 percent from 2005 to 2013, the IRC determined in “Trends in Auto Injury Claims, 2015 Edition.” That translates to a dip from 0.94 paid claims per 100 insured vehicles to 0.81 paid claims. At the same time, however, the average cost per paid liability claim grew from $11,738 to $15,506, a jump of 32.1 percent. The same thing happened with personal injury protection (no fault) claims, which dropped in frequency from 1.49 to 1.25 paid claims per 100 insured vehicles over the same period. But, according to IRC, the average cost per claim jumped in this category from $5,802 to $8,017, a 38.2 percent hike.

The IRC said that every state except for Florida, Kansas, Kentucky and Maryland saw a decline in bodily injury claim frequency from 2005 through 2013. Also, every state with personal injury protection coverage (PIP), except for South Carolina, had a drop in PIP claim frequency. Meanwhile, every state except for West Virginia experienced a jump in bodily injury claim severity from 2005 to 2013. All U.S. states save for Pennsylvania experienced an increase in PIP claim severity. Some states saw jumps that were worse than others. Michigan, for example, had the average payment per personal injury protection claim soar from $25,997 to $44,756 over the studied period, a 72.2 percent jump. New York and Washington saw increases of more than 40 percent, the IRC noted. The IRC report is based on claim data from national and state-level statistical reporting agencies. www.insurancejournal.com

INSURANCE AGAINST REGRET TALK TO YOUR CLIENTS ABOUT CHUBB. PROPERTY / LIABILITY / EXECUTIVE PROTECTION / WORKERS COMPENSATION / MARINE SURETY / HOMEOWNERS / AUTO / YACHT / JEWELRY / ANTIQUES / ACCIDENT & HEALTH

www.chubb.com Chubb Group of Insurance Companies (“Chubb”) is the marketing name used to refer to the insurance subsidiaries of The Chubb Corporation. For a list of subsidiaries, please visit our website at www.chubb.com. Actual coverage is subject to the language of the policies as issued. Chubb, Box 1615, Warren, NJ 07061-1615. © 2015 Chubb & Son, a division of Federal Insurance Company.

NATIONAL COVERAGE

FIGURES

DECLARATIONS

$43 Million

In fire prevention fees goes unspent in California. An account has ended recent fiscal years with tens of millions of dollars unspent despite bone-dry conditions across much of California’s wildland area, the Sacramento Bee reported.

The number of people killed by fires in Ohio so far this year — 12 more than at this time last year. Ohio had a total of 115 fire deaths in 2014. A campaign to promote fire safety has been launched in partnership with the American Red Cross, Ohio’s Development Services Agency, and the departments of aging, agriculture, commerce and public safety.

$100 Million The amount the Oklahoma Department of Transportation is planning to spend on improvements to 300 railroad crossings over the next three years. Twelve people were killed and 21 injured in 45 accidents at rail crossings in Oklahoma last year, according to the Federal Railroad Administration and Operation Lifesaver Inc. Oklahoma has more than 3,700 at-grade rail crossings — 694 of which are on roads that are part of the state highway system.

— Daniel Trujillo, groundskeeper at Sonoma Ranch Golf Course, said the course was unplayable and six skylights in the restaurant were broken after an October hail storm in New Mexico.

Like Whack-A-Mole

“With all this success, leading Citizens is almost like playing whack-a-mole. When you knock down one issue another one takes its place. In claims, the critical issue that has surfaced in the past two years is water damage.”

— Citizens President, CEO and Executive Director Barry Gilway told its board of governors in September that water damage losses in Florida have become a critical problem for the state insurer of last resort and are offsetting the progress the company has made through its depopulation efforts.

$20.5 Million The amount the family of 25-year-old Brandon Harris has been awarded after he died during his stay at Emory Healthcare sleep center in Atlanta on Jan. 22, 2010. The jury awarded $10 million to Harris’ estate for pain and suffering and $10.5 million for the full value of his life. Emory said Harris died of cardiac arrest and the hospital took appropriate care of him.

Haircut from Hail

“It’s like a bad haircut. It will grow back.”

Smartphone Activities

“People are not just texting behind the wheel — they are taking selfies, checking email, and, perhaps most shocking, even viewing and recording videos.”

$14 Million

The expected cost to clean up contaminated soil at residential properties in Gibbsboro and Voorhees, N.J., that are currently Superfund sites, according to a plan announced by the U.S. Environmental Protection Agency. The soil and groundwater below the former Sherwin-Williams paint manufacturing plant and Hillards Creek are contaminated with lead, arsenic and volatile organic compounds, the agency said. Contaminated soil below 33 properties will be excavated and backfilled with clean soil.

— Rhode Island Attorney General Peter Kilmartin on the dangers of smartphone use behind the wheel. Kilmartin urged teenage drivers to not use their cell phones while driving as part of the fourth annual “It Can Wait” campaign. The campaign has been expanded this year from a focus on texting while driving to include other smartphone activities.

Responsibility to Protect

“Exposure to lead and high noise levels can cause long-term or permanent health damage. … Maverick Arms has a responsibility to protect its workers by identifying and eliminating these hazards.”

— OSHA Area Director Alejandro Porter comments on citations against Maverick Arms Inc. in Eagle Pass, Texas, for one willful and 23 serious workplace safety violations. The weapons manufacturer was fined $197,000.

Equal Protection

“If added to the law, we will fulfill what I believe is a very basic, fundamental Hoosier value, which says that all Hoosiers deserve equal protection under the law. There’s no room for short cuts or half measures or exceptions.”

— Indiana Senate Minority Leader Tim Lanane, D-Anderson, said that the state’s Democratic caucus will sponsor a bill next legislative session that would add the phrases “sexual orientation” and “gender identity” to Indiana’s existing civil rights code. 12 | INSURANCE JOURNAL-NATIONAL October 19, 2015

www.insurancejournal.com

A AD 8102 0315 IJ

A Perfect Fit

Look to American Reliable Insurance Company for A Perfect Fit for all of your specialty insurance product needs. American Reliable Insurance Company, a member of Global Indemnity, is rated “A” by A.M. Best and has the programs and experience to be your insurance company of choice. • Manufactured Home

• Agriculture

• • • •

• Personal Watercraft • Watercraft • and more

Dwelling Homeowners Motorcycle ATV

NATIONAL COVERAGE

News & Markets New Catastrophe Coverage Covers Gaps in Wind Policies

By Amy O’Connor

etween deductibles, excluded losses, and difficulty accessing business interruption coverage, a business suffering hurricane losses can take a big out-of-pocket economic hit even if it has insurance. There is a disconnect between business needs and what is ultimately covered when it comes to hurricane recovery policies, according to insurance agent Evan Glassman, president and CEO of Fort Lauderdale, Fla.- based New Paradigm Underwriters, says. He thinks the gap is big enough to warrant a supplemental windstorm insurance product. So the Florida agent created a supplemental product for the large corporate and middle-market commercial segment. He named it Hurricane PM. “I saw the insurance industry wasn’t addressing the needs of my client base when it comes to hurricane recovery,” Glassman said. “There are large deductibles, items not covered, exclusions, property damage requirements to trigger business interruptions, etc. It takes the policyholder quite a bit of time to recover what is ultimately covered.” An insurance agent in South Florida for 10 years, Glassman said he wanted to address this “huge problem,” so he started New Paradigm in Florida in 2013 with Bradley Meier, founder of Universal Insurance Holdings, whose subsidiary Universal Property & Casualty Insurance 14 | INSURANCE JOURNAL-NATIONAL October 19, 2015

is a top writer of homeowners insurance in Florida. Through a partnership with Weatherflow Inc., a weather measurement provider that provides data on storms to government agencies and research organizations in the U.S., New Paradigm developed a coverage that is triggered by wind speeds when a large storm occurs. New Paradigm utilizes data from WeatherFlow’s network of nearly 100 hurricane-hardened wind monitoring stations located in coastal areas from Texas to the U.S. Northeast. During a named storm the network registers the maximum sustained wind speed and the data is collected and certified by catastrophe risk modeler Risk Management Solutions (RMS), another partner for the Hurricane PM product. Insureds can be reimbursed for losses within days or weeks of the named storm. “There is a high-correlation between wind speed and severity of damage,” Glassman said. “If there is a National Weather Service named storm then coverage is triggered. Policyholders can go to RMS. com and the event is published there. If they have any economic loss they send that into the insurance company.” Coverage The coverage is underwritten by Allianz with minimum premiums starting at $10,000. It is available to anywhere that is exposed on the coast of the Southeast and Northeast – or Tier 1 wind areas.

Hurricane PM can provide coverage for: • Losses below traditional insurance deductibles • Business interruption and lost profits, including lost or reduced business in the days leading up to and following the storm • Losses from items excluded by traditional policies The policy is open to businesses in any segment with the best fits being those that are exposed to loss and traditionally difficult to insure. Glassman said after every big storm there is billions of insured property that is below the deductible, keeping insureds from recouping their losses. With traditional insurance, insureds typically have a property damage requirement so the days leading up to a storm are not covered. “This coverage is really designed to solve a problem. Unlike traditional insurance, this is a supplemental policy and is very straightforward,” he said. “The insurance company doesn’t determine the wind speed. It is an economic protection policy. Any incidence of economic loss is covered.” The company quietly launched the product in 2014 but has recently started marketing it and has seen encouraging signs so far. Right now the coverage is just available for commercial lines policies but New Paradigm is looking to expand into personal lines at some point down the road. Glassman thinks once agents learn about the new policy, it will make a lot of sense for their clients. www.insurancejournal.com

WEST COVERAGE

News & Markets

Industry Chasing Mobile Consumers with Ads, Apps, Self-Service Options By Don Jergler

demanding,” Rieder said. To contend with these changing consumer dynamics many insurers and agencies are arriers are spending big on advertising, offering more self-serve services, particularly and agencies are working to become on mobile platforms, he said. increasingly more sophisticated and reach Roughly 78 percent of companies now out to more and more people. offer consumers the ability to report claims In the world of insurance, that’s just doing online, and 79 percent offer that capability business as usual. via a mobile device, according to Rieder. But the efforts seem seem to be greater Nearly half of companies offer an online and more focused on success than ever bill pay capability, he added. before, said Jeff Rieder, head of Cincinnati, Increasing pressure on independent agenOhio-based consultant Ward Group. cies has also led them to focus on the bottom “Everyone’s chasing customers,” Rieder line more often, he said. told a group of professionals at the annual According to him, loss ratio, premium National Association of Mutual Insurance growth and policy growth are the top three Companies convention in San Diego at the most important metrics end of September. ‘Customers want their agencies say they are con The NAMIC convention drew thousands interaction to be quick cerned with. While there are concerns of members from the and painless.’ out there among indepeninsurance industry. The dent agencies, nearly half seem to believe convention featured a variety of seminar their analytics capabilities measure up with topics, including: Do’s and Don’ts of Social their competitors’. His polling shows: 47 perMedia Marketing; Attracting, Engaging, cent of agencies believe their capabilities are and Retaining the Workforce of Tomorrow; on par with their peers. More Bang for Your Buck: Maximizing Based on his research he offered a few Cyber Security With a Minimal Budget; thoughts for agencies to keep in mind, which Underwriting Property and Liability include: Rieder conducted a seminar at the confer Identify clear goals and objectives; give ence titled “Changes in Agent Distribution.” agents the tools to remain relevant and He said this intense effort from the induscompetitive; provide fair and competitive try to reach out to more people is due not compensation; help agents develop leads and only to increasingly fierce competition, but identify quality business; provide more stanalso to a more demanding and finicky cusdardized processes enabled with technology. tomer. Phillip Reynolds, CEO and founder of “The consumer is more knowledgeable; BriteCore, a Springfield, Mo.-based software they’re more time constrained; they’re provider for property/casualty insurers, also more connected with the world and more

talked about the importance of mobile technology. Reynolds hosted a session titled “Tech Statistics That Drive Consumer Behavior.” “Mobile has developed faster than any technology in history,” he said. According to him, mobile has seen a 71.1 percent year-over-year growth since it emerged. Other stats he threw out include: 40 percent of adults now own tablets; tablets have experienced 79 percent year-over-year growth; there are 7.5 billion active smartphones; the average smartphone user spends 4.7 hours per day on their device. “Thirty-five percent of web traffic now comes from mobile devices,” he added. And people aren’t just playing Candy Crush on their phones, it seems. According to Reynolds, 90 percent of phone users report making direct purchases or researching purchases regularly using their mobile device. He also spoke on responsive design, in which websites are made to adapt to the device on which they’re being viewed to optimize consumer experience. Regardless of whether a company offers a website, or an app, or both, the user experience should be the same. “Customers want their interaction to be quick and painless,” he said. According to him, 48 percent cite a website or app design as a part of their decision-making about the credibility of a business, and more than eight-in-10 people who have had one bad user experience are unlikely to return to an app or website.

www.insurancejournal.com

October 19, 2015 INSURANCE JOURNAL-WEST | W1

WEST COVERAGE

News & Markets A.M. Best Turns Outlook to Negative for Greenpath in California

.M. Best has revised the outlook to negative from stable and affirmed the financial strength rating of B+ (Good) and the issuer credit rating of “bbb-” of Greenpath Insurance Co. in Rancho Cordova, Calif. Greenpath provides non-standard auto insurance throughout California. The negative outlook is driven by Greenpath’s recently increased operating losses and decline in policyholder surplus, which fell short of management’s financial projections, according to A.M. Best. A.M Best’s analysis stated that Greenpath’s near-term projected earnings, policyholders’ surplus and risk-adjusted capitalization indicate further weakening that falls short of management’s original five-year plan. This shortfall reflects Greenpath’s termination of an 80 percent quota share with Benchmark Insurance Co. on its “Navigator” product. The resulting additional premium

recently brought onto Greenpath’s books has adversely impacted its underwriting results, operating earnings and risk-adjusted capitalization, according to A.M. Best. However, the financial strength affirmation reflects Greenpath’s adequate risk-adjusted capitalization and senior management’s operating experience and knowledge of California’s private passenger non-standard automobile market, A.M. Best stated. “Partially offsetting these positive ratings factors is Greenpath’s execution risk associated with growing a private passenger non-standard automobile book of business, a segment in which smaller insurance writers have experienced a material deterioration in operating results and policyholders’ surplus in recent years,” A.M. Best stated. The general deterioration in the non-standard automobile line of business has been partially driven by economic conditions, price competition and adverse selection

California Governor Signs Beer Bikes Bill into Law

ov. Jerry Brown has signed a bill allowing beer bikes to operate on city streets. The governor’s office tweeted a photo of Brown signing the bill on a beer bike in Sacramento in October. Brown was aboard the beer bike with his wife, Anne Gust Brown. Also on board was Sen. Richard Pan. The Sacramento Democrat California Gov. Jerry Brown signs bill allowing beer bikes in his state. crafted the bill to create a Brown signed the bill in October while aboard a beer bike. vehicle safety standard for bike buses that allow up to 15 people to Beer bikes have been popping up in pedal at once. Sacramento and San Diego as a riding tour, The bill lets people on pedicabs with as often with stops at bars and restaurants. many as 15 riders imbibe if their city’s safety Brown previously signed bills legalizing codes permit it. beer tasting and wine tasting at farmers After the signing, Brown took a brief ride markets. on a beer bike in Sacramento. Copyright 2015 Associated Press.

W2 | INSURANCE JOURNAL-WEST October 19, 2015

from large personal automobile writers with greater scale and pricing granularity, according to A.M. Best. A.M. Best warned that negative ratings actions could occur if Greenpath’s risk-adjusted capitalization or its earnings fall below management’s financial projections.

California Governor Signs Workers’ Comp Formulary Bill

alifornia Gov. Jerry Brown has signed a bill to move California forward in curbing abuse of opioid medications in the workers’ compensation system. Assembly Bill 1124, authored by Assemblyman Henry T. Perea, D-Fresno, requires the Division of Workers’ Compensation to establish a formulary for prescription medications in the workers’ compensation system. Several groups applauded the signing, including the Association of California Insurance Companies. “Gov. Brown should be applauded for signing AB 1124,” ACIC President Mark Sektnan said in a statement. “This bill will put California on track to create a scientifically valid, evidence-based formulary and will control the overprescribing of opioids.” The development of a formulary for the workers’ comp system will ensure clinically appropriate medications are provided to injured workers and counteract the overutilization of dangerous and addictive drugs, he said. www.insurancejournal.com

Your Crown, Your Majesty. You wear the crown while Doris takes care of YOUR kingdom. Your kingdom is too important to trust to just ‘any’ wholesaler! Can she fetch you a quote? • Importers

• Vacant Building

• Distributors

• Vacant Land

• Manufacturers

• Artisan Contractors

• Mercantile

• Lessor’s Risk

• Motel/Hotel

• Garage Liab./GKLL

• Apartments/HOA’s • Farm • Restaurants/Taverns • Shopping Centers • Special Events Doris’s strength is to make you shine in front of your insureds. Isn’t it time you got the royal treatment for your GL, Property and Excess risks? Call Doris.

One Who Serves Doris Rojas Underwriter - Comm Lines La Crescenta Office x2229 dorisr@monarchexcess.com

You’ll Get the Royal Treatment

Watch our videos at MonarchExcess.com La Crescenta 818-249-0100 • Simi Valley 805-577-6800 • San Diego 619-521-2170 • Rancho Mirage 760-779-5555 Novato 415-883-1411 • Fresno 559-226-0200 • Arizona 877-406-8026 • Hawaii 818-425-9847 • License 0697233

WEST COVERAGE

News & Markets Esurance Launches Mileage-Based Insurance Policy in Oregon

surance has launched a new mileage-based insurance offering called Esurance Pay Per Mile, available first to Oregon drivers. Eric Madia, auto products vice president at Esurance, said the through the program customers will pay largely based on how many miles they drive, “whether that’s 1,000 or 10,000 miles per year.” Esurance Pay Per Mile is being touted as an option for drivers who have a low annual mileage or flexible commuting options. It offers the

same coverage options as an unlimited-mileage policy, according to the carrier. Esurance automatically tracks mileage and GPS location through a device that plugs into a port in the dashboard of a vehicle known as the OBD-II port. When insureds sign up, they receive instructions to log into their Esurance Pay Per Mile account, which allows them to set alerts and monitor their driving history. Esurance sells insurance direct to consumers online, over the phone, and through select agents, including sister company Answer Financial. It is a member of the Allstate family.

Marijuana Pesticide Flap Draws Product Liability Suit in Colorado

wo marijuana users in Colorado filed a lawsuit earlier this month against a pot business they said used an unhealthy pesticide to grow their weed — a case that lawyers say is the first product liability claim in the nation involving the legal marijuana industry. The case underscores disagreement over what chemicals should be allowed in the cultivation of pot and leaves the plaintiffs facing a dilemma: The U.S. government still regards almost all marijuana as an illicit drug and there are no federal safety guidelines for growing it. Colorado has approved a list of pesticides that are acceptable to grow pot, but it’s far from complete and leaves out several pesticides commonly used on both food and tobacco. The lawsuit filed in state court targets use of a fungicide called Eagle 20 EW by a Denver-based pot company called LivWell, where authorities quarantined thousands of plants earlier this year, saying they had W4 | INSURANCE JOURNAL-WEST October 19, 2015

been treated with the pesticide. Eagle 20 EW is commonly used on grapes and hops but can become dangerous when heated and is banned for use on tobacco. LivWell insists its products are safe, and authorities released the company’s confiscated plants after they tested at acceptable levels. Still, the plaintiffs insist that LivWell should be punished for using a chemical not listed by the state as acceptable for use on pot. Colorado is one of four states that have legalized the sale of recreational marijuana. Oregon and Washington state also allow such sales. Alaska could see retail purchases next year. The U.S. Environmental Protection Agency told Colorado and Washington authorities in June that they could apply to have some cannabis-related chemicals approved through a special process, which could take years. Copyright 2015 Associated Press.

Jury Awards $1.8M Exploding e-Cigarette Trial in California

Superior Court jury in Riverside, Calif., awarded $1.85 million in a lawsuit over an e-cigarette product that exploded while charging, physically burning and emotionally scarring a woman, her attorneys said in early Octdober. Jennifer Ries was traveling to the airport for a trip to Brazil as part of a nonprofit organization in 2013 and while her husband was driving she plugged in her locally purchased VapCigs “E-Hookah E-Cigarette Starter Kit” charger, the lawsuit states. As it was charging, the battery exploded, causing several pieces of hot metal shrapnel to disperse throughout the car, according to the suit. The blast ignited Ries’ seat and dress, burning her buttocks and legs, and spilled corrosive materials into her lap, causing painful second degree burns on her legs, buttocks and hand, the suit states. “This industry is unregulated and remains ripe for disaster,” the attorney for Ries, Gregory L. Bentley of Shernoff Bidart Echeverria Bentley LLP, said in a statement. Sadly, the industry’s carelessness struck Jennifer and changed her life forever. We are thankful for the jury’s verdict and hope it will jolt the industry to take steps to ensure and test that these products are safe for consumers before they are placed on the market.” The case is Jennifer Ries v. VAPCIGS, Riverside Superior Court Case No. RIC 1306769. www.insurancejournal.com

WEST COVERAGE

News & Markets Los Angeles City Council Votes for Quake Retrofit on Older Buildings

housands of older wood and concrete apartment buildings that would be vulnerable to collapse in a major earthquake would get costly upgrades under sweeping retrofitting rules passed in October by the Los Angeles City Council. The mandate would affect as many as 13,500 so-called soft-first-story buildings, which are typically wood-frame structures with large spaces such as parking lots on the ground floor. As many as 1,500 brittle concrete buildings would also require upgrades. The measure passed on a 12-0 vote. “There’s no question that we’re going to have an earthquake. The question is, when?” Councilman Gil Cedillo said before the vote. “In here we’ve laid out the groundwork for the seismic retrofitting that needs to be done.” City leaders will now have to agree on how the estimated $5,000-per-unit retrofitting costs would be split between tenants and landlords. One proposal is to split the costs 50-50 and cap possible monthly rent increases at $38. Before the vote, representatives for residential landlords and commercial building owners signaled their approval of the plan —– while expressing concerns about potential costs. The proposed quake retrofitting mandate is part of an effort by Mayor Eric Garcetti to make the city resilient to major earth-

quakes. His plan released in December focuses on rapidly identifying and retrofitting at-risk residential and commercial buildings, fortifying major water systems that would be severed by a huge quake and keeping telecommunications systems operating. Wood apartments will be given seven years to complete construction once an

owner is ordered by the Department of Building and Safety to retrofit the building. Owners of brittle concrete buildings will have 25 years to do the work. Sixteen people were killed in the collapse of a soft-first-story building during the Jan. 17, 1994, Northridge earthquake. The magnitude-6.7 jolt was the last significant seismic disaster in the Los Angeles region.

U.S. Senator from Nevada Suing Exercise Band Maker over Eye Injury

.S. Sen. Harry Reid is suing a company that makes and markets a flexible exercise band that he says slipped from his hand, causing him to fall and suffer eye, face and rib injuries on New Year’s Day. A lawsuit filed earlier this month in Nevada seeks more than $50,000 in damages for the Senate minority leader from Nevada and his wife, Landra Gould, from TheraBand maker Hygenic Intangible Property Holding Company and related companies.

W6 | INSURANCE JOURNAL-WEST October 19, 2015

Reid’s lawyer, Jim Wilkes of Florida, declined to comment beyond the 16-page civil complaint filed Clark County District Court. It alleges negligence, liability and failure to warn consumers including the elderly of the dangers of using the product. Reid is 75. A legal representative of the company in Cleveland and Akron, Ohio, didn’t immediately respond to calls for comment. Copyright 2015 Associated Press. www.insurancejournal.com

THE ONLY INSURANCE POLICY FOR ASSET MANAGERS WITH BUILT-IN COVERAGE FOR CYBER RISKS. Asset managers are entrusted to safeguard extremely sensitive client data. That means they’re a big target for cyber attacks. In many cases when a breach occurs, the issue of liability can be disputed if an insurance policy doesn’t clearly state what claims are covered. With The Hartford’s Asset Management Choice , there’s no uncertainty. It’s the only tailored insurance policy in the industry for asset managers SM

with built-in coverage for third-party network security liability claims — making it a great hedge against costly claims. Find out what it means to be truly prepared and protected at THEHARTFORD.COM/AMC. Prepare. Protect. Prevail.® 52679E

Any discussion of coverage herein is summary only. Coverage depends on the actual facts of each claim and the terms, conditions, and exclusions of the issued policy. Please refer to the issued policy to determine all terms, conditions and exclusions of coverage. Coverage is provided by the property and casualty companies of Hartford Financial Services Group, Inc. and may not be available to all businesses in all states. © 2015 The Hartford Financial Services Group, Inc. All Rights Reserved.

Business Insurance Employee Benefits Auto Home

WEST COVERAGE

Best Agency to Work For - West SANTA ANA, CALIFORNIA

SES Insurance Brokerage Services Inc.

haring is caring — that goes for your community and your employees. That’s the attitude at Santa Ana, Calif.based SES Insurance Brokerage Services Inc., which encourages employees to volunteer for 40 hours per year on company time. That was one among many reasons why SES was named Insurance Journal’s 2015 pick for Best Agency to Work For, Silver Winner – West. A survey was conducted by Insurance Journal to help judge the award and included several categories in which employees could grade their firm. Employees responding to a survey thought very highly of SES. Overall it was one of the highest rated firms in the annual survey. SES garnered an overall “excellent” rating from most who took the survey. An overwhelming majority of employees rated the firm “excellent” or “good” in nearly every category, which included flex time, education, vacation, insurance knowledge and overall management skills. Most who responded mentioned the firm’s focus on community service. One employee expressed appreciation that management is open to employee opinions. “SES is a platform that allows people

together.” Mecklenburg described the agency as a collaborative effort that credits its success to good teamwork. “I don’t think insurance was the first career of any of the leaders of our organization or most insurance operations,” Mecklenburg said. “Nonetheless, we all came to realize that our business operates at the intersection of analytics, technology, strong relationships, and delivering on promises; all of which makes for a challenging and exciting work environment.” He described SES as a program specialist “operating in two uniquely defined niches.” “The respective teams feel as much a part of our customers’ industries as they do the to exhibit your talent and passion,” the insurance industry,” he said. employee stated. “There is a lot of receptiv He said roughly one-third of the firm’s ity and encouragement for good work and expenses are related to systems developideas.” ment and support, which when combined The employee wrote that the firm’s with a culture of customer “plans are ambitious and future service and a drive for product appears bright.” innovation, gives the firm a com SES is a small, private compapetitive advantage in its market ny, yet management shares finanniches. cial results with employees each “What (CEO) Blair Schrum and month, another survey responI enjoy most about our jobs today dent said. The employee reported Bill Mecklenburg is experiencing the pride in the the firm offers “strong benefits” achievements of our group,” he that are mostly paid by SES. said. “We have some really bright “Recently when the healthindividuals who are innovative care market changed, we were and bring a contagious and inspirforced to change benefits proing energy level every day. We are grams,” the employee wrote. having a great time and hopefully “The employees were allowed to Blair Schrum making a difference.” vote on which option to choose, A survey respondent echoed that teameven when one option was cheaper than work sentiment. the other.” “The company is very team oriented and SES President Bill Mecklenburg was performance oriented, but performance is stoked to hear the agency rated so well. measured against a higher purpose,” the “It is simply awesome to learn that our employee wrote. “That higher purpose is employees nominated SES as a great place based on creating a great environment for to work,” he said. “There is nothing more each individual employee to achieve their invigorating in business than having a dreams.” close-knit group of colleagues committed to SES is a provider of insurance services for understanding and serving their customers’ large portfolios of residential real estate. needs while growing something special

W8 | INSURANCE JOURNAL-WEST October 19, 2015

www.insurancejournal.com

SES About Community, Employees By Don Jergler

WEST COVERAGE

News & Markets Another Report Shows California Workers’ Comp Reforms Working By Don Jergler

hundreds of thousands of liens filed each year costing the system hundreds-of-millions of dollars, according to the WCIRB. The Department of Industrial Relations and its Division of Workers’ Compensation released a report in July that detailed increased payments to injured workers and significant cost-saving benefits for employers. That report also showed lien filings have decreased by roughly 60 percent since the passage of SB 863. In May the California Department of Insurance adopted advisory pure premium rates for July 1, which on average are five percent less than the industry average for filed pure premium rates as of Jan. 1, and 10.2 percent less than the average of the approved Jan. 1 rates. However, not all reports have pointed to falling costs across the board. The WCIRB report in July showed that workers’ comp premiums in California continue to grow at double-digit rates. The WCRI study out this week on California showed medical payments per claim fell 5 percent in 2013, which the report’s authors say was likely a reflection

new study on worker’s compensation across 17 states shows that reforms sometimes work — and such is the case of sweeping reforms made in California, the report shows. The Workers Compensation Research Institute, an independent, not-for-profit research organization based in Cambridge, Mass, issued a set of studies earlier this month that examine the factors behind trends of medical payments per claim in state workers’ comp systems and the impact of legislative and regulatory changule, prices paid for primary care rose in es. California while the prices paid for special The WCRI studies, CompScope Medical ty care decreased in 2014, the study shows. Benchmarks, 16th Edition, examine trends “SB 863 is expected to affect both the in payments, prices, and utilization of medprices and utilization of medical care for ical care for injured workers. most types of providers,” the report states. The studies cover the period from 2008 “Based on data with six to 15 months of through 2013, with claims experience experience post-reform, this report examthrough March 2014. ines some early impact of several SB 863 pro The states studied are: Arkansas; visions on a series of performance measures California; Florida; Georgia; Illinois; in California, including the average medical Indiana; Iowa; Louisiana; Massachusetts; payment per claim, ASC facility payments Michigan; Minnesota; New Jersey; North per claim, prices paid for various types of Carolina; Pennsylvania; Texas; Virginia; and professional services, and billing patterns of Wisconsin. office visits and report codes in the state.” Findings in the report seem to indi Alex Swedlow, president and chief cate that reforms passed with SB 863 in executive officer of the California Workers’ California in 2012 are working. Compensation Institute, said this Among the many SB 863 reforms were study and previous studies have con‘SB 863 is expected to affect both the adoption of a resource-based relato show that the 2012 reforms the prices and utilization of medical tinued tive value scale for professional fees, a have been effective so far. care for most types of providers.’ reduction in ambulatory surgery center He said it’s too early to know what fees from 120 percent to 80 percent of the impact will be on permanent disof the early impact of the SB 863 reforms. Medicare hospital outpatient rates, as well ability. That decrease included reduced reimas independent medical review and inde However, the evidence from the reducbursement rates for ambulatory surgery pendent bill review processes. tion in liens, decreasing medical costs, the centers and elimination of separate reim SB 863 also established a $150 lien filreduction in ambulatory surgery center bursement for implantables. ing fee and a $100 activation fee for liens costs and back surgeries all point to success A key driver of the decrease in the averalready filed. so far for the SB 863 reforms, he added. age medical payment per claim in 2013 were The Workers’ Compensation Insurance “Workers’ compensation reform never ambulatory surgery center facility payments Rating Bureau issued a report in August ends,” Swedlow said. “There’s always modifiper claim, which fell nearly 24 percent that that shows the lien fee was among elements cations and adjustments going on. But right year, the study states. of SB 863 that have helped to reduce costs now I think we can feel optimistic that Following the transition to the resourcewithin the system. many areas of reform that are targets in SB based relative value scale based fee sched The fees were intended to reduce the 863 appear to be working.” W10 | INSURANCE JOURNAL-WEST October 19, 2015

www.insurancejournal.com

Commercial auto insurance? We deliver. At Century-National Insurance Company, the security of you and your client’s business is our only business. As a prominent insurer in the West, our focus is a steadfast commitment to help you serve your customers. From preferred Business Auto risks to the unique, we will fulfill all your customers’ commercial auto needs. Looking for a Super Regional Carrier with an A.M. Best “A” rating, superior service, a competitive product and where you can talk to an actual person? The word’s out...the best security for your client is Century-National Insurance Company.

800.733.0880, ext. 2140

HOMEOWNER’S

EARTHQUAKE

| www.cnico.com

MOBILE HOME

COMMERCIAL AUTO

PERSONAL AUTO

UMBRELLA

WEST COVERAGE

News & Markets University of Oregon Sorority Kitchen Worker Files Suit over Termination

former kitchen worker at a University of Oregon sorority house is suing the Alpha Xi chapter of Kappa Alpha Theta over her alleged wrongful termination. Noel Roberts filed the suit in mid-October for at least $50,000 in damages. The lawsuit says Roberts’ face and hair were burned in a gas leak from a stove at the sorority house. Roberts also claims she

was required to work 12 hours a day without breaks during her one-year stint as a cook at the house located just east of campus. Roberts claims she was fired in 2014 after initiating an Occupational Safety and Health Administration investigation into the gas leak and filing a wage complaint. Copyright 2015 Associated Press.

California Commissioner OKs Metlife Ridesharing Insurance for Lyft Drivers

yft drivers have a new ridesharing insurance option covering all three ridesharing periods. Those changes came to light earlier this month with the introduction of a new product, approved by Insurance Commissioner Dave Jones.The coverage became available beginning Oct. 15. “As demand for ridesharing services increases, making sure ridesharing drivers are able to obtain insurance to protect them-

selves, their passengers and pedestrians has been a top priority,” Jones said in a statement. MetLife Auto & Home’s product is the first to offer a personal auto policy designed for Lyft drivers that provides coverage for drivers at every stage of the ridesharing transaction — while the driver is waiting for a passenger request, is en route to pick up a passenger, and during the trip with the passenger, according to Jones.

High Risk Property

Colorado Judge Approves $7M Award for Homes on Sinking Soil

Colorado judge has upheld an arbitrator’s award of more than $7 million to 20 homeowners at a golf course subdivision near Glenwood Springs whose properties were constructed on a soil linked to sinkholes and subsidence. The judge also ruled that defendants Hansen Construction and Steve Hansen owe more than $2 million in legal fees. An attorney for the plaintiffs had said that two of the homes built by Hansen Construction were condemned and several others had shifted or been damaged as a result of being built on salt-laden evaporate. The judge has not yet ruled on a jury’s decision that the homes’ developer, LB Rose Ranch LLC, should pay more than $6.7 million in the case. The awarded money will go toward restoring the homes. Copyright 2015 Associated Press.

Old Buildings - Vacant Buildings - Earthquake or DIC Coverage Hazardous Occupancies - Risks with Prior Losses

M.J. Hall & Company, Inc.

www.mjhallandcompany.com (209) 948-8108

States Covered: AK, AZ, CA, NV, & HI

License #0488901 MJHALLCO16811.indd 1

W12 | INSURANCE JOURNAL-WEST October 19, 2015

10/2/15 4:10 PM

www.insurancejournal.com

SPOTLIGHT

10 Things to Know About Commercial Property Commercial property insurance continues to be a buyer’s market with additional capacity still making its way into an already overcrowded space. In the current market it is important for the insureds to set goals prior to renewal. Clients should consider whether the goal is to take advantage of all of the most aggressively priced capacity and maximize savings or strike a blend of premium savings and improving terms and conditions. — David Finnis, head of Property Broking, Willis North America

Another consideration is reviewing where the current property average rate stands in relation to the past 10-15 years. If the current rate is toward or at the lowest point, then some thought should be given to locking it in for the next three years. It might be possible to couch the bet on future years and have underwriters agree to year 2 at -5% and year 3 at -5%. — David Finnis, head of Property Broking, Willis North America Depending on market segment, loss history and catastrophe exposure, most commercial property insurance clients around the country saw rate decreases in 2015, some as high as -20%. — Thomas Delark, chief marketing officer, HUB International Northeast

www.insurancejournal.com

Commercial property insurers are looking for opportunities to maintain their positions on accounts. They are also interested in product innovations to create opportunities to find new premiums in the market. The marketplace is seeing multi-year aggregate products emerging. — Mike Andler, head of U.S. property risk, Lockton

Accurate and quality underwriting data will further enhance renewal outcomes. Modeling (RMS/AIR/Blended) will continue to affect capacity and pricing guidelines. By having the most comprehensive data (including secondary modifiers), insureds will better understand their true risk profile along with achieving positive renewal outcomes. — Stephen Zimmer, National Property Practice leader, Wells Fargo Insurance Services USA

From a cost of capital perspective, catastrophic property pricing may be getting near a floor when contemplating required returns and carrier expenses. While there remains an abundance of capacity, the models along with these capital requirements may slow some of the decreases in that arena. — Stephen Zimmer, National Property Practice leader, Wells Fargo Insurance Services USA

With the lack of catastrophic events such as hurricanes making landfall in the U.S. or large quakes in California, insurers have maintained underwriting profit in spite of the competitive pricing environment. — Michael Korn, Property Practice leader, Integro Contingent business interruption continues to be one of the most scrutinized property exposures. Continued consolidation of suppliers by manufacturers puts more eggs in fewer baskets and underwriters struggle to identify the extent to which multiple insureds can be exposed. This can result in restrictive coverage and/or capacity. Providing as much detail as possible relative to suppliers and alternative sources is key to maximizing available coverage. — Michael Korn, Property Practice leader, Integro Flood coverage will continue to be a growing exposure and concern for insureds and insurers. With weather patterns changing, the world is seeing more flooding in areas that have been known to be exposed, as well as new geographies that previously did not represent flood exposures. The improvements in flood modeling have aided in the identification and quantification of flood risks, which in many cases has led to exclusionary language. — Michael Korn, Property Practice leader, Integro There were roughly 100,500 non-residential structure fires in the U.S. in 2013, causing 70 civilian deaths, 1,500 injuries and $2.6 billion in direct property damages. — National Fire Protection Association October 19, 2015 INSURANCE JOURNAL-NATIONAL | 15

NATIONAL COVERAGE

Business Moves tion under the local leadership. An independent insurance agency, Western Rivers traces its roots back over 100 years and provides commercial, personal and group life and health insurance services and products to businesses of all sizes. In addition to standard property and casualty coverages, it offers bonds, hull, pollution, cyber and aircraft coverages, among others. Headquartered in Lake Mary, Fla., AssuredPartners acquires and invests in insurance brokerage businesses (property/casualty, employee benefits, surety and MGUs) across the U.S. and in London. AssuredPartners AssuredPartners Inc. announced that its subsidiary, AssuredPartners of New Jersey, acquired Moscker Insurance Agency Inc. in Severna Park, Md. Terms of the transaction were not disclosed. Moscker Insurance Agency specializes in coverage for individuals, businesses, and life and health insurance products. The agency reports approximately $3 million in revenues. As part of the acquisition, 14 Moscker Insurance Agency employees will join AssuredPartners. Operations will continue under the local leadership of Peter Moscker, principal of Moscker Insurance Agency. In another deal, AssuredPartners acquired Bandy Van Cleave & Williamson of Nashville, Tenn. The agency’s staff will continue to operate from their Nashville location under the local leadership of Bob Van Cleave and Chuck Williamson. Bandy Van Cleave & Williamson provide a full range of commercial products and services to small to mid-size businesses in nearly every sector. Also announced, AssuredPartners acquired Western Rivers Insurance of Paducah, Ky., and Insurance Center of Murray, Ky. The agency’s 22 employees will continue to operate from their current loca16 | INSURANCE JOURNAL-NATIONAL October 19, 2015

CRC, Connecticut Underwriters CRC Insurance Services Inc., a wholesale insurance unit of BB&T Corp.’s principal subsidiary Branch Banking and Trust Co., announced an agreement to acquire Connecticut Underwriters Inc. in Middletown, Conn. Terms were not disclosed. Founded in 1964, Connecticut Underwriters is an independent excess and surplus lines broker serving the Northeast region. It will operate as part of CRC Insurance Services’ Southern Cross Underwriters division. Bill Kiley, Connecticut Underwriters president, will serve as regional director after the transaction is complete, the announcement said. CRC Insurance Services, with more than $4.3 billion in casualty, property and professional premiums during 2014, is a wholesale property/casualty insurance broker. Arthur J. Gallagher, Burkwald & Assoc. Itasca, Ill.-based insurance broker and risk management services provider, Arthur J. Gallagher & Co., has acquired Burkwald & Associates Inc. of Pewaukee, Wis. Terms of the transaction were not disclosed. Founded in 1978, Burkwald & Associates is a management and employee benefits consulting firm that offers group employee benefits products and consulting services to

their commercial and public entity clients throughout the Midwest. Daniel Burkwald and his team will continue to operate from their current location under the direction of William Ziebell, Gallagher’s North Central employee benefit consulting and brokerage leader. Eustis Insurance & Benefits Metairie, La.-based Eustis Insurance & Benefits Inc. opened a new branch office in Dallas on Oct. 1. Eustis president Tommy McMahon explained his company’s expansion into Texas is part of a comprehensive development strategy to grow beyond its historic Louisiana footprint. Corey M. Manning will anchor the firm’s new Dallas operation. Manning, who specializes in commercial risk management and contract and commercial surety, was recently an account executive with Equify Risk Services of Dallas. Eustis also has offices in Metairie, Mandeville and Baton Rouge, La. AmTrust Financial Services, Republic Cos. AmTrust Financial Services Inc. has agreed to acquire Republic Cos. Inc. and its affiliates (Republic) from Delek Group Ltd. and Republic Insurance Holdings LLC. Republic is based in Dallas. The purchase price is approximately $233 million, subject to adjustments. The purchase price will be a combination of $113 million in upfront cash, a $105 million note issued by AmTrust to Delek Group Ltd bearing annual interest of 5.75 percent with a four year maturity and cash payments to be made over five years. Pending regulatory approval, the parties anticipate closing will occur during the first half of 2016. Texas-based Republic has been providing property/casualty insurance for more than 100 years. In 2014, Republic reported total direct premiums of about $711 million. Republic provides insurance products and services to individuals and small to medium-size businesses through a network continued on page 18 www.insurancejournal.com

“The ROI is going to be unbelievable. It has changed how we manage the office.” Todd McCredie President McCredie Insurance

The Vertafore Agency Platform

™

It’s more than a management system. It’s the Vertafore Agency Platform™. Learn more: www.vertafore.com/ChoosePlatform © 2015 Vertafore, Inc. and its subsidiaries. All rights reserved. Trademarks contained herein are owned by Vertafore, Inc.

NATIONAL COVERAGE

Business Moves

continued from page 16 of independent agents primarily in Texas, Louisiana, Oklahoma, Arkansas, Mississippi and New Mexico.

ating company, headquartered in Tampa, Fla. Founded in 2009, the company reported total written premiums of $53.4 million in 2014.

Prepared Holdings, Meridian Prepared Holdings LLC, the holding company for Prepared Insurance Co., has entered into a definitive merger agreement with Meridian Insurance Holdings Inc., a private investment group, under which Prepared will be acquired by Meridian. It is anticipated that Meridian will pay a total all-cash purchase price of approximately $35.7 million, assuming a GAAP book value of Prepared of roughly $20.58 million at closing. The transaction is expected to close around Oct. 30, subject to the satisfaction of customary closing conditions. Prepared Holdings LLC is the parent company in a consolidated group of companies writing homeowners insurance. Prepared Insurance Co. is the primary oper-

USI Insurance, Benefit Controls USI Insurance Services has acquired the employee benefits business of Benefit Controls of the Carolinas Inc. This is the first acquisition in North Carolina for USI. An employee benefits consulting firm, Benefit Controls of the Carolinas Inc. designs and manages employee benefits and wellness programs as well as provides human resources consulting for companies of all sizes. This business and its employees will remain in its Charlotte, N.C., location. Terms of the transaction were not disclosed. USI is an insurance brokerage and consulting firm in property/casualty, employee benefits, personal risk services, retirement, program and specialty solutions.

Sometimes

CLOSE isn’t good enough

In premium financing, competitive rates are just part of the game. We’ve got superior technology and exceptional customer service − all backed by a national charter. If you’re a client, you already love us. If you're not, let us show you what you've been missing.

Newport Beach, Calif. 800.347.4986 Dallas, Texas 800.299.5626

Call us or visit afsibex.com for your premium financing needs METAP002.indd 1

18 | INSURANCE JOURNAL-NATIONAL October 19, 2015

Burns & Wilcox Burns & Wilcox Brokerage has opened a new full service brokerage office in Charlotte, N.C. This latest location is the third the company has opened in just nine months. Former AmWINS Group Inc. Vice President Greyson Richardson will oversee operations at Burns & Wilcox Brokerage Charlotte as well as provide property brokerage services. Richardson brings nearly a decade of experience to the role and will focus on new risk exposures in the complex, high-hazard property market and growing healthcare industry. Cassandra Grace joins Richardson in Charlotte as a professional liability broker, along with Kevin Burns as a casualty broker. Grace has a decade of experience in professional and management liability lines, most recently at Brown & Riding Insurance Services Inc. where she provided options for complex risk exposures for a range of industry classes. Grace also spent two years at Monitor Liability. Burns most recently served as assistant vice president at AmWINS Group Inc. in Charlotte. In addition to casualty, he has spent time working in the ocean marine space. Burns & Wilcox Brokerage, is an independent business unit owned by the H.W. Kaufman Financial Group solely dedicated to wholesale insurance brokerage. Hub, Johnson & Wood Hub International Ltd. has acquired the assets of Carlsbad, Calif.-based Johnson & Wood Insurance Services Inc. Johnson & Wood President Ed Johnson, and Stuart Wood, vice president, will join Hub California and report to Travis McElvany, executive vice president of Hub California. Johnson & Wood is a multi-line agency providing commercial and personal insurance services, as well as employee benefit products. Chicago, Ill.-based Hub is an insurance brokerage that provides property/casualty, life and health, employee benefits, investment and risk management products and services.

9/20/15 7:45 AM

www.insurancejournal.com

Own productivity

wireless desktop scanner

Incredibly fast Intuitively smart One button simple

http://ez.com/insj ÂŠ 2015 Fujitsu Computer Products of America, Inc. All rights reserved. Fujitsu and the Fujitsu logo are registered trademarks of Fujitsu Ltd. All other trademarks are the property of their respective owners.

SPECIAL REPORT

Commercial

Lines Leaders

Top 50 Commercial Lines Agencies

About the Commercial Lines Leaders: The 2015 Commercial Lines Leaders in this special feature are taken from Insurance Journal’s Top 100 Property/Casualty Independent Agencies as reported in August. This list utilizes only the 2014 commercial lines property/casualty revenue numbers of the privately owned agencies and brokerages that submitted data to the Top 100 agencies report. For more information on Insurance Journal’s Top 100 Property/Casualty Independent Agencies list, contact awells@insurancejournal.com.

Ranked by Total 2014 Commercial Lines P/C Revenue 2015 Rank Agency Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

2014 2014 Commercial Total Lines P/C P/C Revenue Revenue

Lockton Cos. $874,697,000 Hub International $601,171,000 Alliant Insurance Services Inc. $410,103,460 USI Insurance Services $404,622,389 AssuredPartners Inc. $314,636,682 Integro Ltd. $182,342,000 BroadStreet Partners Inc. $167,521,000 Acrisure LLC $131,678,499 Leavitt Group $124,406,094 EPIC (Edgewood Partners Insurance Center) $110,585,517 Insurance Office of America Inc. $106,394,917 The IMA Financial Group Inc. $99,318,687 Crystal & Co. $90,275,447 Wortham Insurance & Risk Management $88,235,103 The Capacity Group $82,287,443 J. Smith Lanier & Co. $82,195,057 Hays Cos. $82,000,000 Heffernan Insurance Brokers $78,455,260 Risk Strategies Co. $64,462,000 Woodruff-Sawyer & Co. $63,500,000 NFP $63,387,867 Mesirow Insurance Services Inc. $60,220,356 Hylant $60,213,412 INSURICA Insurance Management Network $59,657,244 Higginbotham $54,421,000 PayneWest Insurance $53,886,661 Assurance $49,256,355 SterlingRisk $41,370,000 Frenkel & Co. $40,991,000 The Graham Co. $40,166,881 Bowen, Miclette & Britt, Insurance Agency LLC $38,665,373 Propel Insurance $36,300,000 Houchens Insurance Group $35,993,289 The Mahoney Group $34,255,235 InterWest Insurance Services LLC $34,188,598 Marshall & Sterling Enterprises Inc. $33,777,859 Andreini & Co. $32,500,476 Ascension Insurance Inc. $32,497,000 Starkweather & Shepley Insurance Brokerage Inc. $30,766,000 Moreton & Co. $28,933,000 Parker, Smith & Feek Inc. $28,563,000 The Horton Group Inc. $26,805,619 LMC Insurance & Risk Management Inc. $26,565,000 Riggs, Counselman, Michaels & Downes Inc. $26,221,347 TrueNorth Cos. $25,928,380 Lawley Insurance $25,377,818 James G. Parker Insurance Associates $25,300,000 Charles L. Crane Agency Co. $25,286,506 Eastern Insurance Group LLC * $25,000,000 Professional Insurance Associates Inc. $24,500,000

2014 Other than P/C Revenue

2014 Total P/C No. Premium of Main Written Employees Office

$883,100,000 $347,404,000 $7,590,119,600 $834,706,000 $348,747,000 $6,183,987,709 $410,103,460 $191,022,703 $3,333,076,403 $485,324,937 $427,565,875 $4,675,762,564 $361,843,315 $104,039,220 $2,419,279,783 $187,780,000 $15,684,000 $1,475,461,640 $221,720,000 $25,470,000 $1,584,000,000 $151,629,066 $35,708,554 $1,336,078,953 $151,896,714 $55,549,937 $1,385,000,000 $112,906,889 $39,567,898 $1,302,726,583 $111,898,273 $11,805,104 $1,138,303,403 $103,055,947 $25,103,586 $1,163,722,158 $114,991,536 $21,512,307 $989,816,842 $95,547,724 $21,757,238 $974,122,965 $94,231,122 $6,019,316 $567,847,141 $91,928,213 $32,961,868 $1,262,000,000 $87,400,000 $79,500,000 $923,000,000 $82,392,338 $17,094,070 $609,608,840 $77,057,000 $20,700,000 $846,000,000 $64,200,000 $27,700,000 $581,100,000 $84,517,156 $1,084,944,926 $525,000,000 $64,648,211 $36,502,119 $519,619,849 $64,325,813 $35,324,317 $1,075,007,932 $66,974,219 $14,896,634 $487,715,371 $73,710,000 $48,029,000 $514,494,000 $69,337,718 $18,469,633 $554,653,019 $50,021,195 $20,872,240 $430,892,000 $44,160,000 $5,872,000 $408,000,000 $46,553,000 $18,805,000 $464,000,000 $40,166,881 $3,847,835 $224,729,443 $42,892,266 $9,636,098 $321,616,550 $40,000,000 $12,500,000 $350,000,000 $39,369,380 $13,009,663 $314,098,060 $36,311,551 $8,779,983 $234,944,249 $36,265,639 $10,630,267 $305,675,393 $46,053,598 $9,669,737 $309,369,297 $32,530,429 $10,626,000 $349,000,000 $36,754,000 $46,943,000 $319,600,000 $38,800,000 $347,000 $248,000,000 $29,123,000 $12,992,000 $519,335,000 $30,956,000 $8,444,000 $252,219,000 $30,166,771 $21,649,771 $276,620,589 $29,415,000 $11,311,000 $289,424,788 $27,407,235 $14,394,444 $304,461,324 $30,177,384 $14,266,207 $232,879,986 $33,175,882 $16,505,828 $259,081,541 $26,500,000 $5,000,000 $235,500,000 $29,739,990 $4,214,174 $208,515,388 $46,000,000 $16,000,000 $215,000,000 $40,000,000 - $290,000,000

5,600 7,476 2,113 4,358 2,561 826 1,550 990 1,487 679 780 558 397 520 330 550 695 420 445 356 3,261 337 651 459 667 625 374 220 248 161 225 265 269 185 256 379 185 417 196 220 190 277 260 238 237 322 185 245 317 51

Kansas City, Mo. Chicago, Ill. Newport Beach, Calif. Valhalla, N.Y. Lake Mary, Fla. New York, N.Y. Columbus, Ohio Caledonia, Mich. Cedar City, Utah San Francisco, Calif. Longwood, Fla. Denver, Colo. New York, N.Y. Houston, Texas Mahwah, N.J. West Point, Ga. Minneapolis, Minn. Walnut Creek, Calif. Boston, Mass. San Francisco, Calif. New York, N.Y. Chicago, Ill. Toledo, Ohio Oklahoma City, Okla. Fort Worth, Texas Missoula, Mont. Schaumburg, Ill. Woodbury, N.Y. New York, N.Y. Philadelphia, Pa. Houston, Texas Tacoma, Wash. Bowling Green, Ky. Mesa, Ariz. Sacramento, Calif. Poughkeepsie, N.Y. San Mateo, Calif. Walnut Creek, Calif. East Providence, R.I. Salt Lake City, Utah Bellevue, Wash. Orland Park, Ill. West Des Moines, Iowa Towson, Md. Cedar Rapids, Iowa Buffalo, N.Y. Fresno, Calif. Saint Louis, Mo. Natick, Mass. San Carlos, Calif.

Website www.lockton.com www.hubinternational.com www.alliant.com www.usi.biz www.assuredptr.com www.integrogroup.com www.broadstreetcorp.com www.acrisure.com www.leavitt.com www.edgewoodins.com www.ioausa.com www.imafg.com www.crystalco.com www.worthaminsurance.com www.capcoverage.com www.jsmithlaneir.com www.hayscompanies.com www.heffins.com www.risk-strategies.com www.wsandco.com www.nfp.com www.mesirowfinancial.com www.hylant.com www.insurica.com www.higginbotham.net www.paynewest.com www.assuranceagency.com www.sterlingrisk.com www.frenkel.com www.grahamco.com www.bmbinc.com www.propelinsurance.com www.houchensins.com www.mahoneygroup.com www.iwins.com www.marshallsterling..com www.andreini.com www.ascensionins.com www.starkweathershepley.com www.moreton.com www.psfinc.com www.thehortongroup.com www.lmcinsurance.com www.rcmd.com www.truenorthcompanies.com www.lawleyinsurance.com www.jgparker.com www.craneagency.com www.easterninsurance.com www.piainc.com

Editor’s Note: * = Bank Owned Agency 20 | INSURANCE JOURNAL-NATIONAL October 19, 2015

www.insurancejournal.com

SPECIAL REPORT

Data & Analytics The Price of Price Optimization By Andrea Wells

he use of price optimization in insurance pricing is drawing increased attention and could be the next big industry battle. Or it could not be. Consumer groups and a growing contingent of states are labeling the practice as unfairly discriminatory and restricting it. Insurers say there is confusion over exactly what price optimization is and claim that these same watchdogs have for years approved elements of what some are now calling price optimization. Meanwhile, agents are acting like they hope the whole controversy will just fade away and they may get their wish. While a full definition is hard to come by, price optimization generally refers to an insurer’s practice of varying rates based on non-risk-related factors. Price optimization involves analysis and incorporation of data not related to expected cost for risk characteristics — that is, it involves factors not related to expected loss and expense experience. Such data may include the prior year changes in premium and whether policyholders renewed subsequent to such change. While the exact number or identity of insurers using price optimization is unclear, nearly half (45 percent) of large insurance companies and 26 percent of all insurance companies in North America currently optimize prices, according to a 2013 survey by Earnix, a software provider of price optimization products to the insurance industry. Regulators in 11 states (California, Delaware, Florida, Indiana, Maine, Maryland, Ohio, Pennsylvania, Rhode Island, Vermont and Washington) and the District of Columbia have issued bulletins prohibiting or restricting the use of price optimization in personal lines ratemaking. A task force of the National Association of Insurance Commissioners (NAIC) is taking on the issue as well. In August, it

issued a white paper that provides background research, identifies potential benefits and drawbacks of its use in personal lines, and presents options for state regulatory responses. What Is Price Optimization? Price optimization is not a new concept — it has been used in the retail and travel industries for years. But there is no widely accepted method and definition of it in the insurance industry. Some refer to price optimization as relying on predictive modeling and “big data” while others refer to price optimization to mean using information about consumers’ price sensitivity as a rating factor. For insurers, this definition uncertainty is the problem. That “lack of consensus” has led regulators to question some pricing techniques that have been used by insurers for decades, according to Robert Hartwig, president of the Insurance Information Institute, in testimony at the National Conference of Insurance Legislators in July. “The lack of consensus definition has clearly sown confusion and led states to question substantively different pricing techniques, some of which regulators had

approved for decades,” Hartwig said. “The use of judgment in ratemaking is universally recognized and accepted by regulators and falls within the scope of the actuarial standards of practice,” he said. Hartwig contends that price optimization is consistent with actuarial principles, which recognize that business considerations are part of ratemaking and the indicated rate for an insurance product and the market price are different in most circumstances. Hartwig cited young drivers as an example as a use of judgment in ratemaking. “As high as rates are on newly licensed drivers, those rates would be higher still if companies did not exercise judgment and instead took the full rate indication for this class of driver,” he said. “Regulators have never objected to this pricing behavior, which strays from strict adherence to indicated rates but reflects market realities,” he said. Florida has its own definition. In its bulletin from May 2015, the Florida Office of Insurance Regulation (FOIR) defined price optimization as: “a process for modifying the insurance premium — that would otherwise be charged to an insured or class of insureds — in order to maximize insurer retention, profitability, written premium,

www.insurancejournal.com

market share, or any combination of these while remaining within real world constraints.” In general, price optimization uses the economic concept of “price elasticity of demand,” which is a measure of the responsiveness of the quantity of a good or service purchased to a change in its price. Advocates of price optimization have pointed to such non-risk-related items as cross-selling opportunities, consumer retention, and conversion rates as potential benefits of the process. However, according to the FOIR and other states opposing the practice, “it is possible for an insurer to use price optimization or price elasticity of demand for the purpose of price discrimination, which is when the insurer charges different prices for the same product to different market segments with reduced regard for expected losses and expenses.” When it is used in this way, price optimization results in rates that are unfairly discriminatory in violation of Florida law, the FOIR says. Voodoo Pricing Consumers whose premiums change for no apparent reason often turn to their agents for an explanation. But thus far, the nation’s largest association of independent agents and brokers has

www.insurancejournal.com

remained quiet on the issue of price optimization, although it is keeping its eye on it. When price optimization results in a policy discount that’s good news from an agency standpoint, but when somebody’s auto insurance takes a premium hike, that makes an agents role more difficult, says Bill Wilson, director of the Virtual University at the Big “I” (Independent Insurance Agents & Brokers of America). “If somebody has a $200 jump in their premium, they ask the agent why. If they know it’s pricing optimization, how do you tell somebody, ‘Well, the insurance company is going to charge you as much as they possibly can before you move your business,’” he said. “That makes it tough for an agent.” He is concerned about the effect on consumer trust in the industry. “With the disdain that so many consumers have for the industry, I think a lot of them will suspect price optimization is some kind of voodoo pricing system,” Wilson said. Wilson says data driven tools in insurance pricing are interesting, but also scary. “Particularly when you’re trying to explain this to consumers that don’t really understand the industry to begin with, and are at best, highly suspicious of what we do, and how we do it.” Wilson admits that at some point the Big “I” may have to take an official stance on the use of price optimization with independent agency carriers. That is if the issue continues to remain an issue. Price optimization may end up being a “non-issue if, universally, regulators don’t permit it,” he said. Right now the Big “I” continues to take a “look and see” approach. For now, the Big “I’”s Wilson says agents understand the value of data to make risks more

predictable. He hopes the focus will continue to be on risk-based underwriting rather than optimizing prices on non-risk-based factors. Nothing to Do With Risk The Big “I” may not be ready to take a position but others are. According to Frederick Fisher, J.D., of Fisher Consulting Group Inc. in El Segundo, Calif., price optimization is all about how insurers can get more money out of their insureds but they may come to regret going down its path. “The concept of price optimization is going to get a lot of people in a lot of hot water and, possibly, even give rise to significant underwriting losses, especially in such a competitive environment,” Fisher said, who consults on coverage management and review for policyholders. In his view, insurers do not need price optimization to turn a profit. Insurance company profitability “still boils down to what’s going to cause the losses, what’s the probability of that taking place, and finally can we set forth a pricing mechanism that’s going to make sense and leave us with a profit,” Fisher said. “What you want to do is stay within the actuarial model. As long as you’re staying within the actuarial model, I’ve never known anybody that didn’t make money. … It all goes back to assessing the risk, which price optimization does not.” In Fisher’s view, price optimization may not be around for long. “It’s very clear that the departments of insurance are not going to allow price optimization — simply because you think you can get more money here versus more money there — without that being associated with some change in hazard risk,” he said. Even with varying definitions of what price optimization is (or is not), Fisher says there’s one thing that’s in common with them all — and that is that pricing optimization has nothing to do with the risk. “I don’t know that a reinsurer is going to be too crazy about a price optimization, when there’s no hazard justification behind it,” he said. October 19, 2015 INSURANCE JOURNAL-NATIONAL | 23

SPECIAL REPORT

Data & Analytics States Probing Insurers’ Use of Price Optimization in Rating By Stateline

hen Fred and Donna Wolden’s biannual car insurance premium went up by $90 last month, they wanted to know why. The Wisconsin retirees hadn’t had an accident or bought a new vehicle. In fact, they say not much has changed in the twoplus decades they’ve insured their home and cars through AAA. The couple is used to premium increases of 5 to 8 percent, but this year’s 20 percent increase has them wondering if it is the result of “price optimization,” a rate-setting method rooted in consumer spending habits that is drawing the scrutiny of state insurance regulators. Ten states (California, Florida, Indiana, Maine, Maryland, Ohio, Pennsylvania, Rhode Island, Vermont and Washington) and the District of Columbia have warned insurance agencies not to use individual spending habits or a history of shopping around to predict how big a price increase a customer will tolerate. [At press time, Deleware had also issued a bulletin prohibiting the use of price optimization in insurance pricing.] The Woldens’ renewal notice shows that AAA used a consumer report to help determine their premium, but they say they haven’t been able to obtain a copy of the report.

Critics of the practice say that when The restrictions on price optimization insurers drill down to individual consumer vary in each state, but regulators generally data, such as purchase records from credit have limited insurers’ ability to use consumcards or supermarket club cards, they can er information that is unrelated to a poliend up charging different rates to customcyholder’s level of risk. The Rhode Island ers who pose the same insurance risk. bulletin specifies that insurers must base But the industry says it analyzes conrates, and the classes in which they lump sumer data to rate groups of customers, not customers, on factors related to expected individuals, and that losses and expenses. ‘As insurers collect more the practice helps The Woldens said a them offer fair and representative of AAA information, just like any stable pricing. couldn’t explain the industry, they are able In Rhode Island, premium hike when to perform sophisticated one of the most they called, but the recent states to warn analyses.’ insurer did knock $21 against price optioff their premium — mization, the move was pre-emptive, said after inquiring about the couple’s former Paula Pallozzi, of the state’s insurance divioccupations and education levels. sion. There is no evidence that insurers are The Woldens acknowledge their ages using the technique. (they are both over 70) may have contribut Douglas Heller, a consultant for the ed to the rate change, but say their “insurConsumer Federation of America (CFA), ance scores” — measures of their finances thinks insurers are evaluating individuals and credit — have not changed significanton factors unrelated to risk and that regulaly. tors want to get in front of technology that After reading about price optimization provides access to consumer data. — and other rate-setting practices — the “There’s a reasonable concern that if they Woldens speculated that the tactic could let the horse out of the barn, that insurance be linked to their rate increase. AAA said companies will get so technologically out it does not publicly discuss the details of ahead that insurance regulators will really individual policies. lose their ability to oversee the industry,” he “We just think there’s something here said. that they’re using that we can’t put our fin-

Insurance Journal Reader Poll Should insurance companies be permitted to use price optimization in rating personal lines policies?

24 | INSURANCE JOURNAL-NATIONAL October 19, 2015

23.36%

Yes

35.77%

No (147 votes)

13.38%

Maybe but with some regulatory oversight (55 votes)

27.01%

What’s price optimization? (111 votes)

0.49%

Other (2 votes)

(96 votes)

www.insurancejournal.com

ger on,” Fred Wolden said.

insurers set accurate, competitive prices, which lead to a stable marketplace. Newly Available Data “As insurers collect more information, Because electronic transactions make conjust like any industry, they are able to persumers’ purchasing history readily available, form sophisticated analyses,” he said. “It creconsumer advocates say insurers are looking ates a set of rates that’s more accurate than beyond typical risk factors, like driving any time in history.” records and credit scores, to “optimize” Regulations on price optimization ultirates. In doing so, insurance companies mately won’t affect how insurance comsometimes work with third-party vendors panies do business, Hartwig said, because to develop a customer analysis based on insurers don’t use data to evaluate individa range of data, said ual customers, but CFA’s Heller. That instead evaluate the ‘I suspect nobody is could include inforrisk associated with revealing [their rating mation, he said, about groups. factors] because it’s whether a customer Judging market has shopped around for entirely inappropriate and conditions before insurance, where she it would creep people out.’ setting rates is a regularly shops or what natural move for kind of products she buys. the insurance industry. As in other indus “I suspect nobody is revealing [their rattries, insurers have to be able to set prices ing factors] because it’s entirely inappropribased on market data to stay competitive, ate and it would creep people out,” Heller Hartwig said. said. “It is a competitive marketplace and it But Robert Hartwig, an economist and is quite reasonable for an insurer to try the president of the Insurance Information to determine what impact a new product Institute, a nonprofit backed by the indusmight have on profit,” Hartwig said, noting try, said insurers use consumers’ data to that insurance markets lack the volatility of analyze groups, not individuals. Hartwig markets for airline tickets or food. said the abundance of consumer data helps But Heller and other consumer advocates

www.insurancejournal.com

say factors used in price optimization are not indicative of risk, and such pricing hurts low-income drivers and homeowners, who may be less likely to shop around because they are not financially savvy. “With price optimization, they argue that it gives them tools to judge the market better,” Heller said. “But this isn’t an equivalent of selling flowers or a plane ticket. It’s something the government mandates every driver purchase.” The insurance market is more favorable to low-income purchasers than many other markets: it does not include penalties for switching to better or cheaper products. Furthermore, Hartwig said, the price of policies does not go up and down based on the time of purchase the way airfare prices do. He also rejects the idea that low-income customers might not shop around for better insurance rates. He points to an Insurance Information Institute survey that indicated 68 percent of respondents making less than $35,000 a year compared insurance prices at various agencies by phone, on the Internet or in person. This story has been reprinted from Stateline, an initiative of The Pew Charitable Trusts.

October 19, 2015 INSURANCE JOURNAL-NATIONAL | 25

CLOSER LOOK

Commercial Lines E&O Insights: How Well Are You Managing Your Agency’s Commercial Lines Accounts?

sk errors and omissions (E&O) carriers about their results when dealing with commercial lines shops and most, if not all, would comment that heavy commercial lines agencies definitely generate their share of E&O claims and when those claims occur, they can be extremely significant. In commercial lines, $1 million-plus E&O By Curtis M. Pearsall claims can and do occur. When analyzing E&O results, there are typically four commercial lines of business that are generating the bulk of the activity. Those lines of business include commercial property, commercial liability, workers’ compensation and professional/management liability. These four lines of business need to be well managed in an agency’s office to avoid an E&O nightmare. Commercial Liability Starting with commercial liability, one of the more significant issues that won’t seem to go away (it is actually getting worse) is the additional insured issue. There are a number of contributing factors starting with the importance for agents to understand that there are numerous additional insured endorsements that provide different degrees of coverage. To illustrate that, all one has to do is to look at some of the various organizations that provide quality educational resource material. They have books available that detail the differences, some of which can be significant. For example, what is the exact coverage that the client is looking for or needs? This needs to be determined to be able to properly determine which form of coverage is desired. Most often, this is spelled out within the contractual requirements. Is the coverage for the additional insured’s own negligence or only for claims arising out of 26 | INSURANCE JOURNAL-NATIONAL October 19, 2015

the named insured’s negligence, a vicarious liability exposure? Another key area deals with language that is contained within many of the industry’s blanket additional insured forms. A common fallacy in the industry is that the blanket additional insured form automatically provides coverage for all additional insureds. Many forms will contain language that requires the presence of a written contract for coverage to apply. Commercial Property A key issue with commercial property centers around the issue of limits that at the time of the loss are not sufficient to provide the settlement that the client was expecting. Typically, the co-insurance provision is at the root of the problem. Actually a key question is “whose duty is it to advise regarding appropriate limits?” Many E&O carriers contend that the clients are the ones that should ultimately choose their own property values. The position behind this is that who knows the cost to replace the building better than the insured themselves. It is still important that there be a discussion on the need for insurance-to-value and the application of the co-insurance provision. Another area of E&O activity involves when a job goes from a construction site (builder’s risk) to a completed job — when is the conversion/change in policies made? Is the coverage under the completed building form equivalent to the builder’s risk policy? Ordinance or law coverage (or the lack

thereof) has been generating a fair amount on commercial property risks but also on homeowners. Essentially, this coverage includes: a) the cost of demolition and removal of the debris of undamaged portions of the structure that must be torn down or modified; and b) the increased cost of reconstruction to meet current code requirements. Agents would be wise to discuss this issue with their customers. Workers’ Compensation Allegations of failure to procure are the most common. In many of those situations, the matter focused extensively on the providing (or lack of providing) workers’ comp

for clients who work in multiple states. Agents would benefit by having established procedures to identify the states where their commercial workers’ comp clients are currently conducting business and to periodically identify those states where the employer may, at sometime in the future, conduct business operations. There are specific ways to handle this issue and agents (producers and internal staff) need to know those requirements. For contracting risks, especially on general contractor type accounts, not only does the client need workers’ comp but it is important that the client know that www.insurancejournal.com

any subcontractors they hire have workers’ comp as well. If an employee of the sub is injured on the job and the sub does not have any workers’ comp, the contractor that retained the sub could be deemed to be the employer and have to provide the workers’ comp benefits. Other issues include ensuring that your clients know when their workers’ comp policy is “subject to audit” and what that means as well as determining to what degree, on your sole proprietorship and partnership accounts, if the owners want to be covered by their own workers’ comp policy. Professional Liability Last but no means least is professional liability. There are a whole host issues, including: Moving coverage to another carrier. It is widely known in this area of One of the business that no more signifitwo policies are cant issues that the same. Some won’t seem to of the differences could include go away (it is the definition actually getof the named ting worse) is insured, the the additional coverage (claims insured issue. made or claims made and reported), the definition of covered professional services, etc. If the agent is looking to move the account to a new carrier, a full review should be conducted to determine any differences. To do this, it is suggested that a specimen policy be secured. The “retro date.” This is one of the most important elements of a professional liability policy. For an “error or omission” to be potentially covered, the act that is alleged to have caused the injury/damage must be after any applicable “retro date.” The best coverage is “full prior acts.” If the carrier requires a retro date, it is important to maintain that date. When switching claims made coverage from one carrier to another, do not advance the retro date. Other noteworthy issues include relying www.insurancejournal.com

on the general liability coverage to provide coverage for all services rendered. If your client has a professional liability exposure the general liability carrier may be including a professional liability exclusion, so look to identify upfront whether a professional

liability exposure exists. Pearsall is president of Pearsall Associates Inc., a risk management consulting firm. Phone: 315-7681534. Email: curtis@pearsallassociates.com. Blog: www.agentseotips.com.

Growth

Many agencies would like to purchase their “competitor down the street.” Never having purchased an agency before, how do you start? Any proposed acquisition should enhance agency value. Agency principals need to consider their agency’s financial health, conduct proper due diligence on a viable target agency and use knowledgeable consultants - including your banker. There are many “moving parts” to even the most “basic” acquisition. Review your agency’s financing needs with InsurBanc – the only financial institution dedicated to serving America’s independent insurance agencies. We’re uniquely positioned to provide agency principals with financial insights for enhancing agency value. Acquisition & Perpetuation Loans • Working Capital Equipment Leasing • Cash Management Online Banking

(866) 467-2262 Visit InsurBanc.com

INSBAA16724.indd 1

10/2/15 4:07 PM

October 19, 2015 INSURANCE JOURNAL-NATIONAL | 27

IDEA EXCHANGE

Terrorism Insuring against Terrorism: America’s Post-9/11 Recovery

By Zack Schmiesing and Alissa Legenza

n a nation founded on a system of checks and balances — House against Senate, Supreme Court versus the Presidency — gridlock can be a fact of life, especially in peacetime. But in a time of real trouble from terrorism, gridlock in the federal government was temporarily broken by a growing sense of urgency in business and insurance spheres. With the 9/11 attacks on the World Trade Center and Pentagon, staggering levels of risk were introduced to the marketplace, prompting Congress to lay aside partisan differences and cooperate to draft critical federal laws for terrorism risk management. The first, called the Terrorism Risk Insurance Act (TRIA), was passed in 2002, establishing a temporary backstop for public and private sharing of insured losses from any future acts of terrorism in the United States. Up to that point, terrorism coverage was underwritten inconsistently; no standard policy language expressly addressing terrorism was readily available before September 2001, and few tools could scale the risk by exposure or geography. 28 | INSURANCE JOURNAL-NATIONAL October 19, 2015

Congress passed additional extensions, with modifications, to this legislation at the end of 2005 and 2007. But by the close of 2014, Congress adjourned without taking action on an extension of TRIA. Without this federal backstop, commercial insurers would no longer be required under that law to make terrorism coverage available. Resulting market uncertainty at the start of 2015 introduced potential problems in addressing the risk of terrorism, especially with respect to high concentrations of insured risk in major cities. Concerns emerged that terrorism coverage might become unavailable or unaffordable. As 2014 came to an end, many insurance carriers worked closely with their brokers to ensure adequate terrorism coverage was in place, given TRIA’s uncertain future. Fortunately, Congress found a solution early in 2015 and reauthorized TRIA through Dec. 31, 2020. Retreat from Terrorism Risk The story of TRIA remains a valuable lesson for both the insurance industry and nation at large. Following 9/11, some providers of both property/casualty insurance declined coverage, many reinsurers left the

terrorism coverage market, and most of those that stayed provided limited coverage — resulting in skyrocketing premiums pushed by rating agency concerns about insufficient capitalization of terrorism risk. It became clear the federal government had to find an insurance safeguard to pacify the market. In 2005, following the initial enactment of TRIA three years earlier, Congress renewed TRIA as the Terrorism Risk Insurance Extension Act (TRIEA). Lawmakers visited the issue again in 2007 with another acronym, TRIPRA, the Terrorism Risk Insurance Program Reauthorization Act. That law provided substantial peace of mind to insurers and maintained momentum in the recovery for developers, investors, and brokers involved in commercial real estate. Even so, financial politics stalled the program as Congress failed to pass an extension in late 2014. What then? In the absence of TRIA, the workers’ compensation insurance market would be particularly vulnerable to losses from terror attacks. A number of state statutes on workers’ compensation tend to limit insurers’ flexibility to control terrorism risk through modifications such as policy limits or coverage exclusions; this is not the case for many other regulated commercial lines of business. With or without TRIA, many states generally require employers to provide workers’ compensation coverage. If workers’ compensation coverage isn’t readily available, employers could be forced to purchase insurance in residual markets or to self-insure. What about potential effects on property transactions within the commercial real estate industry? If development projects required better funding securitization, construction and operational costs might increase. Investors might be more wary of portfolios with locations in high-density locales. In short order, businesses might then be reluctant to move into those locales and choose instead to spread their employwww.insurancejournal.com

ees between distinct locations. Speculation tion of the private market terrorism space, understand parameters of frequency and also swirled about high-profile public and additional players to the field are possiuncertainty, a number of reinsurers depend events and tourist centers such as Disney ble in the future. on expertise from private developers of World and Las Vegas. The related reinsurer’s launch took off terrorism models. The probabilistic and Under those troubling conditions, during a period in which the insurance deterministic results derived from terrorism TRIA was set to expire at the close of industry has recorded increases in policymodeling are now being reviewed by asset 2014. Despite strong holder surplus in managers and investors in commercial real bipartisan support estate and can yield insights through risk The story of TRIA remains every quarter since in both chambers of the third quarter of scoring, resilience, and benchmarking meta valuable lesson for both Congress — and with 2012. The current rics. overwhelming support the insurance industry and surplus is estimated Risk managers and investors need to start nation at large. from the insurance at more than $675 strategizing for a market that may gradually industry and other billion, according move to the private provider side, with market sectors — Congress failed to reach to the Insurance Information Institute, up greater fluctuations in prices and product an agreement before adjourning at year-end. from $290 billion in 2002. structure. The worst and most devastating Those figures may raise a question about effects from 9/11 may have passed, but the Vulnerable Again? the industry’s capacity to assume more risk specter of terrorism will continue to move For the first time since early 2002, the on the private side. markets. nation awoke on New Year’s Day 2015 with a feeling of vulnerability about financial Models for Measuring Risks Schmiesing is director of thought leadership at Verexposures to potential terrorist attacks. Even so, some reinsurers have been hesiisk Insurance Solutions, and Legenza is manager of Fortunately, the absence of Congressional tant to jump into the arena, given the difficonsulting and client services at AIR Worldwide — action would only be temporary. Both the culty of modeling terrorism risk. To better both Verisk Analytics (Nasdaq:VRSK) businesses. House and Senate moved to reauthorize coverage, and President Obama signed TRIPRA of 2015 into law in January. The new act extends the Terrorism Insurance Program, including a number of provisions, as amended, outlined in TRIA as of December 2014, for an additional six years. Washington’s latest iteration of TRIA appears designed to start the process of more fully transitioning terrorism risk back CELEBRATING 25 YEARS to the private market, as evidenced through OF BEING YOUR TRUSTED gradual increases in the program trigger, PARTNER IN INSURANCE private market retention, and reduced federal loss share percentage over the life of Our exclusive market position, TRIPRA 2015. forged by 25 years of building During the period of uncertainty in 2014, solid relationships with the one large A-rated reinsurer launched a prodworld’s greatest carriers, is your uct for private market terrorism coverage. competitive advantage. Place That reinsurer’s offering generally provided your next risk with us to find policy limits of up to $100 million and conout why agents trust and prefer tained a terrorism definition that included MIDLANDS. political, religious, and ideological acts as well as sabotage and business interruption. Even with TRIPRA’s renewal, this reinsurer reportedly plans to continue to market its product to address a perceived gap with respect to mid-market and smaller insurers. Some in the insurance industry have MAKE US YOUR TRUSTED PARTNER TODAY: taken notice of an A-rated veteran’s explora800.800.4007 | midlandsmgt.com | marketing@midman.com www.insurancejournal.com

MIDRE16813.indd 1

10/2/15 4:08 PM

October 19, 2015 INSURANCE JOURNAL-NATIONAL | 29

NATIONAL COVERAGE

MyNewMarkets Private Flood Market Detail: Branch Agency Solutions’ (www.branchagency solutions.com) private flood insurance programs for commercial and residential risks throughout the coastal states of the U.S. Available limits: As needed Carrier: Unable to disclose, admitted and non-admitted available States: Calif., Fla., Ga., La., Miss., N.C., S.C., and Texas Contact: Otie Tomlinson at 888-365-7701 or e-mail: otie@ branchagencysolutions.com

Performance & Payment Bonds Market Detail: Surety One Inc. (www.SuretyOne.org) is a surety/ fidelity bond underwriter and financial guarantee underwriter, licensed in all 50 states, Puerto Rico, U.S. Virgin Islands, and Dominican Republic. Available limits: As needed Carrier: Unable to disclose States: All states Contact: Customer service at 800-373-2804

Self-Insured Excess Coverage Market Detail: Artex Risk Solutions Inc. (www.artexrisk.com) focuses on excess insurance and reinsurance where the client assumes a self-insured retention of $50,000 or greater. Target classes include: individual self-insureds; public entity (individual cities, counties, townships, and special purpose districts ); or scholastic pools (K-12 individual self-insureds, public school pools, higher education -public or private). Coverage includes: excess insurance (provides occurrence or claims made coverage, depending on jurisdiction and line of coverage); reinsurance (follow-form of the underlying memorandum of coverage). Lines of business include: general liability; auto/garage liability; property; public officials E&O/school board legal liability; employment practices liability; workers compensation; terrorism (including NCBR); law enforcement legal liability/ police professional liability. Available limits: As needed Carrier: Unable to disclose States: All states except D.C. Contact: Customer service at 910-295-9800

Misc. Professional Liability Market Detail: Donald Gaddis Co. Inc. Insurance Services (www. gaddiscompany.com) writes all lines of professional liability, directors and officers liability, media liability, cyber and employment practices liability. The company also writes difficult or unusual commercial property, casualty, or package coverages, liquor liability and hard-to-place homeowners. It does not presently write workers’ compensation or automobile liability coverage. Gaddis represents more than 70 excess and surplus lines and specialty carriers on a brokerage basis. Available limits: As needed 30 | INSURANCE JOURNAL-NATIONAL October 19, 2015

Carrier: Unable to disclose States: All states Contact: Chris Gaddis at 312-853-0071 or e-mail: cgaddis@ gaddiscompany.com

Habitational Market Detail: Fulcrum Insurance Programs (www.fulcrum programs.com) is expanding its habitational program division which now targets six distinct habitational segments including apartments, condos and other multi-family dwellings. Fulcrum is a provider of habitational insurance programs including green building insurance coverage. Types of habitational insurance risks include: market rate apartments; affordable housing; student housing; senior housing; condominium associations; and homeowners associations. Lines of business include: property & equipment breakdown; general liability; auto liability & physical damage; umbrella; and crime. Available limits: Maximum $250 million Carrier: Unable to disclose, admitted States: All states Contact: Tara Hughes at 425-213-1259 or e-mail: thughes@ fulcrumprograms.com

Guides & Outfitters Market Detail: T.H.E. Insurance Company (www.theinsco.com) offers crime; CGL; workers’ comp; equipment breakdown; inland marine; property; non-owned & hired auto; and excess liability for guides & outfitters. Available limits: As needed Carrier: Various, admitted and non-admitted States: All states Contact: Customer service at 800-237-3355

Garage Liability Market Detail: SIU’s (www.siuins.com) commercial transportation department offers competitive and quick quotes on garage liability. Available limits: As needed Carrier: Unable to disclose States: Ala., Fla., Ga., Miss., N.C., S.C., and Tenn. Contact: SIU Marketing at 678-498-4619 or e-mail: marketing@siuins.com www.insurancejournal.com

IDEA EXCHANGE

Growing Your Property Casualty Agency 10 Ways to Retain More Commercial Lines Accounts

t’s costly to sell new commercial lines who is learning the business or they may accounts. In addition to the various prosreplace you when they gain the authority. pecting and marketing costs, there is fact gathering/front line Stay in Touch. Do more than output underwriting, pricing, impersonal blogs, newsletters, emails, and proposal preparation random social media posts. Make them and presentation — interesting, informative, and target-specific. and when you’re sucAlso call or visit those insureds who want cessful, there’s policy or need it. Some businesses prefer digital delivery. only communications, but others crave actuThe time and treaal human contact. sure spent on each By Alan Shulman element in the sales Sell More. The more business you organiprocess commonly varies in proportion to cally write for a particular carrier or MGA, the size and value of the subject account — the more willing they’ll be to help you on but even for many BOP-type risks, the effort pricing when you really need it. and expense can really add up. That’s why you need to do everything Plan Ahead. Try to leave a Point out the true little pricing room on new you can to make sure each quality account that you land cost of switching business quotes for renewal stays on the books. — but only if it doesn’t from one agency/ time Below are 10 ideas for keeping unfairly overprice a policy or insurer to another. jeopardize the sale. more of what you sell.

what you’ve done for them lately.

Account Defense Team. Establish a team made up of agency sales and underwriting experts. Task them with the mission of saving key policies that are in jeopardy. They set the office’s overall retention strategy and suggest specific tactics for keeping accounts within the agency. For instance, they may recommend a different producer take the lead on a particular renewal (with commission allowances) if they have more experience, a more compatible personality, etc.

Shulman, CPCU, is the publisher of Agency Ideas, a subscription-only sales and marketing newsletter. He is also the author of the many tools posted on the Agency Ideas Instant Download Store. Phone: 800-724-1435. Email: alan@agencyideas.com. Website: www.agencyideas.com

Hot Buttons. Remind insureds, at renewal time, of the top sales points that helped you to initially land the account. Business insurance clients in pursuit of a better deal may forget why they first bought from you. Push those early hot buttons again and recap

Costly Move. Point out the true cost of switching from one agency/insurer to another. It’s never free. There are many time-consuming pre-move and post-move activities that add up to significant hours. Multiply these hours times the value of the executive’s time. Display your calculations to help convince the potential shopper that moving their account isn’t worth the effort. Extra Services. Offer tailored value-added services, not offered by competing rivals, when a premium reduction isn’t possible. Don’t Threaten. Never warn a company that you’ll move your entire book from them if they don’t lower a specific premium for you. At best, this all-or-nothing approach works only once or twice. And if they say no, you’ll either look foolish or must initiate an unwanted book transfer.

Avoid Policy Mistakes. Write each account properly in the first place, including offering smart coverages and limits, using proper classifications, accurate payroll and sales projections, etc. Doing right for your client is your best defense against losing their business. Future Owners. Be on the alert for the next generation. Don’t disregard potential successors to current ownership and top managerial positions. For instance, pay thoughtful attention to an owner’s child www.insurancejournal.com

October 19, 2015 INSURANCE JOURNAL-NATIONAL | 31

IDEA EXCHANGE

Data & Analytics Analytics: The Industry Game Changer

nalytics and big data are taking the business world by storm. These redhot technology trends are changing how people think about information and processes and creating monumental shifts in business practices nationwide. Already, recent analytical advancements have changed the way people shop for goods, By David E. Coons play sports and track data. Within the insurance industry, analytics and big data present an opportunity for organizations to enhance their profitability and gain a competitive edge in todayâ&#x20AC;&#x2122;s increasingly competitive marketplace. With more and more insurers embracing the power and impact of analytics, 2015 has been dubbed the year of technology-driven transformation industry-wide. Progressive organizations are now incorporating the groundbreaking applications of technology and analytics into their business plans and Personal Umbrella.pdf 1 1/7/15 practices. In fact, insurers are currently

adding analytics positions at a rate more than five times faster than overall national employment growth. As the big data and analytics megatrends continue to influence the insurance industry, business as usual is undergoing a drastic transformation. How is the prevalence of analytics changing the way insurers do business? What does the future hold for analytics in the insurance industry and how can we prepare? The Growing Impact of Big Data and Analytics Long considered to be solely an actuarial function, insurance organizations have begun to recognize the immense value and impact that analytics can have on the remainder of their business. As recent as the past 10 to 15 years, insurers have started to embrace the potential offered by these technological 11:01 AM advances and are now leveraging data ana-

One Submission. Multiple Markets.â&#x201E;˘

We Say YES!

The Stand-Alone Personal Umbrella Specialists NATIONWIDE

On-Line Rate, Quote, Apply and Request Binding 24/7 or Call from 6am to 6pm PST

CMY

Your Independent P&C Wholesaler

(800) 234-6977 x260 www.andersonmurison.com personalumbrella@amqts.com

ANDERS16759.indd 1

32 | INSURANCE JOURNAL-NATIONAL October 19, 2015

1/14/15 12:00 PM

lytics throughout their organizations. More than one-third of all insurers are investing in analytics and big data. In fact, embracing analytics and big data is quickly becoming non-negotiable for insurance organizations looking to ensure their future successes. According to a study conducted by Ordnance Survey and the Chartered Insurance Institute, 82 percent of insurance professionals now believe that organizations who do not take advantage of these trends will become obsolete and uncompetitive. Industrywide, analytics is expanding beyond the traditional functional areas of actuarial and IT and is affecting every aspect of the insurance organization: claims, underwriting, sales and marketing, and even customer service. As organizations focus on incorporating analytics into their day-to-day operations, the demand for these skilled professionals is skyrocketing. www.insurancejournal.com

In the overall U.S. economy, nearly two million jobs will be created by the end of this year in order to support the increased focus on big data and analytics. By 2017, it is predicted that the total number of analytics positions nationwide will have increased by 92 percent. Unsurprisingly, the supply of talent is unable to keep pace with this accelerated demand. By the end of this year, insurance organizations are set to face a deficit of more than 260,000 analytics and big data professionals. The race is on to harness the power of analytics and achieve a competitive edge in the marketplace. As organizations turn to big data and analytics to build their brands and enhance profitability, the accelerated demand for talent is set to take off. Preparing for the Digital Future Already, analytics and big data have made an impact on the insurance industry. Improved efficiency and consistency are being touted as key benefits and are resulting in changing business processes and new products. Insurers are now focusing on how to best leverage the potential applications of analytics and big data throughout their organizations. For example, these advancements are now being utilized to better manage risk, to develop personalized products and to set more appropriate pricing. Historically, insurance agents were directly connected to their customer bases. As neighbors and fellow community members, they had insights and an understanding of the risks involved in providing these individuals and businesses with insurance. Today, an increased focus on decentralized agencies and the growth of online applications has hindered agents’ ability to accurately assess risk, as they no longer have www.insurancejournal.com

this first-hand knowledge on which to base habits and history. decisions. The advent of analytics and its It is clear that analytics and big data are access to a myriad of data is changing that. here to stay. These heavy hitting trends Agents are now able to pull demographic are poised to create competitive advantagdata, credit activity, ‘business climate’ es that will enable insurers to drive their scores and more in order to build statistical future successes. Embracing and building a models to better understand and qualify cutting-edge strategy that incorporates and risk. harnesses the power of By the end of this year, analytics is no longer In addition, insurers are using collected data insurance organizations an option, but rather a to adapt products and are set to face a deficit requirement. However, premiums to the indiwith all technology, of more than 260,000 as vidual customer. Pulling these changes are occuranalytics and big data ring at a breakneck information on demographics, health backpace. Only those forprofessionals. ground and account inforward-thinking insurers mation is enabling insurance organizations that truly embrace the potential of analytics to create more accurate customer habit and big data, and leverage their potential models and to personalize their products to throughout their organizations will find the individual. success in the data-driven future. Products such as Progressive’s Snapshot® and Allstate’s Drivewise® are now entering Coons is senior vice president of The Jacobson the marketplace and allowing insurers to Group, a provider of talent to the insurance offer highly personalized policies at a comindustry. Phone: 800-466-1578. Email: dcoons@ petitive premium based on an individual’s jacobsononline.com.

Advertisers Index Readers, browse, contact, or do product searches on any of our full page advertisers at: www.insurancejournal.com/adshowcase/

AFS/ IBEX www.afsibex.com 18 American Reliable www.assurantspecialtyproperty.com 13 Anderson & Murison www.andersonmurison.com 32 Applied Underwriters www.auw.com 4, 5, 36 Burns & Wilcox Ltd. www.burnsandwilcox.com 9 Century National www.cnico.com W11 Charity First www.charityfirst.com 21 Chubb Corporate www.chubb.com 11 Fujitsu www.fcpa.fujitsu.com 19 Insurance XDate www.insurancexdate.com SC7, SE7, E7 InsurBanc www.insurbanc.com 27 Louisiana Commerce & Trade Association www.lctacomp.com SC9 M.J. Hall & Company www.mjhallandcompany.com W12 McClelland & Hine www.mhi-tx.com SC8, SE

Midlands Management Corporation www.midlandsmgmt.com 29 Monarch E&S Insurance Services www.monarchexcess.com W3 Pacific Gateway Insurance Services www.pgiainsurance.com W9 PersonalUmbrella.Com www.personalumbrella.com 7 Regency Insurance Brokerage Services www.regencyinsurancebrokerage.com SE5, E3 Scottsdale Insurance Company www.scottsdaleins.com 2 SIAA www.siaa.net 3 South & Western www.southandwestern.com SC5 State Compensation Insurance Fund www.statefundca.com W5 Texas Mutual - Safety Group www.texasmutual.com SC4 The Hartford www.thehartford.com W 7, SC3, SE3, E5,M3 United Fire Group www.ufgsolutions.com M5 Vertafore, Inc. www.vertafore.com 17

October 19, 2015 INSURANCE JOURNAL-NATIONAL | 33

IDEA EXCHANGE

Closing Quote

Just My Analytical Opinion

H By Laird Rixford

ow risky is that driver with that car? What are the odds a house will flood while a house one street over will not? How do all these variables come into play when setting a rate? What price will allow an insurance company to make a reasonable profit while balancing loss payouts with competitive prices? Data analysis answers all these questions. Without it insurance is nothing more than a guessing game. Data mining is so critical to an insurance carrier’s success that they devote an entire department to it. These departments look for data from every possible to source to make sure they are properly setting direction. The most profitable carriers are not the ones with the best price but the ones with the right price. This only happens through proper data analysis. In an industry so reliant upon business and market intelligence, why are the ones selling the actual products — the agents — only using data as an afterthought, if at all? When I work with agencies, I can tell how well they manage their business by asking them questions that show how well they are farming their agency’s massive amounts of data. What is the retention by carrier and by product line? What number of policies is in force per client? Which

34 | INSURANCE JOURNAL-NATIONAL October 19, 2015

producers have the best quoted-to-bound ratio? How do these numbers compare to the previous three years? These are just a few of the questions that are critical to understanding how well an agency is operating. A majority of agents do not know these answers. The agents who do know use this intelligence to readily grow their agencies. The first step to mining an agency’s data is to have systems that can report and analyze the data. For example, a sales or CRM system can track and report which producers are consistently following the preferred sales process. A comparative rating or quoting system can detail which carriers are competitive and which producers are quoting and closing the most business. Finally, an agency management system can provide insight into existing clients and the carriers that service them. With these systems in place, the next step is understanding the intelligence they provide. Initially, the raw intelligence and subsequent analysis can be difficult and overwhelming. Data points conflict with each other. Incomplete and incorrect data make a mess of the numbers. But once the data has been cleaned up, categorized and compiled, a story will unfold. And still, the hardest part has yet to come — leveraging the data from the research and making informed, forward-looking business decisions. Even agencies that go through all of that analysis often fall flat when developing and executing a plan based on the deep data dive. Trusting what the data says and what it recommends is hard when compared to an owner’s gut feeling. Numbers rarely lie. They bring clarity to decision making. When used correctly having a concise dataset actually makes it easier. Agency and business intelligence has come to the insurance industry. Insurance carriers rely on it. Insurance software companies have embraced it. Growing and successful agencies depend on it. If your business is not fully using analytics and taking advantage of data’s power, why not? Rixford is the president at ITC (Insurance Technologies Corp.), a provider of marketing, rating and management software and services to the insurance industry, including independent agents and insurance carriers. Website: www.getitc.com

www.insurancejournal.com

Peter F. Drucker

Hundreds of hours of high-quality training webinars. Flexible purchasing options. Youâ&#x20AC;&#x2122;ve hired the top talent. Let us help you train them. Call 800.897.9965 x179

Expect big things in workersâ&#x20AC;&#x2122; compensation. Expect to save a third of your clients 30% or more. Most classes approved, nationwide. For information call (877) 234-4450 or visit auw.com/us. ÂŠ2015 Applied Underwriters, Inc., a Berkshire Hathaway company. Rated A+ (Superior) by A.M. Best. Insurance plans protected U.S. Patent No. 7,908,157.