WEST EDITION Insurance Divestment in Coal Utah Man’s 23 Auto ‘Accidents’ Another Hoverboard in Flames
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Inside This Issue
On The Cover
Special Report: Ghost of 2008 Crisis Still Haunts Real Estate E&O
February 8, 2016 • Vol. 94 No. 3 • West
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NATIONAL COVERAGE
WEST COVERAGE
IDEA EXCHANGE
8
W2 Utah Man Nabbed after Staging 23 Auto Accidents over 5 Years
32 The Competitive Advantage: Chris Burand
14 U.S. Natural Disasters See Record Western Wildfires: CoreLogic
W2 California Insurance Commissioner Calls for Insurance Divestment from Coal
34 Closing Quote: Listen to Your Customers, and Win
18 Closer Look: Then and Now in the Nonprofit Market
W2 Hoverboard Bursts into Flames in California Home
10 Trends in U.S. Casualty Markets in 2016: Marsh
23 Spotlight: 10 Things to Know About Garage & Repair Risks 24 Special Report: Ghost of 2008 Crisis Still Haunts Real Estate E&O 28 Closer Look: 2015 M&A Report
DEPARTMENTS W4 People 10 Declarations 10 Figures 11 Business Moves 31 MyNewMarkets
4 | INSURANCE JOURNAL-WEST February 8, 2016
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Opening Note
Publisher Mark Wells | mwells@wellsmedia.com
Automating Insurance Jobs
A
utomation could leave up to 25 percent of the insurance industry’s current full-time positions consolidated or replaced over the next decade, McKinsey & Co. said in a new report, “Automating the Insurance Industry.” The consultancy urged insurers to “rethink their priorities right now” and focus on revamping their operations to accommodate the digital transformations contributing to the trend. Priorities “should include retraining and redeploying the talent they currently have, identifying critical new skills to insource, and retuning value propositions in the war for new talent and capabilities,” McKinsey & Co. said. “That competition will almost certainly increase as the digital transformation takes hold.” Most of that change would likely hit operations. Based on an evaluation of Western European insurers (and the use of its full-time-equivalent benchmarking database), McKinsey predicted that just 33 percent of the insurance-industry workforce would be centered in operations within a decade, down from 46 percent in 2015. Automation could leave 10 percent of the workforce focused on administrative reports, down from 18 percent in McKinsey predicted that 2015. just 33 percent of the insur Other drops would be ance-industry workforce smaller. McKinsey said product development, marwould be centered in operaketing, and sales support tions within a decade, down would go from 21 percent from 46 percent in 2015. of the workforce in 2015 to 20 percent within a decade. Similarly, IT could decline from 15 percent to 12 percent over the same period. McKinsey said that declines could be steeper in more saturated markets where declining business volumes and redundant IT positions are more common. But other higher value positions could see a gain in numbers, such as marketing and sales support for digital channels and analytics teams that detect fraud. McKinsey noted a related report from sister firm McKinsey Global Institute found that automation will “change the vast majority of occupations, and up to 45 percent of all work activities in the United States can be automated right now with current technology.” According to the McKinsey Global Institute report, sales agents are among the most vulnerable to having at least 30 percent of their tasks automated. As many of 60 percent of the tasks sales agents perform could be done by automation. For underwriters, that percentage is 35 percent. Even CEOs aren’t immune as robots or computers could do 25 percent of what they do, the report suggests. Actuaries are among the safest.
Andrea Wells Editor-in-Chief
6 | INSURANCE JOURNAL-NATIONAL February 8, 2016
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 Lisa Howard | lhoward@insurancejournal.com Senior Editor Susanne Sclafane | ssclafane@insurancejournal.com ClaimsJournal.com Editor Denise Johnson | djohnson@claimsjournal.com Columnists Chris Burand Contributing Writers Mike Becker, Dirk Lammers, Jonathan Reich, Gemma Saluta 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 Romeo Valdez (800) 897-9965 x172 | rvaldez@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 V.P. of New Media 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 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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News & Markets 10 Trends in U.S. Casualty Markets in 2016: Marsh
T
he sharing economy, expanded litigation, surplus capital, custom account underwriting and further consolidation are likely to challenge the U.S. casualty insurance marketplace in 2016, according to broker Marsh. Marsh expects to also see wider use of new technologies from wearable devices to social media to drones, which will change the risk profile for businesses and how insurance claims are managed. Here is Marsh’s list of the top 10 trends driving U.S. casualty markets in 2016. Continued downward trends for overall rates. Right now, most insurers say that existing rates barely cover losses once inflation and claim development is factored in, according to Marsh’s reports. There’s also this: major competition due to capital surplus, which will likely continue pressuring insurer results. At the same time, Marsh said, there could be at least partial relief because the economic turnaround in recent years has increased exposures, a trend that at least helps make the effect of rate increases a lesser deal, while generating increased audit premiums at the same time. Marsh predicts the dynamic will continue in 2016 on competitive lines of coverage including workers’ compensation, general liability and umbrella/excess liability. Auto liability bucks the trend. Higher pricing and reduced capacity will likely hit commercial automobile liability over the next year, bucking the pricing trend in the rest of the casualty insurance market, Marsh predicts. Marsh noted that many insurers have seen their combined ratios deteriorate as commercial automobile loss frequency and severity has increased. Mergers and synergies. Marsh said it expects insurers in 2016 to generally follow the lead of ACE/Chubb and XL/Catlin as far as seeking global synergies. With this 8 | INSURANCE JOURNAL-NATIONAL February 8, 2016
in mind, larger carriers will pursue acquisition of specialty carriers so they can add more niche areas to their products and services. Marsh also expects some carriers to shut down unprofitable lines and consolidate offices in a bid to trim expenses and retrench. Custom underwriting. Marsh said insurers will need to underwrite on an account business instead of using a portfolio approach so they can target profitable business and identify acceptable rates for renewals. To do this, the market will see a few trends, Marsh said, including a bigger correlation between risk and renewal terms and a need for more participating of key client personnel in underwriting meetings. Also, expect to see more “industry-specific appetites and product offerings,” and a greater reliance on data and predictive modeling. Underwriting across multiple products. The idea here is that insurers will gain an edge in 2016 if they handle underwriting decisions across multiple products including primary, excess and international. “Clients will benefit from the combined casualty approach that some carriers are pursuing,” Marsh said. “This approach can improve pricing, prevent coverage gaps, allow for cross-collateralization, and allow insureds to take a fresh look at global retention philosophies.” Insurance coverage and the sharing economy. Marsh said that insureds will begin to have more options from personal lines than commercial lines insurers for the sharing economy. This comes as challenges remain on how to define an employee and what kind of coverage that person needs. Even so, Marsh said that coverage options will remain limited. This will come as the market begins to hash out who
is or isn’t an employee in the on-demand economy, and what kinds of benefits he or she is entitled to. Employees will have to adjust to court rulings that could affect payrolls, health care costs and loss exposures, Marsh said. Broader focus of litigation. The prediction is that litigators will move beyond automobile liability claim settlements into areas such as traumatic brain injury, police brutality and post-traumatic stress disorder. Smart technology. Marsh predicts that workers’ compensation injury prevention will embrace smart technology, embedding more commonly in everything from glasses to watches, vests and hard hats. The data that wearable devices capture would serve as feedback to help prevent injuries for wearers, and also information that can lead to worksite improvements. Social media as a fraud prevention tool. Social media-related sharing of videos, photos and other data could increasingly help investigators and adjusters build their files for injured parties seeking claims. Marsh said the practice is already in play, but it will increase in 2016, making it more likely that fraudulent claims will be exposed. Drones are coming. Insurers will be forced to determine how insurance will apply to drones, whether they are covered under aviation, technology or general liability policies.
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FIGURES
57
The percentage increase in moped deaths in South Carolina from 2014 to 2015. The state’s Office of Highway Safety reported 55 people died in moped accidents in the state in 2014, compared with 35 in 2014. A legislator has refiled a bill for tighter safety regulations of the vehicle, including not allowing drivers who have had their license suspended or revoked to operate a moped.
DECLARATIONS
$1,490,556
The amount of funds that the Maine Bureau of Insurance has recovered for Maine residents in 2015. Of this amount, $1,228,970 was recovered by the Bureau’s Consumer Health Care Division, and $261,585 was recovered by the Property and Casualty Division. The Bureau said it fielded 6,414 inquiries and investigated 808 complaints last year.
Zero Tolerance
“This is a zero tolerance state when it comes to fraud.”
— Ben Barnes, secretary of the Connecticut Office of Policy and Management, on the state’s efforts at fighting fraud, waste and abuse. The Connecticut government last month launched a new website, FightFraud.ct.gov, where state residents can report suspected wrongdoing in areas including workers’ comp, tax filings, health care, anti-trust violations and unfair competition.
Man-Made Disaster
Flint residents “deserve every resource available to make sure they have safe water and are able to recover from this terrible manmade disaster created by the state.”
10
25
The number of drunk driving convictions it took for a 62-year-old North Texas man to earn a life sentence. Judge Craig Towson sentenced Ivy Ray Eberhardt, of Weatherford, Texas, to life in prison for his 10th drunken driving conviction since the 1980s. Eberhardt has been arrested for DWI 12 times. He will be eligible for parole after serving 15 years.
The miles-per-hour speed limit sought by Minnesota’s bike lobby for city streets in the state, saying the lower speed is safer for cyclists. The League of American Bicyclists cited the current urban limit of 30 mph as an area needing improvement when Minneapolis recently tried to get its status as a bike-friendly community upgraded from gold to platinum, which is held only by five U.S. cities.
— U.S. Rep. Dan Kildee, also a Michigan Democrat, comments on an emergency declaration signed by President Barack Obama that clears the way for federal aid for Flint, Mich., which is undergoing a drinking water crisis. The tap water in Flint, population 99,000, became contaminated after the city switched from the Detroit water system to the Flint River while a pipeline to Lake Huron is under construction.
Drone Expectations
“At no time was [the] plaintiff capturing video or still images of defendant or anyone on his property.”
— Statement in a lawsuit filed in Kentucky by drone owner John David Boggs against a homeowner who shot down the drone because he claimed it was hovering over his property. Boggs is seeking damages for the $1,800 drone and is asking the court to resolve the question of reasonable expectation of privacy among other issues.
O&G Still King
“We have every incentive to get it right.”
10 or 15
Percent of California’s coastline is the goal of a program to map real-time El Niño flooding events along the 840-mile-long stretch. The program asks citizens to use drones to help with the mapping.
— William Colton, chief strategist, for Texasbased Exxon Mobil, comments on a company forecast that says the global energy landscape won’t be radically different in 2040 than it is today. According to the energy giant, oil and gas will remain king, accounting for an even slightly larger share of the energy supply. Coal will fall behind natural gas to become the third-largest.
Lax Gas Regs
“Up and down, the general consensus is that the regulations that exist in California are wholly insufficient.”
— Tim O’Connor, director of California oil and gas programs for the Environmental Defense Fund, took on regulation failures in the gas storage industry. His comments were brought on by a natural gas storage well that sprung a disastrous leak near Los Angeles, Calif. 10 | INSURANCE JOURNAL-NATIONAL February 8, 2016
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News & Markets Utah Man Nabbed after Staging 23 Auto Accidents over 5 Years
U
tah-man Navid Monjazeb faces 22 counts of insurance fraud, reckless endangerment, and other crimes spanning five years and at least 23 known accidents — with the same three vehicles. Charges resulting from a months-long investigation conducted by Utah’s Insurance Fraud Division were filed against Monjazeb last month through the Utah Attorney General’s Office. Monjazeb was arrested and booked into the Salt Lake County Jail. Monjazeb was charged with pattern of unlawful activity, a second-degree felony; 12 counts of insurance fraud, all third-degree felonies; 2 counts of forgery, both third-degree felonies; and 7 counts of reckless endangerment, all class-A misdemeanors. Between Jan. 5, 2010, and Dec. 22, 2015, Monjazeb, while driving the same three vehicles, was involved in at least 23 auto accidents, according to investigators. Many of the accidents occurred at the same location with similar circumstances, and all in the Salt Lake County area. In nearly all cases, Monjazeb intentionally collided with or placed his vehicle in a position where the
accident was a complete certainty, investigators say. Monjazeb allegedly would assert that the other driver was at fault and would intimidate them to sign prepared statements that they were at fault in the accident. Monjazeb would push the victims for a cash settlement without calling police, and when police were called, they placed the victim at fault based on the assertions of Monjazeb, according to investigators. Monjazeb’s vehicles all had pre-existing damages, which he blamed on the accident, so Monjazeb’s vehicles had thousands of dollars in damages paid for by the victim’s insurance company, investigators say. Monjazeb allegedly collected the insurance money while electing to not have the damage repaired or claiming to have repaired the vehicle himself, and he exaggerated his damages and provided forged repair documents to increase his payouts from insur-
California Insurance Commissioner Calls for Insurance Divestment from Coal
C
alifornia Insurance Commissioner Dave Jones in January asked all insurance companies doing business in California to voluntarily divest from their investments in thermal coal as part of a nationwide call to reduce carbon emissions to do battle with climate change. Complying with this request would include making no new investments, it would not require not renewing any existing investments and selling or withdrawing from existing investments in thermal coal, according to the California Department of Insurance. Commissioner Jones also announced that in April he will initiate a data call that
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requires insurance companies to disclose annually their carbon-based investments including those in oil, gas and coal. These required financial disclosures will be made public and will be used by the CDI to assess the degree of financial risk posed to insurance companies by their investments in the carbon-based economy. Jones said his decision to ask insurance companies to divest from thermal coal and to require insurance companies to disclose investments in “the carbon economy” arises from his responsibility to make sure insurance companies address potential financial risks in the reserves they hold to pay future claims.
ance, according to investigators. Insurance companies paid for the same damages from accident to accident. Monjazeb was reportedly paid a total of more than $55,000 from insurance carriers. It is unknown how many additional accidents may have occurred wherein police and insurance carriers were not contacted and victims paid Monjazeb in cash.
Hoverboard Bursts into Flames in California Home
A
hoverboard burst into flames in a Petaluma, Calif. home in late-January, making it the second hoverboard fire in the area in one week. The hoverboard was plugged into an electrical outlet to charge when the fire started. Petaluma Fire Battalion Chief Mike Medeiros says the homeowner heard an explosion and found his daughter’s Photo: U.S. Consumer Product hoverboard Safety Commission plugged in and continuing to burn and explode. The homeowner used a fire extinguisher and unplugged the board. Medeiros estimates the damage at roughly $10,000. The two-wheeled, self-balancing, battery-powered devices have drawn criticism in recent months, as reports have come out across the country of them bursting into flames. Most recently, a Santa Rosa home was damaged and two dogs died in a hoverboard-sparked fire on Jan. 19. www.insurancejournal.com
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People Richards Barger
Joseph DeLucchi
Deana Doyle
Richards D. Barger, a former California insurance commissioner and a former president of the National Association of Insurance Commissioners, died in late January. He was 87. Barger, who went by the name Dick, devoted his practice to insurance services, with an emphasis in the formation, merger and acquisition of insurance companies, according to the website for Hinshaw & Culberston LLP, where he served as a partner emeritus. Bager’s legal career spanned more than six decades, and he was well-known in insurance circles. In 1968 he was appointed by then-governor Ronald Reagan as a California insurance commissioner. Barger held the post from 1968 to 1972. Barger became a partner at Hinshaw & Culbertson in October 2014 as a result of the merger of Hinshaw and the Los Angeles-based firm of Barger & Wolen LLP, of which Barger was a founding partner. Joseph DeLucchi has succeeded Scott Hauge as the president and owner of CAL Insurance & Associates Inc. Hauge has led CAL for the last 37 years. Hauge will remain on with CAL as a broker and member of the board of directors. DeLucchi has a been a part of the firm as a commercial insurance broker/advisor since 1998. He was named the corporate vice president in 2006. CAL is a regional full service brokerage in San Francisco. Salinas, Calif.-based Leavitt Central Coast Insurance Services hired Deana Doyle as a personal agent. Doyle focuses on insurance for home and auto and is licensed in property/casualty and life and health. Doyle worked in personal insurance prior to joining the agency. She worked in the financial industry, both in banking and mortgage lending, for more than 15 years before entering the insurance industry. Leavitt Central Coast Insurance Services is part of Leavitt Group. Rick Genest joined Premier Insurance Services as the company’s president. Genest comes from Freeway Insurance/Confie Seguros, where he was the Houston, Texas-based president. Prior to Freeway he was associate vice president of Titan Auto (Nationwide) in nine states. He was also President of Eastwood Insurance in California before selling to Titan Auto. Premier targets the growing Hispanic community in
W4 | INSURANCE JOURNAL-WEST February 8, 2016
California and the West. JLT Specialty USA has named Cari Hernandez senior vice president for its entertainment and hospitality practice. Hernandez will be based in the Los Angeles office, where she will manage the needs of clients in gaming, resorts, events, sports and leisure. Hernandez worked at Aon Risk Solutions as senior vice president of global strategy in the entertainment practice. Prior to that Hernandez was vice president of Near North Insurance Brokerage. JLT Specialty Insurance Services Inc. is the U.S. platform of the specialty business advisory firm Jardine Lloyd Thompson Group. Alliant Insurance Services Inc. has hired aviation industry specialist Darwin Hostelley as first vice president. Hostelley will be based in Denver, Colo. Prior to Alliant he was a senior vice president with a global insurance brokerage. Newport Beach, Calif.-based Alliant is an insurance brokerage that provides property/casualty, workers’ compensation, employee benefits, surety and financial products and services. Ironshore Inc. announced the opening of a branch office in Seattle, Wash., to be led by Daniel Sonon as branch executive. Sonon will be responsible for marketing across all Ironshore business lines. Sonon joined Ironshore in 2012 as vice president of the large account architects and engineers risk sector. Previously he was regional production specialist with Lexington Insurance Co. Ironshore provides specialty property/casualty insurance coverages for varying risks located throughout the world. USI Insurance Services has named David Goldman employee benefits leader and producer for its Mountain region. Goldman is responsible for driving new business growth as well as managing a book of clients for USI. Goldman has more than 25 years of experience in employee benefits. Prior to USI Goldman was executive vice president and employee benefits producer with Willis Group. Valhalla, N.Y.-based USI is an insurance brokerage and consulting firm. www.insurancejournal.com
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Business Moves Aspen, AgriLogic Specialty insurer Aspen Insurance has acquired AgriLogic Insurance Services and certain affiliates for cash in a transaction that further diversifies Aspen’s specialty insurance business. AgriLogic, headquartered in Overland, Kan., is a specialist U.S. crop insurer and agricultural consultant that reported estimated gross written premiums of $185 million in 2015. Terms of the deal were not disclosed. AgriLogic President and CEO Joe Davis will continue in his role, reporting to Brian Boornazian, chairman, Aspen Re and AgriLogic will form part of Aspen’s existing reinsurance operations, led by Michael Dicker, group head of Agriculture.
agency based in Needham, Mass., has acquired Doherty & White Insurance Agency in Quincy, Mass. Terms of the transaction were not disclosed. Founded in 1983, Doherty & White Insurance Agency has been a family-owned and operated agency, offering insurance services for local residents and businesses. Kaplansky Insurance provides personal and commercial insurance services through 11 locations in eastern and central Massachusetts, insuring approximately 24,000 clients. Kaplansky Insurance has acquired 22 agencies since its inception.
AIG, Advisor Group, Lightyear American International Group Inc. has agreed to sell AIG Advisor Group to investment funds affiliated with Lightyear Capital LLC, a private equity firm specializing in financial services investing, and PSP Investments, one of Canada’s largest pension investment managers. Terms of the deal were not disclosed. The transaction is expected to close in the second quarter of 2016, subject to regulatory approvals. AIG Advisor Group is among the largest networks of independent broker-dealers in the United States, with more than 5,200 independent advisors and more than 800 full-time employees. Advisor Group is comprised of four broker-dealers, FSC Securities Corp., Atlanta; Royal Alliance Associates, New York; SagePoint Financial, Phoenix; and Woodbury Financial Services, Oakdale, Minn. Lightyear Capital has raised over $2.5 billion of capital and makes primarily control investments in North America-based, middle-market financial services companies. PSP Investments is one of Canada’s largest pension investment managers, with CAD$112 billion of assets under management as at March 31, 2015.
USI Insurance, CBDI, Healthcare Liability Solutions USI Insurance Services has acquired CBDI Inc., an employee benefits wholesale brokerage operation based in Mount Laurel, N.J. Terms of the transaction were not disclosed. CBDI will become part of Emerson Reid LLC, USI’s employee benefits wholesale brokerage division. More than 26 staff members at CBDI have transitioned over to Emerson Reid and USI as part of the transaction. The staff members will remain at their current Mount Laurel location. In another deal, USI also acquired Healthcare Liability Solutions LLC (HLS), located in Houston, Texas. HLS is a property/casualty brokerage for healthcare organizations and providers specializing in professional liability insurance. Terms of the transaction were not disclosed. HLS President Denise D. Barnes and her team will join USI. Based in Valhalla, N.Y., USI is an insurance brokerage and consulting firm with over $1 billion in revenue and more than 4,400 employees.
Kaplansky, Doherty & White Kaplansky Insurance, an independent www.insurancejournal.com
AssuredPartners, Roehrs & Co. AssuredPartners Inc. has acquired Roehrs & Co. Inc., an independent agency based
in Exton, Pa. Terms of the transaction were not disclosed. Roehrs & Co. was founded in 1923 by Walter E. Roehrs Sr., and current operations are under the leadership of CEO Gil Roehrs. The agency focuses on commercial property/casualty, employee benefits, and personal insurance offerings, and offers expertise in the wood products industry. In addition, Roehrs & Co. is endorsed by USRowing, the national governing body for the sport of rowing and offers specialized insurance products to its members. The Roehrs team of 12 will maintain its presence in its main Exton office as well as in the Greenville, S.C., office. Based in Lake Mary, Fla., AssuredPartners acquires and invests in insurance brokerage businesses across the U.S. and in London. U.S. Risk Insurance Group, American Underwriting Managers U.S. Risk Insurance Group Inc., has acquired Southlake, Texas-based managing general agency and wholesale insurance broker, American Underwriting Managers (AUM). For 17 years AUM has served the needs of retail insurance agents and insureds alike primarily in Texas and surrounding states. continued on page 12 February 8, 2016 INSURANCE JOURNAL-NATIONAL | 11
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Business Moves
continued from page 11 U.S. Risk, a specialty lines underwriting manager and wholesale broker, is headquartered in Dallas. Ascende, EPIC Houston, Texas-based human capital and employee benefits consulting firm, Ascende Inc. (Ascende), has joined forces with national retail insurance brokerage and employee benefits consulting firm, EPIC Insurance Brokers & Consultants. Founded in 1995, Ascende specializes in a variety of human capital related fields, including health and welfare, benefit plan administration, retirement, investment advisory, pharmacy management, wellness, communications, global benefit solutions, mergers and acquisitions consulting, and human resources consulting services. California-based EPIC noted that Ascende significantly expands its employee benefit capabilities nationally, adding nearly 100 professionals and a strong client base in the Southwest. Confie, Most Insurance, Duane Sammons Confie, a national provider of personal and commercial lines insurance, has acquired Most Insurance LLC of Tampa, Fla. 12 | INSURANCE JOURNAL-NATIONAL February 8, 2016
Established by Bob Most in 1973, Most Insurance is a family-owned and operated business. With three locations in the metro-Tampa area — Armenia, Fish Hawk, and Dade City — Most’s primary focus is preferred personal auto/home and small commercial insurance. Bob Most’s sons Craig and Eric will remain with the company and continue to manage the agency operations going forward. Most Insurance will serve as a preferred platform to further build the company’s presence in the Tampa area, according to Valeria Rico, CEO of Confie. In another deal, Confie also acquired the Duane Sammons Insurance Center Inc. of Bellingham, Wash. Duane Sammons provides personal and small commercial insurance lines. The former owner of Duane Sammons will remain with Confie. Established in 2008, Confie is a California-based national insurance distribution company primarily focused on personal lines and small commercial insurance. Today, Confie has more than 680 retail locations and generates annual revenues of approximately $500 million. Confie is a portfolio company of ABRY Partners. Wallace Welch & Willingham, Sondregger Insurance Wallace Welch & Willingham (W3) has acquired Sondregger Insurance, an independent agency based in St. Petersburg, Fla. The acquisition was made final on Dec. 9, 2015. Sondregger Insurance specializes in personal and business insurance. The agency brings one employee and approximately 800 clients. Sondregger’s book of business consists primarily of homeowners policies with a number of commercial, auto and life as well. Clients will continue to work with their agent and will be serviced out of W3’s current downtown St. Petersburg location. Founded in 1925, Wallace Welch & Willingham is an independent insurance
agency offering coverage to businesses and individuals, including commercial, homeowners, auto, boat and life insurance, as well as employee benefits coverage. Hub, RPG Hub International Limited, a global insurance brokerage, has acquired the assets of RPG Solutions Inc. of North Carolina. Terms of the acquisition were not disclosed. Based in Raleigh, RPG specializes in providing employee benefits, HR Services and training and development. Phil Gruber, CEO and founder of RPG, will join Hub Southeast and report to Tim Love, president of Employee Benefits for HUB Southeast. RPG President, Stacey Mangum, who leads RPG’s integrated HR and benefits model, will continue to report to Gruber. Headquartered in Chicago, Hub International Limited provides property/ casualty, life and health, employee benefits, investment and risk management products and services from offices located throughout North America. Brown & Brown, BayRisk Insurance Brokers Brown & Brown Insurance Services of California Inc., a subsidiary of Brown & Brown Inc., has acquired certain assets of San Francisco, Calif.-based BayRisk Insurance Brokers Inc. Following the transaction, the BayRisk team will relocate to Brown & Brown’s existing Lafayette, Calif., office, a branch location of Brown & Brown’s “Sitzmann Morris & Lavis” profit center. The combined operations will operate under the leadership of Matthew M. Sitzmann, executive vice president of Brown & Brown Insurance Services of California. BayRisk provides property/casualty insurance products and services, including specialty programs for mobile food service vendors, restaurants, technology companies, apartments and recreational marine, to clients throughout California. The company reported annual revenues of $2.5 million. Brown & Brown Inc., through its subsidiaries, offers a range of insurance and related services. www.insurancejournal.com
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www.music-ins.com ©2016 Selective Ins. Group, Inc. Products provided are underwritten by Mesa Underwriters Specialty Insurance Company. Products available vary by jurisdiction. These descriptions are summaries and not offers to sell insurance; the actual policies show complete coverage, exclusions and limitations details. Policy issuance is subject to underwriting approval.
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News & Markets Record Western Wildfires a Contrast in Otherwise Quiet Year for U.S. Natural Disasters By Don Jergler
I
t was a relatively quiet year for natural disasters — except for those living in the Western United States, according to property data provider CoreLogic, in its annual Natural Hazard Risk Summary and Analysis, released in late January. The report shows “a continued trend of fewer U.S. natural hazard events overall for 2015,” which caused decreased damage and loss totals for the year. The report reviews U.S. events including wildfire, flooding, hurricanes, wind, hail, tornadoes, earthquakes and sinkholes. “It was relatively a quiet year, I mean overall,” said Tom Jeffery, a senior hazard scientist at CoreLogic. He described 2015 as “closer to average or slightly below average” compared with prior years. However, the report highlights among individual hazard categories a few record-setting events that caused significant damage. Wildfire activity for 2015 was the worst in recorded history, according to the report, which shows more than 10.1 million acres burned in 2015. That’s far above the yearly average of 6.57 million acres over the past 15 years, according to CoreLogic. “A lot of it had to do with the drought that’s occurring in the Western part of the country,” Jeffery said. The report lists the three most destructive wildfires of 2015: The Valley Fire in northern California, which burned 76,000 acres and destroyed 1,307 homes with an estimated $925 million in insured losses; the Butte Fire in the same region burned 70,000 acres and destroyed 475 homes with an estimated $225 million in insured losses; and the Okanogan Complex Fire in north central Washington, which burned 133,000 acres and destroyed 73 homes with an estimated $8 million in insured losses. 14 | INSURANCE JOURNAL-NATIONAL February 8, 2016
“Before 2004, a single wildfire had never burned more than 8 million acres,” the report states. “Since then, seven of the last 12 years (2004, 2005, 2006, 2007, 2011, 2012 and 2015) have surpassed 8 million acres
burned.” Alaska, California, Washington and Oregon led the way for the nation for acreage burned, a result of the four-year drought that plagued the West, Jeffery said.
www.insurancejournal.com
The past month of El Niño-driven storms may help short-term, but the long-term effects could make things worse, he added. “I would be hesitant to say the (West) is out if it, but it’s certainly headed in the right direction,” Jeffery said. He said more rain and more snowpack will help ease drought conditions and reduce the tinderbox effect that’s had a large portion of the Western U.S. under severe fire weather conditions — for now. “Unfortunately, in terms of wildfire, when we have more moisture in the ground it just means all the vegetation that’s there that has been starving for water in other years is starting to grow,” Jeffery said. “Unfortunately, more vegetation means more fuel for the fires.” The report doesn’t focus on climate change as a cause of the drought conditions, though several scientists have speculated that global warming is the cause of what many believe to be an ongoing mega drought in the Western region. “If that’s the case then it’s something we have to consider — what are the long-term impacts of the changes that are potentially going to be with us for a while?” Jeffery said. Most of the other perils listed in the report were down for the year, including the all-important number of hurricanes to strike the East Coast. “Hurricane activity in the Atlantic was below normal for 2015 with only 11 named storms, seven of which never grew stronger than a tropical storm,” the report states. “Of the four storms that were categorized as hurricanes, two were Category 1 and the other two grew into Major hurricanes: Danny, a Category 3, and Joaquin, a Category 4.” Jeffery credits the reduction in other perils to the quiet hurricane season. “If you have to look at one reason you would have to point at the hurricanes,” Jeffery said. Excessive rain, flooding and severe weather conditions that can lead to increased tornadoes, flooding and sinkholes, can be linked to hurricane activity had they come on shore. www.insurancejournal.com
“It has kind of a domino effect on some of these hazards,” he said. “Until that turns around, we could probably see some of these lower numbers.” Jeffery, along with the rest of the insurance community, is waiting to see how this year’s hurricane forecast will look. But with wind patterns in the upper atmosphere in the Atlantic pushing hurricanes out to sea, the damages wreaked by storms will continue to be muted, he said. “But long-term, we are going to see devastating hurricanes come back and impact the eastern shores — no doubt about that,” Jeffery said. Although no hurricanes made landfall in 2015 and no substantial wind or stormsurge damage occurred, storm-related precipitation from Tropical Storm Ana, Tropical Storm Bill and Hurricane Joaquin resulted in record-setting inland flooding, according to the report. “Based on the snapshot statistics
from the National Oceanic Atmospheric Administration (NOAA) Storm Event Database, property losses from flash flood events in the first nine months of 2015 were more than 15 percent higher than the losses from riverine floods,” the report states. Texas ranked first with property losses totaling more than $309 million from flash floods, followed by New York with nearly $14 million in property losses and Ohio with more than $7 million, according to the report. Nebraska ranks first for riverine flood loss totals with property losses totaling more than $213 million, followed by Ohio with more than $13 million in property losses and West Virginia with more than $8 million. South Carolina was hit with record-setting, 1,000-year rainfall. The report blames the brunt of the deluge on Hurricane Joaquin, which led to riverine and flash continued on page 16
UNITED STATES BANKRUPTCY COURT • SOUTHERN DISTRICT OF NEW YORK x : In re OIC RUN-OFF LIMITED and THE LONDON AND In a Case Under Chapter 15 of the Bankruptcy Code : OVERSEAS INSURANCE COMPANY LIMITED : Case No. 15-13054 (SCC) : Debtors in Foreign Proceedings. x NOTICE OF ORDER GRANTING RECOGNITION OF FOREIGN MAIN PROCEEDINGS, PERMANENT INJUNCTION AND RELATED RELIEF NOTICE IS HEREBY GIVEN THAT, in connection with the petitions filed on November 16, 2015 (the “Petitions”) by Dan Yoram Schwarzmann and Paul Anthony Brereton Evans (the “Petitioners”), in their capacity as the duly authorized foreign representatives, as defined in section 101(24) of title 11 of the United States Code (the “Bankruptcy Code”), of OIC Run-Off Limited (subject to a scheme of arrangement) (“Orion”) and The London and Overseas Insurance Company Limited (subject to a scheme of arrangement) (“L&O,” together with Orion, the “Companies”), the United States Bankruptcy Court for the Southern District of New York (the “Court”) has entered an Order Granting Recognition of Foreign Main Proceedings, Permanent Injunction and Related Relief (the “Order) [Docket No. 18], which provides, among other things, that: 1. The proceedings respecting the Amending Scheme (as defined in the Order) in the High Court of Justice of England and Wales are granted recognition as foreign main proceedings pursuant to section 1517 of the Bankruptcy Code; 2. All relief afforded foreign main proceedings pursuant to section 1520 of the Bankruptcy Code is granted; 3. The Amending Scheme (including any modifications or amendments thereto) shall be given full force and effect in the United States, and shall be binding on and enforceable against any person or entity that is a Scheme Creditor (as defined in the Amending Scheme), including, without limitation, against such person or entity in its capacity as a debtor of the Company in the United States; 4. All Scheme Creditors are permanently enjoined from taking any action in contravention of, or inconsistent with, the Amending Scheme; 5. Except as otherwise provided in the Order or in the Amending Scheme, all Scheme Creditors are permanently enjoined from: (a) commencing or continuing any proceedings (including, without limitation, arbitration, mediation or any judicial, quasijudicial, administrative action, proceeding or process whatsoever) against a Company or any of its property in the United States, or any proceeds thereof, or seeking discovery of any nature against a Company; (b) enforcing any judicial, quasijudicial, administrative judgment, assessment or order, or arbitration award and commencing or continuing any proceedings (including, without limitation, arbitration, mediation or any judicial, quasi-judicial, administrative action, proceeding or process whatsoever) or any counterclaim to create, perfect or enforce any lien, attachment, garnishment, setoff or other claim against a Company or any of its property in the United States, or any proceeds thereof, including, without limitation, rights under reinsurance or retrocession contracts; and (c) invoking, enforcing or relying on the benefits of any statute, rule or requirement of federal, state, or local law or regulation requiring a Company to establish or post security in the form of a bond, letter of credit or otherwise as a condition of prosecuting or defending any proceedings (including, without limitation, arbitration, mediation or any judicial, quasi-judicial, administrative action, proceedings or process whatsoever) and such statute, rule or requirement will be rendered null and void for proceedings; and 6. In accordance with the terms of the Amending Scheme, all persons and entities in possession, custody or control of property of a Company or the proceeds thereof, are required to turn over and account for such property or proceeds thereof to such Company or the Scheme Administrators (as defined in the Amending Scheme). Copies of the Petitions and the supporting documents and the Amending Scheme documents are available (1) on the Bankruptcy Court’s Electronic Case Filing System, which can be accessed from the Bankruptcy Court’s website at https://ecf.nysb.uscourts.gov/ (a PACER login and password are required to retrieve a document), (2) on the Petitioners’ website, www.oicrun-offltd.com, or (3) upon written request to the undersigned counsel: CHADBOURNE & PARKE LLP • Attorneys for the Petitioners • 1301 Avenue of the Americas New York, New York 10019 • (212) 408-5100 • Attn: Howard Seife, Esq. and Eric Daucher, Esq. CHADBP002.indd 1
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NATIONAL COVERAGE
News & Markets continued from page 15 flooding in 22 counties and caused $1.5 billion worth of damage, including $587 million in agricultural losses, $181 million in insurance claims and $35 million in tourism losses. Despite all this, the year’s $2.86 billion flood loss total equaled 2014, and was well below the 30-year average of $7.96 billion, the report shows. Other Findings Tornado activity was slightly above average in 2015 with 1,252 recorded tornadoes. This includes the 948 tornadoes that have been verified through September 2015, as well as an additional 238 tornadoes preliminarily logged from October-December. Dallas/Fort Worth, Texas experienced the most tornado activity in 2015 with 76 confirmed tornadoes, which is the most on record for North and Central Texas since 1950 when the National Weather Service began tracking tornado activity.
Sinkhole activity was low in 2015 with 2,206 new sinkhole events recorded across the U.S. Florida recorded the highest number of sinkhole events in 2015, with 2,206 new sinkholes added in 2015 for the top 10 counties in that state. That puts the total number of Florida sinkholes in CoreLogic’s database at 28,159. Hail activity for 2015 was slightly above average with 369,691 square miles, or 7.4 percent, of the continental U.S. impacted by severe hail. On June 15, multiple storms produced large hail and heavy rainfall across the far
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southern and southwestern Chicago metro area, and giant hail was observed near Minooka, Ill. The biggest hail reported measured 4.75 inches, which is considered the largest documented hail stone in the state since at least 1961. For hail sizes in which damage becomes prevalent — greater than 1.5 inches — 2015 recorded the eighth lowest hail fall in the last 10 years. Earthquakes were apparently on the rise. Last year was characterized by “a slightly higher-than-average number of earthquakes” of magnitude 3.0 or greater, although none produced significant damage or losses, the report states. Oklahoma experienced four times more earthquakes than both California and Oregon, two states that traditionally have the nation’s greatest seismic activity, although the majority of quakes in Oklahoma were of smaller magnitude, less than M4.0, the report shows. “There has been an increase in the number of earthquakes in the central U.S. caused by induced seismicity which is defined as not related to naturally occurring (tectonic) activity,” the report states. “Induced earthquakes in the U.S. can occur as a result of hydraulic fracturing or wastewater injection associated with natural gas exploration. This could explain why earthquake activity in Oklahoma, Kansas and northern Texas has increased in recent years.” www.insurancejournal.com
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CLOSER LOOK
Nonprofits
Then and Now in the Nonprofit Market By Andrea wells
T
he nonprofit sector is not what it used to be. This critical sector represents more than 1.5 million organizations and accounts for almost 10 percent of all salaries and wages paid in the United States. And it’s growing. When Pamela Davis started in the insurance industry 26 years ago, there were few insurance markets willing to take on the unique risks of nonprofit organizations. Back then, says Davis, who is now president and CEO of the Nonprofits Insurance Alliance Group, nonprofits were seen as substandard risks. But that was not because nonprofits were poor risks but because they were misunderstood and specialized risks, she maintains. “The premiums were far higher than they needed to be 25 years ago,” she said. Insurance companies were refusing to offer affordable liability insurance to nonprofits, and as a result the liability insurance crisis of the mid-1980s ensued. That’s when she founded the Nonprofits Insurance Alliance Group while studying as a graduate student at the Goldman School of Public Policy, UC Berkeley. Davis had no insurance experience at all. She worked in public policy for nonprofits and owned a small restaurant prior to launching the Nonprofits Insurance Alliance Group, which is now comprised of four distinct 501(c)(3) nonprofit organizations — the Nonprofits Insurance 18 | INSURANCE JOURNAL-NATIONAL February 8, 2016
Alliance of California (NIAC); the Alliance of Nonprofits for Insurance, Risk Retention Group (ANI); the National Alliance of Nonprofits for Insurance (NANI); and the Alliance Member Services (AMS). “During the hard market, nonprofits were unable to get insurance from any source,” Davis said. “It was not available for many organizations yet these organizations had to show proof of insurance to get government funding for providing essential services.” From a public policy perspective that was a concern. If nonprofits couldn’t show proof of insurance, they couldn’t provide
‘There are more options than ever before and prices are stable.’ — Gregory Chapman, area president of Gallagher Chapman, a division of Arthur J. Gallagher & Co.
those needed services, she said. “It was extremely difficult for nonprofits to get good coverage for their specialty lines, like sexual abuse and social service professional; difficult, if not impossible,” Davis said. “It was a real problem in California.” Part of the problem back then was that the insurance market viewed nonprofits as part of the larger business community, not as a “special sector with special risks,” Davis said. Things have changed for the better. Insurers have a different view of nonprofits today. More of them now see nonprofits as a special sector with special risks. “Today there’s more acknowledgement (in the market) that the one-size-fits-all for commercial business insurance is not well suited for this sector,” Davis said. “I think 25 years ago we were trying to fit nonprofits into a policy that didn’t describe its exposures.” For example, one of the unique exposures facing the nonprofit sector is how much they depend on volunteers to get work done. “There were policies related to employee theft of money but in many cases those policies didn’t recognize that volunteers could also be involved in theft,” Davis recalls. Volunteers might be injured during the course of their work for a nonprofit organization. Employees were addressed in coverage but volunteers were often ignored, continued on page 20 www.insurancejournal.com
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Nonprofits continued from page 18 according to Davis. More than two decades later the nonprofit insurance world looks much different. “We have seen some (more challenging insurance) cycles since then but nothing as dramatic as when we began 26 years ago,” Davis said. “Part of that is that we now have capacity dedicated specifically to the sector.” Coverage Gregory Chapman agrees the insurance landscape has changed for the better for nonprofits. “There’s more markets, just more competition,” said Chapman, area president of Gallagher Chapman, a division of Arthur J. Gallagher & Co., based in Glendale, Calif. In the package market — general liability, property, auto and professional — he said there were only about three or four markets 10 years ago that would consider nonprofits whereas today there are eight markets “so you have doubled the competition.” For package business, Chapman says his division is seeing insurers looking for rate increases in the “single digits” on renewals. But with today’s heightened competition, insurers are often “forced to be flat or down slightly” on renewals. “There are more options than ever before and prices are stable,” he said. Chapman says he even sees some newer markets offering discount pricing at 10 percent off but he cautions that oftentimes those markets have inferior coverage forms. Another unique exposure in the nonprofit space has to do with the reality that many of the organizations are dealing with individuals in need of help, whether they are children or elderly or people with disabilities. Thus, according to Chapmnan, the standard ISO forms don’t always work in the nonprofit space. “You need to have sexual abuse coverage and coverage for the entity … standard policies don’t cover that,” he said. Chapman advises clients considering newer markets to do a complete analysis 20 | INSURANCE JOURNAL-NATIONAL February 8, 2016
of coverage forms to see the differences. “There could be some people that are getting tricked if they are dealing with a broker that doesn’t specialize in the space,” he said. The workers’ compensation market for nonprofits is also heavily competitive for good accounts. Today there are twice as many carriers for nonprofits than there were 10 years ago. While it is still competitive, Chapman says underwriters are becoming pickier. “Before they would say, ‘we will take anyone in this class’ but now they are saying they only want the best,” he said. The “best of the best” continue to see rate decreases on workers’ comp renewals, but the average to the highest risk clients are seeing rate increases. “On average the comp market is just a couple percentage points up but we are seeing some clients getting hammered.” For example, nonprofits with an alcohol rehabilitation code, or children’s residential code — more traditional higher risk codes — are going up double digits, Chapman said.
‘Today there’s more acknowledgement that the one-size-fits-all for commercial business insurance is not well suited for this sector.’ — Pamela Davis, president and CEO of the Nonprofits Insurance Alliance Group
While the situation has markedly improved, not all markets are a piece of cake for nonprofits. The directors and officers (D&O) segment is a tough one for nonprofits, according to Chapman said. “That’s the hot button area right now,” he said. Unlike in the traditional D&O space, nonprofit D&O automatically bundles employment practices liability insurance (EPLI) into the product. Unfortunately, EPLI, like in many other industries, is generating a lot of claims activity, especially in the social services sector, Chapman noted. “If you look at the claims activity, probably 1 percent of the claims activity is a true D&O claim. But the other 99 percent are EPLI related — wrongful termination, failure to promote, hostile work environment,” he said. Chapman said the industry is down to only a handful of markets that will even consider D&O for nonprofits and the required deductibles for coverage are skyrocketing. “Deductibles are going from nothing to up to $100,000; and the premiums are doubling. It’s a tight, tight market for D&O,” he said. Overall, however, there is not much else to complain about in the nonprofit P/C world. “It’s a softening and stable market. A good space overall,” Chapman said. www.insurancejournal.com
rue knowledge of a market comes from years of focused experience. Over 40 years ago, Irwin Siegel Agency introduced a property and casualty program specifically for Human and Social Service providers. Since then, we’ve partnered with independent agents and brokers nationwide to provide service and value beyond the policy. We understand the complexities of these organizations because we remain actively involved in the field.
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SPOTLIGHT
10 Things to Know About Garage & Repair Most policies with dealers open lot coverage have a co-insurance penalty. For example, if a policy with a co-insurance penalty was issued to an auto dealer and inventory is covered at a $500,000 limit, and at the time of a $100,000 loss it was determined that he had $1 million in inventory, his claim payment would be reduced to $50,000 because of the co-insurance penalty. — Mike Fennell, vice president/underwriting, Prime Insurance Co.
For service-type operations under a garage liability policy, the standard market generally writes this business under a general liability policy, which includes personal injury and advertising liability, fire legal liability and med pay. In order to match up reasonably with any policy that was written under a general liability form and now going to a garage form, agents need to add broadened garage coverage and med pay. That will provide basically the same coverage under the garage policy. — Bill Brecht, president and senior underwriter, Brecht & Associates.
The difference between garagekeepers legal liability (GKLL) and direct primary coverage is garagekeepers will provide coverage to a vehicle if it is damaged due to the insured’s negligence and direct primary covers the vehicle regardless of fault, unless specifically excluded by an endorsement. — Mike House, producer/broker, garage division, USG Insurance Services Inc. Most garage service businesses require both garage liability and garagekeepers legal liability (GKLL) coverage. For example, a mechanic takes the car for a test drive but during the test drive he hits another vehicle. The damage to the vehicle he hit and any injury to the driver or passengers is covered under the garage liability, but the damage to the customer’s auto that the mechanic was driving is covered under the GKLL coverage. — Mike Fennell, vice president/underwriting, Prime Insurance Co.
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Symbols 22 and 29 are things that might be seen on a policy. Symbol 22 is owned autos only and symbol 29 is non-owned autos used in an auto dealership. The definition for each is in the coverage form on the policy. — Mike House, producer/broker, garage division, USG Insurance Services Inc.
Dealer plates are special license plates used by dealers to allow customers to legally drive unregistered cars on public streets and highways. Transporter plates are used on vehicles not currently registered to any owner and do not have a license plate. — Mike House, producer/ broker, garage division, USG Insurance Services Inc. Dealership is based on the number of owners, spouses, and the employees. Underwriters need to know if the owner, spouse and any employee is furnished an auto. Furnished auto is used for personal use. Every owner, spouse and employee is rated differently depending on their job title, full-time, part-time (20 hours or less a week), and if they are furnished an auto or not. — Todd Stanley, garage underwriter, RIC Insurance General Agency Inc. Dealer drive away is only covered for 300 miles, but can be endorse to unlimited. — Todd Stanley, garage underwriter, RIC Insurance General Agency Inc.
Garage is based on payroll. $5,200 for full time and $2,600 for part time (20 hours or less a week). — Todd Stanley, garage underwriter, RIC Insurance General Agency Inc.
One coverage that is excluded on the garage policy is false pretense. That is when a vehicle bought at an auction yard is repossessed by the policy because it was reported stolen. — Todd Stanley, garage underwriter, RIC Insurance General Agency Inc. February 8, 2016 INSURANCE JOURNAL-NATIONAL | 23
SPECIAL REPORT
Errors & Omissions
By Andrew Simpson
T
he ghost of the 2008 financial collapse still haunts the liability insurance market for real estate professionals and some are worried the business may be headed for a replay of that crisis. While it is still recovering from the crash of more than seven years ago, the real estate errors and omissions (E&O) market is also contending with new exposures related to cyber, energy, regulation, drones and the trend of Realtors morphing into developers and property managers. Mike W. Smith, president of Axis Insurance Services, remembers the period before the 2008 crash well.
“Real estate was something where you just couldn’t lose money. Every person wanted to be in it. People jumped in it that had no business being in it, from the mortgage brokers to title agents, and real estate agents,” the Franklin Lakes, N.J., insurance broker told a Professional Liability Underwriting Society (PLUS) audience. “Real estate prices were high; interest rates were low. What it set up was an environment that was just really doomed to fail.” After the housing market collapsed, claims and lawsuits against all types of real estate professionals — and pretenders who got into the business — commenced. Most claims from the crash had a four or five-year statute of limitations, although some came in as late as 2014 and are still in litigation, according to Jonathan Kanov, a real estate defense lawyer with the Fort Lauderdale firm of Marshall Dennehy Warner Coleman & Goggin. The bulk of claims had to do with residential transactions. “That makes sense because for the commercial deals you generally had lawyers on either side, buyer and seller. You had a lengthier due diligence period that people actually availed themselves of, and the level of all of the real estate professionals was higher,” Kanov said. Mortgage Brokers Mortgage brokers were among those hardest hit by claims after the crash. According to Kanov, too many mortgage brokers were nothing more than forgers processing loans that did not require documentation of income. “They had no experience in the industry. They took a test and they got into it,” Kanov said, citing a case where $175,000 was the reported income for a nail technician who made $39,000 a year. She would face monthly payments of more than $4,000 a month after two years on a 40-year adjustable mortgage. “You saw that all the time, and that of course was a recipe for disaster,” Kanov said. “Of course, it opened up the mortgage brokers for claims, and lots of underwriters got out of writing mortgage brokers completely after the crash.” www.insurancejournal.com
Title Agents ting sued for these inflated values,” said Title agents also faced claims. These Smith. came from loan originators looking for Research by Shendell’s firm found that any possible errors to hold the title agent at least 50 percent of the real estate proresponsible for the bad deal. “If there was fessionals subject to claims were in the cash to close that should have been brought business less than two years. “Everyone and by the buyer and they didn’t bring it; if their mother and father wanted to be a there were suspicious-looking credits; if weekend realtor so they could have a realtor there were credits that were not approved by the lender ‘The industry did a pretty significant to a marketing assistant, or knee-jerk reaction as to what was something that looked suspihappening in the claims.’ cious, they were easy targets to go after the title agent,” the Florida attorney said. license to share in the commission,” he said. The crisis drove title companies to begin “One of the revelations was the tremenholding title agents strictly accountable dous risk that insurance companies were for defects, according to Gary Shendell, an taking when they underwrote them for attorney with Shendell & Pollock in Boca professional liability policies,” he said. Raton, even when the title insurer does the title search. “Their theory is that the title Parade of Exclusions agent had the last chance to find the error. After the claims started pouring in, It’s really a very difficult environment out insurers reacted in ways that are still being there for title agents at the moment,” he felt in the marketplace, according to the said. speakers at PLUS. Insurers pulled out of some real estate E&O markets including Real Estate Brokers the biggest, California, and elsewhere they The third group hit hard by claims after pulled back on what they would cover. the 2008 crash was real estate agents and “The industry did a pretty significant brokers. knee-jerk reaction as to what was hap Kanov said he realized the Florida pening in the claims,” said Smith. “We had market was overheated when his landthe insurance companies that were just scaper quit to get his real estate license. throwing up their hands, and there was “It was just the thing to do,” he recalled. pretty much a mass exodus in this market. “Everybody was flipping houses — their California real estate E&O was the first to own and their investment properties.” go, and after that, other companies might Real estate agents became easy targets for not have left the market but they certainly people losing their homes and their investincreased their prices and then they started ments. Claims trumpeted the agent’s “duty putting new exclusions to the policy.” of loyalty” and “duty of candor” and com Some insureds discovered they were not plained about a failure to disclose nearby covered for certain exposures. Mortgage construction or failure to advise a homebuybrokers, for example, had contracts with er to hire a termite specialist. repurchase agreements. “When the banks Axis’ Smith said that appraisers also came back and said, ‘You have to repurchase became targets as lenders pressured them the loan,’ they were really surprised that to inflate values. If the appraiser’s estimate they weren’t covered for that type of expodid not reach what the lender wanted, the sure,” Smith said. appraiser either gave the lender the value Insurers began piling new exclusions it wanted or never got another assignment onto E&O policies. Among them was an from that lender. “That’s the position they exclusion for the thousands of real estatewere in. Then when the crash came, of owned (REO) properties the banks ended course they were on the front lines of getcontinued on page 26 February 8, 2016 INSURANCE JOURNAL-NATIONAL | 25
SPECIAL REPORT
Errors & Omissions continued from page 25 up with after foreclosing. Banks wanted to get them off their books so they farmed them out to real estate agents but did not include much information at all. “There were a lot of allegations on the sale that the agent should have known about the property. The agent had a duty to inspect the property, and know the conditions of the property,” said Eric E. Myers. “That just wasn’t possible for a lot of these agents taking on these sales.” Myers, manager of one of the country’s largest real estate E&O programs for Victor O. Schinnerer, said the result was a slew of claims against real estate agents for failure to disclose. “That scared a lot of carriers. A lot of carriers just said, ‘If you’re selling REOs, we’re not covering you.’ It was just such a shock, the sheer number of REO property sales,” he said. Real estate agents doing property maintenance as part of receivership responsibilities faced a similar E&O fate. Insurers decided that this was not a covered professional real estate service. Smith noted that courts appoint individual agents, not their companies, as receivers and they can be held personally liable for the property taxes or other matters related to the property in foreclosure. Insurers also began excluding the activities of agents who were “flipping” properties they owned themselves or jointly with others. Myers said agents would buy a property for $300,000, do some cosmetic repairs, quickly put it back on the market, and sell it for $800,000. Buyers who felt taken advantage of filed claims alleging failure to disclose. “If you own the property because you bought it, you should 26 | INSURANCE JOURNAL-NATIONAL February 8, 2016
know about it. Even if you own 10 percent of it, you should know about the conditions of the property, the history of the property,” said Myers of the attitude of these claimants. E&O Market The good E&O news is that many of the bad actors behind the 2008 real estate crash are gone. Also, claims are down in part because there have been fewer transactions. Insurers have come back, and brokers are having some success, albeit limited, getting insurers to cover some of the exposures they dropped a few years ago. But it isn’t easy ridding policies of all of the exclusions. “I spend my whole life fighting with the carriers to try to get all of that stuff back in,” said Smith. As Myers sees it, the “E&O policy is evolving” as the soft market offers some leverage to get insurers to relax exclusions. But the admitted market is not looking to add coverages so the excess and surplus lines (E&S) market is important to providing coverage for new exposures. Smith said it’s been a “hard battle” in California in particular. But now carriers are coming back. “It was a three, four, five-year period where California was really a tough market,” he said. He agrees the market is being helped by E&S players. Newer Exposures Even as they maneuver to restore some of the lost protections, insurance brokers are having to locate coverages for a menu of newer exposures. For example, more Realtors are getting into the property flipping that gives underwriters heartburn. They are partnering with contractors, raising money from investors, buying and fixing up dilapidated properties, and sometimes
acting as general contractors in the process. When things sour, these Realtors can face complaints by both investors and buyers, according to Shendell. Cyber and privacy exposures are also growing as real estate professionals, like most businesses, become more dependent on the Internet. According to Melanie Wyne, a technology expert with the National Association of Realtors (NAR), data breaches pose a series of risks to real estate brokerages. There is financial harm from the expenses resulting from the breach; legal risks from lawsuits; and reputational risks from having to publicly disclose the hack. Real estate brokers can be liable for something as simple as using the wrong photos of a property or vulnerable when transferring funds electronically. Jessica Edgerton, NAR associate counsel, cites an upswing in a particular wire scam where a hacker breaks into an agent’s email account and obtains information about upcoming real estate transactions. After monitoring the account, the hacker sends an email to the buyer as the closing nears, posing as the agent or someone from the title company and requesting that the buyer wire funds. The E&O problem with these technology exposures is that while real estate professionals are very vulnerable, many do not take them seriously, according to Smith. “They don’t think they maintain any information. That exposure is there for the real estate agent more so than other folks,” the insurance broker said. Smith said these claims aren’t covered under the E&O policy but getting a small firm or an appraiser to buy a cyber policy is “almost impossible.” Real estate firms that are using drones to showcase or inspect properties are courting additional exposure. “This technology is an incredible tool for real estate professionals, but can be dangerous if the wrong person is in control,” said Kolleen Kelley, vice chair of NAR’s risk management committee, at a recent conference where panelists advised that following the rules on drones www.insurancejournal.com
‘I spend my whole life fighting with the carriers to try to get all of that stuff back in.’ is important to mitigate potential risks even while acknowledging that the rules are still evolving. Smith believes E&O policies need to recognize that the profession has changed. “If we’re looking at a box of how a real estate agent, title agent, mortgage broker does their business, they’re not doing it the same way that they did it five years ago. We have to evolve to be able to address that,” Smith said. Fair Housing and Fracking Looking ahead, Myers thinks there could be claims activity related to the government’s desire to protect citizens’ civil rights in housing. He sees a possible uptick in fair housing claims as a result of the Obama administration’s decision to fund Housing and Urban Development (HUD) testers whose job is to find out if real estate agents, property managers or mortgage brokers are violating anyone’s civil rights. One provision of HUD’s Fair Housing Initiatives Program meant to assist people who believe they have been discriminated against calls for deploying “minorities and whites with the same financial qualifications who evaluate whether housing providers treat equally-qualified people differently.” Liability linked to fracking and energy rights is another emerging issue. A 2015 Reuters report on 25 states found that builders in some areas are retaining the rights to oil, gas, water and natural resources under the homes they erect and sellers are not required to disclose it. Another emerging risk involves what Myers calls “horrors in the house.” These cases arise, for example, when there’s a death in a house or a sexual predator next door. “Should the agent disclose those claims to the public, to their protected buyers?” is the question, according to Myers. He cited a case where there had been a series of random phone calls and letters threatening to kill a child who lived in the www.insurancejournal.com
home being sold. “The whole neighborhood knew about it, but the out-of-town buyers didn’t know. The agent got sued for not disclosing that,” said Myers. Smith warned about potential claims arising out of changes in settlement forms for real estate closings. Last October, new disclosure documents required by the government went into effect. The government has replaced the Good Faith Estimate and Truth in Lending disclosures with a single document that must be given to consumers within three business days of applying for a loan. Also, a new Closing Disclosure form has replaced the HUD-1 settlement statement and the final Truth in Lending disclosure. This form must be given to consumers at least three business days before closing. Fortunately, early reports indicate that the changes do not seem to be presenting major problems, according to NAR President Chris Polychron. “We are pleased that closing delays and other harmful effects resulting from the new rules have been reportedly few in number so far,” he said at a conference about six weeks after the new rules went into effect. “Nonetheless, as the new rules continue to take hold, we anticipate there could be bumps in the road.” Crisis Redux Last year was the real estate sector’s best year in a decade, with existing homes sales and the median price both up more than six percent, according to NAR’s Chief Economist Lawrence Yun. But those numbers are well below the highs achieved in the years leading up to the 2008 crash. Looking ahead to 2016, Yun sees sales actually slowing. Mortgage bankers are more optimistic and believe the home buying market will be even better in 2016. But whether sales are up or down in 2016, the median home price is likely to keep rising due to pent-up
demand and fewer new houses being built. Real estate pros reassure that the housing market is not about to go into crisis mode again because, for one, more people are employed. Also, adjustable rate mortgages are no longer as popular as they were in the years before 2008. Also, while bank repossessions are up as banks continue to work through their old business, only 2.1 percent of loans are in foreclosure, the lowest level since 2007, according to the Mortgage Bankers Association. Insurance broker Smith isn’t totally convinced that 2008 couldn’t happen again and he wonders if the lessons of the crash have been learned. “I want to say we learned some lessons. I want to say the lenders learned some lessons. I want to say the regulators learned some lessons. But the real answer is, we’re getting pretty close to that again,” he said. Myers is also leery about what lies ahead. “In Florida specifically, there’s another era of this irrational exuberance,” he said. “There is so much construction going on, there are so many cranes in every major city in Florida, there are so many units available that at some point it’s going to give rise to that bubble that just a little pinprick will explode.” February 8, 2016 INSURANCE JOURNAL-NATIONAL | 27
CLOSER LOOK
M&A Report P/C Retail, Wholesale Agency M&A Activity Brisk in 2015
W
hen agency consultants at Reagan Consulting hosted more than 150 industry leaders at a workshop on agent/ broker mergers and acquisitions (M&A) recently, the mood was upbeat, since brokers are enjoying their best combination of growth and profitability in nearly a decade. There was even more reason for the upbeat mood. As Bobby Reagan, CEO, told the attendees, values being paid for insurance agencies and brokerage firms have “never been higher.” Kevin Donoghue, managing director, Mystic Capital Advisors Group, calls 2015 a “rapid year” for deals, citing SNL Financial data that there were 309 deals in the insurance distribution sector in 2015, compared with 254 in 2014 and 161 in 2013. “Over the past three years, multiples have steadily risen and with it, the number of deals,” Donoghue said
M&A Online
Here’s a shortcut to search years of insurance M&As reported by Insurance Journal: ijmag.com/mergers
There was plenty of activity in the agency and brokerage market in 2015, with, as usual, a handful of brokers very active nationally and internationally. The super-buyers included Hub International (37), AssuredPartners (31), Arthur J. Gallagher (26), Confie Seguros (15) and Brown & Brown (13) among others. NFP Corp., Integro, Marsh and McLennan Agency, Alliant and The Hilb Group also had a busy year. There were a few active regional acquirers including Cross Insurance (New England), Smith Brothers (Connecticut), World Insurance Associates (New Jersey), Orchid Underwriters (East Coast) and Protector Holdings (California). Relatively new players with apparent ambitions to do more appeared on the M&A scene. They included Prime Risk Partners (Atlanta), Risk Strategies (Boston), Chestnut Hill Insurance Group (Rhode Island); and The Andrew Agency (Richmond). Kevin Stipe, president of Reagan Consulting, noted that demand has been strong and private equity buyers have been extremely active — involved in more than
four out 10 transactions — and they are “most responsible for pushing acquisition multiples to record levels.” Stipe sees the trend continuing in 2016. “With widespread buyer demand, there is nothing today to suggest that valuations will be going down any time soon,” he said. Donoghue isn’t so sure multiples will keep rising. “I expect 2016 to be a busy year, but believe we are at peak pricing right now. Rising interest rates and the turmoil going on in the energy sector will likely have a drag effect on valuations,” he told Insurance Journal. M&A News Highlights Space does not permit listing all M&As. Here are some agency/brokerage M&A news highlights from 2015 as reported by Insurance Journal: • In December, Towers Watson & Co. and insurance broker Willis Group Holdings closed on their $18 billion merger of equals. The combined agency is named Willis Towers Watson and is domiciled in Ireland. Willis agreed in June to merge with Towers Watson to better compete with Marsh and Aon, which also have consulting operations. Towers Watson had to overcome
From ACE to XL, 2015 Was a Year of Major Insurance Carrier M&As
S
igns that 2015 would be an active year for property/casualty mergers and acquisitions (M&A) were apparent in late 2014. As 2014 closed, there was a rush of M&A activity. The deals that closed out 2014 included: Fosun International buying Meadowbrook Insurance; RenaissanceRe acquiring Platinum Underwriters; Progressive Corp. upping its ownership in homeowners specialist ARX to 67 percent from five percent; ACE’s purchase of Fireman’s Fund’s U.S. high net worth business; and Iowa’s Farmers Mutual buying fellow crop insurer John Deere Insurance. As 2015 got underway, analysts spec28 | INSURANCE JOURNAL-NATIONAL February 8, 2016
ulated that the strong close in 2014 could be a harbinger of more to come. They were right. It was a year of major deals headlined by the flawlessly managed ACE–Chubb marriage and the birth of the new Chubb. Tokio Marine buying HCC Insurance Holdings and XL’s acquisition of Catlin got press. The EXOR-PartnerRe deal became very contentious and almost didn’t happen. Several insurers uprooted from crop insurance, allowing others to step in. While the big deals got the spotlight, there were also many smaller national, regional and state carrier M&As that will affect local personal and commercial lines
insurance markets. In 2015, according to a Willis Towers Watson survey, $120.5 billion worth of deals were completed in the first three quarters of the year — nearly three times the amount recorded in 2014. Consolidation, particularly in the U.S. and specialty lines, spurred a rise in the number of megadeals to four worth more than $5.4 billion, compared to just one in 2014, and 25 deals worth more than $540 million. Some of the most interesting M&A news in 2015 was about deals that did not happen but could in 2016: Carl Icahn’s campaign to split American International Group (AIG) into three. Stay tuned. www.insurancejournal.com
opposition from proxy advisors to seal the deal. • QBE Insurance Group of Australia is selling its U.S. agency businesses to California-based Alliant Services for about $300 million and exiting the distribution business. The agencies being sold include Community Association Underwriters in Pennsylvania, Deep South Insurance Services of Texas, and SIU Managers in California. • Willis Group Holdings agreed to buy the 70 percent of Gras Savoye, France’s largest broker, that it didn’t already own for $590 million. Willis Group Holdings also agreed to take an 85 percent stake in London’s Miller Insurance Services and acquired Elite Risk Services Ltd. of Taiwan.
• Texas-based All Web Leads, a Genstar Capital portfolio company, agreed to acquire insuranceQuotes.com for $165 million. • Marsh & McLennan Agency acquired Vézina, a Montreal broker, marking MMA’s entry into the Canadian market. • Ryan Specialty Group of Chicago agreed to acquire Hunter George & Partners, a London managing general agent.
Agency M&As by Region East
• American International Group agreed to acquire a controlling stake in NSM Insurance Group, a Pennsylvania program administrator. • Wholesale broker AmWINS Group
2015 P/C Insurance M&As by State West California - 27 Washington - 8 Colorado - 7 Arizona - 7 Montana - 2 Oregon - 2 New Mexico - 2 Utah - 1 Alaska - 1 Hawaii - 1
acquired The III Group, a wholesale broker based in Pennsylvania that includes: Insurance Innovators Inc., III of Maryland Inc., Insurance Innovators of New Jersey Inc., Innovators of New York Inc. and Insurance Innovators of New England Inc. • Alliant Insurance Services of California acquired Preferred Concepts in New York and its three divisions: Preferred Underwriting, a program underwriter for the real estate industry; Preferred Brokerage, a wholesale brokerage; and ezumbrella.com, an online platform for umbrella liability. • Arthur J. Gallagher & Co. agreed to acquire William Gallagher Associates Insurance Brokers Inc. in Boston, continued on page 30
Midwest Illinois - 15 Indiana - 5 Kansas - 2 Michigan - 6 6 Minnesota - 3 Missouri - 7 North Dakota - 2 Ohio - 2 South Dakota - 1 Wisconsin - 1
East New York - 32 Massachusetts - 18 Pennsylvania - 19 New Jersey - 14 Connecticut - 10 Virginia - 7 Maryland - 5 Rhode Island - 5 Maine - 2 Vermont - 2
South Central
Southeast
Texas - 23 Oklahoma - 3 Louisiana - 1 Arkansas - 1
Alabama - 3 Florida - 19 Georgia - 7 Kentucky - 1 Mississippi - 1 North Carolina - 11 South Carolina - 3 Tennessee - 1 West Virginia - 1
This map shows the total number of mergers and acquisitions in 2015 by state of property/casualty insurance carriers, agencies, brokers and industry-related firms, as reported by Insurance Journal, based on the state of the entity being acquired.
www.insurancejournal.com
February 8, 2016 INSURANCE JOURNAL-NATIONAL | 29
CLOSER LOOK
M&A Report continued from page 29 which has annual revenues of $50 million. Arthur J. Gallagher & Co. also acquired Monument, a program administrator in Pennsylvania; and two New Jersey wholesale brokers: Excel Insurance Services Inc. and McCloskey Surplus & Excess Inc. (d/b/a Metcom Excess). • Cross Insurance of Maine has purchased Corcoran & Havlin Insurance Group in Massachusetts; Boston agency Knapp Schenck & Co. and Schonning Insurance in Rhode Island. • Orchid Underwriters Agency, a Florida managing general agent, acquired Coastal Agents Alliance in New Jersey. Orchid Underwriters also agreed to acquire Platinum Partners, a Massachusetts wholesaler focused on high net worth personal lines. • Prime Risk Partners of Atlanta acquired Cook Maran & Associates in Southampton, N.Y. This is Prime Risk Partners’ first acquisition.
M&A Online
Here’s a shortcut to search years of insurance M&As reported by Insurance Journal: ijmag.com/mergers
• NFP Insurance of New York City acquired Insurance Management Associates in New Jersey; Horenberg Insurance Services in Maryland; Hackett Valine & MacDonald in Vermont; and BWD Group in New York.
West
• Protector Holdings, a joint venture of Edgewood Partners Insurance Center and Dowling Capital Partners, has acquired California’s Oasis South Insurance Services and Peartree 30 | INSURANCE JOURNAL-NATIONAL February 8, 2016
Insurance Services, both specialists in the Hispanic market. • Hub International Ltd. has acquired Arrow Insurance Service in Simi Valley; Brown Agency Inc. in Alaska; Laubacher Insurance Agency in Ventura; Las Cruces, N.M.’s ‘N Compass Group; Lovsted-Worthington Insurance in Seattle; Alamogoro, N.M.-based Shofner, Lynch & Shulse; Denver-based Colorado Nonprofit Insurance Agency; and Calif.-based Johnson & Wood Insurance Services. • Risk Strategies Co. of Boston has acquired San Diego’s Dubraski & Associates Insurance Services and MacCorkle Insurance Service in Burlingame, Calif.
Midwest
• Arthur J. Gallagher & Co. has acquired NationAir Aviation Insurance in Chicago; Brown Hobbs & McMurray Insurance in Urbana, Ill.; The Hawk Agency in Peoria; Burkwald & Associates of Pewaukee, Wis.; James R. Weir Insurance Agency in Mankato, Minn.; and National Administration Co. in Chesterfield, Mo. • Hudson Insurance Co. of New York has acquired Euclid Managers of Kansas City. • Marsh & McLennan Agency has acquired Dawson Insurance Agency in Fargo, N.D., and St. Louis-based J.W. Terrill. MMA also acquired Cline Wood Agency, a Kansas City specialty agency. • Risk Strategies Co. of Boston has acquired professional liability broker M.G. Welbel & Associates in Illinois; Northwest Comprehensive in Chicago; and Re-Solutions Intermediaries, a Minneapolis reinsurance specialist.
Southeast
• Hub International Ltd. has acquired
Smith Watson Parker Insurance and Cooper, Simms, Nelson & Mosley, both in Florida; Triangle Insurance Services and IAS Associates, both in North Carolina; and RFO Enterprises in Georgia. • The Hilb Group has acquired West Coast Insurance in Tampa; JWB Insurance Group in Wilmington, N.C.; and the Gentry Insurance Agency in Apopka, Fla. • Confie Seguros acquired Your Insurance Spot Inc. in Kissimmee, Fla.; Wise Insurance Agency of Columbia, S.C.; and TS Insurance Group in Alabama. • Patriot National acquired TriGen Insurance Solutions, a specialty insurance brokerage in Boca Raton. • Maryland-based national wholesaler All Risks Ltd. acquired Specialty Risk Underwriters, a national program administrator in St. Petersburg. • Brown & Brown sold its reinsurance brokerage subsidiary Axiom Re to Beach Re Ltd. as part of a business strategy to exit the reinsurance brokerage business.
South Central
• Marsh & McLennan Agency acquired Dallas-based MHBT, an agency with annual revenue of $76 million and 350 employees in five offices throughout Texas. • Hub International Ltd. acquired Alexander Insurance Agency in San Antonio, and The Holmes Organisation, an Oklahoma multi-line brokerage. • J.H. Blades & Co., an energy-focused managing general agent in Houston, purchased wholesale broker Burke-Daniels Co.. • The Hilb Group has acquired Texasbased Walker Myers Insurance & Risk Management. • McKinney, Texas-based GDP Advisors has acquired The Insurance Connection of Texas. www.insurancejournal.com
NATIONAL COVERAGE
MyNewMarkets Coastal or Secondary Homeowners Insurance Program Market Detail: BUA LLC’s (www.buainsurance.com) coverage is designed for homes valued at $100,000 to $10 million located on the coast or in remote locations. Coverage features include an “all risk” form (ISO HO-3); coverage is also available for art work and other valuable possessions. BUA provides a home inspection/appraisal service to establish the home’s replacement value. Other features include: coverage and liability available to high profile individuals/ celebrities; as much as $1 million of personal liability insurance available; proposals provided within 24 to 72 hours upon receipt of a completed application; replacement cost provided on all proposals; and excess flood coverage above the federal flood insurance program also available. Available limits: As needed Carrier: Unable to disclose States: Conn., Maine, Mass., N.H., N.Y., R.I., and Vt. Contact: Customer service at 888-772-5005
Available limits: As needed Carrier: Unable to disclose States: Ariz., Ark., Calif., Colo., Fla., Idaho, Iowa, N.M., Okla., Ore., Texas and Utah Contact: John Rosmalen at 800-943-3821 or e-mail: submissions@ imacoinsurance.com
Vacant Property Market Detail: Cox Specialty Markets (www.coxspecialty.com) maintains both binding authority contracts as well as numerous brokerage facilities to provide agents with competitive prices and coverages. Available limits: Maximum $2 million Carrier: Unable to disclose, admitted States: Ill., Ind., Mich., Ohio and Pa. Contact: Emily Kindell at 800-648-0357 or e-mail: emilyk@ coxspecialty.com
Artisan/General Contractor Program Market Detail: American Team Managers Insurance Services Inc.’s (www.atminsurance.com) Contrac Pac is designed to meet the needs of small- to medium-sized artisan and general contractors specializing in residential and commercial projects. Eligibility requirements include: contractors with an owner active in the day-to-day operations and annual receipts up to $3 million; new ventures with three years of construction experience; new construction work on residential projects (excluding condo, townhome and co-op projects of any size); general contractors working on three or less new residential units annually in a tract, subdivision or development; trade contractors working on three or less new residential units annually in a tract, subdivision or development; job project size to approximately $1.5 million; credit qualification never required. Available coverages include: general liability with limits up to $1 million/$2 million including products and completed operations; increased limits available; identity recovery; inland marine; blanket additional insured which includes primary, noncontributory and waiver of subrogation; other additional insured endorsements available including completed operations. Available limits: Minimum $300,000, maximum $2 million Carrier: CBIC States: Calif. only Contact: Bryan Beeson at 714-414-1236 or e-mail: bryan@ atminsurance.com
Wholesale Workers’ Compensation Staffing Companies Market Detail: Imaco Wholesale Insurance (www.imacoinsurance. com) offers workers’ compensation coverage for start-up staffing companies and preexisting staffing businesses. Large or small, new in business or preexisting, the market is getting more and more difficult for staffing businesses on the workers’ comp side. www.insurancejournal.com
Property Insurance for Woodworking Companies Market Detail: Wood Products Manufacturers Association (www. wpma.org) offers a safety group dividend plan offered in partnership with an A-rated carrier that specializes in coverages for woodworking companies. The group can potentially receive dividends of up to 10 percent of eligible policy premiums earned during the year. Available limits: Minimum $2,000 , maximum $25 million Carrier: Unable to disclose, admitted States: All states except La. Contact: Philip Bibeau at 978-874-5445 or woodprod@wpma.org
Restaurant Umbrella Program Market Detail: The McGowan Companies’ (www.mcgowancompanies.com) “National Restaurant Owners” umbrella program’s eligible classes include: sit-down restaurants, family style restaurants, “white tablecloth” restaurants, “take out” restaurants, private dining clubs, theme restaurants, franchise restaurants, “fast food” restaurants, cafeterias, institutional food services, and caterers. Available limits: Minimum $1 million, $25 million Carrier: Unable to disclose, admitted States: All states Contact: Suzanne Young at 800-545-1538 or e-mail: syoung@ mcgowanins.com February 8, 2016 INSURANCE JOURNAL-NATIONAL | 31
IDEA EXCHANGE
The Competitive Advantage Brands & Independent Insurance Agencies
M
uch has been discussed and considerable investments have been made specific to branding within the independent insurance agency market over the past five to 10 years. Intense pressure to “brand” exists because of the $6 billion in advertising spent by a handful of personal lines carriers, none of which are exclusive to indepenBy Chris Burand dent agency carriers. Branding is also kind of sexy to many agency owners because paying someone to build a brand is easier than making sales and if it works, little dream fairies begin dancing in owners’ heads that customers will begin flooding in. In my discussions and strategic planning sessions with agency owners, I have only met a half dozen or so agency owners that truly understand branding, what to expect, and how much hard work is involved on their part after the brand design and initial marketing plan is completed. One of the
most glaring mistakes agency owners make when beginning to consider a branding program is understanding what it means “to brand.” I’ll put it graphically: To brand, when done properly, means burning an identity into your agency so deep, smoke rises just like when a ranch hand brands a calf. You will wear that brand on your forehead for evermore. Your people will wear that brand on their forehead forever more. Do not think otherwise if you want a good ROI on your branding investment. Branding, when done well, makes you and your agency distinct. Being the same 35- to 65-year-old guy dressed in business casual floating the same tag lines agencies have been using forever is not distinct. Distinct means a product that stands above the rest (difficult to achieve in most insurance lines from an agency’s perspective). Distinct means making consumers think your product is different even when it is not through awesome logos, creative tag lines, or massive advertising. (And I mean massive — which is a clue because when you see
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massive advertising the advertiser is trying to create a brand through inundation due to no other material distinction, something some beer companies are experiencing and maybe a few insurance companies, too). Brand distinction in the insurance industry, barring those with massive advertising, is usually built on consumer experience. Distinction based on consumer experience is both beneficial and difficult. Building brands through consumer experience is quite difficult because it takes time and requires considerable consistency. This fact is why an agency’s brand must be worn on the forehead. What Brand? A brand is supposed to convey the following: • A promise to consumers that you are worthy, reliable, mistake free, and high quality. • Trust that if something goes wrong, you will fix it. Not much more needs to be said regarding what branding is supposed to convey but consistency is generally troublesome to independent insurance agencies. It is troublesome because agencies lack consistency in their client experience and lacking consistency in their client experience means building a true brand is nigh on impossible. Why do I say agencies lack consistency? Simple. When I conduct agency E&O audits and due diligence for valuations, I consistently see CSRs and producers failing to follow the same procedures. Some use www.insurancejournal.com
proposals, some don’t. Some use beautiful, high quality professional proposals and some use black and white copies (these should be banned by the way). Some producers are ignorant of coverages and some are geniuses. Some CSRs are great and some probably shouldn’t be allowed to deal with clients. Some CSRs know what the procedures are and some do not know the agency has procedures. Never mind the producers who haven’t a clue what the procedures are. Keep in mind, I see these differences of this magnitude in single agencies. This does not even begin to address the huge differences in claim and billing practices between any one agency’s carriers. What is the value of a brand when the consumer has no idea what level of service they will get from one CSR to another and one producer to another? On the other hand, experience based brands built on consistency are the most valuable brands and the most affordable brands for agencies because they are built patiently and on hard work. Once built and maintained, they become almost impregnable. The emotional connection with the client becomes a fortress wall. Building experience based brands is not nearly as sexy as buying branding but the combination of what insurance agencies are selling and the relative cost makes building experience based branding ideal. Experienced Based Brands To build an experienced based brand does not require exceptional knowledge. The most important requirement is leadership. Leadership is required to build and enforce consistency. Leadership is required to get everyone on board because the brand www.insurancejournal.com
must be permanently imprint- To brand, when that do not practice the ed into everyone’s forehead brand’s consistency. done properly, (figuratively of course) as a A major additional means burning an benefit of consistency constant reminder of the agenidentity into your cy’s brand. Leadership is not is reduced E&O exporequired, whatsoever, to allow agency so deep, sure. The E&O term producers to do whatever smoke rises just like is, “invariable practice.” they want. Leadership is not Furthermore, when my when a ranch hand firm measures the price required if the agency owner sells in their own way regard- brands a calf. of inconsistency through less of the agency’s procedures. our P.E.P. program, we That is abdication of leadership. commonly identify 20 percent waste due A leader then will build and create specifically to agency inconsistencies. consistency of procedures, proposals, The key then is a leadership assessment. quoting, education requirements, servicing Does your agency have the leadership standards, presentations, and even require required to build consistency even if it producers to use the same sales approach. means dealing with conflict? If not, who For example, all producers will focus on can you employ that can deal with conflict price sales or all producers will focus on and/or build consistency? It is your choice broker of record sales or all producers will whether to spend money on sexy branding focus on coverage sales, and so forth. Many that is not designed in any way, shape, or people will not want to wear this brand form for this industry, neglect to make any because brands require accountability, at effort, or build experience based branding. least experience based brands, to have any What will your choice be? value. The fact though is that with experienced based brands, clients will never get Burand is the founder and owner of Burand & the message if your employees do not get Associates LLC based in Pueblo, Colo. Phone: 719it first. Agencies cannot afford employees 485-3868. E-mail: chris@burand-associates.com.
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Agency Ideas www.agencyideas.com 32 Amerisafe www.amerisafe.com SC4; SE4 Applied Underwriters www.auw.com 2, 3, 36 Burns & Wilcox Ltd. www.burnsandwilcox.com 7, FL5 Chadbourne & Parke www.chadbourne.com 15 Cypress P&C www.cypressig.com FL11 Demotech www.demotech.com FL17 FEMA www.agents.floodsmart.gov/ij 19 GIC Underwriters, Inc. www.gicunderwriters.com FL1 Irwin Siegel Agency www.siegelagency.com 21 JM Wilson www.jmwilson.com FL15; SE3; M3 Johnson & Johnson www.jjins.com FL2
Marshberry www.marshberry.com 17 Maximum www.maxib.com FL7 Monarch E&S Insurance Services www.monarchexcess.com W1 MUSIC www.music-ins.com 18 Nonprofits’ Insurance Alliance Group www.niac.org 16 Pacific Gateway Insurance Services www.pgiainsurance.com W3 PersonalUmbrella.Com www.personalumbrella.com 5 Philadelphia Insurance Companies www.phly.com 9 Regency Insurance Brokerage Services www.regencyinsurancebrokerage.com FL20 Shelly, Middlebrooks & O’Leary www.shellyins.com FL9 Texas Mutual www.texasmutual.com SC3, SC5, SC7 United Fire Group www.ufgsolutions.com M6, M7
February 8, 2016 INSURANCE JOURNAL-NATIONAL | 33
IDEA EXCHANGE
Closing Quote
Listen to Your Customers, and Win
F By Mike Becker
or decades, the competitors of independent insurance agents have been frustrated. It seems that every so often our industry is treated to a parade of consulting firms predicting the impending demise of the independent agency distribution system, for their own competitive priorities. These predictions never come true. Instead, the independent agency system not only survives, it continues to thrive. Just three years ago, one report proclaimed, “The End of an Era for the Local Insurance Agent” and stated that the traditional agent model was “beginning to unravel.” PIA refuted these assertions and noted that the report seemed to present a predetermined outcome, much like an opinion article. PIA and our agency-company council, The PIA Partnership, decided that what was needed was objective research into the current buying preferences of our customers. We firmly believe that the main reason independent agents continue to thrive is that they provide a great customer experience. PIA conducted two nationwide studies involving both surveys and focus groups of insurance customers, to ascertain buying preferences. One looked at commercial lines and the Internet; the other examined buying preferences
34 | INSURANCE JOURNAL-NATIONAL February 8, 2016
regarding personal lines. Both found that consumers overwhelmingly preferred doing business with local agents. Our commercial lines survey results contained a wakeup call for agents. Small business owners, while expressing an overwhelming preference for doing business with local agents, have expectations that their agents will offer online interaction concerning their accounts such as premium payment or requests for certificates of insurance. And more, that the agency will have a fully credible online presence including a modern website and engaging social media profiles. In short, customers want digitally engaged agents as experts who are backed by the efficiency of the Internet. The value that independent insurance agents provide to their customers far surpasses what direct writers can ever hope to offer. However, one thing that some direct writers do that independent agents do not is bind policies online. There has been ongoing, informal discussion among agents, companies, vendors and user groups about the inability of a consumer to bind a policy on an agent’s website — and whether or not that represents a lost opportunity. Many agents have a comparative rater that offers a quote, but should a consumer like the quote, they can’t bind the policy unless the agency is open for business. Just because something is technically feasible doesn’t mean that it’s necessarily a good idea to do it. But by the same token, it might be. What’s needed is a discussion. That’s why PIA recently initiated an industry conversation among all stakeholder groups, with agents at the table and at the center. We held an industry meeting in The value that January 2016 in New York, independent agents at the headquarters of provide far surpasses ACORD, to discuss these issues as an industry. what direct writers We discussed the upside, can ever hope to downside, barriers, and offer. technology components of a “buy button” for independent agents. We also discussed whether it is possible to structure such functionality in a way to ensure that it is complementary to the value proposition of independent agents, and does not undermine it. The customer is always right. This is such a simple concept, but it often gets lost. Only by listening to your customers can you find out what they want. If we listen and then deliver accordingly, we will thrive. Our customers win, too — and so do our carriers. Becker is executive vice president and CEO of the National Association of Professional Insurance Agents (PIA).
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