Insurance Journal West 2015-11-16 by Insurance Journal

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Inside This Issue

On The Cover

Special Report:

Contractors Market Continues to Build

November 16, 2015 • Vol. 93 No. 22 • West

NATIONAL COVERAGE

IDEA EXCHANGE

Independent Agency Profitability, Organic Growth Dipped in Q3

32 William R. Berkley’s Last Call as CEO

42 Why Start a New Year Out Strong but Not End It That Way?

Top 10 Market Conduct Actions Against P/C Insurers

36 Spotlight: 10 Things to Know About Long Term Care & Assisted Living

43 Growing Your Property Casualty Agency: Alan Shulman

11 Commercial Insurance Rates, Except Auto & Flood, Still Falling 11 Insurance Journal’s Jergler Wins Folio Award; Carrier Management Recognized 16 Spotlight: E&O Exposures in Personal Lines 18 Special Report: Top 50 Personal Lines Leaders

38 How to Know What Insurance Customers Want

46 Closing Quote: Competition Consumers Deserve

WEST COVERAGE W1 Survey: Insurers Spent $1.52B with Diverse California Suppliers Last Year

20 Top 25 Workers’ Compensation Insurers: A.M. Best

W1 Uber Driver Sues Taco Bell Brand Manager Videoed in California Slapping Assault

22 Special Report: The Rebound Continues - Contractors & Builders to Grow Again in 2016

W2 Jury Awards Former LA Times Columnist $7.1M in Discrimination Suit

26 Special Report: 4 Common Business Issues When Evaluating Wrap-Up Programs

W2 WCIRB: Los Angeles Workers’ Comp Claims Outlier in California

30 P/C Direct Premium Written Up Nearly 4.7 Percent

4 | INSURANCE JOURNAL-WEST November 16, 2015

44 How New Chip Cards Raise the Risk for Merchants

DEPARTMENTS W4 People 10 Declarations 10 Figures 14 Business Moves 35 MyNewMarkets

W6 Wildfires, and Now El Niño May Boost Californian’s Appetites for Surplus Lines

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NATIONAL COVERAGE

Opening Note Gender Gap Closing

ale risk managers in higher education are paid more on average than their female counterparts but the gap is closing as women gain experience in the field, according to a survey on risk manager compensation. Male risk managers in higher education earn an average of $110,791 annually compared to an average of $96,628 for women, according to the survey by the University Risk Management and Insurance Association (URMIA) of Bloomington, Ind. Although the current survey finds gender is a factor in compensation, it also finds that the wage disparity between males and females is lower than in the group’s 2013 survey, with the current ratio of female-to-male compensation being 0.87, compared to 0.84 in the 2013 survey. According to the authors, the salary gap is likely closing because the experience gap between men and women is narrowing, falling from 4.5 years in the 2013 survey to only 0.8 in the current survey. This year the averages are 18.0 years of experience for males and 17.2 for females. On average, each year of experience in the field translates into an additional $850 per year to higher education risk managers’ salaries, the survey said. The survey also found that average compensation The salary gap is likely closing goes up not only with expebecause the experience gap rience but also with educabetween men and women is tion level. The difference between average compensanarrowing. tion for those holding just a bachelor’s degree and those holding a master’s degree is only about $7,500; however, the difference for those with a master’s degree versus a J.D. or doctorate is more than $30,000. The survey of URMIA members was conducted in the summer of 2015 and elicited responses from 176 higher education institutions of all types. URMIA members work at 600 institutions of higher education and related companies. The pool of survey respondents was split almost evenly with 51 percent males and 49 percent females. Auburn University’s Christine Eick and Lee Colquitt and St. Mary’s University’s David Sommer provided analysis. The survey found other factors associated with compensation including: • A risk professional’s title may indicate the level of compensation, according to the analysis. Those with the title of “risk manager” earn the lowest average compensation (about $77,500) while those with the title “director, risk management” are paid $22,000 higher than that. Those with titles of “executive director, risk management” or “associate/assistant vice president, risk management” or “chief risk officer” are on top, with “chief risk officers” earning an average of about $148,000. • Respondents in the Northeast receive Andrea Wells nearly $15,000 more in compensation comEditor-in-Chief pared to those in other regions. 6 | INSURANCE JOURNAL-NATIONAL November 16, 2015

Publisher Mark Wells | mwells@wellsmedia.com 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 John Campbell, Terrence Cavanaugh, Andrew Cohn, John Graham, Douglas Powell, Jonathan Stempel SALES Chief Marketing Officer Julie Tinney (800) 897-9965 x148 | jtinney@insurancejournal.com Sales Manager Lauren Knapp (800) 897-9965 x161 | lknapp@insurancejournal.com West Dena Kaplan (800) 897-9965 x115 | dkaplan@insurancejournal.com Allison Steinkamp (800) 897-9965 x172 | asteinkamp@insurancejournal.com Midwest Lisa Whalen (800) 897-9965 x180 | lwhalen@insurancejournal.com South Central Mindy Trammell (800) 897-9965 x149 | mtrammell@insurancejournal.com East (NY, PA and CT only) Dave Molchan (800) 897-9965 x145 | dmolchan@insurancejournal.com Southeast & East (except for NY, PA and CT) Howard Simkin (800) 897-9965 x162 | hsimkin@insurancejournal.com New Markets Sales Manager Kristine Honey | khoney@insurancejournal.com Classifieds, Jobs, Agencies Wanted/For Sale Kelly De La Mora (800) 897-9965 x125 | kdelamora@insurancejournal.com MARKETING/NEW MEDIA Marketing Administrator Gayle Wells | gwells@insurancejournal.com Advertising Coordinator Erin Burns (619) 584-1100 x120 | eburns@insurancejournal.com New Media Producer Bobbie Dodge | bdodge@insurancejournal.com DESIGN/WEB Chief Technology Officer/Chief Innovation Officer Joshua Carlson | jcarlson@insurancejournal.com V.P. of Design Guy Boccia | gboccia@insurancejournal.com Audience Development Elizabeth Duffy | eduffy@wellsmedia.com Marketing Director Derence Walk | dwalk@insurancejournal.com Web Developer Jeff Cardrant | jcardrant@insurancejournal.com Web Developer Tim Layer | tlayer@wellsmedia.com IJ ACADEMY OF INSURANCE V.P. of Education Chris Boggs | cboggs@ijacademy.com Sales Executive Romeo Valdez | rvaldez@ijacademy.com Online Training Coordinator Barbara Whiffen | bwhiffen@ijacademy.com ADMINISTRATION Chief Executive Officer Mitch Dunford | mdunford@wellsmedia.com Chief Financial Officer Mark Wooster | mwooster@wellsmedia.com

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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.

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NATIONAL COVERAGE

News & Markets Independent Agency Profitability, Organic Growth Dipped in Q3

ndependent insurance agents and brokers posted median organic growth of 4.4 percent for the third quarter of 2015, compared with 6 percent in the third quarter of 2014, as measured by the Reagan Consulting Organic Growth and Profitability (OGP) quarterly survey. Profitability is coming down too, according to Reagan Consulting: 21.9 percent in Q3 2015 compared with 22.4 percent in Q3 2014 as measured by EBITDA (earnings before interest, taxes, depreciation and amortization). The third-quarter results marked the slowest growth rate since late 2011, said Reagan Consulting, a management consulting and merger-and-acquisition advisory firm for the insurance distribution system. It’s the first time in 14 quarters that broker growth rates dipped below 5 percent. “Agent/broker organic growth is slowing — for privately owned and public brokers

— because commercial property/ casualty insurance rates are officially in a soft market,” said Kevin Stipe, president of Reagan Consulting. “Profit margins tend to increase during times of strong organic growth and decrease when growth rates slow,” Stipe said. Commercial Lines Rates Commercial insurance rates typically make up 60 percent to 70 percent of revenue for the approximately 130 mid-size and large agencies and brokerage firms in the OGP survey group. Thus rates are substantial drivers of organic growth and, according to Stipe, brokers “may witness further deceleration of growth rates until P/C pricing stabilizes.” Reagan Consulting’s survey has a new component: Sales velocity (total written new business as a percentage of the prior year’s total commissions and fees). Sales velocity is the single-biggest driver of organ-

ic growth, according to Reagan. The firms with the highest sales velocity more than doubled the organic growth rate of those with the lowest sales velocity in Q3 2015. Transaction activity, while Agent/broker not meaorganic growth is sured by the slowing because OGP survey, continues commercial on a record insurance rates pace in 2015, are officially in a despite soft market. declining rates, slowing growth rates and less robust profits. The 294 announced deals put 2015’s pace 28 percent ahead of 2014, likely leading to a record year for mergers and acquisitions. Reagan Consulting has conducted its quarterly survey of agency growth and profitability since 2008, using submissions from approximately 130 mid-size and large agencies and brokerage firms. Median revenue of the firms completing the survey is approximately $18 million.

Top 10 Market Conduct Actions Against P/C Insurers

low claim handling, the use of unapproved rates and a failure to provide required compliant disclosures top the list of market conduct actions taken against U.S. property/casualty insurers in 2014, according to Wolters Kluwer Financial Services. Wolters Kluwer Financial Services uses public data published in its annual lists of market conduct actions against insurers. “Claims management has consistently been one of the top three compliance challenges for insurers over the last several years, and once again was the top compliance challenge in 2014 across all lines of business,” said Kathy Donovan, senior compliance counsel at Wolters Kluwer Financial Services. “Insurance claims professionals have to manage a variety of internal and external factors when processing claims, 8 | INSURANCE JOURNAL-NATIONAL November 16, 2015

including claimant communications and mandatory disclosures, all within established time frames. The targeted result is providing proper payment in accordance with policy provisions and state law.” The top 10 market conduct actions for P/C insurers using 2014 data were: 1. Failure to acknowledge, pay, investigate or deny claims within specified time frames. 2. Using unapproved/unfiled rates and rules or misapplying rating factors. 3. Failure to provide required compliant disclosures in claims processing. 4. Failure to cancel or non-renew policies in accordance with requirements. 5. Failure to process total loss claims properly. 6. Failure to adhere to producer

7. 8. 9. 10.

appointment, termination, records and/ or licensing requirements. Improper/incomplete documentation of underwriting files. Improper/incomplete documentation of claim files. Failure to provide required compliant disclosures in underwriting processes. Failure to process and pay claims in accordance with policies. 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

$912,500

The amount awarded to a South Dakota nonprofit group in a Sturgis motorcycle rally trademarks lawsuit. The case pitted Sturgis Motorcycle Rally Inc. against Rushmore Photo and Gifts and Wal-Mart Stores Inc. The nonprofit issues licensing agreements for the trademarks “Sturgis,” “Sturgis Motorcycle Rally,” “Sturgis Rally & Races,” “Take the Ride to Sturgis” and “Sturgis Bike Week.” Gift and photo shop owner Paul Neimann said Sturgis is geographically descriptive and that he would appeal.

How much Mercury General Corp. reported net written premiums rose for the third quarter from a year ago.

Crop Insurance Cuts

“We cannot undermine a program that brings needed support to jobs and families in rural America and which has already seen $12 billion in cuts since 2008.”

— U.S. Sen. Heidi Heitkamp, D-N.D., criticizing a two-year Congressional budget deal that would reduce federal subsidies to companies that sell crop insurance to farmers, saving $3 billion over 10 years. The crop insurance program costs more than $9 billion annually.

Clearing the Record

“We’re not after the money unless you owe it to us. But we have to clear the record.”

800

The number of miners in West Virginia who have failed drug tests in the past three years, according to the West Virginia Office of Mine Health, Safety and Training. Director of the agency Eugene White testified before legislators that there is a growing substance abuse problem among miners in the state, with 214 mining certificates suspended this year because of drug abuse. Prescription drugs are the most commonly detected, followed by marijuana.

157,000 The number of wildfires occurring in Texas during a nine-year period ending in 2014, according to Texas A&M Forest Service. Nearly 80 percent of those fires raged within 2 miles of a community. The forest service responded to just one wildfire of at least 5,000 acres from 1985 to 2000. In the past 15 years, there have been fires of that size nearly every year. There were 27 fires at least that size in 2008, and 76 in 2011.

— Col. Mike Edmonson, leader of Louisiana’s Office of Motor Vehicles, defended the mass mailing of 1.1 million collection letters to drivers for lapsed insurance coverage. The move has been widely criticized as a “money grab” for a cash-strapped agency. The OMV is seeking around $444 million in fine payments from about 550,000 drivers for alleged violations, some of which reach back to 1986.

You Take the High Road “We have no natural high ground.”

— Paula Akerlund, superintendent of the Ocosta School District in Oregon, said they have 20 to 30 minutes between a quake and a tsunami to get to higher ground. Coastal communities and school districts from British Columbia to California have been grappling with how to protect people from an earthquake-generated tsunami.

Growing Hemp

“The only way to have hemp become an agricultural commodity is to grow lots of it and see what happens.”

— Steve Bean, chief operating officer of GenCanna, a hemp producer that has invested more than $5 million in Kentucky’s growing hemp farming industry. Currently 22 companies have invested in Kentucky, as state officials work on commercializing the product.

21,300

The estimated number of children in Massachusetts who didn’t have health insurance in 2014, about 1.5 percent of children in the state, according to a recent study by the Georgetown University Health Policy Institute Center for Children and Families. The 1.5 percent rate of uninsured children in Massachusetts was the lowest in the country. Alaska had the highest rate of uninsured children, at 11.4 percent. 10 | INSURANCE JOURNAL-NATIONAL November 16, 2015

Incorrectly Installed

“The sheer number of incorrectly installed car seats found during these recent events is truly eye-opening.”

— New York Gov. Andrew Cuomo on the results of recent Child Passenger Safety Week seat check events, during which 819, or 88 percent, of 931 child car seats inspected were found to be improperly installed. Cuomo encouraged all parents with younger children to attend state- and local-sponsored safety check events and ensure that young New Yorkers are being buckled up safely and properly. www.insurancejournal.com

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News & Markets Survey: Insurers Spent $1.52B with Diverse California Suppliers Last Year

iverse California businesses supplied $1.52 billion in goods and services to insurance companies last year, according to a survey by the California Department of Insurance. The 2014 tally was a $587 million increase since 2012, according to Insurance Commissioner Dave Jones, who announced the survey results. “Our Insurance Diversity Initiative asks insurance companies to give minority, women, disabled veteran, and LGBT – owned businesses an equal opportunity to compete for contracts,” Jones said in a statement. Overall, the insurance industry procured 6.4 percent of its total goods and services in California from diverse suppliers in 2014, compared with 5.6 percent in 2013, the survey shows. The release of the results preceded a meeting between Jones and more than 250 insurance company executives and diverse business leaders at California State University Sacramento for the 4th Annual Insurance Diversity Summit. At the summit representatives from businesses owned by minorities, women,

disabled veterans and members of the lesbian, gay, bisexual and transgender community had business matchmaking sessions with insurance companies. Jones presented awards to individuals and insurance companies to recognize their commitment to supplier diversity and governing board diversity. All insurers that collect $100 million or more in California written premiums met the threshold to submit a report. There were 226 insurance companies, representing 47 percent of the national insurance market, which met the threshold to respond to the 2015 Insurer Supplier Diversity Survey.

Uber Driver Sues Taco Bell Brand Manager Videoed in California Slapping Assault

n Uber driver is suing a California man accused of slapping and hitting the driver in an attack that was recorded on video. Edward Caban filed a lawsuit in early November in Orange County against 32-yearold Benjamin Golden. The suit seeks damages in excess of $25,000 for assault, battery and infliction of emotional distress. Golden has been charged with assault and battery. www.insurancejournal.com

Mercury in California Says Net Premiums Rose, Net Income Fell in 3Q

The Newport Beach resident is out of jail and couldn’t be reached for comment. Police say Golden, a former brand manager for Taco Bell, was ordered out of the car on in Costa Mesa because he was too drunk to give directions. Police say a dashboard camera video shows Golden slapping Caban, grabbing his hair and slamming his head against a window. Copyright 2015 Associated Press.

ercury General Corp. at the start of November reported net written premiums rose 8 percent for the third quarter from a year ago. The board of directors for the Los Angeles, Calif.-based carrier also declared a quarterly dividend of 62 cents per share. The dividend will be paid on Dec. 29 to shareholders of record on Dec. 15. Mercury reported net income fell 51.2 percent from the third quarter of 2014 and net income per diluted share fell 29 cents from 57 cents from last year to 28 cents this year. Total revenues rose to 75.4 million from 71.9 million, with most of that increase from net premium earned.

Couple Sues Six Flags in Central California for Retaliation

wo former employees have sued Six Flags Discovery Kingdom in Central California, saying they were fired as retaliation for raising animal welfare concerns. Michael and Holley Muraco have filed a wrongful termination lawsuit against the Vallejo park. The suit says Michael Muraco was the park’s director of animal care when he told the U.S. Department of Agriculture about poor water quality in the Six Flag dolphin pools. A USDA inspection report from 2014 supported Muraco’s concern that the poor water quality was related to the deaths of two infant dolphins and chronic health problems in adult dolphins. Six Flags did not return calls seeking comment. The park has said conditions are safe for animals and that the suit has no merit. Copyright 2015 Associated Press. November 16, 2015 INSURANCE JOURNAL-WEST | W1

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News & Markets Jury Awards Former LA Times Columnist $7.1M in Discrimination Suit

Company Sues Jenner, Studio in California over Kardashian Video Game

jury has awarded $7.13 million to former Los Angeles Times sports columnist T.J. Simers, who claimed he was forced out of his $234,000-a-year job by age and health discrimination. The Superior Court jury made the lawsuit award earlier this month after a sixweek trial, the Times reported. Simers had sought more than $12 million. The newspaper believes Simers made unfounded allegations and will appeal, spokeswoman Hillary Manning said. Simers, 65, was a Times columnist for a decade but left two years ago to work for the Orange County Register. His lawsuit alleged that he came under increasing criticism from Times editors in 2013 after he had an apparent mini-stroke. He was later diagnosed with complex migraine syndrome. His workload was reduced from three to two columns a week. The suit also contended that the Times was trying to replace him with a younger journalist. The Times said Simers got into trouble

for an ethics breach involving a video that was briefly posted to the newspaper’s website. The video featured Simers, his daughter and former Laker Dwight Howard. Times editors said he failed to disclose his business relationship with the producer of the video, which allegedly was a promotion for a proposed TV comedy loosely based on Simers’ life. Simers testified that at that point the project had died and he had no business relationship with the producer’s company. “And if there’s no TV show, I certainly wasn’t promoting a TV show that doesn’t exist on our website,” he testified. Simers was suspended with pay and the Times began an investigation. In August 2013, Simers was told he would lose his column and become a reporter but instead he was offered a one-year contract for a column. However, Simers resigned the next month. He joined the Register as a columnist but retired less than a year later. Copyright 2015 Associated Press.

video game company is suing a rival studio and Kris Jenner claiming its idea for a Kim Kardashian mobile game was stolen. The copyright infringement lawsuit filed by Just Games Interactive Entertainment LLC states it prepared a detailed pitch for a Kardashian-themed game to a representative for Jenner, who serves as a manager for her daughter. Glu Mobile Inc. released the mobile game “Kim Kardashian: Hollywood” in June 2014. The lawsuit contends several elements of Just Games’ proposal were included in the game released to the public. Email messages sent to representatives for Jenner and Glu Mobile were not immediately returned. The lawsuit filed in a Los Angeles federal court in early November seeks more than $10 million in damages. Copyright 2015 Associated Press.

WCIRB: Los Angeles Workers’ Comp Claims Outlier in California

alifornia’s Workers’ Compensation Insurance Rating Bureau released a study in November showing significant differences in the costs of claims among the state’s regions — particularly Los Angeles. The WCRIB Study, Geographical Differences in Workers’ Compensations Claim Costs, shows the Los Angeles region “experiences significantly higher claim frequency relative to the rest of California.” The Silicon Valley and San Francisco Bay Area regions experience lower claim frequencies. The study controls for wage level differences and industrial mix. It also found that claim severities tend to be higher in the Central Valley and many of the urban coastal areas, but lower W2 | INSURANCE JOURNAL-WEST November 16, 2015

in the more remote, rural areas of the state. The Study examines geographical differences in: • Indemnity frequency • Total frequency • Incurred indemnity on indemnity claims • Median injured workers’ average weekly wages • Incurred medical on indemnity claims • Cumulative injury and occupation disease claims

Claim frequencies for Los Angeles are higher than the statewide average while claim frequencies for the Bay Area are lower, a new report shows. Source: California’s Workers’ Compensation Insurance Rating Bureau

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People Jordan Markuson

Stacey Shurson

Daniel Garcia

Jennifer Spiller

Heffernan Insurance Brokers has named Jordan Markuson assistant vice president. Markuson’s focus will be on expanding the firm’s presence in the staffing firm market. Markuson early on in his career worked with Assurance Agency. He then started his own company as a domain and real estate investor, and he has owned and operated six companies. Walnut Creek-based Heffernan has offices in San Francisco, Petaluma, Menlo Park, Los Angeles and Orange County, Calif.; Portland, Ore.; St. Louis, Mo.; Long Island and New York, N.Y. Stockton, Calif.-based M.J. Hall & Company Inc. has named Stacey Shurson vice president. Shurson has 39 years of insurance underwriting and brokerage placement experience. She owned IIW Insurance Services of California in Dublin from 1986 to 2013. M.J. Hall is a surplus lines broker and managing general agent. EPIC Insurance Brokers and Consultants has named Daniel Garcia a property/casualty insurance broker/producer in the firm’s Petaluma, Calif., office. Garcia will report locally to Mike Ryan, the North Bay managing principal. He will be responsible for new business production, and the development and management of risk management and insurance programs. Prior to EPIC Garcia was a commercial lines producer with George Peterson Insurance Agency. Garcia spent several years in the financial services industry. San Francisco-based EPIC is a retail P/C insurance brokerage and employee benefits consultant. Leavitt Central Coast Insurance Services has hired Jennifer Spiller as a commercial insurance agent in Salinas, Calif. Spiller specializes in insurance for the golf, hospitality and restaurant industries. Spiller worked as a strategic account executive prior to joining Leavitt. Leavitt Central Coast Insurance Services is part of Leavitt Group. Newport Beach, Calif.-based Alliant Insurance Services has named Steve Sampiere chief information officer. Sampiere will direct initiatives focusing on innovation, security and facilities. He takes the reins of CIO from Ilene Anders, who became chief financial officer. Sampiere has 35 years of technology experience. He

W4 | INSURANCE JOURNAL-WEST November 16, 2015

was previously Alliant’s chief technology officer. Prior to Alliant Sampiere worked for firms including IBM, Callaway Golf, Intuit and Peregrine Semiconductor. Alliant provides property/casualty, workers’ compensation, employee benefits, surety and financial products and services. Arizona-based Lovitt & Touché has named Magdalena Osborn vice president and general counsel. Osborn will oversee the firm’s strategic and tactical legal activities, and assist with operational strategies and initiatives. Osborn was formerly with Rusing, Lopez & Lizardi. Lovitt & Touché is an insurance brokerage and benefits solutions provider. DUAL Commercial LLC has named Melissa Schoning to its environmental team as a senior underwriter. Schoning will be working out of Lakewood, Colo. Schoning has more than 12 years of insurance experience in environmental insurance, and six years of environmental consulting and management experience. DUAL is a specialty program administrator offering property/casualty products through several specialized subsidiary companies. Berkshire Hathaway GUARD Insurance Cos. recently added Mark Concklin as a senior field representative to promote growth in Colorado and Utah. Concklin is responsible for identifying prospects for appointments. Concklin more than three decades of experience working with both insurers and independent agents. In 2012 GUARD Insurance Group was acquired by National Indemnity Co., a wholly owned subsidiary of Berkshire Hathaway. In 2013, GUARD unveiled a new identity as Berkshire Hathaway GUARD Insurance Cos. Burns & Wilcox Brokerage has named Susie Parks vice president and senior broker in the firm’s Scottsdale, Ariz., office. Parks will focus on real estate, hospitality, products and product recall coverage. Parks has 29 years of experience. She was most recently area assistant vice president and senior broker at RPS Insurance Services in Scottsdale. Parks was at AmWINS Insurance Brokerage of California prior to that. Detroit, Mich.-based Burns & Wilcox Brokerage is an independent wholesale insurance brokerage owned by the H.W. Kaufman Financial Group. www.insurancejournal.com

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News & Markets Wildfires, and Now El Niño May Boost Californian’s Appetites for Surplus Lines By Don Jergler

here’s little question that the drought and the recent wildfire season that it unleashed pushed more California homeowners into the surplus lines market. Now with what appears to be a strong El Niño on the horizon for the Golden State, homeowners in burnt out areas that may be more prone to flooding and mudslides could also look for coverage in the surplus lines market. In 2012 there were 12,097 homeowners policies written in the surplus market in California, and the most recent count at the end of 2014 shows 23,120 surplus lines homeowners policies in force, according to Ben McKay, executive director of the Surplus Lines Association of California. “Certainly there has been an increase in homeowners policies being placed in the surplus market,” McKay said. He believes the increase is due to insurers reducing exposures in drought-plagued communities that are being built ever closer to the wildland-urban interface in Northern California, where the state’s most massive burns in years occurred in September. As the admitted market sought less concentration in those risky areas in the past few years, the surplus market has gone in

W6 | INSURANCE JOURNAL-WEST November 16, 2015

and priced that heightened risk, McKay said. estimates to be out as early as late November. “Look when it started – in 2012,” he said. “It would not surprise me at all if we see “That was the beginning of the drought, and the insured losses for the Valley and Butte conditions started to deteriorate.” fires upwardly revised at least a little bit,” That deterioration — drier fuels and Bowen said. searing temperatures — came to a head in The average residential policy claim September with the Valley and Butte wildpayout for the Valley Fire so far is roughly fires in Northern California. The fires and $160,000, and the average for the Butte fire several destructive wildfires in is $100,000, according the region throughout the sum‘If there ever was to Bowen. Those figures mer had already curbed insurer include a range of partial to a time to buy appetites for writing in these firelosses. flood insurance, total prone areas. More rains, while they this is that time.’ may help alleviate the “We have heard from consumers that they are seeing that it’s impacts of a four-year-long difficult to find insurance,” Madison Voss, a drought, also bring increased risk in those spokeswoman for the California Department areas. of Insurance, said in September as the two “There’s absolutely going to be an massive wildfires were still raging. enhanced risk given the amount of precip The tally on losses from the Valley and itation an El Niño can bring,” Bowen said. Butte wildfires is massive and growing. “There absolutely could be a problem with A report in October from Impact flash flooding, mudslides and debris flows.” Forecasting, Aon Benfield’s catastrophe Average prices for many homes in the model development team, forecasts claims area are within $250,000 residential limit on from two wildfires will exceed $1 billion. the National Flood Insurance Program, but The Valley Fire, which occurred northinterspersed between those properties are west of San Francisco, is considered the numerous large and difficult to insure homes third-most damaging wildfire in California with ample space surrounded by plenty of history. It destroyed 1,958 homes and other trees, and amenities like expensive outlying structures. Total economic losses from the guests houses. fire were more than $1.5 billion, and prelim Surplus lines may increasingly be the inary figures for insured answer for these homes in burned out areas losses were estimated at that may now exposed to greater flooding more than $925 million, risks as admitted insurers continue to scale according to the Aon report. back their presence in those areas. The Butte Fire southeast “With high capacity properties that don’t of Sacramento is considered fit an ISO form, the admitted market will the seventh-most damaging often times pass, then that policy will be wildfire in state history, written in the surplus lines market,” Mckay causing total estimated ecosaid. nomic losses of $450 million Paul D. Laufer, senior vice president of and insured losses likely brokerage at Gorst & Compass Insurance, to exceed $225 million, the reported his firm has seen an uptick in surreport states. plus lines activity in burned out areas. Expect those figures to “There’s been a little bit of pickup, but for continue to rise, said Steve pricing purposes what we’re seeing as of yet Bowen, lead author of the it hasn’t come to fruition so far,” said Laufer, Aon report. who is also president of the California Bowen expects new loss continued on page W8 www.insurancejournal.com

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News & Markets continued from page W6 Insurance Wholesalers Association. Like McKay, Laufer believes the admitted markets, which bore the bulk of losses from the Valley and Butte wildfires, are starting to take a hard, cautious look at their exposure in those areas. “What I foresee happening is they’re going to look to readdress what they’re going to write and where they’re going to write it, and I suspect the E&S space is going to see some flow,” Laufer said. Cue an El Niño. The chances of strong rains, and likely increased flooding risks, throughout most of California are a good bet. Tom Di Liberto, a meteorologist at the National Oceanic and Atmospheric Administration’s Climate Prediction Center, believes this could be on one of the strongest El Niño events since weather watchers began tracking the phenomenon in the 1950s. “I would say that we’re currently in a strong event,” Di Liberto added. Excess rainfall on land that’s arid due to drought, or burned out land, are both dangers for homeowners, he said. “Concern is there that his could lead to another round of landslides and mudslides,” Di Liberto added.

To raise awareness about flood insurance, federal emergency officials stepped up their message to Californians to buy flood insurance last month. Roy Wright, a deputy associate administrator at the Federal Emergency Management Agency, encouraged Californians to take the threat of El Niño seriously during a news

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W8 | INSURANCE JOURNAL-WEST November 16, 2015

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conference. “If there ever was a time to buy flood insurance, this is that time,” Wright said. Another government subsidized program has already seen more action following the wildfires. Following the fires the take up rate on California’s Fair Access to Insurance Requirements plan, commonly known as the FAIR plan, began to rise, said Nancy Kincaid, a spokeswoman for the California Department of Insurance. “The FAIR plan has seen some growth,” Kincaid said. The plan is the insurer of last resort for residents unable to find coverage through other insurers. The FAIR Plan provides basic coverage for fire up to $1.5 million for a structure and its contents. Many of the FAIR plan policies are being written in state-responsibility areas — those places that may be removed from local fire services and served primarily by Cal Fire, Kincaid said. As of Dec. 31, 2012, there were roughly 123,000 FAIR plan policies, 27,000 of which were in state responsibility areas. As of May 21, 2015, the latest information available, there were roughly 127,000 FAIR plan policies in force, 35,812 of which are in state responsibility areas, Kincaid said. www.insurancejournal.com

NATIONAL COVERAGE

News & Markets Commercial Insurance Rates, Except Auto and Flood, Still Falling

ommercial property/casualty insurance prices continued to decline moderately — an average of 3.1 percent — during the third quarter, according to a survey by The Council of Insurance Agents & Brokers. The CIAB survey showed a continued decline in commercial P/C insurance rates across all account sizes and most lines. This is consistent with the general trend of gradually declining rates observed since the first quarter of 2013. According to the index, while rates decreased across all lines by an average of 3.1 percent, the largest decreases in large accounts came in at 4.1 percent, followed by medium-sized accounts at 3.8 percent, and small accounts at 1.4 percent. This trend was consistent across most lines of business as well, with a few exceptions, including commercial auto and flood. “We continued to hear from our members that this is a buyers’ market,” said Ken A. Crerar, president and CEO of The Council. “Competition was fierce and carriers were

willing to give on rate in order to retain good accounts.” Business interruption, commercial property, general liability, umbrella and workers’ compensation were the lines commercial brokers most often cited as having declining rates, CIAB said. Crerar said that workers’ compensation rate deceases are noteworthy in light of concerns that medical costs might rise and

health care costs could be shifted to workers’ compensation programs. The market did see a slight uptick in rates for commercial auto and flood. Flood insurance rates continued to rise, especially in the Southeast and Pacific Northwest regions, as rate increases, assessments and surcharges continued to be implemented by the National Flood Insurance Program and the Write Your Own carriers, CIAB said.

Average Third Quarter 2015 Commercial Pricing Declines

Source: The Council of Insurance Agents & Brokers. Chart prepared by Barclays Research.

IJ’s Jergler Wins Folio Award; Carrier Management Recognized

ells Media Group’s Carrier Management and Insurance Journal publications took home honors from this year’s Folio Awards that recognize excellence in publishing. The awards, sponsored by the publishing industry’s Folio magazine, are for writing, editing and design in the category of business-to-business publications serving the banking/business/finance segment. “Climate Control,” a bimonthly Insurance Don Jergler Journal column by Don Jergler on climate issues affecting insurance, won the award for best column or blog. Jergler, who has been West regional editor for Insurance Journal web and magazine since 2011, started the column because he wanted to more closely examine the ties www.insurancejournal.com

between climate and insurance. “It seems every week there is a new research report, warning or, unfortunately, weather-related disaster. It can be dizzying and billions and billions of dollars, not to mention many lives, are at stake,” said Jergler. “So I wanted to take a step back and put the research and events in perspective, relating them more directly to the insurance industry.” “We think it has made an important contribution to the industry’s understanding of climate issues and is a valuable resource,” said Andrew Simpson, Wells Media’s chief of content. Wells Media Group’s Carrier Management publication was also recognized by the Folio Awards. Susanne Sclafane, founding and senior editor of Carrier Management, achieved an honorable mention in a brand new Folio category, Editor of the Year, where the

competition included editors from much larger publications including People, Time, Dwell, Marie Claire and Successful Farming. “This is quite an accomplishment,” said Simpson of Sclafane’s recognition. Carrier Management, Susanne Sclafane which serves the P/C insurance executive suite, was also honored with an honorable mention as best publication for its second quarter 2015 issue focusing on innovation, as well as for best series of articles for “Inside the Minds of Innovators in Insurance,” written by Sclafane and designed by Guy Boccia, Wells Media’s vice president of design. A panel of more than 300 judges narrowed 2,800 entries to select the Folio finalists and winners. November 16, 2015 INSURANCE JOURNAL-NATIONAL | 11

BANKS HAVE BEEN UNDER CYBER ATTACK. ARE ASSET MANAGERS NEXT?

Cyber Attacks Pose for cyber attacks, are still in the process of a Significant Threat assessing their cyber exposure and increasing their investment in information security In an epic 2013 data breach at a major bank, programs. With mid-size funds running from officials estimated information was compro$1 billion to $5 billion, and the largest funds mised on 76 million households and seven in the multi-trillion dollar range, it is imperamillion small businesses. In the aftermath of tive that asset management the incident, public reports noted “Having best firms identify their cyber investigators traced the breach to practice-based policies exposure and begin approthe network of a third-party vendor. and procedures is the best priately managing those The bank’s security team reporthedge against a risks, according to Kenneth edly neglected to upgrade a server catastrophic network Li, the financial services at the small company that runs the system breach and its bank’s charitable race website. This devastating aftereffects.” product director at The Hartford. seemingly small oversight created a virtual unlocked door through which hackCyber attacks pose risks that implicate ers gained access to the bank’s vast network. every area of the business, including: Regulators Call for Stronger Security Measures That breach prompted state and federal regulators to push financial service providers, including banks, to bolster their own security, as well as that of outside vendors. Banks continue to invest heavily in information and network security, as they have been a significant target for criminal activity, including cyber attacks. On the other hand, asset managers, widely recognized as being in an industry that’s ripe

• • • •

securities industry, launching examinations last year of more than 50 investment advisers and broker-dealers. Where firms have fallen short of adopting appropriate precautions, regulators have assessed significant fines against financial service providers, including asset managers.1 Identifying cyber-related exposures and applying the right privacy and information security programs is a monumental task, especially against a backdrop of an ever-changing threat landscape and continually evolving adversaries, according to Thomas Kang, the cyber product manager for The Hartford.

Theft of intellectual property Violation of client privacy Business interruption Class action lawsuits

In addition, regulators have identified cyber attacks as a significant threat to the financial services sector, and have increased their examinations and enforcement activity. For instance, the Office of the Compliance Inspections and Examinations (OCIE) and the Securities Exchange Commission (SEC) have embarked on a mission to assess cyber security preparedness and threats in the

Financial services has an average of 350 malware events per week3

While industry standards and cyber secuposture.2 Visit thehartford.com/amc to rity frameworks – including those outlined learn more about The Hartford’s cyber by the National Institute of Standards and security services. Technology – can help, asset managPartnering with the right 2. Coverage for ers should look to cyber insurance Incident Response insurance company like products to transfer some of the risk. The Hartford can help Expenses asset managers Currently, 47 states have proactively improve their data privacy laws that information security require notification of a posture and reduce data breach. Often, there losses when something are significant costs assogoes wrong. ciated with investigating an event, assessing any requirements, engaging third parties to notify clients and consumers, and communicating proactively with appropriate government agencies. According to the 2014 NetDiligence Cyber Claims Study, the average cost for Financial services is 1 of 3 top industries affected by a data breach3 crisis services, including notification costs, was $366,484. Moreover, a failure to respond properly to a data breach can lead to consumThree Ways Asset Managers Can er class actions and regulatory proceedings, Protect Against Cyber Risks which can quickly multiply losses. Most importantly, data breaches can damage a company’s 1. Cyber Security Services brand and diminish the trust it has worked While it is critically important to have interto build with its clients. Insurance products nal privacy and information security profescan provide coverage for these expenses, and sionals, leveraging outside service providers experienced carriers like The Hartford can be a to assist in privacy and information security valuable partner in ensuring that the breaches can help asset managers to: are handled the right way to protect the com• Quickly identify vulnerabilities pany’s brand and mitigate third-party liability. • Close any security or compliance gaps in a cost-effective manner 3. Insurance That Expressly Covers However, it can be difficult for even experienced information security professionals to identify cyber security services that matter and service providers with the requisite experience and skills to help mitigate cyber risks. Experienced insurance carriers have identified gaps and vulnerabilities that have led to actual paid losses and can recommend services and service providers that can improve an organization’s privacy and security

Third-Party Lawsuits Even when the breach response is handled correctly, consumers can seek redress of any damages they may have suffered. In addition, regulators often initiate investigations following a breach to determine if the firm had properly established cyber security protocols. This can be especially acute for asset managers, who are entrusted with safeguarding extremely sensitive client records. How-

A Great Hedge Against Cyber Risks Asset managers are a big target for cyber attacks. In many cases when a data 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 ChoiceSM, there’s no uncertainty. It’s the only tailored insurance policy in the industry for asset managers with built-in coverage for third-party network security liability claims – making it a great hedge against costly claims.

ever, errors and omissions insurance policies for asset managers are often unclear whether claims, including regulatory investigations, associated with data breaches are covered as “failure to properly render professional services.” According to Kang, it is critical that risk managers secure cyber insurance policies that expressly address this exposure.

The question is no longer if, but when, a data breach will impact a company’s bottom line and business performance. “This may represent a significant shift for asset managers accustomed to thinking about liability in terms of their role as fiduciaries. Having best practice-based policies and procedures is the best hedge against a catastrophic network system breach and its devastating aftereffects,” says Li. Partnering with the right insurance company like The Hartford can help asset managers proactively improve their information security posture and reduce losses when something goes wrong.

The Hartford’s comprehensive liability protection for asset managers offers builtin coverage for cyber risks. Learn more at THEHARTFORD.COM/AMC.

Business Insurance Employee Benefits Auto Home

On May 22, 2015, FINRA found that Sterne Agee violated SEC Reg S-P based on the firm’s failure to encrypt an employee’s laptop, which was inadvertently left in a restroom and lost. FINRA fined the firm $225,000 for failing to establish a system that protected customer data using “appropriate technological precautions.”

The Hartford disclaims all liability with respect to any such services and service providers. The services provided are not substitutes for the services of your legal counsel.

Verizon 2015 Data Breach Investigations Report

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 The Hartford Financial Services Group, Inc. and may not be available to all businesses in all states. The Hartford® is The Hartford Financial Services Group, Inc. and its subsidiaries, including Hartford Fire Insurance Company. Its headquarters is in Hartford, CT.

NATIONAL COVERAGE

Business Moves southeastern Connecticut region. Bayberry Insurance will operate as an affiliate of Smith Brothers Insurance and will maintain its Groton office. Bayberry has a staff of two; both are joining Smith Brothers. Smith Brothers Insurance, founded in 1971, has more than 150 staff members and offices in Chester, Glastonbury, Groton, Niantic, Somers and Windsor Locks, Conn.; and Easthampton, Mass.

Odyssey, Integro New York private equity firm Odyssey Investment Partners has completed its acquisition of specialty insurance brokerage Integro Ltd. Financial details of the transaction, first announced in August, were not disclosed. Integro said its management team led by William Goldstein, John Sutton, Toby Humphreys and Marc Kunney remains in place, and certain members of the management team and other employees remain shareholders in the company. Goldstein, previously president of Integro, has been named CEO. Founded in 2005, Integro is the eighth-largest private insurance agency in the United States in terms of property/ casualty written premium, according to Insurance Journal. New York-based Integro serves clients in 125 countries from 40 offices across the globe. Smith Brothers, Bayberry Insurance Smith Brothers Insurance, an independent agency based in Glastonbury, Conn., has acquired the assets of Bayberry Insurance in Groton, Conn. Terms of the transaction were not disclosed. Founded in 1989, Bayberry Insurance is an independent agency providing personal and business insurance services in the

Ameriana Insurance Agency, Pfenninger, Claxton and Estelle Insurance Group Ameriana Bancorp has agreed to sell Ameriana Insurance Agency (AIA) to Pfenninger, Claxton and Estelle Insurance Group of New Castle, Ind. The transaction, valued at $1.95 million, is expected to close in the fourth quarter of 2015 subject to conditions. Ameriana Bancorp is a bank holding company. In addition to Ameriana Insurance Agency, subsidiaries include Ameriana Bank and Ameriana Financial Services, which offers securities and insurance products through LPL Financial. Arthur J. Gallagher & Co., Ohio’s Sigma II Insurance Agency Arthur J. Gallagher & Co. has acquired Sigma II Insurance Agency in Independence, Ohio. Terms were not disclosed. Founded in 1988, Sigma II Insurance Agency is an employee benefits consultant that offers a full range of employee benefits products and consulting services to commercial and individual clients throughout the Midwest. The firm provides group health, welfare and ancillary benefits, executive benefits and individual health insurance, and specializes in the professional, manufacturing and service industries. Sophocles Sophocleous, Joseph Hiles and their colleagues will continue to operate from the greater Cleveland location under the direction of William Ziebell, head of

14 | INSURANCE JOURNAL-NATIONAL November 16, 2015

Gallagher’s North Central employee benefit brokerage and consulting operations. GDP Advisors, The Insurance Connection of Texas McKinney, Texas-based GDP Advisors has acquired The Insurance Connection of Texas (ICT). Located in Frisco, Texas, ICT has been owned and operated by Lori and Chris Gardner and specializes in general/commercial liability, individual auto, home and life insurance. Lori Gardner will be an integral part of the migration of ICT’s portfolio and will join GDP Advisors. This is the fourth acquisition for GDP Advisors. Alper Services, Jun Zhou Insurance Agency Alper Services has formed an alliance with Jun Zhou Insurance Agency, a Chicago-based agency specializing in risk management and financial services for high net worth Chinese-American individuals and middle-market Chinese-American companies. Jun Zhou Insurance Agency will operate as a division of Alper Services, bringing Alper’s considerable experience in insuring multinational companies and its global network of premier insurance providers to its leading Chinese-American clients in the hospitality, manufacturing, and commercial real estate industries. Hub, Employee Benefits Group Hub International Ltd. has acquired the assets of Spokane, Wash.-based Employee Benefits Group Inc. Terms of the deal were not disclosed. EBG specializes in employee benefits for mid-size and large companies with a focus on self-funded health plans. Marsha Allen, president, will join Hub Northwest and report to Tim Kennedy, a practice leader for Hub Northwest. Chicago-based Hub provides property/ casualty, life and health, employee benefits, investment and risk management products and services. www.insurancejournal.com

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Corporate Banking | Capital Markets & Advisory Services | Dedicated Industry Experience © 2015 Regions Securities LLC. Investment banking and business advisory services are offered through Regions Securities LLC, 1180 W. Peachtree St. NW, Suite 1400, Atlanta, GA 30309. Member FINRA and SIPC. Regions Securities LLC is an affiliate of Regions Bank. | Regions and the Regions logo are registered trademarks of Regions Bank. The LifeGreen color is a trademark of Regions Bank.

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SPOTLIGHT

Personal Lines E&O Insights: Personal Lines Generates More Errors & Omissions Exposure than You Think

ost agents’ errors and omissions (E&O) carriers report that commercial lines generates the majority of E&O claims. However, a significant number of E&O claims arise from the sale and service of personal lines. For agents selling personal lines, understanding the risks and knowing how to minimize the potenBy Curtis M. Pearsall tial of an E&O claim are vital. On average, when an E&O claim involving personal lines occurs, the severity (size of the claim) is much less than the commercial lines counterpart. However, depending on the agency’s clientele, E&O claims involving personal lines can easily reach the $1 million-plus level. In personal lines, three lines of business typically generate the bulk of the activity: homeowners, auto and umbrella.

have been known to sue agents, when the agency bound the carrier on a risk prohibited by the underwriting guidelines; and • Vacancy and ordinance or law coverage. Agents would be wise to educate customers on these two key coverage matters. Personal Auto A central issue with personal auto is

limits. Customers do not expect to get into a crash and many do not fully comprehend what can happen when their 3,000-pound vehicle hits something or someone. This is an area where $1 million losses can occur and, when the customer realizes he or she does not have sufficient coverage, there is greater potential for E&O litigation. In all situations, provide the customer with limit

Homeowners With homeowners, one of the more significant issues involves valuation. While many agencies use a cost/quality estimator, these are not perfect. In many cases, the quality of the output is directly attributable to the quality of the input. Be cautious in securing the various inputs and be certain to verify the accuracy of the data. For example, some websites may not include an indicator that an addition has been put on the house. It is best to ask the customer additional questions to determine if changes occurred. When quoting a new business account, don’t presume the limit shown on the current policy is accurate. Other issues involving homeowners include: • Various limitations contained within the policy. Make the customer aware of these limitations in writing; • The carrier’s underwriting guidelines. Carriers 16 | INSURANCE JOURNAL-NATIONAL November 16, 2015

www.insurancejournal.com

options from which to choose. Surprisingly, there have been E&O claims where the customer moved to a new location, but never notified the agency. When the vehicle was stolen, the carrier denied the claim citing it was unaware of the new garaging location of the vehicle. In addition, a child taking a car to college raises significant insurance issues. Once again, agents would be wise to educate customers on these matters. Uninsured/underinsured motorist (UM/ UIM) coverage also continues to be an issue. When quoting personal auto, quote UM/ UIM limits equal to the bodily injury (BI) and property damage (PD) limits. Personal Umbrella How many of your personal lines customers have an umbrella? An E&O claim can develop when a customer is involved in a significant claim — involving their homeowners, personal auto, watercraft or other liability exposure — and faces a significant uninsured exposure because they allege your error in not providing With homeowners, this coverage. one of the more Find a way significant issues to offer an umbrella pol- involves valuation. icy to all customers that have the necessary underlying limits. Most agency management systems can identify customers that don’t carry an umbrella. There are also instances where the customer has an umbrella but, for some reason, the underlying limits are not at the proper level. Every year at renewal you must verify that policies covered by the umbrella have the necessary underlying limits. When they don’t and a gap occurs, agents frequently face E&O litigation.

where necessary and appropriate, the agency should send the client a written communication memorializing any discussions. Pearsall is president of Pearsall Associates Inc., a

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Documentation of Discussions Agents can benefit greatly by educating their customers on coverages the customers have and coverages and limits they should have to avoid uninsured gaps. Each file should reflect discussions with clients and, www.insurancejournal.com

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

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SPECIAL REPORT

Top 50 Personal Lines Leaders

Personal

About the Personal Lines Leaders: The 2015 Personal 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 personal lines 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.

Lines Leaders Top 50 Personal Lines Agencies Ranked by Total 2014 Personal Lines Revenue 2015 Rank Agency Name

2014 Personal Lines P/C Revenue

2014 Total P/C Revenue

2014 Total Other than P/C Revenue

2014 Total P/C Premiums Written

No. of Full-Time Employees

Main Office

Website

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

$353,550,000 $233,535,000 $82,750,000 $80,702,548 $73,800,000 $54,199,000 $47,206,633 $36,547,778 $27,490,620 $24,716,089 $21,129,289 $21,000,000 $19,950,567 $15,500,000 $15,451,057 $15,086,361 $12,946,000 $12,595,000 $12,275,739 $9,733,156 $8,403,000 $8,034,000 $7,971,766 $7,798,064 $7,777,023 $7,700,000 $7,629,213 $7,562,000 $7,380,000 $7,316,975 $7,312,621 $7,250,052 $7,022,000 $6,875,000 $6,796,248 $5,986,497 $5,835,217 $5,712,427 $5,610,652 $5,563,000 $5,503,356 $5,500,000 $5,438,000 $5,400,000 $5,287,776 $5,155,000 $5,000,000 $4,943,720 $4,767,226 $4,652,950

$353,550,000 $834,706,000 $83,545,000 $485,324,937 $73,800,000 $221,720,000 $361,843,315 $46,526,117 $151,896,714 $114,991,536 $84,517,156 $46,000,000 $151,629,066 $40,000,000 $69,337,718 $18,065,334 $31,900,000 $77,057,000 $46,053,598 $91,928,213 $883,100,000 $38,800,000 $12,299,596 $33,175,882 $7,777,024 $17,300,000 $27,394,861 $28,760,000 $17,581,000 $66,974,219 $95,547,724 $28,976,764 $73,710,000 $17,500,000 $10,227,387 $16,170,706 $21,892,766 $29,739,990 $15,585,147 $46,553,000 $111,898,273 $10,100,000 $187,780,000 $87,400,000 $24,724,797 $17,642,000 $20,000,000 $410,103,460 $13,687,968 $26,063,173

$- $348,747,000 $409,000 $427,565,875 $- $25,470,000 $104,039,220 $1,008,856 $55,549,937 $21,512,307 $1,084,944,926 $16,000,000 $35,708,554 $- $18,469,633 $1,381,968 $1,600,000 $20,700,000 $9,669,737 $32,961,868 $347,404,000 $347,000 $5,021,066 $16,505,828 $100 $2,000,000 $8,595,872 $4,292,000 $8,124,000 $14,896,634 $21,757,238 $3,565,432 $48,029,000 $510,000 $78,093 $1,957,186 $1,761,343 $4,214,174 $1,172,372 $18,805,000 $11,805,104 $950,000 $15,684,000 $79,500,000 $2,798,170 $4,288,000 $5,000,000 $191,022,703 $1,964,739 $3,867,712

$1,385,000,000 $6,183,987,709 $477,765,000 $4,675,762,564 $578,000,000 $1,584,000,000 $2,419,279,783 $350,000,000 $1,385,000,000 $989,816,842 $525,000,000 $215,000,000 $1,336,078,953 $290,000,000 $554,653,019 $127,925,767 $220,450,000 $846,000,000 $309,369,297 $1,262,000,000 $7,590,119,600 $248,000,000 $148,000,000 $259,081,541 $45,828,294 $94,600,000 $228,000,000 $215,000,000 $277,854,999 $487,715,371 $974,122,965 $229,000,000 $514,494,000 $130,000,000 $80,421,534 $110,150,291 $195,316,740 $208,515,388 $100,121,118 $464,000,000 $1,138,303,403 $54,000,000 $1,475,461,640 $923,000,000 $165,188,131 $108,940,000 $250,000,000 $3,333,076,403 $119,850,545 $198,845,000

3,540 7,476 495 4,358 600 1,550 2,561 80 1,487 397 3,261 317 990 51 625 130 140 445 379 550 5,600 196 143 322 64 118 255 162 170 459 520 230 667 175 61 89 175 245 94 248 780 70 826 695 121 160 202 2,113 175 180

Huntington Beach, Calif. Chicago, Ill. Cerritos, Calif. Valhalla, N.Y. Encino, Calif. Columbus, Ohio Lake Mary, Fla. The Woodlands, Texas Cedar City, Utah New York, N.Y. New York, N.Y. Natick, Mass. Caledonia, Mich. San Carlos, Calif. Missoula, Mont. Palm Beach Gardens, Fla. Westbrook, Conn. Boston, Mass. Poughkeepsie, N.Y. West Point, Ga. Kansas City, Mo. East Providence, R.I. Tampa, Fla. Buffalo, N.Y. Devon, Pa. South Dennis, Mass. Virginia Beach, Va. East Hampton, N.Y. Batavia, N.Y. Oklahoma City, Okla. Houston, Texas Milwaukee, Wis. Fort Worth, Texas Norwalk, Conn. Longwood, Fla. Metairie, La. Altamonte Springs, Fla. Saint Louis, Mo. Englewood Cliffs, N.J. New York, N.Y. Longwood, Fla. Exeter, N.H. New York, N.Y. Minneapolis, Minn. Hasbrouck Heights, N.J. Richmond, Va. Port Washington, Wis. Newport Beach, Calif. Ridgeland, Miss. Syracuse, N.Y.

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Confie Hub International Auto Insurance Specialists (AIS Insurance)* USI Insurance Services Answer Financial* BroadStreet Partners Inc. AssuredPartners Inc. TWFG Insurance Services Leavitt Group Crystal & Co. NFP Eastern Insurance Group LLC** Acrisure LLC Professional Insurance Associates Inc. PayneWest Insurance Celedinas Insurance Group Gowrie Group Risk Strategies Co. Marshall & Sterling Enterprises Inc. J. Smith Lanier & Co. Lockton Cos. Starkweather & Shepley Ins. Brokerage Inc. Baldwin Risk Partners Lawley Insurance Trident Insurance Agency Company LP Rogers & Gray Insurance Towne Insurance** Cook Maran & Associates Tompkins Insurance Agencies Inc.** INSURICA Insurance Management Network Wortham Insurance & Risk Management Robertson Ryan & Associates Inc. Higginbotham John M. Glover Eagle American Insurance Agency LLC Eagan Insurance Agency LLC Sihle Insurance Group Charles L. Crane Agency Co. Otterstedt Agency Frenkel & Co. Insurance Office of America Inc. Foy Insurance Integro Ltd. Hays Cos. Scirocco Financial Group Inc. The Hilb Group (new) Ansay & Associates Alliant Insurance Services Inc. SouthGroup Insurance Haylor, Freyer & Coon Inc.

18 | INSURANCE JOURNAL-NATIONAL November 16, 2015

Editor’s Note: * = Carrier Owned Agency; ** = Bank Owned Agency

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News & Markets Top 25 Workers’ Compensation Insurers: A.M. Best

he U.S. workers’ compensation market saw solid gains in 2014, thanks in part to premium increases and favorable claims frequency. This was the fourth consecutive year in which the industry reported improved results, A.M. Best said in a report. The U.S. workers’ comp combined ratio came in at 101.5 for 2014, reflecting steady improvement compared to the 118.1 combined ratio generated in 2010, according to the report. Net premiums written were $46.8 billion for the sector in 2014, a steady climb from the $34 billion produced in 2010. A.M. Best said the positives are nearterm: “While the industry’s underwriting performance benefits from an overall positive rate environment in 2014, competitive market conditions and persistent low investment yields continue to compress operating margins. Improved fundamentals in recent years appear to indicate that further improvement in results may continue over the near term, given growth in premiums from rate increases and favorable claims frequency relative to claims severity.” Several giants saw market share shifts in 2014. Liberty Mutual Insurance’s U.S. workers’ comp net premiums written for 2014 dropped 27.5 percent compared to the previous year, knocking it from second to fifth place in the new A.M. Best special report on the sector’s overall performance. The insurer produced $2.2 billion in net premiums written during 2014, giving it a 4.8 percent share of the U.S. workers’ comp market compared to $3 billion and 7 percent market share in 2013. Liberty Mutual said the drop is part of its strategy to rid itself of weak accounts. “Over the past several years, Liberty Mutual Insurance has strategically reduced its exposure to workers’ compensation by targeting under-performing accounts that were contributing to unacceptable results,” the company told Carrier Management. “As a leading provider of commercial insurance today, we continue to be a strong market for workers’ compensation insurance where our claims

and loss prevention expertise and customer service focus provide value and superior outcomes to our customers.” American International Group booked $2.4 billion in net premiums written during 2014 for a 5.2 percent share and third place, a 10.4 percent drop from what it achieved in 2013 when it produced more than $2.7 billion in net premiums written for a 6.2 percent market share and fourth place. Travelers Group had $3.8 billion in net premiums written during 2014 and 8.2 per-

20 | INSURANCE JOURNAL-NATIONAL November 16, 2015

cent of the market, 4.3 percent higher than the $3.68 billion in net premiums written during 2013 and 8.3 percent market share. Hartford Insurance Group had $3 billion in net premiums written during 2014 for a 6.4 percent share of the market — 1.4 percent higher than the $2.97 billion generated in 2013, when it had 6.7 percent of the market and was in third place. This is an edited version of an article published by CarrierManagement.com.

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The Rebound Continues as Contractors & Builders Expect to Grow Again in 2016 By Andrea Wells

uilders and contractors can expect another year of steady growth in 2016 and so can the insurance specialists that serve this rebounding market. The construction industry across the board is seeing strong growth, says David Marino, U.S. construction leader for Marsh. “Growth in the construction sector has well-outpaced U.S. gross domestic product,” Marino says. “We are at the highest level of construction spending since 2008, some $1.1 trillion.” Construction spending in September reached a new seven-year high and climbed at the fastest rate since early 2006, according to an analysis by the Associated General Contractors of America (AGCA). “Overall demand for construction continues to grow at a very robust rate,” said Ken Simonson, the association’s chief economist. 22 | INSURANCE JOURNAL-NATIONAL November 16, 2015

Spending in September totaled $1.094 trillion at a seasonally adjusted annual rate, 0.6 percent higher than the August total and 14.1 percent higher than in September 2014, Simonson said. AGCA reported that the total was the highest since March 2008 and the yearover-year growth rate was the strongest since January 2006, indicating a faster pace of construction spending overall. “The construction industry is rebounding,” adds Tony Page, senior vice president in Lockton’s San Francisco office, who directs Lockton’s construction and surety brokerage team. While construction’s rebound has been occurring for a couple of years in some sectors and geographic regions, Page says he sees rebounds occurring in just about every region and sector of construction these days. Page has seen growth for mixeduse and multi-family

projects nationwide. “In the West Coast, the Southwest, Sutheast, and even on the East Coast,” he added. Page and Marino both saw construction projects trend up in healthcare and higher education in 2015 as well.

But Marino added that much of that growth — such as in mixed use, multi-family, healthcare and education — would have occurred in a good or bad economy. In today’s improving economy, contractors and builders are seeing even stronger growth in just about all areas, including manufacturing, lodging and commercial building. That’s a trend Mario expects will continue. The only area, in Marino’s view, to experience some fall-off has been in the energy and power construction sectors. The signs of recovery are everywhere, the experts say, and all indications point to more in 2016. According to the 2016 Dodge Construction Outlook, published in early November by Dodge Data & Analytics, a mainstay in construction industry forecasting and business planning, total U.S. construction starts for 2016 will rise 6 percent to $712 billion, following gains of 9 percent in 2014 and an estimated 13 percent in 2015. This

growth is leading to a healthy market for tors and builders today are seeing rate the insurance brokers and carriers writing reductions at 20 percent, said Tom McCall, construction business. executive vice president in Lockton’s Irvine, Geoff Heekin, executive vice president Calif., office. McCall, who leads Lockton with Aon’s construction services group, Southern California’s residential construcexpects the new year to bring moderate tion team, has represented residential growth for contractors and developers and contracbuilders. “On a whole we in the western U.S. ‘Growth in construction tors anticipate seeing North region for more than 30 sector has well-out- years. America having growth paced the U.S. gross of between 4 to 6 percent McCall says he’s overall,” he said. domestic product. We been able to negotiate “Clearly things are term contracts are at the highest level longer looking up,” says Mike with insurance carriers of construction Farrington, assistant vice on many construction spending since 2008.’ accounts, which is president, underwriting for CNA. leading to better profits Next year will bring more positive for his clients. “When more money is in the results, Farrington says. He adds that a market the terms and conditions get a little good predictor of future growth in conmore flexible and negotiating longer term struction is what design professionals are contracts” with carriers becomes a bit easiseeing right now — backlog. er, he adds. “We’ve heard from some of the design Marino expects to see even more new professionals out there that they are startentrants into the construction market next ing to see backlogs and when design proyear for primary casualty and perhaps fessionals start to see backlogs that usually property and excess liability as well. But means that construction (building) is right one tough spot remains insuring projects in around the corner,” Farrington says. New York for liability, particularly around lead and excess liability, he said. “But for Market Conditions the balance of the market, pricing contin Insurance market conditions look good ues to be flat or slightly up or slightly down for the construction sector’s depending on loss experience,” Marino burgeoning growth, the said. “We do see some medical inflation in experts say. workers’ comp and auto which pushes some Lockton’s Page says inflationary pressure on those lines.” there are a number of Marino says one potential issue he has new players entering his eye on involves two of the biggest playthe construction insurers in the construction market — AIG ance market which and Zurich. “Both are going through some makes today’s market a re-underwriting and that may have some good one to get the best challenges going forward,” Marino said coverage at the best Aon’s Heekin describes the construction price for clients. insurance market as “competitive but not “There’s a lot of irrational.” While he has seen some tradicompetition,” Page tional or “legacy” construction markets pullsaid. “Rates are soft ing back in some areas, other new entrants on pretty much all with new capital have filled the void. lines of insurance and Farrington says construction insurance we are looking at market is and always has been a fluid mardecreases” on many ket. “It seems like every day there is another accounts. carrier that is getting into certain aspects continued on page 24 Many contracNovember 16, 2015 INSURANCE JOURNAL-NATIONAL | 23

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Contractors & Builders continued from page 23 of construction where we have never seen risk for wood frame construction them before,” Farrington said. Regional projects. “There have been some carriers in particular have huge fire losses on constarted to “dip their toe” struction projects in ‘There’s a lot of in the market for a few of past two years so competition. Rates the the more difficult classes that’s a concern,” Page are soft on like road or roofing. said. pretty much all “The market right now, Construction defect it’s clearly more competlines of insurance issues continue to cause itive and we think that bit of concern in and we are looking astrong will continue into 2016,” litigious states, at decreases.’ Farrington adds. McCall added. “California is strong, Claims Colorado is strong, but then you The construction insurance market is have areas like Texas and Atlanta severity prone and one area that’s receiving where you don’t have any issues a noticeable uptick in claims is automobile with construction defect. Then line of coverage for contractors, Farrington you go back to the East Coast said. where you have some incredible “We have seen modest increases in claims contractual issues. They all kind of for construction, but more so in the autowaffle depending on the geographic mobile line, which is frankly a headache for area you are in.” our industry,” he said. There are profitability “There’s a very uneven challenges across the board in auto and treatment to Farrington says distracted driving, what is and increased costs for medical treatisn’t covered ment and the skyrocketing costs of auto repair are driving that trend. “All of this is impacting our industry.” Another issue, according to Lockton’s Page, is fire

24 | INSURANCE JOURNAL-NATIONAL November 16, 2015

around construction defect as an occurrence and multi-state contractors can face a very different coverage result based on case law in a given state,” Marino said. “Carriers are willing to modify the insuring agreement at times to provide affirmative coverage but it’s certainly an area of concern and continues to be a concern.” When it comes to additional insured issues, Marino sees the idea of horizontal exhaustion as a possible concern, which is when carriers seek to pursue claims across all possible general liability policies rather than “up a tower” into the umbrella policies of lower tiered contractors. “This might be inconsistent with what the contracting parties expected and so that creates unpleasant surprises,” Marino said. Heekin said that typical construction claims, including workers’ compensation, general liability and construction defect, will always be a part of the game. But what he believes could be a game-changer for construction is the size of future claims. “Projects are getting bigger,”

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he said. “The tools and methodology used workmanship in construction,” he said. in projects — whether it’s tunnel boring “Dare I say that if we had a more skilled machines, graters or even modular building workforce out there, maybe we could — are just more expensive,” he said. potentially see a decrease or mitigation in That means that construction claims are some of the losses” that are occurring. going to become larger and more complex going forward. “Comp and frequency coverEmerging Risk ages are going to have a degree of volatility Contractors are increasingly using cambut nothing too outside historical modelera-mounted unmanned aerial vehicles ing,” Heekin said. “But it’s going to be the (UAV), or drones, to monitor their construcbigger ones that we would suggest are going tion activities. While these devices provide to be the new frontier.” a good way to obtain real-time data on job How those claims will affect the market progress and identify potential hazards or remains to be seen. “It will be down the quality issues, they could lead to potential road sometime before risk issues. we can actually under‘We have seen modest CNA’s Farrington says stand how they all play carrier hasn’t made increases in claims for his out,” Heekin adds. any changes with respects construction, but more to drones specifically Farrington adds that CNA is seeing a rise in so in the automobile but they are paying close workers’ comp actions line, which is frankly a attention to the exposure. but many of those We are still examining headache for our claims involve new and the issue very carefully,” industry.’ not as skilled workers. he said. “But in terms of “If you were to talk underwriting I haven’t to any of our construction association partseen anything related to that from where I ners, mechanical, electrical, roofing, in their sit.” own industry sectors, their major concern Heekin says the use of drones continues is the availability of a skilled workforce,” to evolve in the construction sector. “It’s Farrington said. “So you have younger very much a dynamic and fluid situation.” people, not as experienced on the job site, But he sees little cause for concern from which gives rise to potential claims.” an insurance perspective other than when In CNA’s own book, Farrington said drones are used in densely populated areas. there’s been an increase in auto claims with But a lot of times drones are used in the young and/or less skilled workforce. sparsely population areas, such as on a solar “We’ve also seen rises in workers’ compenenergy field construction site out in a dessation claims. We have statistics in our own ert. “The use of drones allows for a degree book of business where it breaks down by of governance that wasn’t quite there age group where we see more claims before so in some ways that’s frequency and a lot of it is with the helpful in de-risking the projyounger less skilled workers.” ect versus increasing the risk,” Farrington asked: Heekin said. Could construction Marino says the real problem defect losses also be with drone use in construction is attributed to younger/ the uncertainty around federal law. less skilled workers? Perhaps, he “The FAA was to promulgate said. “Maybe because they rules (for drones) this fall but those are not as skilled rules have yet to be promulgated and as they could be operating without FAA approval could and maybe there create a number of problems for cliare issues with faulty ents,” Marino said. One problem is www.insurancejournal.com

potential fines. But also operating without FAA approval potentially exasperates civil liabilities should there be an accident, he said. Despite the unknowns around drone usage, insurers are willing to insure drone use on job sites, he said. “The right form and policies are still somewhat immature,” Marino cautioned. “But if we are going to general liability insurance for the liability of a drone certainly amending the aircraft exclusion would be prudent.” One emerging risk concern for all businesses today, including construction firms, is cyber liability. Heekin says Aon’s continues to advise clients on the importance of understanding cyber as it relates to building. One example of a possible cyber exposure could be the confidentiality of building plans. “If you have building plans, particularly at the federal level, the integrity of maintaining the confidentiality of those drawings and the contractor’s acceptance of those drawings is a new risk.” Marino also agrees cyber is a growing emerging risk for construction clients. “We are seeing an uptick in claim activity around the social engineering and other types of fraud,” Marino said. Crime and cyber together are experiencing an uptick in claims activity. “But for construction specifically not only do contractors have the exposure of employee data being exposed but perhaps the loss of confidential technology of customers or data that is shared through BIM (building information modeling) or other design type arrangements,” Marino said. Despite the growing risk, cyber liability purchasing is still slow in construction, the experts say. “There’s a learning curve for both the contractors and the market to find the right product at the right price,” Marino said.

November 16, 2015 INSURANCE JOURNAL-NATIONAL | 25

SPECIAL REPORT

Contractors & Builders 4 Common Business Issues When Evaluating Wrap-Up Programs

s the cost of commercial, public entity and residential construction continues to increase, owners and developers are seeking inventive ways to reduce insurance costs while maintaining effective coverages for the parties engaged at project sites. Demand for comprehensive, high-efficiency wrap-up programs — a single insurance program covering the job-site risks of the project owner, build team or program manager, By John Campbell and all tiers of subcontractors — is on the rise. Owners of large projects, for example, are increasingly dependent on wrap-ups or owner controlled insurance programs (OCIPs) to manage their potential financial risks. Meanwhile, small to midsize general contractors in the commercial sector and in particular the multifamily and condominium residential space are able to bid and be more competitive on more projects through the use of contractor controlled insurance programs (CCIPs). The financial benefits of wrap-up programs come from economies of scale, potential dividends on favorable loss experience and the elimination of duplicate coverages. From a program structure perspective, in addition to the project specific limits, contractual compliance features and, depending on the jurisdiction, combining workers’ compensation and general liability (GL) coverages under a single wrap-up program can result in savings of up to 1.5 percent of construction value. The other financial benefits are measured by eliminating or minimizing potential coverage gaps associated with underinsured or non-insured contractors. The following are four common business issues and solutions that clients need to weigh when considering a wrap-ups. Reducing Costs While Complying With Contracts A traditional wrap-up or controlled 26 | INSURANCE JOURNAL-NATIONAL November 16, 2015

insurance program (CIP) includes workers’ comp and GL insurance coverages. When structured properly, the consolidated program provides general contractor sponsors reduced costs and an additional potential revenue stream. For owners, the OCIP is an effective way to gain fiduciary control of the risk management program while improving profit margin and competitiveness. In addition to structuring and placing such programs, brokers should review contracts for compliance with lender requirements. The financial impact resulting from a well-structured CCIP or OCIP can range between .25 percent and 1.5 percent of con-

tract values, depending on jurisdiction and claim results. In a recent case, a mid-size developer that was expanding on a three-year multi-project building program saved 0.5 percent of the enrolled contract values after implementing a combined line workers’ comp and GL rolling owner controlled insurance program (ROCIP). Rolling wraps cover more than one project. The developer, which had construction hard cost values in excess of $150 million, was exploring ways to be more competitive with larger developers and increase its operating margins. continued on page 28 www.insurancejournal.com

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Contractors & Builders

continued from page 26 After the rolling wrap was implemented the developer saved $750,000.

Securing Project Specific Limits Project specific wrap-up policies often provide better coverage than those acquired under separate conventional commercial GL policies, and owners can reduce costs, especially for workers’ compensation coverage. For example, a project lender was requiring an owner to provide project-specific limits of $100 million for a $600 million commercial project. When the general contractor and its subcontractors could not provide this requirement, a workers’ comp and GL OCIP was implemented, with $100 million in project dedicated limits for the owner, lender and all tiers of contractors. The owner saved 0.6 percent of the contract values, equal to $3.6 million. Addressing ‘For Sale’ Residential Exposures A major trend in the construction indus-

try is increased use of GL-only wrap-ups for commercial construction projects with project values as low as $10 million as well as for condominium (“for-sale”) projects. For example, GL-only wrap-up programs can be structured to provide coverage for “for-sale” residential exposures with project dedicated limits for the owner, general contractor and all tiers of contractors. Most general contractors and trade contractors have an exclusion on their commercial general liability policies for condominium exposures. GL-only wrap-up programs are being used to meet lender and contractual requirements, and because the GL-only program deductibles are much lower ($10,000-$25,000), collateral typically is not required. Covering Completed Operations Many lenders require owners and contractors to provide GL coverage during the construction period and completed oper-

ations coverage for the statute of repose. This period can range from two to 10 or more years, depending on the jurisdiction. For contractors and owners, GL-only wrap-up programs should be structured to provide coverage for the construction period as well as for the completed operations exposures for a period of 10 years or the applicable statute of repose, whichever is less, to ensure contract compliance. The ability to structure coverage for post-construction claims is one of the essential advantages of wrap-up programs. This is not intended to be an exhaustive list of all the solutions and issues relating to wrap-up insurance. Each company’s risk profile and needs are different, and understanding the unique circumstances is crucial when it comes to choosing the most effective wrap-up insurance. Campbell is USI Insurance Services’ construction practice managing partner and also serves as president of USI’s wrap-up practice.

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News & Markets P/C Direct Premium Written Up Nearly 4.7 Percent

irect premium written (DPW) for property/casualty insurance companies continues to increase, albeit gradually. At yearend 2014, more than $570 billion of DPW was reported, a record high for the industry. For 2014, total DPW for all P/C insurers aggregately increased 4.5 percent over 2013, an increase of $24.7 billion. Through the second quarter of 2015, the insurance industry’s growth trend has continued, as By Douglas A. DPW for all P/C insurers Powell aggregately increased 4.7 percent over 2014. For the six months ending June 30, 2015, P/C companies comprising the Top 25 insurers in terms of DPW increased their DPW 12.9 percent over the first six months

of 2014. This continues the Top 25 insurers’ impressive display of premium growth and financial stability. The Top 25 accounted for 50 percent of the growth in the P/C insurance industry’s DPW. In contrast, the remainder of the industry reported an increase in DPW of 2.9 percent, or $6.5 billion year over year. It is important to note that while increasing DPW, P/C companies have aggregately maintained a sufficient level of policyholders’ surplus (PHS). One measure that indicates P/C companies are conservatively leveraged is the DPW to PHS ratio. An insurer’s DPW to PHS ratio is indicative of its premium leverage on a direct basis, without considering of the effect of reinsurance. Since 2010, this ratio for P/C companies has remained stable at approximately 70 percent.

Although the market continues to exhibit signs of firming and DPW continues to increase, P/C insurers should not expect a traditional hard market in the near future. More importantly, it is possible that the double-digit premium growth experienced in the historical hard market cycles may have created unrealistic premium growth expectations for this current recovery. It is more realistic that expectations should relate to gradual, stable growth. There is always a fair amount of uncertainty in making projections based on second quarter data, but if the industry holds to its 10-year historical pattern, growth in 2015 would again result in the highest level of year-end DPW ever reported. Powell is a senior financial analyst with Demotech Inc. Email: dpowell@demotech.com.

Top 25 Property/Casualty Companies Based Upon Dollar Amount of Direct Premium Written (DPW) Growth Year-to-Date Results March 31, 2015 versus March 31, 2014 Company Name

DPW 03/31/2015

DPW 03/31/2014

$ Growth

% Growth

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

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

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

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

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

Data Source: The National Association of Insurance Commissioners, Kansas City, Mo., by permission. Information derived from an SNL product. The NAIC and SNL do not endorse any analysis or conclusion based upon the use of its data. 30 | INSURANCE JOURNAL-NATIONAL November 16, 2015

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News & Markets ‘We Start Businesses Instead of Buying Them,’ Berkley Says in Last Earnings Conference Call as CEO

By Susanne Sclafane

illiam R. Berkley’s last earnings conference call as chief executive officer of the company that bears his name lasted just over 20 minutes, with a lack of questions about a less-eventful quarter than competitors keeping it shorter than most. “I thank Mike McGavick for that,” Berkley quipped, referring to the CEO of XL Catlin and the fact that XL Catlin’s third-quarter earnings calls was scheduled for the same day and time as the Berkley conference. As McGavick described a confusing quarter impacted by integration expenses from XL’s combination with Catlin and investment market volatility during a call lasting more than an hour-and-a-half, Berkley took turns with his son Rob Berkley (W. Robert Berkley Jr.) talking about a quarter that was in line with expectations — with topline premium growth of 3.0 percent and a 93.7 third-quarter combined ratio almost unchanged from third-quarter 2014. “We think that the performance of the

business is reasonably good at this stage,” said the younger Berkley, who became CEO on Oct. 31 when William R. Berkley assumed the role of executive chairman. A hallmark of Berkley calls has been the references to “irrational” competitor behavior. Rob Berkley, taking up that mantle in recent years, didn’t disappoint with his discussion of the commercial auto line — an area that is finally getting the “needed action” — although he said competition in the commercial insurance market generally is only “modestly on the rise.” Meanwhile, the elder Berkley’s reference to McGavick was the latest in a library of Berkleyisms that analysts and reporters have come to know and love over the years. A personal favorite: “My actuaries can’t even predict the past,” he said some years back in the same gravelly baritone voice with which he delivered his observation about the timing of the XL Catlin call.

32 | INSURANCE JOURNAL-NATIONAL November 16, 2015

In fact, a deep respect for his actuaries and other analytical types has always been apparent in more contemplative commentary that reflects a great understanding of the benefits of conservative loss reserving and the need to pay attention to inflationary trends — topics that he has highlighted in annual reports and biannual press briefings with the media in the past. During the Oct. 26 third-quarter earnings call, the soon-to-be executive chairman didn’t disappoint on that score either, engaging in his last teachable moment as CEO. “We’re maintaining the quality of our investment portfolio and keeping a short duration because the risks of an insurance company are doubling down if inflation comes. You get hurt with your loss reserves. And if you extend the maturity and duration of your investment portfolio, you’re effectively doubling down. So we’ve chosen to reduce that risk — the one that we can control,” he said. Berkley also talked about the strengths of his company as it moves forward in the competitive landscape. “We really do focus on risk-adjusted return. It means we do some things that some of our competitors don’t do. We don’t focus purely on accounting results because we’re focused on creating shareholder value more than reported earnings per se. That means we start businesses instead of buying them because that’s a better economic return; it’s not a

better accounting statement return.” He continued, explaining that “Rob spends a substantial amount of his time out talking to new teams, constantly trying to find the best teams to do particular things, [which] can be small niches or big chunks of opportunity…What we really are is a large group of small niches, and we do it in www.insurancejournal.com

a way that we can compete administratively a champion of the cause of the Coalition for Berkley on Reinsurance and cost wise. We don’t look like the people a Domestic Insurance Industry, which seeks Summing up his thoughts on the reinwe compete with, even though the numto eliminate a tax deduction for premiums surance market just a year ago, he said that bers claim to be the same.” paid to offshore reinsurance affiliates. “many of the people who are now playing in In fact, the earnings The August that…game don’t have a substantial moral press release noted that commitment to our industry,” according to ‘They write the same announcement about third-quarter highlights a report from Carrier Management Editor business that I write succession plans at W.R. include startups of five Berkley Corp. notes Mark Hollmer. “This is an ever-so-alluring and they pay no tax that William R. Berkley new businesses. Among business, appearing so predictable but because they write in “will continue to be fully proving to be particularly unpredictable them are a treaty reinsurance unit dedicated to when the unforeseen event arises,” he said. the U.S. in their U.S. engaged in the compabusiness in South Africa; “Many companies after [Hurricane Katrina] companies and then ny’s activities, primarily a professional and polfocused on investments and several other events would have proven reinsure it offshore. and strategy.” lution liability unit for to be insolvent if in fact anyone said they It’s unfair.’ construction contractors; While there’s no reason had to pay their claims now. They went out and Berkley International to assume that he won’t and raised capital very quickly on financial Seguros Colombia, providing construction be participating with commentary on statements that were, at best, questionable.” all risk, surety, general liability, directors future calls, or sharing his views on taxaand officers liability, and other commercial tion fairness with Washington lawmakers, Berkley on Offshore Taxes insurance products to the Colombian marhis final days as CEO prompted us to look Discussing the offshore tax situation ket. back on some of the advice and commenearlier this year, he said: “We hope that “Clearly, it’s a cyclical business, but we tary he has delivered over the years. continued on page 34 think we’re well positioned and we’re constantly investing in that future,” Berkley said on the conference call. “It probably costs us $20 million a quarter each year for Sometimes the new things we’ve been investing in. Things we invested in three years ago give us a positive return; the new things that we’re spending money on cost us money. isn’t good enough “We think that’s how you build business for the future. We think we’re going to have In premium financing, competitive rates are just part of the game. We’ve got superior technology and exceptional customer service − all a better business in the future than we have backed by a national charter. If you’re a client, you already love us. If today. And today’s business is better than you're not, let us show you what you've been missing. yesterday.”

Looking Back Competitors that build by consolidating large businesses were on Berkley’s mind during an earlier conference call in the second quarter this year. “Consolidation that is happening now is frequently about management ego or management rewards and less than it is about what you need to run your business,” he said during the company’s July 27, 2015 call. A more biting remark came during a fourth-quarter conference call in February. “It’s just fewer people for the government to look at who don’t pay taxes. It just makes it easier,” said Berkley, who is well known as www.insurancejournal.com

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News & Markets continued from page 33 Congress recognizes [that] they never intended the tax laws to give a benefit to companies based outside the United States, and that’s what the tax law does.” “They write the same business that I write and they pay no tax because they write in the U.S. in their U.S. companies and then reinsure it offshore. It’s unfair,” he said during a televised interview on CNBC last September. “At some point every insurance company will be based offshore, and those jobs will migrate, and ultimately this very critical industry, and a huge industry — millions of employees and hundreds of billions of revenue — will be based outside the U.S. “And it’s critical for our economy. But companies don’t do business where they have the highest costs.” Berkley on Google As for Google getting into the business of auto insurance distribution: “I’m here to tell you that you’re screwed,” he told a group of agents, according to a report from Insurance Journal’s Stephanie K. Jones from the Independent Insurance Agents of Texas’ Joe Vincent Management Seminar in late January.  Among the reasons: “Google has the capacity to change auto insurance because it will be able to charge a different amount for every driver and every car. “They can give you a plug-in device, not unlike Progressive’s, and they know exactly when you’re breaking the law and when you’re not. They can rate you exactly on how good a driver you are — every day,” he said, referring to the tech giant’s knowledge of the rules for driving on every road in the United States. Berkley on Risk and Reward There’s always a serious side even to Berkley’s most off-the-cuff remarks, which have included many references to the “stupidity” of companies and underwriters in prolonging soft markets over the years. On the serious side, he has said, “This is a marathon business, not a sprint,” describing the rationale for starting up niche businesses instead of engaging in mergers. Berkley offered the reasoning during an interview

Vending,” he recalled, noting that he spent five years ago as he explained the startups the next few years learning about investing. of more than 20 niche businesses the com“I was probably 14 when I subscribed to pany had started up in the prior five years. Fortune, and I read about Lee Iacocca taking “We believe that in the enterprise known over Chrysler. I called him, and he actually as insurance you succeed because of expertalked to me,” Berkley remembered during a tise. So we look for people with particular 2010 interview. expertise,” he said. One of Berkley’s ‘We believe that in the In 1963, Berkley, then NYU student, said most entertaining enterprise known as an he started a hedge fund stories relates to his insurance you succeed after reading about A.W. first failed attempt to because of expertise.’ Jones, who had the merge two companies first one. “That evolved — Houston General into managing other people’s money.” At and Traders & General — in the early Harvard Business School three years later, 1970s. “Houston General was a fabulously the hedge fund evolved into another, which well-managed, highly automated company. was effectively the predecessor to W.R. They knew exactly what they were doing. Berkley Corp. Unfortunately, they were losing money,” he “For almost 50 years, I’ve been an investold a group of reporters at a media briefing tor involved in insurance. The only constant during the entire period of time is the existence of risk in some form or another,” Berkley said during a presentation at a Professional Liability Underwriting Society conference in 2008 — one of many on the topic of risk that he has given over the years. “What do we really know given the rapidly changing world? Can we still rely on Left to Right: W. Robert Berkley, Jr., Chief the past as a way to predict Executive Officer and President the future?” he asked, seriously reflecting on William R. Berkley, Executive Chairman questions about the risks that contributed to the financial crisis and the accuracy of the tools and models built to measure and back in 1998. “At Traders & General, they monitor risk. literally wore green eyeshades [and] kept During the third-quarter earnings call track of claims on Popsicle sticks, [but] that last month, the leader painted an optimistic damn backward company made unbelievpicture for the future. “We continue to look able amounts of money.” out and see lots of volatility and uncertainly The young entrepreneur decided to comin the future. But we have a lot of confibine the two insurers that he had acquired dence in the things that we see. For every for a money management firm he started as problem, for every change, it creates new a Harvard Business School student. “I ended opportunities. And we think having the up with a bigger company that didn’t make smartest people, the best underwriters any money,” he said. and the best teams of people continues Even before Harvard Business School, to give us a competitive advantage,” he Berkley was an investor, buying his said. first stock at age 12. “It was Continental

34 | INSURANCE JOURNAL-NATIONAL November 16, 2015

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MyNewMarkets Restaurant Programs Market Detail: UCA General Insurance Services Inc. (www. ucageneral.com) offers restaurant packages from fast food to fine dining. UCA’s preferred restaurant packages include property, commercial general liability (CGL), business income, equipment breakdown, fire legal liability, and medical payments. Other coverages available include umbrella, nonowned and hired auto, EPLI, and cyberliability. Available limits: As needed Carrier: Century-National Ins. Co. States: Ariz., Calif., Idaho, Ill. Nev., Ore., Utah, Wash., and Wis. Contact: Barry Colburn at 800-222-5582 or email: bcolburn@ ucageneral.com

vices that support other businesses and selected contracting operations. Admitted in California. Nonadmitted in other states. Available limits: As needed Carrier: Unable to disclose, admitted and nonadmitted available States: Ala., Calif., Colo., Idaho, Ky., Mo., Mont., N.C., N.D. Neb. N.M., Ore., S.D., Utah, and Wash. Contact: 209-948-8191. Email: support@goldenbear.com

Workers’ Compensation Market Detail: The Atlas General Insurance Services (atlas.us.com) Workers’ Compensation Division offers workers’ comp insurance for select retail insurance brokers. It specializes in developing programs with insurance carriers that meet the needs of a wide variety of market segments, from heterogeneous to specialty niche programs. Available limits: As needed Carrier: Various, admitted States: All states except Wash. and Wyo. Contact: Customer service at 877-66-ATLAS

Wedding Insurance Market Detail: M2 Insurance (www.M2InsuranceServices.com) offers low-price general liability coverage for weddings. “Day before” coverage is available at no additional cost. Transactions are processed 100 percent through the website. Certificates are sent via email upon purchase of coverage. Available limits: Minimum $1 million, maximum $1 million Carrier: Lexington Insurance Co. States: All states Contact: Customer service at 877-520-8363

Atlas Travel Insurance Market Detail: HCC Specialty (www.hccspecialty.com) offers short-term health insurance for individuals traveling outside of their home country Available limits: As needed Carrier: HCC States: All states Contact: Melissa Matheson at 781-994-6000 or email: mmatheson@ hcc.com

Primary Casualty Market Detail: Golden Bear Insurance Co. (www.goldenbear. com) prefers light to moderate liability exposures, but can consider heavier exposures in the more desirable classes. Target classes include business in the food service and hospitality industry, light to moderate hazard products and processes, wholesale distributors and importers, lessor’s risk properties, taverns, and products and serwww.insurancejournal.com

Shelters Market Detail: Markel (www.markelinsurance.com) is an admitted carrier that insures shelters for the homeless, abused women/ children, and troubled/runaway youth. Coverage available includes general liability, umbrella, sexual abuse/molestation, directors and officers, special events, professional liability, property, key employee replacement, auto, crime, and business income. Available limits: As needed Carrier: Markel States: All states except Hawaii Contact: Linda Lee at 800-431-1270 or email: llee@markelcorp.com

Miscellaneous E&O Market Detail: Greenhill Insurance Services (www.grnhll.com) binds small accounts with quoting, binding and renewal processes to make agencies do less work. Miscellaneous professional liability covers a wide-range of industries with errors and omissions coverage for areas not already met by businessowner and general liability policies. Available limits: As needed Carrier: Unable to disclose States: All states Contact: Phil Cabaud at 832-413-4601 or email: pcabaud@grnhll.com

Beauty/Barber Shops/Salons/Schools/ Supplies Market Detail: Agency Intermediaries Inc. (www.agencyint.com) offers professional liability, business income, CGL, tanning liability, umbrella, liability, real and business personal property. Available limits: Maximum $250 million Carrier: Unable to disclose, admitted and nonadmitted available States: Conn., Mass., N.H., and R.I. Contact: Customer service at 800-922-3347 November 16, 2015 INSURANCE JOURNAL-NATIONAL | 35

SPOTLIGHT

10 Things to Know About Long Term Care & Assisted Living Long term care loss rates vary widely by state. For the states profiled in Aon’s 2014 long term care analysis, Kentucky was found to have the highest loss rates, at $9,220 per occupied bed and Texas had the lowest, at $320 per occupied bed. — Aon Risk Solutions

A 2015 survey of affluent adults between the ages of 50 and 68 conducted by Greenwald & Associates on behalf of John Hancock Insurance found that only three in 10 have actually made a plan to address long term care as a potential physical or financial risk. — John Hancock Insurance (JHI)

41 percent of John Hancock 2015 survey respondents said insurance is the preferred way of handling long term care costs; 27 percent indicated they would likely pay for such costs out of pocket. — John Hancock Insurance (JHI)

The number of people older than 65 in 2030 is projected to be twice as large as in 2000, growing from 35 million to 71.5 million. — American Association for Long-Term Care Insurance

In the United States in 2012, approximately 58,500 paid, regulated long term care services providers served about 8 million people. Care was provided by 4,800 adult day services centers, 12,200 home health agencies, 3,700 hospices, 15,700 nursing homes, and 22,200 assisted living and similar residential care communities. — U.S. Centers for Disease Control

About 70 percent of people who reach age 65 are expected to need some form of long-term care at least once in their lifetime. — National Association of Insurance Commissioners

Around 12 million senior citizens in the United States will require long term care by 2020. Women are more likely to need long term care due to longer life expectancies. — U.S. Department of Health and Human Services

In 2014, the median cost of assisted living (one bedroom, single occupancy) nationally was $42,300 a year. Costs vary by region and state. In Missouri, the median rate is about $30,000; the median rate is around $65,000 in New Jersey and $94,000 in Washington, D.C. — Genworth Financial Inc.

Long term care loss rates are increasing by 5 percent annually; long term care frequency is increasing by 3 percent per year; and long term care claim severity is increasing by 2 percent annually. — Aon Risk Solutions’ 2014 Long Term Care General Liability and Professional Liability Actuarial Analysis

36 | INSURANCE JOURNAL-NATIONAL November 16, 2015

For 2016, the Internal Revenue Service is increasing the maximum tax deduction for tax-qualified long term care insurance coverage. For example, for a person over 60 but under the age of 70, the maximum deduction increases from $3,800 in 2015 to $3,900 in 2016. For a person over 70, the maximum deduction increases from $4,750 in 2015 to $4,870. — IRS Revenue Procedures 2014-61 (2015 Limits) and 2015-53 (2016 Limits) www.insurancejournal.com

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SPOTLIGHT

Marketing How to Know What

Insurance Customers

Want By Andrew Simpson

hat do today’s customers want from insurance providers? They want understanding, interaction, even a relationship. But they vary in when and how they wish to learn, interact and build a relationship. Insurance providers have to understand not only when but also how to best help customers with their needs, Lynn Kesterson-Townes, worldwide commerce marketing leader for IBM, told the Insurance Marketing and Communications Association (IMCA) Annual Conference in Nashville this past summer. Firms that figure out how to serve millennials will be able to capture other customers more easily and keep them, the e-commerce expert said. According to Kesterson-Townes and research she shared from IBM, the insurance marketing and communication strategies of the past no longer work because insurance customers have changed. Web Resource: To watch a video of Lynn KestersonTownes, worldwide commerce marketing leader for IBM, visit: http://www.insurancejournal.tv/videos/12600/

38 | INSURANCE JOURNAL-NATIONAL November 16, 2015

“Obviously, they’re the same people, but the way they want to interact with their insurers is very different these days,” she said. One way customers have changed is that they are less loyal than customers used to be. In the past two years, 37 percent of customers of insurers contracted with IBM report that they switched their insurers. This churn rate is rising, it’s up 13 percent over the last few years. “That’s because we believe that in today’s customer‑activated environment, marketing and communications strategies that used to work are no longer working to sustain retention or to significantly grow the business,” she said.

Bob and Ann Kesterson-Townes shared two examples. One was a man, Bob, who had a car windshield claim. He also had a $50 discount coupon that would have helped pay his deductible. “Except for reasons that no one can understand, the insurer didn’t let the auto glass place accept the coupon. No one’s actually to this day figured out why not. Bob’s still baffled why his insurer wouldn’t let his coupon be used. The auto glass place didn’t understand it. Bob had to pay the full deductible. Guess what else? The auto glass place didn’t lose a customer, but Bob switched insurers,” she said. The other story was about Ann, whose husband just died in a fatal car accident. She received a condolence letter from her insurance carrier. Unfortunately, in the same envelope Ann also received a letter from the same insurance company informing her that her coverage was being cancelled. “Unbelievable, right? Unbelievable. How did the marketing and communications www.insurancejournal.com

Kesterson-Townes cited emails from brokers, face-to-face-meetings, talking to a customer service representative over the phone, and click-throughs on a website, even a comparison website. “As digitally enabling technologies empower and connect customers more easily with businesses and with each other, a one‑size‑fits‑all marketing and communications strategy no longer works. In fact it’s competitively disadvantageous because what we used to have is an organization‑centered economy and now we have an individual‑centered economy,” the IBM executive told the communications professionals. Today’s customers are using a variety of web‑based interactions to talk to insurers, she said. In the beginning information and quoting stages, they are using a variety of interaction points and they don’t necessarily purchase where they’re searching, IBM’s research shows. In fact, it shows an 18 percent shift away from personal interaction and toward digital interaction at the beginning. department get to this point? Sorry your husband died and oh yeah, we’re canceling your policy! Did they not want to use another stamp? You wonder what was going through the heads of people, right?” said Kesterson-Townes. According to the IBM consultant, these insurers were not thinking about their insureds at these critical times of interaction. “That’s what customers are looking for today. They’re looking for an understanding of their personal situation when they’re having an event, when they’ve actually had a change in their own situation, and they’re looking for people to help them cope with it. They’re looking for that from their retailers, from their airlines, and from their insurers,” she said. Interaction Points She said today’s customers also expect all of the people they have relationships with to be able to respond in the same way. “Therefore, marketing and communications www.insurancejournal.com

‘That’s what customers are looking for today. They’re looking for an understanding of their personal situation when they’re having an event, when they’ve actually had a change in their own situation, and they’re looking for people to help them cope with it.’ functions in insurers need to be more nimble, more innovative, and better able to engage with their customers and help their entire ecosystem along as well,” she said. “They don’t want channels. They want interaction points, and we’ve changed that language on purpose because channels infer a one‑way communication. From me to you, from the insurer… ‘Let me push this product to you.’” As examples of interaction points

Personal Touch But that doesn’t mean personal interaction is dead. “[A]t the point of purchase, we are still seeing a lot of interaction, whether it’s on the phone or in person with a broker. What does this mean for insurers? Customers are obtaining their information and they’re quoting digitally. Then they’re purchasing a lot of times physically, we would call it,” she said. She said this means that insurers need to be proficient at omni-channel marketing, at merging the digital and the physical experience so that for the customer it feels like the relationship is “building all along instead of restarting with every new interaction point.” Due to the ubiquitous connectivity, insurance customers are looking for these “customer‑centric” interactions. To meet this expectation, insurers need data. “You need to know where your customer is in the decision process. You need continued on page 40

November 16, 2015 INSURANCE JOURNAL-NATIONAL | 39

SPOTLIGHT

Marketing continued from page 39 to know what’s going on in their lives to be causing this decision to be made,” she said. Lead with Millennials She stressed the value in being a leader rather than follower in understanding customers. The best place to lead is with millennials, the most empowered generation, people who are under the age of 30. “You need to embrace your digital millennials because you can learn a lot from them. Once you get successful working with them you can use those lessons in other areas,” she advised. She said two‑thirds of millennials are demanding customer digital and physical experiences that are harmonized. “They want increased transparency. They want to really interact and have a relationship with you. They want an understanding of their personal needs. They want fast responses. They still want advice. But if their needs are not met, they’re even more likely to switch insurers than the rest of us. But they’re looking for value. Notice, I said ‘value’ not price,” Kesterson-Townes told the audience. IJ Get Big quarter pg.pdf 1 1/6/15 “We believe that if you can market and

communicate to millennials effectively, you will actually be able to capture all of your customer segments,” she said. That’s because, like millennials, all insurance customers today want four things. “They want advice, simplicity, convenience, and value from their insurers, which brings us to trust. After all, insurance essentially started as a social network among like-minded people to share risk. How come most customers don’t trust their insurers?” She said IBM surveys show that more than half (56 percent) of customers do not trust their insurer and that people with low trust in their insurers are almost 20 percent more likely to switch their providers. “That’s why this is important to you,” Kesterson-Townes told the IMCA audience. According to IBM, it’s not useful to simply look at demographics or ages to segment today’s customers. Demographics actually offer limited insight into predicting the interaction point preferences, she said. “How do you know if this customer would prefer to talk to an agent online, would prefer to see an agent in person, 11:15 AM or would prefer to interact via email?

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Will demographics give you that answer? We would say, ‘No. In fact, they don’t.’” Sometimes, demographics even appear counter-intuitive. For example, the youngest age bracket, those under 24 years of age, are not the most likely to purchase insurance via the Internet, she said. Nor is it the next oldest age group, those 24 to 34. It’s actually people 34 to 44 that are most likely to purchase insurance over the Internet. “That’s a little counter-intuitive to some people. Some people would think the younger, the more likely.” Psychographics If not demographics, then what should insurance marketers rely on to understand customers? IBM thinks psychographics, or segmentation based on customer attitudes, is the answer. “It’s based on behaviors. It’s based on their needs,” she said. “That is much more indicative of how someone wants to be interacted with, not just how old they happen to be.” She said IBM has found that psychographic segmentation is four times more likely to point to the right interaction point than pure demographic segmentation. IBM identifies six customer segments, to which it assigns names including Loyal Quality Seeker and the Price-Oriented Minimalist. Kesterson-Townes profiled three examples of growing customer segments. Demanding Support Seeker Susan, 33, is unmarried, an energy consultant, and moving from Seattle to Boston. So she needs car insurance, and also needs insurance for her new house in Boston. And she wants life insurance because she’s going to be adopting a child in Boston. From a psychographic standpoint, Susan is a “Demanding Support Seeker” in IBM’s segmentation, or as Kesterson-Townes described her, “she’s high maintenance.” “She acts like a traditional insurance cuswww.insurancejournal.com

tomer. She needs a lot of hand‑holding. She really looks to insurers for advice. She trusts them, but she’s also every bit a person of this age, so she’s a modern empowered consumer,” she said. This customer is very connected and social media savvy but prefers that all of her interactions be personal, from information gathering all the way through purchase and servicing after purchase. “Demanding Support Seekers, or these high maintenance ones, have the lowest technology affinity in interaction. They want advice. They want full coverage. They want a one‑stop shop. They want someone on the other end of the phone,” KestersonTownes said. Support Seeking Skeptics John and Ann Cooke of Los Angeles epitomize the second segment KestersonTownes described. John is a 28‑year‑old manager at a large retail store. Ann is a 25‑year‑old nurse at a local hospital. This couple is extremely active on several social media sites, especially Facebook (which Kesterson-Townes says is actually for older people these days). John and Ann are discussing buying a new car. They’ve done a lot of research on their own. Now they’ve turned to Facebook to seek advice from their friends and family on their experience with three models they are considering. John and Ann are “Support Seeking Skeptics,” in IBM’s psychographic parlance. Support Seeking Skeptics have a medium www.insurancejournal.com

technology affinity, but when it comes to social media, they’re “off the charts.” They don’t feel well‑informed about insurance. They are young and haven’t had a whole lot of experience with it. They don’t trust insurers. They’re looking for advice about insurance at the same time they’re looking for advice about which car to buy. How they prefer to interact with insurers depends on where they are in the process, according to Kesterson-Townes. For example, when searching for insurance, they want to hear from their peers about their experiences. They don’t want to interact with insurers. But when it comes to purchasing, they will flip to a personal interaction such as telephone or face‑to‑face. “If you’re trying to sell this kind of group car insurance, for example, make sure you’re Facebook friends with John and Ann’s friends and network in,” the IBM expert advised. Informed Optimizer The third fast-growing segment is represented by Dan, a 27 yearold single and very successful video game designer who’s purchasing his first rental property. Dan is an “Informed Optimizer” in IBM-speak. “These guys optimize everything. They want to have the right insurance from the right insurer at the right time,” KestersonTownes said. These customers have a very high technology affinity, they’re highly self‑sufficient, they’re informed, and they’re willing to experiment. “They seek an optimal priced‑value ratio. Price is important, but they will shop around for exactly what they want,” she said. They prefer to interact digitally throughout the process if possible, even through purchase and servicing. “They’re comfortable in that world, but because they want the tailored product they demand, they’ll get on the phone if they have to, to get exactly what they need,” she added. As he researches landlord policies, Dan would be really impressed if an insurer reached out to him while he’s online with

an appropriate product offer. If a company actually includes an app that Dan can use to communicate with the insurer throughout the relationship, Dan would be thrilled. Merging Digital and Physical While these three segments differ in their needs and preferences, they are all engaging in omni‑channel behaviors. KestersonTownes said IBM research shows that 80 percent of insurance customers are already using two or more interaction points for information gathering and quoting process. Twenty percent are already using four interaction points or more. Consumers say they expect to be using four interaction points or more in the near future as they look at insurance. “Again, now’s a good time to start thinking about merging those digital and physical spaces,” said Kesterson-Townes. She stressed that personal interaction will remain important. In fact, the highest sales conversion rate is in transactions through personal contact, with about 80 percent, versus 30 to 40 percent conversion on websites. Seamless Experience Customers want a seamless experience, involving every contact that they have with the insurer, so they don’t have to start over providing their information at every interaction. That turns them off, she said. “Therefore, when they do talk to, let’s say, your call center rep, marketing is no longer about the call center rep getting out the right script and starting to pitch whatever product is the product of the day,” she said. “It really is about understanding what that customer’s talking to you about and being able to take them to the next level.” Marketing is about personalizing the experience for thousands, or even millions, of customers. “Whether you’re responding to a customer in real time or anticipating a need that they didn’t even know they had, today’s insurance marketing and communications functions must exceed expectations to give their companies a competitive edge.”

November 16, 2015 INSURANCE JOURNAL-NATIONAL | 41

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Agency Management Why Start a New Year Out Strong but Not End It That Way?

very year, we do it on the same day at the same time. The instant the calendar changes from the old year to the new one, we convince ourselves that this year will be different. We’re going to do everything we didn’t do in the past. It’s such a predictable ritual that it’s become part of our DNA. Good faith efforts rarely work, since By John Graham “stuff” gets in our way and throws us off course. How to end the year with the same drive and resolve that we started with is the big question. Here are seven actions that can help: Pull the Defensive Plug. For example, many insurance agents are convinced that consumers want the personal attention and the choices a local, independent agent gives them. While such thinking is understandable, it’s also a defense that inhibits coming up with innovative responses to the loss of their bread-and-butter auto insurance business to online sales. From all indications, that trend is increasing and expanding into homeowners and small business insurance. It’s true everywhere. If we want to be open to new ideas, then pulling the defensive plug is one place to start. Can the Knee-Jerk Negativism. No Apple product has been as consistently panned as has the Apple Watch. But Noor Naseer, director of digital innovations, mobile at Centro, doesn’t agree. “While consumers may not know exactly what they uniquely want or need from these tiny screens, they similarly didn’t know a decade ago that they would be waking up and going to bed (and going to the bathroom) with smartphones continuously by their side,” she wrote in Mobile Marketing Daily. Sure, some things fail and others do work out well, but it’s not because of kneejerk negativism.

Eliminate Excuses. When the company president pointed out the steady decline in consumer equipment sales over the last several years, the sales manager explained it was due to market saturation. Yet, when the issue was analyzed more carefully, the facts were quite different. Excuses may make us feel better, but they also blind us to new opportunities. Question Your Customer Assumptions. “We know our customers and what they want” are arguably the most dangerous words in business. Yet, many companies continue to base marketing and sales decisions on anecdotal evidence that’s unreliable at best. Why would a company drag its feet on gathering and analyzing customer data so it can learn everything about their preferences and buying behavior? In some cases it’s just plain old lethargy. But, more often than not companies can behave like individuals: knowledge upsets the status quo and puts new demands on the organization to embrace change. It’s much easier to say, “We know what our customers want.” Dive into Digital. Many people think that buying life insurance is only slightly less exciting than having a root canal, so it’s not surprising that it’s worth the effort to avoid both. To attract today’s younger consumers, life insurance companies now offer “simplified issue” policies that are delivered in two hours. Applicants answer a few health-related questions and there’s no physical exam. Policies with face amounts up to $1 million are available. Even though premiums may be higher, the convenience may be worth it. What makes it possible? Using their extensive databases, insurance companies use predictive modeling for the underwriting, cutting out stacks of slow moving

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paperwork. It’s not just faster; it’s also more accurate. Activate Innovation. Customers not only want innovation, but they’re willing to pay for it. According to Lab42’s Innovation Study, 75 percent of those surveyed were willing to “pay a premium for innovation,” including electronics, automotive, restaurants, clothing and grocery store items. The opportunities are everywhere. Tie It All Together. If there is a lesson to learn from Amazon, it’s the enormous benefit of tying everything together for customers. Whatever it is, the chances are that it’s available on Amazon or will be soon enough. And everything comes with a guarantee, no-hassle returns, reliable recommendations and free delivery with its Prime program. It’s the epitome of one-stop shopping for many consumers. Tying things together is what customers want. A new year is no reason to assume that it will somehow be better than the one just ending. Whether it’s a company or an individual, it takes the right strategy to make sure the end is even better than the beginning. Graham of GrahamComm is a marketing and sales strategist-consultant and business writer. He publishes a free monthly eBulletin, “No Nonsense Marketing & Sales Ideas.” Email: jgraham@ grahamcomm.com. Phone: 617-774-9759. Website: johnrgraham.com.

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Growing Your Property Casualty Agency 6 Ways to Get More Referrals and Online Recommendations

eferrals are no longer just names with contact data provided to agents and client service reps. Today, they are intertwined with social media likes, recommendations and reviews. These online affirmations reverse the traditional referral flow by suggesting you to the prospect — instead By Alan Shulman of the prospect to you. This confluence of old school referrals and digital recommendations results in an interesting new normal. Therefore for the purposes of this column, “referrals” means both endorsed leads and online tributes. Selling insurance for a living doesn’t automatically mean that you are entitled to a steady flow of referrals from your insureds. Providing a well-written policy comes with its own rewards: the satisfaction of doing a good job and a commission. Referrals are something beyond that; they’re potential “tips” without the monetary handoff. They’re also something you must earn. Below are six ideas to help you gain more referrals and to maximize their utility. Align Format and Delivery. Referrals encompass many forms and formats. The outbound variety can be produced by satisfied insureds and presented to potential buyers verbally via a phone call, video chat, or an audio or video recording. They can also be authored and displayed in writing on paper, via email, PDF and other digital formats — including comments and recommendations on social media. To maximize the impact of testimonials, align the format and mode of delivery to your prospect, based on their preferences.

Display Trustworthiness. Online recommendations from actual clients are influential, particularly to active shoppers, and it’s why they are so desirable. But they must also be authentic. Entreating buyers to post favorable reviews and offering modest rewards in exchange for positive comments is common across multiple industries — but it also adds a question mark to their trustworthiness. Be careful to never cross the line with your agency’s online testimonials. Offer Basic Assurances. Don’t expect people to provide you with names of friends, family, neighbors, and business associates without some reasonable assurances from you. For instance, promise to use their name only with their permission when you contact a referred individual or firm — and pledge never to expose any confidential information about them or their policies. Use with Care. Traditional referrals encompass a small, curated group of consumer or business leads. In contrast testi-

al-style referrals, regardless of format, have a virtually unlimited audience, as they can be posted online, displayed in ads, shown during sales appointments, etc. Referrals To obtain such public tributes, assure their authors that you’ll are use them judiciously and only something as intended. For instance, don’t you must include them in your advertisearn. ing without proper authorization, if they weren’t originally provided for that purpose. Also reassure your client that you’ll promptly delete their recommendation, if requested to do so, from any locations under your control. Consider Inducements. Small dollar gift cards and drawings for big-ticket items offered in exchange for suggested leads are common incentives (subject to insurance department regulations). Use them prudently as you don’t want to look like you are buying endorsements from your own insureds. Say Thank You. Today, when so many people feel entitled, a sincere thank you is rare, particularly in the harsh world of business. The most heartfelt way to say thanks for a referral is with a personal call, visit or handwritten note. Still in this digital age, a thoughtful text or email may suffice, depending on the recipient and the content of your message.

moni-

Shulman, CPCU, is the publisher of Agency Ideas® sales and marketing newsletter (free basic subscription at www.agencyideas.com/ join). He is also the author of “500 Sales Ideas for Commercial Lines Producers” among many other P/C sales resources. Email: alan@agencyideas.com. Website: www.agencyideas.com.

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Technology How New Chip Cards Raise the Risk for Merchants

not have the ability to read the chip. But n Oct. 1, 2015, many of your clients due to the shift in liability, this benefits took on a lot more risk, and may not the customer and the bank, not your clieven know it. The Payment Card Industry, ent, the business. PCI, which is the self-regulating organization that oversees Payment Card Fraud everyone that accepts It is undisputed that fraud in the payor issues payment ment card industry in rampant. Everyone cards, set the date of has read about the breaches and hacks Oct. 1, for point-of-sale involving Target, TJX, Home Depot, etc. machines to begin According to the Wall Street Journal, fraud accepting “chip cards.” last year in brick and mortar stores in the By now, most of By Andrew Cohn U.S. accounted for more than $3.8 billion you have received at of the estimated $10 billion in annual least one of these chip cards in the mail, fraud in the payment card industry. but you may not have seen many business The chip card technology hopes es that accept the cards, except big name to reduce fraud significantly. The old stores such as Target, Publix, Wal-Mart, etc. cards work by swiping a magnetic strip The announcement of the 2015 integration through a point-of-sale machine which date came in August 2011, and many notices sends the card’s data to be processed by and warnings have been issued in the past the bank and then back to the point-ofyear. But many, if not most, of your clients probably do not have the sale machine to complete It is very important the sale. The chip machines machines necessary to for you to make accept these cards. And will do the same thing, but that’s kind of a big deal your clients aware now instead of sending because effective Oct. 1, the card’s information it will of their new liabil- the liability for fraud was shiftsend a one-time use code to ed from the banks, to them. ity if they do not process that transaction. So And as their risk managers switch to the chip if that code is intercepted and insurance professionals, reader machines. or stolen, it will be useless, they expect you to assist versus stealing the credit them with managing these risks. card number from the magnetic strip which First, let’s go over the basics. The new could be used again cards already have a few nomenclatures, and again until the so it’s important to be familiar with them card is cancelled. The if your clients use any variations of them. magnetic strip cards They are called chip cards, Chip and Pin, or stored data, which was EMV, which stands for Europay, Mastercard unchanging and could and Visa. They could also be referred to be replicated by counNFC, or Near Field Communications, terfeit cardmakers or which is actually just a feature that some simply used without of the cards will have that enable the user the card present. The technology to tap the card against a reader, instead of has been around for dipping the card in for the chip to be read. a few years and is Signatures will still be required, at least widely used in Europe. until the PIN part of the chip and pin is The end-game in the implemented. The new cards will still have United States will the magnetic strips on the back as a convebe a chip and pin nience for customers if the merchant does 44 | INSURANCE JOURNAL-NATIONAL November 16, 2015

payment card transaction. This will mean that you slide your card into the machine, and then you put a PIN code in, like you do when using a debit card. Oct. 1 was a big date in the United States because that is the day that the payment card industry set for the shift for point-of-sale machines to accept the new chip technology, with

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However, while you are speaking with clients about their new liability, it is the perfect opportunity to discuss their need for privacy liability insurance. Privacy liability or cyber liability protects a business for the damages they are liable due to a variety of claims scenarios depending on the type of coverage selected. Many policies are designed to cover events such as privacy breaches, viruses, cyber extortion, intellectual property infringement, denial of service attacks, data destruction, fines due to regulations such as HIPAA, PCI and more. Some policies are silent on whether they will cover fraud arising from not having the chip card readers; others require compliance with payment card industry standards. As an insurance professional you are well aware that policy forms and conditions differ, but with cyber liability every insurer’s forms are different. It’s very

important to read the policies and work with professionals to get the best policy for each situation. Discuss with your customer all of their concerns, and get a full picture of what their actual exposures are, so we can offer coverage necessary for your customer’s actual risks. Now is the time to meet with your clients, explain the chip card changes to them, and make sure they are adequately protected for all of their liabilities, not just the slips and falls. They’ve been reading about hacks and breaches every week, and they are concerned. Educate them about how they can be better prepared to prevent a loss, and to be protected when the loss occurs. Cohn is a broker with Miami-based Regency Insurance Brokerage Services. Email: submissions@regencybrokerage.com. Website: www.regencybrokerage.com

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the exception of fuel dispensers, which do not have to comply until 2017. After that date, if you have a POS that doesn’t accept the chip card, the customer has a chip card, and there is fraud, the banks will no longer accept the liability for that fraud. This deadline currently has no effect on cardnot-present merchants, which are typically businesses that accept payments over the Internet or phone. New Liability for Merchants It is very important for you to make your clients aware of their new liability if they do not switch to the chip reader machines. It is estimated that as many as 75 percent of merchants have not switched to the new terminals that can accept the chip technology. Insurance may help as a risk transfer tool, but as insurance professionals we should be focused on risk avoidance and risk reduction, which can be accomplished by switching to the new point-of-sale terminals that accept the chip technology. www.insurancejournal.com

Abacus Insurance Brokers, Inc www.abacus.net W3 AFS/ IBEX www.afsibex.com 33 American Integrity Insurance Group www.aiicfl.com FL11 American Reliable www.assurantspecialtyproperty.com 29 Amerisafe www.amerisafe.com SC2 Anderson & Murison www.andersonmurison.com 40 Applied Underwriters www.auw.com 2, 3, 48 Brecht & Associates www.brechtassoc.com SC3 Burns & Wilcox Ltd. www.burnsandwilcox.com 7, FL7 Chubb Corporate www.chubb.com 9 Contractor Connection www.contractorconnection.com 21 First American Specialty Insurance Company www.firstam.com W7 GIC Underwriters, Inc. www.gicunderwriters.com FL1 Hartford Steam Boiler www.hsbhomeworks.com 19 IICF www.iicf.org 27 InsurBanc www.insurbanc.com 17

Johnson & Johnson www.jjins.com FL2 Louisiana Commerce & Trade Association www.lctacomp.com SC5 M.J. Hall & Company www.mjhallandcompany.com W8 Monarch E&S Insurance Services www.monarchexcess.com W5 National General Insurance www.nationalgeneral.com 47 PersonalUmbrella.Com www.personalumbrella.com 5 Pro Premium www.pro-premium.com FL15 Regency Insurance Brokerage Services www.regencyinsurancebrokerage.com FL20, SE1, E1 Regions Bank www.regions.com 15 SeaCoast Underwriters www.seacoastunderwriters.com FL9 Shelly, Middlebrooks & O’Leary www.shellyins.com FL5 St. James Insurance Group www.stjamesinsurance.com FL19 Texas Mutual www.texasmutual.com SC4 The Hartford www.thehartford.com 12, 13 The Institutes www.theinstitutes.org 31 United Fire Group www.ufgsolutions.com M5 Vertafore, Inc. www.vertafore.com 37

November 16, 2015 INSURANCE JOURNAL-NATIONAL | 45

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Closing Quote

Competition Consumers Deserve

C By Terrence W. Cavanaugh

onsider the scenario: A family of three suffers an accident and needs to replace several parts on their car. It’s an expensive ordeal. In our current system, drivers are forced to rely largely on replacement parts manufactured by auto companies, which cost up to 60 percent more than the generic version of the same parts. This represents a cost difference that can be in the thousands of dollars for a repair — a significant cost for the average American. Shouldn’t we ease the burden of hard-working Americans by preserving a more affordable way for them to fix their cars? PARTS Act Congress must seize the moment to tackle another urgent transportation issue and pass the bipartisan “Promoting Automotive Repair, Trade, and Sales Act,” otherwise known as the PARTS Act of 2015 (H.R. 1057/S.B. 560). This legislation will preserve competition for replacement car parts, reduce their prices, and enable consumers to save in the aftermath of an accident. The PARTS Act will provide consumers with more opportunities to purchase reliable and affordable car parts. Currently, American automakers have exclusive rights to manufacture replacement parts for their cars with design patents that last for 14 years. But cars rarely last 14 years, and consumers are left with pricey parts that expire with their vehicles. Fortunately, the PARTS Act reduces the design patent time frame on these replacement parts, and just these parts, to 30 months. This will allow generic parts manufacturers to create quality replacement parts that are

46 | INSURANCE JOURNAL-NATIONAL November 16, 2015

less expensive than the parts sold by automakers. More manufacturers of replacement auto parts means more competition, and more competition means lower prices for consumers. The United Kingdom, as well as several other European countries and Australia, have enacted laws and provisions similar to the PARTS Act. But here in the United States, we have allowed special interests to get in the way of consumer interests. Suppose a pharmaceutical company intentionally made drugs that didn’t keep people as healthy as they could be, and forced generic pharmaceuticals out of the market, keeping necessary medicine expensive and out of reach for average Americans. We don’t stand for The PARTS Act will this in our health care provide consumers with system. Why would more opportunities to Congress allow a similar dynamic in the autopurchase reliable and mobile industry? affordable car parts. Course Correct Congress must course correct and pass the PARTS Act. This bipartisan measure increases competition in the marketplace for replacement car parts — competition that will drive down prices and protect the pocketbooks and livelihoods of Americans on the road. Cavanaugh is president and CEO of Erie Insurance Group and former chair of the Property Casualty Insurers Association of America’s Board of Governors.

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