Insurance Journal West 2016-03-21

WEST EDITION Washington Comish Fines Insurance Pros Calif. Could Let Uber Drivers Unionize Claims for Broker Negligence Assignable

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WEST

Inside This Issue

On The Cover

Special Report:

Hot Markets: Drones, Cyber and More

March 21, 2016 • Vol. 94 No. 6 • West

W1

W3

36

38

NATIONAL COVERAGE

WEST COVERAGE

IDEA EXCHANGE

8

W1 Washington Commissioner Fines

Insurance Professionals $17K

W3 Claims Matters: Claims for Broker

Negligence Assignable

11 Advertising Supplement: 2016

Corporate Profiles

W1 New Mexico Governor Signs

Ridesharing Bill

38 Tech Talk: The Missing Link

of an Agent’s Digital Proficiency

28 Closer Look: D&O Market

Continues to See Softening Rates

W2 California Bill Would Enable

Independent Contractors

to Unionize

41 Growing Your Property Casualty

Agency: Alan Shulman

How Technology May Alter Small Commercial Lines Advantage

30 Special Report: HOT Markets:

Drones, Cyber and More 34 Spotlight: 10 Things to Know

About Product Recall 36 Spotlight: Steps to Prepare

for the Worst and Best Outcome

in Recalls

42 The Search for Innovative Talent W2 Former California Agent Admits

to Embezzling from Clients

44 Minding Your Business: Catherine

Oak & Bill Schoeffler 46 Closing Quote: Why Companies

Won’t be Opting Out of Opt-Out

Anytime Soon

DEPARTMENTS W4 People 10 Declarations 10 Figures 40 Business Moves 45 MyNewMarkets

4 | INSURANCE JOURNAL-WEST March 21, 2016

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NATIONAL COVERAGE

Opening Note Pedestrian Traffic Fatalities Rise

T

he number of pedestrians killed in traffic accidents is expected to have risen by as much as 10 percent when final 2015 statistics are available.

That would be the biggest increase ever recorded.

The annual Governors Highway Safety Association (GHSA) Spotlight on Highway Safety Report provides the first look at 2015 pedestrian fatality trends, based on data reported by state highway safety agencies.

“We are projecting the largest year-to-year increase in pedestrian fatalities since national records have been kept, and therefore we are quite alarmed,” said Richard Retting, one of authors from Sam Schwartz Consulting.

Since the Fatality Analysis Reporting System was established in 1975, the year-to-year change in the number of pedestrian fatalities has varied from a 10.5 percent decrease to an 8.1 percent increase.

States reported a wide range of increases and decreases in the number of pedestrian fatalities over the first six months of 2015. Twenty-one states had decreases; 26 states and the District of Columbia reported increases; and three states had no change.

The report compares the number of pedestrian fatalities for the first six months of 2015 (2,368) with the same time period the Pedestrians now account previous year (2,232) to for a larger share, about 15 arrive at its 2015 full year percent, of all motor vehicle projection.

The GHSA report aligns crash-related deaths. with one by the Government Accountability Office finding that more cyclists as well as pedestrians are now involved in traffic accidents.

Pedestrians accounted for 14 percent of traffic deaths in 2013, up from 11 percent in 2004. For cyclists, those figures increased from 1.7 percent in 2004 to 2.2 percent in 2013.

Along with the increase in pedestrian fatalities, pedestrians now account for a larger share — about 15 percent of all motor vehicle crash-related deaths — compared with 11 percent a decade ago, the GHSA data show.

The report suggests several factors could be contributing to this spike, including an increase in motor vehicle travel and the growing use of cell phones among walkers and drivers.

“Could the increase of injuries and death of pedestrians be caused, in part, by the inattention of pedestrians?” asked one reader on InsuranceJournal.com.

Not surprisingly, more pedestrian fatalities tend to occur in large states with large urban centers: California, Florida, Texas and New York accounted for 42 percent of all pedestrian deaths in the first six months of 2015. “Austin, Dallas and Houston all had record fatal auto-pedestrian accidents in 2015,” said Mark Hanna, Insurance Council of Texas. However, when population is taken into account, the Andrea Wells states with the highest fatality rate per Editor-in-Chief 100,000 population were all over the map.

6 | INSURANCE JOURNAL-NATIONAL March 21, 2016

Publisher Mark Wells | mwells@wellsmedia.com EDITORIAL Chief Content Officer Andrew Simpson | asimpson@insurancejournal.com Editor-in-Chief Andrea Wells | awells@insurancejournal.com East Editor Young Ha | yha@insurancejournal.com Southeast Editor Amy O’Connor | aoconnor@insurancejournal.com South Central Editor/Midwest Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Don Jergler | djergler@insurancejournal.com International Editor Lisa Howard | lhoward@wellsmedia.com Senior Editor Susanne Sclafane | ssclafane@insurancejournal.com ClaimsJournal.com Editor Denise Johnson | djohnson@claimsjournal.com Columnists Catherine Oak, Bill Schoeffler, Alan Shulman, Tom Wetzel Contributing Writers Seth Borenstein, Chris Martin, Jeff Martin, Diana Shay, Michael Vitulli 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@ijacademy.com.com Midwest Lisa Whalen (800) 897-9965 x180 | lwhalen@insurancejournal.com South Central Mindy Trammell (800) 897-9965 x149 | mtrammell@insurancejournal.com East (NY, PA and CT only) Dave Molchan (800) 897-9965 x145 | dmolchan@insurancejournal.com Southeast & East (except for NY, PA and CT) Howard Simkin (800) 897-9965 x162 | hsimkin@insurancejournal.com New Markets Sales Manager Kristine Honey | khoney@insurancejournal.com Classifieds, Jobs, Agencies Wanted/For Sale Kelly De La Mora (800) 897-9965 x125 | kdelamora@insurancejournal.com MARKETING/NEW MEDIA Marketing Administrator Gayle Wells | gwells@insurancejournal.com Advertising Coordinator Erin Burns (619) 584-1100 x120 | eburns@insurancejournal.com New Media Producer Bobbie Dodge | bdodge@insurancejournal.com DESIGN/WEB Chief Technology Officer/Chief Innovation Officer Joshua Carlson | jcarlson@insurancejournal.com V.P. of Design Guy Boccia | gboccia@insurancejournal.com Audience Development Elizabeth Duffy | eduffy@wellsmedia.com Marketing Director Derence Walk | dwalk@insurancejournal.com Senior Web Developer Chris Thompson | cthompson@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 Financial Officer Mark Wooster | mwooster@wellsmedia.com

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NATIONAL COVERAGE

News & Markets How Technology May Alter Small Commercial Lines Advantage

A

s more small business owners become comfortable buying everything including insurance online, exclusive agent carriers will gain an advantage over independent agency carriers in the highly-fragmented and increasingly competitive small commercial lines insurance market, claims a new report.

Overall, the small commercial insurance market is a bright spot, one of the few P/C markets in the U.S. that has been growing in recent years. But a new report from McKinsey & Co. says the competition in this market will intensify as more large carriers enter the field and small business customers exhibit their openness to buying via direct and digital channels.

McKinsey says the market is attracting attention from carriers with primary business lines that have become saturated and commoditized, as well as from digital-based sellers. While the report says focusing on the profitable small commercial segment makes business sense, it also maintains that the shifting behavior of small business owners towards online purchasing presents new challenges for carriers, particularly those that use independent agents.

According to the report, Small Commercial Insurance: A Bright Spot in the U.S. Property-Casualty Market, agency carriers will need to adjust to compete.

“The ‘consumerization’ of small commercial insurance is likely to shift the balance of power in the sector. Carriers with customer-facing capabilities — particularly exclusive agent carriers with strong personal lines businesses and some small commercial presence — will have an advantage over those that distribute through independent agents. Independent agency carriers have deep industry experience and operational strengths, but will need to move quickly to develop marketing and customer-facing capabilities,” the report says.

McKinsey consultants also believe that 8 | INSURANCE JOURNAL-NATIONAL March 21, 2016

digital sellers “unencumbered by legacy issues that can launch nimbler direct models” will be vying for their share of the small commercial lines market, too.

According to McKinsey, a segment of small commercial insurance buyers will always value independent agents, but an increasing percentage are open to the direct route and may only be using agents to close a deal because direct binding isn’t readily available. Sixty percent of the customers surveyed said they would consider binding direct.

The report surveyed 1,500 small businesses with one to 100 full-time employees.

The Market For this report, the small commercial market is defined as businesses with up to 100 employees and $100,000 in annual premiums, a segment that is about one-third of the commercial lines market with $103 billion in direct written premiums. The market is highly fragmented with the largest carrier accounting for only 6 percent of total premiums.

However, “the largest carriers are moving quickly to secure their positions,” according to McKinsey, which found that over the past six years, the market share of carriers with more than $2.5 billion in direct written premiums has increased by 12 percent.

According to McKinsey’s survey, almost

40 percent of sole proprietorships in the U.S. do not carry small commercial coverage.

“Some may be covered under home-based business owner policies or endorsements on their personal lines policies, but this finding raises the possibility of unexpected room for growth in the smaller business market,” the report says.

McKinsey believes that “changing customer preferences and behaviors are upending traditional business models” and carriers will need to improve in a number of areas to capitalize on the attractive opportunities in small commercial insurance.

Report’s Findings Among the claims from McKinsey’s research: Customer demand for alternatives to agents exceeds supply. Sixty percent of the customers surveyed said they would consider interacting directly with a commercial insurer, and more than half would consider binding direct. If carriers develop strong direct quote-and-bind capabilities, there will be no shortage of customers willing to use them.

Customers see products as over-complicated and feel unprotected against emerging risks.

Carriers could offer simple packages tailored to the largest industries, and the major sub-classifications within them, to meet this need.

The number of potential switchers far exceeds the 6 percent who actually switch. These “passively loyal” policyholders represent nearly one-quarter of all small commercial insurance customers.

Industry sector and business size are ineffective criteria for market segmentation. The traditional approach to segmentation in small commercial insurance will no longer serve carriers. Segmentation based on customer needs and behaviors provides a more accurate view into what influences buyers. www.insurancejournal.com

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NATIONAL COVERAGE

FIGURES

$27,000

The amount a Spokane, Wash., card dealer caught working at casinos while receiving workers’ compensation benefits must repay. Victor Arredondo, 58, pleaded guilty to felony second-degree theft and misdemeanor third-degree theft in March.

DECLARATIONS

71

Intrinsic Elements

The number of nonprofit emergency service organizations across Texas that will split a grant of more than $150,000 awarded by workers’ compensation insurer, Texas Mutual Insurance Co., and Volunteer Firemen’s Insurance Services of Texas (VFIS of Texas) through the Emergency Responder Safety, Training & Wellness Grant Program. VFIS is a subsidiary of the Glatfelter Insurance Group, and the master agent for the Emergency Service Organization Workers’ Compensation Safety Group.

“Cleanliness and food safety are ‘intrinsic elements’ of preparing and canning food at the Hormel canning facility. … The clothing and equipment is integral and indispensable to the performance of the employees’ job function.”

— Justice Shirley Abrahamson, writing for the majority on the Wisconsin Supreme Court, which ruled Hormel Foods Corporation owes hundreds of workers at its Beloit canning plant back wages for the time they spent putting on and taking off required clothing and equipment.

Slow Learning Vehicle

“From now on, our cars will more deeply understand that buses (and other large vehicles) are less likely to yield to us than other types of vehicles, and we hope to handle situations like this more gracefully in the future.”

23,602 The number of jobs a privatized Ohio economic-development agency says in its annual report that it created last year.

JobsOhio said it also attracted $6.7 billion in corporate investment last year, increasing the agency’s percentage of both jobs landed and investments made by approximately 10 percent compared to 2014.

— Google in March took the blame after one of its self-driving cars struck a municipal bus in a minor crash in February.

Repairing Potholes

291 $55 Million

The amount of money awarded to TV host Erin Andrews in her civil suit against the Nashville Marriott and stalker Michael David Barrett, who shot illegal nude videos of Andrews in the Nashville hotel in 2008.

The hotel and its owner West End Hotel Partners, and former operator Windsor Capital Group, were found by the jury to be 49 percent liable of negligence and emotional distress against Andrews, which totals $27 million.

2012

“As the weather begins to warm even slightly as we head into spring, we should expect some potholes, but New Yorkers should know DOT crews are out there fixing them seven days a week.”

— New York City Mayor Bill de Blasio on his administration’s effort to keep roads safer and less bumpy. He said that since the beginning of 2014 and through March 6, 2016, the New York City Department of Transportation (DOT) had filled more than 1.02 million potholes.

Embarrassing Limits

“I’m not sure it was intended to be a slap in the face of HomeAway, but it’s a little embarrassing for us to essentially have our prime product be illegal in the town in which we operate.”

— HomeAway CEO Brian Sharples commenting on his home town of Austin, Texas, where the City Council limited certain types of short-term rentals made popular by companies such as Airbnb and Austin-based HomeAway.

Golf Course Privacy

$105.5 Million The approximate amount that the Delaware Department of Insurance collected in fees, fines and insurance premium taxes from insurance companies during fiscal year 2015. Most of those dollars were distributed to Delaware fire companies and ambulance services, the police pension fund, and the state’s general fund.

10 | INSURANCE JOURNAL-NATIONAL March 21, 2016

“We’re not the bully. We’re not going on their property and doing anything. We’re not suing them for anything they didn’t do.

We don’t want to sue them. We just want them to stop.”

— Ed Russo, Donald Trump’s golf environmental expert, comments on a lawsuit filed against homeowners near Trump’s Doral golf course. Trump is accusing his South Florida resort neighbors of cutting down trees he planted to make the course more private for golfers. Residents claim the trees have blocked their views. www.insurancejournal.com

WEST COVERAGE

News & Markets Washington Commissioner Fines Insurance Professionals $17K

W

asington Insurance Commissioner Mike Kreidler took enforcement action and issued fines totaling $17,675 last month against insurance companies and producers who he says violated state insurance regulations.

Here’s the list of fines and what Kreidler says warranted them: Insurance Companies • Madison National Life Insurance Co., Madison, Wis.; fined $4,500 Madison National Life allowed insurance producers to sell policies with lapsed appointments. State law requires insurers file a notice and pay a fee to the commissioner for each licensed producer.

Agents and Brokers • LPL Financial Corp., Charlotte, N.C.; fined $2,000 LPL is a nonresident licensed insurance producer and a licensed business entity.

It appointed a producer named Charles C. Fackrell to conduct business on its behalf.

The commissioner revoked Fackrell’s producer license in September 2015 for violating several state insurance licensing regulations.

State law requires business entities to be aware of the actions of its appointees and to report violations of insurance regulations.

• Assurance Group Inc.; Archdale, N.C.; fined $3,000 Assurance Group is a licensed insurance

producer that sells insurance policies from many companies through salespeople who are required to be licensed producers.

In the first nine years it did business in Washington, it allowed 35 producers to sell policies without being formally affiliated with the company.

• Garcia Gilberto, Jr., Kennewick; fined $500 A consumer complained to the commissioner that Gilberto pressured her into purchasing a Medicare supplement policy and that she felt threatened and coerced by Gilberto.

• Koby Leach, Medical Lake, Wash.; fined $250 Leach failed to disclose a misdemeanor conviction on her insurance producer licensing application, but the conviction was disclosed in her background check.

• Kyle Jensen, Lake Forest Park, Wash.; fined $250 Jensen is a licensed insurance producer, who sold a policy for a recreational boat to a consumer who moored the boat at the Port of Edmonds. He erroneously issued the policy with an endorsement that listed the Port of Edmonds as an additional insured party.

• Matthew Gingerich, Centralia.

Wash.; license revoked

Gingerich was a licensed producer who was fired from employment with American Family Insurance after an audit revealed that he misappropriated nearly $30,000 in premium payments. Gingerich put the consumers’ insurance accounts in a hold status so they would not receive a notice that their policies were canceled for nonpayment.

• Scott R. Daniels, Sammamish, Wash.; fined $5,000 A consumer complained to the commissioner after purchasing new and replacement annuities from Daniels. The annuities Daniels sold to the consumer were not suitable for the consumer’s needs, and he failed to give the consumer complete information about the annuities.

• Giovanna Sierra Chavez, Yakima, Wash.; license revoked American National Insurance Co. notified the commissioner that Chavez took more than $1,400 from three consumers and issued a fake insurance card to another consumer who did not have a policy.

• CEU Institute, Lake Mary, Fla.; fined $2,175 CEU is a continuing insurance education provider for producers. A routine audit of CEU’s records showed it did not properly document attendance at its courses and issued certificates of completion to people who didn’t complete the courses.

New Mexico Governor Signs Ridesharing Bill

N

ew Mexico Gov. Susana Martinez arrived earlier this month in her first Uber ride and signed a bill allowing ridesharing companies Uber and Lyft to operate in the state.

The Republican governor said the measure ends the confusion over whether the companies are welcome in New Mexico.

“After one ride I can see why Uber is so www.insurancejournal.com

amazing,” Martinez said. “It makes the state accessible.”

Martinez said the companies will help reduce drunken driving in the state and allow tourists to roam.

The legal status of the companies in the state had been in limbo since they began offering service in 2014.

The companies had argued that the state’s Motor Carrier Act did not apply to them because they do not operate as commercial

taxi businesses.

The dispute forced Lyft to pull out of New Mexico. Martinez said she hoped Lyft would give New Mexico another look after she signed the new legislation into law.

In a statement, Lyft praised the passage of the bill but did not say if it would return.

The new regulations include background checks for drivers against criminal and sexual offender databases.

Copyright 2016 Associated Press.

March 21, 2016 INSURANCE JOURNAL-WEST | W1

WEST COVERAGE

News & Markets California Bill Would Enable Independent Contractors to Unionize

A

longshot proposal introduced in midMarch would make California the first state to allow rideshare drivers and all other independent contractors to unionize.

The legislation came one week after the U.S. Chamber of Commerce sued Seattle over the nation’s first city ordinance allowing for-hire drivers to organize labor coalitions.

Assemblywoman Lorena Gonzalez, D-San Diego, authored the California proposal to allow “gig” workers not formally recognized as employees to jointly negotiate their pay

and working conditions. The proposal would open the door to unionized truck drivers, real estate agents, barbers, fundraisers and other independently contracted workers operating on a single platform.

Federal law does not extend collective bargaining rights to independent contractors. Attorneys for the U.S. Chamber have invoked those federal antitrust and labor laws to fight the Seattle ordinance.

Gonzalez and her legal adviser, labor attorney Rich McCracken, believe the states have the right to supervise a process by which independent contractors would be able to organize.

The Internet Association, whose members include most major cloud and mobile application-based businesses, opposed the proposal.

Michael Beckerman, president and CEO of the association, said in a statement that individuals are already offered flexible earning opportunities within the “sharing economy.”

The association’s members include Google,

U.S. Chamber Files Suit against Seattle over Uber, Lyft Ordinance

T

he U.S. Chamber of Commerce is suing the city of Seattle over an ordinance that allows drivers of ridesharing apps Uber and Lyft to unionize, saying it violates federal antitrust laws.

Seattle last year became the first U.S. city to pass a law giving drivers for companies such as Uber and Lyft, as well as taxi and for-hire drivers, the right to collectively negotiate on pay and working conditions.

City officials took action amid growing concerns about how drivers are compensated. Both Uber and Lyft vigorously opposed the measure, arguing that existing federal labor law trumps local legislation.

The chamber, a federation of more than 3 million businesses, is the newest entry into the growing legal battle being waged W2 | INSURANCE JOURNAL-WEST March 21, 2016

by numerous factions in courts across the United States over whether the drivers are independent contractors or employees, and what sort of benefits and rights they should have.

The chamber is seeking to have the law suspended.

The ordinance was approved unanimously by the city council but opposed by Seattle Mayor Ed Murray.

The chamber also argues that Seattle cannot make a determination about the employment status of drivers before the National Labor Relations Board makes a decision on the issue. The NLRB is reviewing at least four cases and is expected to make a blanket decision concerning their status.

Copyright 2016 Reuters.

Facebook, PayPal, Amazon, Uber, Lyft and other companies that rely on the internet and new technology to do business.

Uber and Lyft, organizations that allow riders to hail a driver using a mobile application, opposed Seattle’s ordinance.

Gonzalez’s bill has one co-author, Democratic state Senator Benjamin Allen of Santa Monica.

Copyright 2016 Associated Press.

Former California Agent Admits to Embezzling from Clients

J

ulie Diane Shinar, 44, of Long Beach, Calif., was convicted of theft by embezzlement in Long Beach Superior Court in early March.

Shinar was ordered to serve three years of formal probation and pay $29,158 in restitution to her victims.

Shinar reportedly received cash payments from clients and instead of remitting the payments to the insurance carrier she used the funds for her own benefit between November 2011 and February 2013.

Similar to a Ponzi scheme, Shinar used payments from some clients to cover the policy premiums for those whose cash she embezzled, according to the California Department of Insurance.

Julie Shinar Clients who paid by check never received a policy and most clients were unaware of Shinar’s action.

The embezzlement was discovered during a routine insurance company audit of Shinar’s trust account, according to CDI. During the course of the insurance carrier’s investigation, Shinar admitted to keeping the policyholders’ premiums for her personal use. The insurance company terminated Shinar and notified the department of the misappropriation of funds, which prompted the CDI investigation. www.insurancejournal.com

IDEA EXCHANGE

Claims Matters Claims for Broker Negligence Assignable

A

obtain replacement insurance.

California intermediate appellate court AMCO compensated Saari for his fire has reaffirmed that a professional negliloss and filed a subrogation action against gence claim against a client’s property/casualSingh to recover what it had paid. Singh ty insurance broker is freely assignable. stipulated to a judgment for AMCO for the It also held that the amount it had paid Saari, and Singh assigned assigned rights are to AMCO his rights against All Solutions. enforceable in court by the Based on their status assignee without proof as assignees of Singh, that its “equities” — the the Restauranteurs and justice of its position — AMCO filed two separe superior to the broarate lawsuits against ker’s, unless the assignee,

By Richard Wolf All Solutions. The cases as insurer, paid the assignwere consolidated. or’s loss under its insurance policy, invoking The broker moved the doctrine of equitable subrogation. The for summary judgment Feb. 8 decision is AMCO Insurance Company v. against all plaintiffs in All Solutions Insurance Agency, LLC. It is reportboth cases, contending that Singh’s profesed at 2016 Cal.App. LEXIS 96. sional negligence claim was not assignable.

The case arose from events occurring in Alternatively, the broker argued, enforceSonora, Calif. Insurer AMCO, a plaintiff ment of the broker negligence claim in in the case, insured commercial property plaintiffs’ hands as assignees was precluded of David Saari. The other plaintiffs were because the assignees’ “equities” were not individuals (“Restauranteurs”) who owned a superior to the broker’s. restaurant on the same street as Saari’s prop The trial judge granted summary judgerty. Amarjit Singh owned a third building ment for the broker against all plaintiffs, on the street. Due to Singh’s negligence, a fire based on a 2011 California Court of Appeal started on his property and spread to the decision, because their losses were caused by other two properties. the fire, not by the broker’s failure to insure Defendant All Solutions Insurance Agency Singh. The trial court ruled was Singh’s broker. the plaintiffs’ “equities” Singh presented to ‘In this regard, the Court were not superior to those his former insurer found that the doctrine of the broker. The trial his building loss of equitable subrogation court didn’t address the claim and the third party liability did not apply to any of the non-assignability argument.

The Court of Appeal claims for fire dam- plaintiffs in the case …’ reversed all summary age asserted against judgments. Based on a 1984 California Court him by Saari and the Restauranteurs. of Appeal decision, and two old California The claims were denied because Singh statutes, it held that California law does not had no policy in force at the time of the prohibit the assignment of clients’ rights to fire. Singh contended this was because All sue their broker or agent for professional negSolutions failed to carry out his request that ligence. It distinguished cases holding that the broker replace his insurance, which was legal malpractice claims are not assignable non-renewed by the insurer before the fire. because of the fiduciary nature of the attorThe broker disputed Singh’s assertion. ney-client relationship, and no such relation The Restauranteurs sued Singh for propership exists in the insurance broker context. ty and business losses. Singh stipulated to a Furthermore, the Court of Appeal rejectjudgment in their favor and assigned to them ed the broker’s argument that in order to his rights against All Solutions for failing to www.insurancejournal.com

prevail in their lawsuits against the broker, the Restauranteurs and AMCO must prove their equities were superior to those of All Solutions. The Court found that the doctrine of equitable subrogation didn’t apply to any of the plaintiffs in the case, because the relationships among the parties did not trigger a transfer to plaintiffs of the rights against the broker.

The only basis on which the plaintiffs could assert the claims of Singh against his broker was by way of voluntary, contractual assignment of those rights to the plaintiffs.

At no time were the Restauranteurs an insurer or surety of Singh’s losses, so they never became equitable subrogees of such losses.

AMCO, as Saari’s insurer, was an equitable subrogee, but only of Saari’s claims against Singh. AMCO was not an equitable subrogee of Singh’s professional negligence claim against the broker. Therefore, the appellate court concluded, the principles of equitable subrogation that would govern AMCO’s relationship with Saari did not extend to Singh’s contractual assignment of his cause of action against broker All Solutions. Accordingly, AMCO, too, need not establish a superior equitable position to the broker to prevail against it on Singh’s professional negligence claim.

Going further, the Court of Appeal held that as an alternate and separate ground for reversing the summary judgment against AMCO, even if superior equities were required for AMCO to succeed in its case against All Solutions, as the moving party on summary judgment, the broker failed to establish that its equitable position was equal or superior to AMCO’s.

Wolf is a partner in the Los Angeles office of the nationwide law firm of Lewis Brisbois Bisgaard & Smith LLP. Phone: 213-250-1800. Email: Richard.

Wolf@lewisbrisbois.com.

March 21, 2016 INSURANCE JOURNAL-WEST | W3

WEST COVERAGE

People Steve Hall

Eric Rasmussen

EPIC Insurance Brokers & Consultants has hired Steve Hall as a property/casualty insurance broker/producer.

Hall will be based in EPIC’s Concord, Calif., office and report to Curt Perata, regional director of property/casualty operations.

Hall will be responsible for new business development and the design and management of insurance and risk management programs for clients across the region.

Hall has more than 20 years of experience in the insurance industry. He comes from Wells Fargo Insurance Services. He previously held sales/production positions with brokers Jenkins Insurance Services and Angelo & Associates.

EPIC is a retail property/casualty and employee benefits insurance brokerage and consulting firm.

United Valley Insurance Services Inc. has named Eric Rasmussen member relationship manager.

Rasmussen’s responsibilities include handling front line relationships with California member agencies as well as recruiting new members, keeping them informed about United Valley’s services, benefits, marketing, training, special programs and companies.

Rasmussen previously worked as an agribusiness underwriter.

United Valley Insurance Services is a membership network of 80 independently owned and operated insurance agencies with more than 100 locations in California and Arizona.

The members of the Surplus Line Association of California elected Chris Houska, Western region managing director of R-T Specialty LLC, chair of SLA’s board of directors.

Houska’s election was finalized after the SLA tallied the final ballots from members who were unable to attend the SLA Annual Meeting, which took place Feb. 16 and Feb. 18 in San Francisco and Los Angeles.

Also elected to leadership were Tom Ciardello, senior executive vice president of Worldwide Facilities Inc., who becomes vice chair, and Robert Gilbert, director, underwriting and production with Markel West Insurance Services, who becomes secretary/treasurer.

Houska takes over from Denis Brady, president of Burns & Wilcox Brokerage, who completed his 2015 term as chair and was elected to a seat on the board.

Completing the 13-member board are the following individuals who also served on the 2015 board: • Janet Beaver, HCC Casualty Insurance Services • Ian Fitt, Catalytic Holdings LLC

W4 | INSURANCE JOURNAL-WEST March 21, 2016

• Rupert Hall, M.J. Hall & Company Inc. • Chris Kiley, AMWINS • Davis Moore, Worldwide Facilities Inc. • Terri Moran, Vela Insurance Services • Pam Quilici, Crouse & Associates Insurance Services of Northern California Inc. • Les Ross, Wholesale Trading Co-Op Insurance Services LLC • Gerald Sullivan, The Sullivan Group SLA members also reelected Harry Low, a former insurance commissioner and retired presiding justice of the California Court of Appeal, as mediator.

All people elected to the 2016 board will serve until balloting is completed following the SLA annual meeting in February 2017.

San Francisco-based SLA operates as a self-governed private organization. The association serves as the statutory surplus line advisory organization to the California Department of Insurance.

Woodruff-Sawyer & Co. named Michael Landucci vice president and account executive of the firm’s San Francisco, Calif.-based construction practice.

He has 14 years of experience. Landucci was with the construction and real estate group at Wells Fargo Insurance prior to Woodruff-Sawyer. He began his career at Liberty Mutual in 2002, where he focused on workers’ compensation before moving on to join Allied North America, which was acquired by AON in 2009.

Woodruff-Sawyer is an independent insurance brokerage, and a partner of Assurex Global and International Benefits Network.

Irvine, Calif.-based Burnham Benefits Insurance Services Inc. has named Alexandra Dix as an account executive.

Dix is an experienced broker consultant. She spent the previous six years at Moore Benefits before joining Burnham.

Burnham Benefits is an employee benefits consulting and brokerage.

Lafayette, Calif.-based Stone Creek Insurance Agency has named Maridel Hansen front office manager in its Northern California office.

Hansen has more than 10 years of insurance experience ranging in duties from supervision to customer service.

Her past positions include claims and underwriting with Farmers Insurance, employment at Liberty Mutual.

Stone Creek is a brokerage that specializes in property coverage in the Western U.S. www.insurancejournal.com

Dear Reader: Every business has a story to tell. For many corporations, small and large, that story ties closely to the personal lives of their founders. Throughout Insurance Journal’s history, we have come to know and appreciate many of the unique stories in our industry. And year after year, we have watched as our advertisers’ and readers’ companies have grown and changed.

As a leading industry news and information source, we are not able to profile all of the corporations that cross our path. Our position as journalists sometimes makes it difficult as well. Consequently, we have created this special supplement to allow our clients, and some of the corporations you may work with on a daily basis, to tell their story ... in their own words.

We hope you find this supplement interesting and informative.

Best wishes from all of us at Insurance Journal.

www.insurancejournal.com

March 21, 2016 INSURANCE JOURNAL-NATIONAL | 11

Strategic Insurance Solutions via a Transactional Brokerage Platform and Unique Niche Programs Our carrier partners are among the financially strongest insurance companies in the world. Our clients can count on us to pursue a secure future towards their goals.

We offer creative solutions to our clients risk management needs. AIC's innovative insurance programs provide apartment owners and managers with broad insurance coverage at competitive rates by leveraging the power of group purchasing. With 30 years of underwriting experience, and having formed the very first property program within the State of Texas in 1992, AIC has experienced substantial growth and writes insurance across the country. With the backing of our steadfast clients and network of authorized agents, we are confident that the development and implementation of our niche programs using traditional and alternative risk strategies will continue to improve our competitiveness in the marketplace. Our culture derives from our entrepreneurial spirit and pioneering roots. It is this spirit that drives us to help our clients create success. By answering our clients insurance needs today, and anticipating tomorrow’s, we ensure security and stability.

With 30 years of experience and commitment to the real estate industry, AIC delivers extensive expertise, capacity and streamlined underwriting for apartment owners and managers. AIC writes business within its own programs, creates new programs, accesses other programs and makes placement within the open market when it is advantageous to the insured. AIC has written insurance for the real estate industry for 30 years, with significant market penetration and long-term commitment to apartment owners and managers. AIC has supplemental offerings for apartment owners and managers who have an ancillary commercial office or retail component to their property schedule.

You can be sure that you have a dedicated partner in AIC, one who will take on your challenges as its own. By meeting straightforward needs as well as solving complex issues, we make your confidence our number one priority. We are committed to delivering what matters most to you.

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When you become an AIC Authorized Agent, you and your agency become part of a network that has access to exclusive wholesale products that will improve your competitiveness in the retail marketplace.

Our people are standing by to receive your information and will begin working immediately to provide you with a competitive quote. Depending upon the size, location and complexity of the risk, we can act quickly when we receive a complete submission. As we develop new products and open new markets, you and your agency will continue to receive support from AIC throughout the business relationship. As an AIC Authorized Agent you can be sure that the company will always be on the cutting edge of the habitational insurance industry.

Become an AIC Authorized Agent & Send Us a Submission Today!

Russell Butler, CPCU, AU, CIC Senior Underwriting Manager russellb@AICinsure.com

Amanda Shoffner Business Development Dept Leader amandas@AICinsure.com

“Please call me today and I’ll look forward to speaking with you and discussing our product offerings, coverage summaries and underwriting requirements. I hold a CPCU designation as a Certified Property & Casualty Underwriter from the Insurance Institute of American, hold an AU designation as an Associate Underwriter, have a CIC designation as a Certified Insurance Counselor and have over 30 years of commercial underwriting experience. I enjoy working with people and helping new agents join our network of AIC authorized agents; my experience working for some of the largest insurance companies in the world coupled with my experience as an instructor for CPCU and IIAT courses makes me well equipped to answer questions and facilitate the new agent on-boarding process.”

“I led our business development team to a multi-billion TIV growth in 2015.

Once you have an understanding of our underwriting requirements and have provided a complete submission to Russell and Courtney, I’ll be happy to work with you to provide you with a competitive quote. I quote to WIN and do not like to shoot blind, with that said, it is required that our agents provide rate, premium and deductible targets prior to quoting.

Once you have received my quote it is important to stay in communication with me to advise if any adjustments to my quote are required to stay in first position. Establishing a satisfactory hit ratio is important and communication is imperative to creating a winning relationship.”

Courtney Carbone Business Dev Coordinator courtneya@AICinsure.com “Complete submissions are appreciated; which includes our single page questionnaire and 5 years of loss history. Please call me today and I’ll happily email you our questionnaire and explain our loss history submission requirements. I am a detail oriented person and review each submission with care to ensure your submission meets our requirements; our programs are preferred programs with highly competitive pricing and coverage and are designed for preferred locations.”

Frequently Asked Questions I understand the benefits of partnering with AIC, how do I become an AIC Authorized Agent?

Please use the Contact Us page to send us your contact information. AIC will respond promptly to provide you with information to begin the introduction and registration process.

Analytics

How do I obtain a quote from AIC? Please use the Contact Us page to send us your contact information. Please include a brief narrative in the comments section that includes: property name, property address, number of units, expiration date of current policy, your target premium, and the type(s) of coverage you are seeking (Property, General Liability, Excess Liability). AIC will respond promptly to provide you with a short questionnaire for you to complete and will guide you through the remainder of our expedited quote process.

What about office buildings and/or retail strip centers? Will AIC quote these property types?

Yes, AIC has an exclusive commercial property program to support the needs of apartment owners or managers who have office buildings and/or retail strip centers as components of their property portfolio.

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I understand AIC is backed by 30 years of underwriting experience, how does AIC select its carrier partners?

AIC coverage is written with carriers with an AM Best Ratings of A X+. Our carrier partners are among the financially strongest insurance companies in the world. Our clients can count on us to pursue a secure future towards their goals.

What if I have a claim?

Please call us at 800-880-7299 and our client services representatives will guide your through the claims process.

Every day, our people and network of AIC Authorized Agents deliver apartment owners and managers insurance through innovative products and services. By counting on us to meet their specialized insurance needs, our clients are able to pursue a secure course toward their goals. AIC has supplemental offerings for apartment owners and managers who have an ancillary commercial office or retail component to their property schedule.

Client Service

We have established ourselves as an industry leader in habitational insurance by helping property owners and managers realize their plans for the future. Backed by 30 years of outstanding underwriting experience, our fundamental strength lies in the employees who service our client portfolio of total insurable value in the billions.

Become an AIC authorized agent and send us a submission today!

A Brief Accounting of the Facts Show Why Clients Can Count on Us • In 2015, AIC built upon its multi-billion portfolio of Total who cannot get the discounts available to entities with thou- • Our world class talent has the know-how to assess vulneraInsurable Values. AIC is one of the largest insurers of apartsands of units and hundreds of millions in insurable values. bility and underwrite the most complex apartment risks. ments in the habitiational insurance industry.

• We formed the first Texas based property & liability • As a leader in the habitational insurance industry, we par• Objective sources confirm the financial standing our proinsurance program for apartment owners and managers in ticipate in environmental scanning tactics to improve and gram insurance carriers. From ratings agencies to broker as- 1992 to leverage the collective clout of thousands of units to pioneer our offerings for the betterment of our clients. sessments, metrics in the industry indicate the AIC partners maximize buying power.

• Our culture derives from our entrepreneurial spirit and with the most financially secure insurance organizations.

• Backed by 30 years of outstanding underwriting experience, pioneering roots. It is this spirit that drives us to help our clients • We specialize in providing insurance for apartment comour fundamental strength lies in the employees who service create success. By answering our clients insurance needs today, plexes, especially smaller property owners and managers our client portfolio of total insurable value in the billions. and anticipating tomorrow’s, we ensure security and stability.

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Great American Insurance Group, 301 E. Fourth St., Cincinnati, OH 45202. Policies are underwritten by Great American Insurance Company, Great American Assurance Company, Great American Alliance Insurance Company and Great American Insurance Company of New York, authorized insurers in all 50 states and the DC. © 2016 Great American Insurance Company. All rights reserved.

Built on the pioneering spirit of its founder in 1952, K&K Insurance has grown from its original focus on motorsports to become one of the largest and most respected providers of insurance services to the sports, leisure and entertainment industries.

Every year, K&K offers coverage for exciting events and organizations from fairs and festivals to sports teams and tournaments. Join over Amateur Sports Arenas & Stadiums Bowling & Billiard Facilities Camps & Campgrounds Civic Centers Collegiate Sports Community Centers

5,000 agents who choose the sports and recreation expert for their clients—K&K Insurance.

In addition to the traditional application process for complex specialty risks, K&K provides agents with instant access to coverage online. Our growing collection of e-commerce websites allow agents to easily purchase coverage immediately for many programs that traditionally require less

Entertainment Event Cancellation Fairs Family Fun Centers Franchised Powersports Dealers Fitness Instructors

Festivals Gaming Health & Fitness Clubs Horse & Dog Tracks Hunting, Fishing Guides K-12 Insurance

underwriting. Agents using our online application process earn commission without the hassle of completing paper applications and waiting for a response.

Visit our website to view a threeminute video about working with K&K Insurance, or click on our program pages for underwriting guidelines and applications.

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Motorsports Teams & Facilities Movie Theaters Pari-mutuel Racing Performing Arts Centers Professional Sports Products Liability

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E-Commerce Websites Apply, quote, bind, and receive proof of coverage immediately!

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LifeScienceRisk: Consistency in a Changing Market Leading the Way The life science industry is an ever-changing field in which sophisticated and innovative technologies are developed regularly in an effort to advance medicine and improve the overall health of patients.

With over 35 years in the industry, Mark Wood, President of LifeScienceRisk, says, “We pride ourselves on ensuring the financial well-being of our customers, allowing them to continue advancing healthcare science on a global scale.”

LifeScienceRisk is a managing general underwriter specializing in generic and brand pharmaceuticals, noninvasive and invasive medical devices and nutritional supplements. The team focuses on meeting the core liability insurance needs of life science companies to help them develop, manufacture and market integral products and therapies.

A Changing Insurance Market As healthcare technology evolves, changes are also occurring in the life science insurance marketplace. In the past few years, as M&A activity has reduced the number of insureds, the industry has seen a paradoxical increase in the number of insurers interested in writing in this space.

While some firms are aggressively adding capacity to prop up their premium revenues, others have recently exited the business entirely. This stems from factors including product technology, an aggressive legal environment, and unpredictable loss potential.

“The pharmaceutical and life sciences sector can be volatile and potentially devastating for insurers,” says Wood. “Life science risks need responsive, creative risk management solutions in sync with the newly emerging, innovative products and technologies that characterize the business. Most importantly, they need to obtain coverage

from firms they can count on to be consistent partners over time.”

Because of the severely driven nature of the losses, pharmaceutical, medical and nutritional supplement firms require significant capacity. It is important these firms can rely on knowledgeable insurers that will withstand the test of time and offer long-term, stable capacity to their clients.

Poised for Stability LifeScienceRisk is positioned to be a consistent and constant partner for its clients. Part of Ryan Specialty Group and backed by some of the strongest and most experienced healthcare and life science insurers, LifeScienceRisk fills the gap as others reduce their appetite for life science customers. “This underwriting facility enables our insurers to endure market shocks that have the potential to create uncertainty in insureds’ minds,” says Wood. “Because we have a consortium of insurers backing our facility, we can maintain the stability that others struggle to provide when working in a volatile industry such as this one.”

LifeScienceRisk is committed to their mission of providing peace of mind to insurers that are saving lives and improving the quality of care for their patients.

For more information about LifeScienceRisk and how this state-of-the-art facility can help address your clients’ complex life science needs, brokers and agents please contact: Mark D. Wood President LifeScienceRisk Phone: 312-784-6005 Email: mark.wood@lsrisk.com

LifeScienceRisk LifeScienceRisk is a managing general underwriter specializing in product and related professional liability coverage for companies engaged in the life sciences industry. We partner with a consortium of “A XV� rated carriers to bring you tailored coverage enhancements specific to the needs of firms involved in the development, manufacturing and distribution of pharmaceuticals, medical devices, biotechnology products, and natural health/nutritional supplements.

medical devices

pharmaceuticals

natural health & supplements

biotechnology products

Contact: Mark D. Wood | President & CEO | mark.wood@lsrisk.com Life Science Risk is a series of RSG Underwriting Managers, LLC. RSG Underwriting Managers is a Delaware series limited liability company and a subsidiary of Ryan Specialty Group, LLC, specializing in underwriting management and other services for insurance products distributed through agents and brokers. In California: RSG Insurance Services, LLC License #0E50879. Š2016 Ryan Specialty Group, LLC

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Long Live the Royal Treatment Monarch E&S Celebrates 30 Years of Serving the Insurance Industry

M

any insurance firms tread lightly

term people within our organization, many I have

in their marketing efforts in order

worked with my entire insurance career, includ-

to project a conservative image.

ing our COO, Mark Kaufman.”

To stand out, Monarch E&S Insurance Services

Its medieval theme plays off the com-

adopted a more non-standard approach with its

pany’s major investment in technology.

Royal Treatment campaign. Underneath the off-

Monarch developed its own proprietary

beat humor and costumes, however, lies a serious

agency management system and its Royal

program and singular vision.

Rater enables their retail agent customers

“Over the last 30 years, unmatched service has remained our constant goal and highest priority,”

to prequalify risks and receive indications in minutes.

says owner Derek Borisoff. “The most important

“The marketplace will never accept

element in delivering that service is our people.

complacency,” says Borisoff. “So we are

We wanted to create a long-lasting campaign that

always keenly interested in ways to speed

would separate us from competitors and in which

up and simplify our quoting process, be-

our people could take part and embrace. Thirty

come even more responsive and continually

years is a big deal. We are very proud of this, proud

earn our clients’ trust on a daily basis. That

of the company Don Penniall started and proud of

said, our company is our people. My greatest

the path our company continues to take. Mostly, I

personal satisfaction is that so many of our staff

am extremely passionate about our Monarch Team.

have been with us since the beginning. It was al-

As I look at our roster, we have so many long

ways our intention, though, to create a positive, forward-thinking team environment, to treat everyone fairly and to reward them for a job well-done. That our people have stayed together, supported each other, dressed up in a medieval costume for the ad campaign and remained dedicated to Monarch’s success is testament to that commitment. Our Royal Treatment campaign celebrates

You’ll Get the Royal Treatment

that commitment.”

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

Ones Who Serve Derek Borisoff, President / CEO & Don Penniall, Founder monarch@monarchexcess.com

CLOSER LOOK

Directors & Officers D&O Marketplace Continues to See Softening Rates

By Young Ha

T

he directors and officers (D&O) liability marketplace continues to find softening rates and intense competition especially in excess layers, according to industry executives. The industry is also seeing a continuing trend of broader coverages and more governmental activities from regulatory agencies, executives said.

There have been a lot more carriers in the D&O space in the past five to 10 years, said Louis Lucullo, chief underwriting officer for the Americas Region at American International Group’s Financial Lines, who spoke at the Professional Liability Underwriting Society (PLUS) D&O symposium in February. The majority of newcomers tend to write excess D&O, Lucullo said.

There have also been important developments on the primary side, including some consolidations particularly ACE Ltd.’s acquisition of Chubb, with the combined company adopting the Chubb brand globally.

“But overall, there are still a lot of carriers and a lot of capacity out there for the directors and officers market,” Lucullo said.

Coverage Expansions Lucullo said there’s been a trend of expansion of coverages, mostly on the investigative side. He said there’s much more activity in terms of the litigious environment. Federal class action security suits tend to be fairly stable year from year, but the overall majority of actions being brought today are being led by a growth in regulatory action.

On the Web Visit InsuranceJournal.tv for video interviews with industry experts and leaders from the 2016 PLUS D&O symposium.

28 | INSURANCE JOURNAL-NATIONAL March 21, 2016

There also have been more governmental activities from regulatory bodies like the Securities and Exchange Commission pursuing actions through investigations against directors and officers.

“From our perspective, that’s certainly the growing area,” he said. “It has caused the D&O policy to change over the years.”

Lucullo said that a few years ago, AIG introduced the concept of a preclaim inquiry to be covered. “That’s at the moment that an investigator initially contacts an insured to mainly appear before them to answer questions or perhaps to produce some documents. That initiates the coverage much earlier on than historically. So there has been a trend to expanding the coverage through more investigative exposure.”

Lucullo also said how much the coverage should be broadened to address corporate entity exposure has been a hot topic in D&O insurance.

There are investigative cost coverage policies meant just for the entity as a standalone basis. But in the past couple of years, there now are endorsements where investigative costs for the entity could be added to the D&O policy but usually under the requirement that there also be a securities claim that coexists with that regulatory investigation.

Rate Decreases Simon Hodge, national practice leader for Professional Risk Practice at Wells Fargo Insurance, noted that most of its clients have seen improved terms and conditions with significant price cuts, with public

D&O policies getting renewed with 5 percent to 10 percent rate decreases.

In terms of the market capacity, “several new carriers have entered the D&O space and there is clearly more than sufficient supply to meet client demand,” Hodge said.

He also spoke of broader coverages, with more sublimit capacity availability for investigative costs in The biggest risk cases when area is in the area directors of government are asked to investigations investigate a possible from the SEC and wrongdoing. the Department In terms of of Justice. broader coverage, D&O insurers are becoming increasingly more responsive to providing coverage for entity regulatory investigations.

Also commenting on rates, Kevin LaCroix, executive vice president at RT ProExec, a division of R-T Specialty LLC, noted that while the primary layers are mostly flat, he sees intense competition in excess layers, especially for higher excess and Side A layers.

The result is rate decreases in the mid-single-digit percentage points and up to 10 percent for overall D&O programs.

LaCroix also said he sees a market trend of coverage expansions, such as providing corporate entity coverage.

LaCroix also shared his thoughts on recent industry consolidations and advised clients to pay close attention and consult with their brokers.

“There’s always been a certain amount of merger and acquisition activity in the insurance industry. In 2015, it really accelerated.

It was true both for reinsurers and then for direct insurers,” LaCroix said.

The two most significant deals from the perspective of insurance buyers was XL Group plc’s acquisition of Catlin Group Ltd. and Ace’s purchase of Chubb, which was the biggest industry transaction in 2015. www.insurancejournal.com

“These are significant players in the D&O insurance industry and the P&C industry as a whole,” LaCroix said.

“The combination of these companies means fewer of the larger players and more consolidation or concentration in some larger players.”

He advised that it would be important for the clients who are insured with those companies to be in contact with their brokers, because there could be process issues this year that haven’t been true in the past.

“It may affect their renewals. It may affect their ability to renew their coverage on the same terms and conditions or the same price,” LaCroix said. “There could be changes in their insurance program just as a result of the changes among the carriers.”

Yates Memo The industry is also taking notice of a new regulatory development stemming from the “Yates Memo,” which was issued last September from U.S. Department of Justice’s Deputy Attorney General Sally Quillian Yates.

In her memorandum, Yates aims to put a greater emphasis on holding individuals more accountable. Companies would be asked to turn in information about culpable individuals to receive cooperation credit for assisting in investigations.

R. Damian Brew, managing director at Marsh USA Inc., said the biggest risk area that the marketplace is seeing today is in the area of government investigations — from the SEC and the Department of Justice.

“One area that’s getting an awful lot of attention is the Yates Memo, issued by the Department of Justice, which really indicated for the first time that the department was going to focus on individual wrongdoing at the expense of corporate wrongdoing,” Brew said.

In fact, Brew noted, the Yates Memo went as far as to say that corporations weren’t going to get cooperation credit unless they provided all relevant facts about www.insurancejournal.com

potential officers that would be involved.

“There are enormous insurance implications for that, as you can imagine, because now individuals may be seeking separate counsel,” Brew said. “They may be in a position where they’re adverse to their companies. There may be questions about advancement and indemnification. So this is a very important step and it’s one that the industry and corporations and their officers are going to be watching very closely.”

Cyber Liability Another risk that many directors and officers now face is the cyber liability.

Tony Galban, senior product manager of D&O at Chubb, said cyber has made

its way into the boardroom as a management liability issue, which is not that unusual compared to other exposures in the past, like asbestos, pollution or environmental concerns.

“Cyber is just a new exposure that has to be addressed at the board level. It’s no longer reasonable for the board to ignore the risk of cyber,” Galban said.

“Everything we’re hearing suggests that it’s being attended to on a regular basis in boardrooms across the country as a line item agenda that the board has to deal with, whether by loss control, whether by insurance purchasing, but certainly not by ignoring it,” he said. “You can’t get away with that anymore.”

Galban said that there have been D&O claims associated with cyber. Typically, the allegations are that the management didn’t manage the issue sufficiently.

“More directly, you’ll see cyber policies responding to direct cyber loss. But to say it’s strictly a cyber product issue would be a misnomer,” Galban said. “It affects other policies like the D&O, where we’ve had some claims, typically shareholder actions.”

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March 21, 2016 INSURANCE JOURNAL-NATIONAL | 29

SPECIAL REPORT

Hot Markets

By Amy O’Connor & Andrea Wells

L

ooking for new sales and opportunities in 2016? Here are a few of the top market sectors that just might deliver hot opportunities for agents and brokers in the property/casualty insurance industry this year.

Sky’s the Limit The drones sector is expanding rapidly with global expenditure on the emerging technology set to double to $91 billion over the next decade. Drones are now used for a range of activities including military, agriculture, public services, wildlife protection 30 | INSURANCE JOURNAL-NATIONAL March 21, 2016

and research.

However, according to a Lloyd’s report released last fall, “Drones Take Flight: Key issues for insurance,” there are concerns around safety, security and surveillance that could pose significant risks to drone operators and manufacturers, and could hamper the sector’s growth.

For insurance purposes, drones could present the properties of an aviation risk

and/or a liability risk. “Drone manufacturers and users could face increasingly complex and high value risk exposures as the market continues to expand, and will need to work with regulators and insurers to ensure the technology is used safely and responsibly,” the report said. “By providing the support needed for the systems to operate safely and with due regard for third party interests, the insurance industry has the potenwww.insurancejournal.com

tial to act as an enabler for the successful adoption of this emerging technology.”

While the market for drone insurance is relatively small at present, Lloyd’s believes that the projected expansion of the market and the diversity of potential applications will mean greater demand for insurance.

Last June, ISO developed new coverage and exclusion options for commercial drones to help insurers develop insurance programs for businesses that may use drones.

The new options address the growing liability exposures of commercial drones, which are already being used in package delivery, crop protection, and aerial photography. The ISO options modify coverage under ISO’s Commercial General Liability and Commercial Liability Umbrella/Excess programs. Six core options are available under each program (three optional exclusions and three limited-coverage endorsements) and can be used to address a number of potential exposures with respect to bodily injury, property damage, and other potential liability related to drones.

There’s also a potential for huge growth insuring personal drones.

In February the Federal Aviation Administration (FAA) reported there are now more registered drone operators in the United States than there are registered manned aircraft — some 325,000 registered drone owners compared to 320,000 registered manned aircraft and the number is steadily rising.

ISO’s Jeff De Turris, vice president of coverage products and operations, told Insurance Journal that ISO is preparing to address personal drones this year in the homeowners coverage form. “We are looking at that one and thinking about how to address that within the homeowners policy as are some other lines of business that www.insurancejournal.com

would certainly be impacted by drones, let’s say on the commercial side as well as farm,” De Turris said. “It’s on our planning list... to have a response this year.”

Cyber Insecurity Not surprisingly, cyber is also a hot market. The insurance market has been inundated with cyber products for years, and 2016 will see this trend continue.

The problem in this market is no longer capacity or lack of interest from insureds. Allianz Global Corporate Specialty predicts the cyber insurance segment will grow from $2 billion per year today to more than $20 billion over the next decade.

Experts describe the segment as maturing — moving from the “toddler stage” to its “teenage years.”

“The interest in cyber is phenomenal right now. It’s never been hotter…It feels like now it’s reached that stage of maturity where we’re seeing more and more buyers, we’re seeing more and more market participants, and everybody’s talking about cyber right now,” said Graeme Newman, a director at CFC Underwriting in London.

The difficulty, according to the experts in this space, still lies with adequately insuring the risk. Insurers are a data-hungry group, but this risk is constantly changing.

Data about claims or the biggest security exposures could be obsolete as soon as insurers have incorporated the information into their underwriting models.

And new security threats and risks are hitting insureds and insurers all the time, so underwriters need specific information to evaluate a risk.

“Most carriers are using some type of tool on the data side to evaluate and provide a snapshot looking at where security risk is coming from and where it’s going — what is causing the malicious activity,” said Douglas Thompson, Everest Re, and a panelist at the recent Cyber Advisen

Conference in San Francisco. “But the data isn’t complete. It doesn’t show you what’s inside of a network — we need to get that information directly from the client.”

Insurers are trying to figure out how they can create the most robust policies for insureds, while also staying true to their own risk appetites. For the most part, carriers have had to develop their own underwriting models and evaluate each risk on a case-by-case basis because standardized risk models haven’t been an adequate way to measure an insured’s risk. That can make the job of the broker more difficult.

“From a broker and insurance perspective, modeling is very young at the moment,” said Dominic Keller, assistant vice president at Willis Towers Watson and a panelist at the Advisen conference. “Clients come and say, ‘We have a cyber risk and we want to know what it costs,’ but cyber insurance products are a hybrid product anyway and there are a lot of different variables that determine the cost. The role of the broker is to communicate that as effectively as possible.”

The industry isn’t giving up on developing standards and models for this sector. In January, Lloyd’s announced a set of common core data requirements for cyber risks with modeling firms AIR Worldwide and RMS, along with RMS’ partner, the Cambridge continued on page 32 March 21, 2016 INSURANCE JOURNAL-NATIONAL | 31

SPECIAL REPORT

Hot Markets continued from page 31 Centre for Risk Studies.

Scott Stransky, manager and principal scientist for AIR, said the partnership has been highly effective already at gathering even more information on risks. AIR’s cyber models are also updated every year to incorporate new data and emerging cyber risks, unlike property cat models that are updated every seven years. He believes as cyber standards and models are refined, underwriters will see how effective a modeling tool can be, particularly with large potential losses like business interruption.

“Companies need to be prepared for a big business interruption loss and do scenario modeling right now on what that would mean for them if that happened,” Stransky said.

Flood Parity The insurance industry scored a big win in the effort to privatize the flood insurance market in early March when the U.S. House Financial Services Committed approved the Flood Insurance Market Parity and Modernization Act. The legislation seeks to clarify that private flood insurance is to be treated the same as federal flood insurance in cases where homeowners with federally-backed mortgages are required to buy the coverage.

Supporters of the bill say it will encourage more private insurers to write flood insurance, providing an alternative for five million property owners who currently rely on the National Flood Insurance Program (NFIP), which is billions of dollars in debt.

The good news is private flood options are continuously coming to market, says John Dickson, president at NFS Edge Insurance Agency Inc., a subsidiary of Aon National Flood Services (NFS). Not every homeowner has the same needs and in many cases it comes down to educating the consumer about flood coverage 32 | INSURANCE JOURNAL-NATIONAL March 21, 2016

options, he said. “For instance, policyholders may not be aware that they can supplement NFIP coverages with private options that allow a more customized coverage approach to address their individual needs.”

Individual states, such as Florida and Pennsylvania, also have been encouraging private market competition.

“Our goal is to have 10 private insurers or more in Florida selling flood insurance in the next 24 months,” said Florida State Senator Jeff Brandes.

The Pennsylvania Insurance Department created a “one-stop shop” webpage to make private market flood insurance more accessible to state residents.

In California, the Federal Emergency Management Agency (FEMA), which runs the NFIP, said there was a 12 percent increase in the number of flood insurance policies bought between August and November last year.

With less than 25 percent of homeowners in flood-prone Texas carrying flood insurance, according to the Insurance Council of Texas, there is plenty of potential.

Insurers hope flood insurance momentum will expand to the rest of the country, with help from U.S. lawmakers.

“The point here is, it’s time to take the private sector involvement in flood insurance seriously and figure out what we need to do to make that happen,” said Ben Walter, president and CEO of Hiscox USA. Tenant Demand Rental housing is in big demand.

Although plenty of people still buy homes to live in, a lot of other people are choosing to rent. After the housing crisis, when some people lost homes and others were afraid to buy homes, demand for rentals shot up.

Census data shows vacancy rates for rental units reached an alltime low last summer.

The demand isn’t just for apartments.

More people now want to rent single family homes. This trend is probably the most important thing happening in personal property, says Brian Sullivan, editor of Risk Information Inc. “The policy count for renters insurance has exploded in the last decade.”

Sullivan says the trend is no longer just related to the economy. Today’s demand is driven more by demographics.

“You have this huge portion of people in the Millennial generation, and they’re not buying. They are renters,” Sullivan said. The reasons Millennials choose to rent instead of buy are varied. “There’s a thousand reasons,” Sullivan says. “But the fact is that’s where they are — they are staying renters.”

According to Sullivan, agents face a challenge adapting to this new and growing trend in personal lines business. That point of entry to a valued, even high net worth client, used to be auto insurance but today that point of entry is often renters insurance.

While renters insurance is “a dog of a product” it will become increasingly important as the personal wealth of those insureds grows, he said.

“The average (renters insurance) premium in the United States is about $182,” he said.

“When you think about the commission, you are talking about $25.” While it’s not a “good product” from a sales standpoint, a renters policy could lead to a valuable customer and that should not be ignored, Sullivan says.

Carriers recognize the trend as well.

“Insurers are rapidly throwing energy at renters products because they recognize its importance as an entry point to emerging households,” he said. While innovation in renters’ policy forms is not yet here, Sullivan says it is on its way.

The renter demographic of today is a profoundly more valuable customer than a decade ago, according to Sullivan. “All indications are that a decade from now, renters will be even more valuable than they are today,” he said.

“Insurers are figuring out that they have to pay attention to a product line that prewww.insurancejournal.com

viously they had no interest in,” he added.

Perhaps agents should, too.

Marijuana Mojo The legal marijuana industry continues to grow. Sales for both medical marijuana and recreational marijuana soared to $5.4 billion for 2015, up 17.4 percent from $4.6 billion in 2014, according to the ArcView Group.

The gain was mostly driven by recreational marijuana sales, which grew to $998 million from $351 million in 2014, an increase of 184 percent.

The industry is set to experience even more growth as voters in several states, including California, are likely to take up the issue of recreational, or adult use, marijuana in 2016. According to ArcView, the demand for legal marijuana is expected to remain strong in 2016 with legal markets projected to grow to $6.7 billion, a 24 percent increase over 2015.

In 2015 alone, six states launched medical or recreational sales, which is equal to the number of new markets that emerged from 2011 through 2013. Another four states are poised to start medical cannabis sales this year or early next, while New York started its medical marijuana (MMJ) market in January.

Twenty-three states and the District of Columbia currently have laws legalizing www.insurancejournal.com

marijuana in some form.

Four of those states — Washington, Colorado, Alaska and Oregon — have legalized it for recreational use.

This year could be a watershed year for marijuana legalization. Seven states — California, Nevada, and Arizona in the southwest, and Massachusetts, Maine, Rhode Island and Vermont in the northeast — will be voting on legalization of adult use. Vermont is set to be the first state to legalize cannabis through the Legislature. Four states — Florida, Ohio, Missouri and Pennsylvania — are best positioned to advance medical laws in 2016.

The marijuana insurance market experienced a surprise setback in 2015 with the withdrawal of a Lloyd’s of London, which said it would no longer support insuring marijuana operations of any kind until the drug is formally recognized by the U.S. government as legal. The market has been adjusting to the departure of Lloyd’s.

“The MMJ insurance market is constantly changing. As one carrier leaves, another enters,” said Galen Hayes, owner and founder of the Hayes Insurance Agency in El Sobrante, Calif., which has been providing insurance for the cannabis industry since 1997.

“When Lloyd’s announced a roll-off of their book last year, the market was seriously shaken,” Hayes said. But other carriers have entered the market since that time, filling the blanks, he says.

Prices have risen in the last year, he says, and there’s capacity for the legal marijuana industry.

“We must stay on top of the markets to be competitive,” said Hayes. “I expect growth in the MMJ arena again this year, as has been the case for many years. As more states legalize MMJ in some form, carriers must step-up and handle the risk.”

Hayes says there are a handful of car-

riers preparing to enter the market soon although he couldn’t name the carriers.

Hayes describes the legal marijuana market as both warm and hot. “Markets are hot when a new state comes on board, and warms a couple of years later,” he said.

Hitching a Rideshare With nearly 40 states either looking at or already regulating the ridesharing industry as of Feb. 23, according to R Street, insurers have accepted that ridesharing isn’t going away and their drivers need proper insurance coverage. With new ridesharing services launching all the time the sales potential for this market is only growing.

A survey by the Rideshare Guy found that only one-in-five rideshare drivers have the required insurance. Another survey

by NerdWallet that looked at the insurance choices of 1,022 rideshare drivers nationwide found that 77 percent have not purchased additional coverage on top of what their rideshare company provides.

The opportunity for the industry is huge, as 40 percent of survey respondents say they are considering a policy in the next three months.

More companies have entered the rideshare insurance space or are expanding coverage into new states. Major personal auto carriers including Farmers, GEICO, Mercury, Allstate and USAA are now offering some form of ridesharing insurance. ISO introduced two new personal auto coverage options for rideshare drivers last April. The endorsements can be used by personal auto insurers who want to offer coverage to their clients participating in ridesharing services.

Rideshare expert Harry Campbell, who goes by the handle the Rideshare Guy, said drivers have difficulty, however, in figuring out how to protect themselves and how to ensure they’re complying with each state’s laws and regulations. Agents have an opportunity to be an important resource to this emerging industry. Agents should educate themselves on rideshare insurance policies, says Campbell. “So that when you do have Uber and Lyft drivers come to you, you can be ... a really good resource for them.”

March 21, 2016 INSURANCE JOURNAL-NATIONAL | 33

SPOTLIGHT

10 Things to Know About Product Recall

For the fourth consecutive year, the number of U.S. automotive recalls rose in 2014, the latest year for which final figures are available.

Even more concerning is that statistics from the National Highway Transportation Safety Administration showed an almost three-fold increase in the number of recalls over the prior year, from 22.1 million in 2013 to 63.95 million in 2014.

— Bernie Steves, managing director of Aon Risk Solutions’ National Crisis Management Practice

The food and beverage sector continues to see pressure on pricing of product contamination coverage, following a number of new carrier markets opening in the past 12 months.

— John Turner, head of U.S./Canada Product Recall for XL Catlin

Food and beverage manufacturers continue to face increasing risk headwinds from both an operational and regulatory risk standpoint. By way of an example, new genome sequencing technology is a game-changer and has improved regulators’ abilities to quickly trace foodborne illness from sickened consumers back to the source. What used to take weeks and cost thousands of dollars now takes around 30 minutes and costs $50. — John Turner, head of U.S./Canada Product Recall for XL Catlin

The consumer product industry is seeing an increase in demand from retailers and brand owners who are contractually obliging manufacturers to buy specialist recall insurance coverages.

This sector is not alone but has traditionally lagged behind the food and beverage, and auto component sectors on this requirement. — John Turner, head of U.S./Canada Product Recall for XL Catlin 34 | INSURANCE JOURNAL-NATIONAL March 21, 2016

The Food Safety Modernization Act continues to be a challenge for companies as they review their supply chain and try to determine if they can trace all ingredients back to the source where contamination may occur. — Darren Austin, vice president/senior risk consultant, Risk Services Division, HUB International

Foreign material is the largest cause of recalls in the food and beverage sector. — Darren Austin, vice president/senior risk consultant, Risk Services Division, HUB International

The size or severity of a loss may be more dependent upon the handling of the media and public perception as opposed to the size of the recall itself. Projecting the exposure to a product recall or contamination can be a difficult task for the company at risk and underwriters. — Bernie Steves, managing director of Aon Risk Solutions’ National Crisis Management Practice

Building a proactive social media plan is an essential part of a product recall defense strategy. Social listening and monitoring software is available to assist companies. Integrating a company’s public relations, consumer affairs, and product safety and quality teams can help mitigate risks and rebuild trust with consumers. — Bernie Steves, managing director of Aon Risk Solutions’ National Crisis Management Practice

Food and beverage companies should have a qualified individual onsite to develop written food safety plans. These written plans and staff training to identify items such as plastic, wood, bone, etc. and empowering them to shut down processes immediately can help reduce a potential recall. — Darren Austin, vice president/ senior risk consultant, Risk Services Division, HUB International

The definition of a product recall in an insurance policy can vary. A key consideration is that the definition consider: the way a recall could operationally manifest itself; what regulations drive and affect the recall process; and how contractual considerations modify obligations and the financial outcome. — Randy Crawford, National Industrial Practice leader, USI Insurance Services www.insurancejournal.com

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SPOTLIGHT

Product Recall Steps to Prepare for the Worst and Best Outcome in Recalls

P

roduct recalls are on the rise. Last quarter alone, there were dozens of recalls, including peanut butter, cars and bicycles.

As consumer safety concerns come under greater regulation and scrutiny, recall risks are not only more prevalent, but the adverse, long-term effects they can have on the business can be significant.

Most food processing and product manufacturers realize that product recalls are a reality and they need

By Chris Martin to be prepared. But what are the risks they should be prepared for and what are the key steps they should take?

The Real Risks For food processors and manufacturers, the costs of a recall are much greater than providing customer refunds.

First, there can be large, tangible expenses associated with removing the product from the marketplace.

Shipping and storage costs, and customer notification can add up quickly depending on the volume and nature of the products involved.

Recalls can also shut down production. Inspections or facility cleaning can cause an operation to have to cease production or a plant to temporarily close. A temporary production stop can be even more costly because many of today’s high-efficiency production and processing business models are not set up for quick production stoppages.

Finally, there is the harder to quantify, but often more critical, consequence of reputational damage. A recall can result in a dip in stock price, or the loss of customer loyalty and trust.

High Stakes Not only are the number of recalls increasing, but the severity is also growing. Public data analysis shows that the 36 | INSURANCE JOURNAL-NATIONAL March 21, 2016

number of food recalls in the United States have approximately doubled since 2002. The costs are significant with more than half of the companies affected having to pay $10 million or more.

Food processing and product manufacturing firms must also navigate through new legislation and the court of public opinion. Government regulations around product safety are tightening up. The Food Safety Modernization Act (FSMA), passed in 2011, has been rolling out over the past few years. By the end of 2015, a number of key rules were finalized, and by the end

of 2016, these rules will be implemented and include FSMA inspections at food facilities.

Consumers also expect more from companies and prioritize products that are healthy, high-quality, organic, all-natural and pure.

Companies are adapting to these drivers and marketing their products to meet these high standards. But these same firms face complicated challenges when safety-related product recalls occur. Because their brands are built on trust, safety-related product recalls can be particularly difficult to manage if consumers begin to believe the brand is violating its fundamental promises.

Managing the Risks Companies can reduce exposures to product recall by focusing on two key areas.

First, updating processes and quality control can help detect problems before they occur. Many firms have reduced their risks significantly by taking steps to improve operations. But, even with the best operations in place, problems can still occur. Firms also need to be prepared for the worst so they can minimize the damage if a product recall occurs. Recalls, contaminations and defects affect even the most conscientious firms, but if there are processes in place to manage the impact, companies can avoid catastrophe.

Many of today’s insurance policies provide crisis response and crisis management components. Companies facing product recall should take advantage of these features.

For example, most stand-alone recall and contamination policies provide insureds with access to experienced criwww.insurancejournal.com

authorities, logistics, testing and more. Crisis-management firms can also be engaged by the insured to consult with them on a proactive, pre-incident basis, which enables them to prepare ahead of time for the unthinkable event.

sis-management firms. Crisis response services are included in many insurance offers, and typically deductibles don’t apply to crisis response services.

These services give the insured immediate access to the advice and counsel of outside experts who can provide guidance on public relations, as well as communication and involvement with government

www.insurancejournal.com

Prevent, Protect and Survive With consumer expectations at an all-time high and regulations continually evolving, product recalls are more frequent and can be more damaging than ever. Successfully dealing with this increased exposure requires dedication and discipline when it comes to ensuring quality control as well as planning for situations where the quality process fails. As lean and efficient operations, food processing and product manufactur-

ing firms seldom have the public relations experts, food safety scientists, and other specialists they need on staff, but the right insurance product can ensure that they have timely access to this specialized expertise.

By providing access to preventive counsel and crisis-management expertise, insurance products can offer a complete solution to the complex issues surrounding recalls and contamination incidents. In addition to providing the traditional financial risk transfer associated with insurance products, they can help insureds prepare for and reduce the increasingly devastating impact that these unexpected events can have on their reputation and profitability.

Martin is the recall and contamination practice leader for Swett & Crawford and the sales leader for Swett’s Minneapolis, Minn. branch. He has been with Swett & Crawford for 14 years and was previously a junior recall underwriter with CIGNA.

March 21, 2016 INSURANCE JOURNAL-NATIONAL | 37

IDEA EXCHANGE

Tech Talk The Missing Link of an Agent’s Digital Proficiency

By Tom Wetzel

W

hen the Internet was still in its infancy, independent agents needed little more than an online address in order to have a website and what’s more, it was more novelty than necessity. Times have changed, however, and while most agents recognize the importance of a website, many have not kept pace with how consumers use them and how to make them stand out.

Early websites (the first was created in 1991) consisted of mostly text and were simple in structure. Of course they had to be given those slow early Internet connections.

Remember the dial-up modem? At the same time, though, the simple design created a better user experience. Today, the Internet can accommodate far more complex and content-rich websites. Bigger is not always better and user experience is more important than ever.

In a survey conducted by Carat, a digital agency, 41 percent of respondents feel overwhelmed by the wealth of choices on the Web and make it harder to make purchase decisions. In addition, 55 percent of people online use only two or three trusted sites for their content discovery and purchasing.

For many of us, when we start looking for an agent, we don’t set aside time at a desktop computer. We’re more likely to ask our friends and neighbors for recommendations and browse the Web while commuting (not when we’re driving!) or when watching TV. We scan websites and only

38 | INSURANCE JOURNAL-NATIONAL March 21, 2016

look for the information we need — and they look at? How does a visitor’s behavior we want it quickly. change on the site? After the first 10 sec That’s why usability is so critical. onds, what clicks, scrolls, and mouse moveContent is still king, however, ments take place and over what Many agency period of time? For best results, content must be packaged so websites fall make sure the website is connectthat it can be delivered in the most efficient and effective way. short in siged to Google Analytics.

That means intuitively placed What do clients want from a nificant ways. website? information, plenty of visuals, What information or and easy navigation. help do they want online without So how should an agency take steps to having to take the time to send an email or make its website more distinctive and useplace a phone call? ful?

What devices are visitors using? Are those Throw out the notion that a website is experiences optimized on those particular nothing more than an informational brodevices? What devices do clients and proschure with a listing of services and a pledge pects use? to provide the “best service.” Think of how The fact is, many agency websites fall the website will be used, not read. short in significant ways and unfortunately, Does the website look like every other the margin of error in today’s connected agency in town? If so, what simple changes marketplace is slim. can be made short of a complete rebuild to make it stand out?

Longtime insurance communicator, Wetzel Understand how the agency’s website heads his own insurance marketing firm that is being used now. A first-time visitor will specializes in social media programs for agents take only 10 seconds to develop a first through its Social Media Content Roadmap©. For impression and decide whether or not to more information, the firm’s website is explore the site further. How long does www.wetzelandassociates.com. Contact him at a visitor spend on the site and what do twetzel@wetzelandassociates.com. www.insurancejournal.com

NATIONAL COVERAGE

Business Moves

Risk Strategies, Lester Brokerage Risk Strategies Co., a privately held, national insurance brokerage and risk management firm based in Boston, has acquired Lester Brokerage, an independent agency in Englewood Cliffs, N.J. Terms of the transaction were not disclosed.

Lester Brokerage will maintain its Englewood Cliffs location and operate under the name Lester Brokerage, a Risk Strategies Co. Lester Brokerage President Michael R. Elitzer and the agency’s staff will join Risk Strategies as part of the transaction. Elitzer will become Risk Strategies’ senior vice president and will continue to lead the Lester Brokerage operations.

Risk Strategies has offices in more than 20 locations across the U.S. and more than 550 employees.

Marsh & McLennan, Celedinas Insurance Group Marsh & McLennan Agency LLC (MMA), the middle market agency subsidiary of Marsh, has acquired Celedinas Insurance Group, one of Florida’s largest independent agencies. Terms of the transaction were not disclosed.

Established in 1959 and headquartered in Palm Beach Gardens, Fla., Celedinas generates approximately $22 million in annual revenue and specializes in providing prop40 | INSURANCE JOURNAL-NATIONAL March 21, 2016

erty/casualty insurance, marine insurance, and employee benefits services.

All of Celedinas’ 120 employees and leadership, including President and CEO Ray Celedinas, are joining MMA and will continue to operate out of their existing five offices throughout Florida under the name Celedinas Insurance Group, a Marsh & McLennan Agency Co., and under Ray Celedinas’ leadership. Celedinas also has been named National Private Client Practice leader for MMA. According to Marsh President and CEO Peter Zaffino, MMA’s addition of Celedinas will enhance Marsh’s capabilities in high-net worth personal lines and accelerate its revenue growth in this segment.

Venture Insurance Programs, Tidal Solutions Venture Insurance Programs, a national insurance program administrator, has acquired Tidal Solutions, LLC, a Charlotte, N.C.-based managing general underwriter serving the North American specialty commercial marine market.

Venture will integrate the Tidal Solutions marine products into its portfolio of industry-specific insurance programs. The products, which include hull and machinery; protection and indemnity; general liability and maritime employer’s liability coverage, will be marketed nationwide by Venture under the brand Tidal Marine through Venture’s agent and broker network.

Tidal Solutions’ current management will be retained with David Pearlstein, the current CEO of Tidal Solutions, assuming the role of executive vice president on Venture’s management team. Damon Vaughan has been named senior vice president, Marine Program Management/Development. Keith Lovatt will lead marine sales as senior vice president and Keith Warncken will act as the senior vice president in charge of Marine Underwriting.

Venture Insurance Programs, based in

West Chester, Pa., is a program administrator that designs, underwrites and distributes industry-specific insurance packages.

NSM Insurance Group, Heacock Classic NSM Insurance Group, has acquired Heacock Classic, a division of Florida-based Heacock Insurance Group that provides collector car insurance. This marks NSM Insurance Group’s third acquisition in the collector car insurance industry.

Heacock Classic, originally CollectorGuard, was established under the Heacock Insurance Group umbrella in 1990

by Ford Heacock III. Over the past 26 years, Heacock has grown the division, both organically and through acquisitions, to insure more than 30,000 clients nationwide.

Heacock will continue to serve as the face of Heacock Classic and as a brand ambassador for the foreseeable future.

NSM Insurance Group is aggressively seeking to acquire additional niche specific insurance businesses and program manager.

Hub, BenefitsMart, Gwaltney & Associates Hub International Ltd. acquired the assets of BenefitsMart LLC, a benefits brokerage in Burlington, Mass. Terms of the transaction were not disclosed.

Founded in 1993, BenefitsMart specializes in employee benefits and provides services including insurance, compliance, wellness and benefits administration. BenefitsMart Founder and President Jean Russell will join Hub New England, a division of Hub International.

In another deal, Hub International Ltd. acquired the assets of Anchorage, Alaskabased Gwaltney & Associates Inc. Terms of the deal were not disclosed.

Dave Gwaltney, president of Gwaltney, will join Hub Northwest and report to Steve Wagner, senior vice president of Alaska for Hub Northwest.

Gwaltney specializes in providing commercial lines insurance.

Chicago-based Hub provides property/ casualty, life and health, employee benefits, investment and risk management products and services. www.insurancejournal.com

IDEA EXCHANGE

Growing Your Property Casualty Agency 6 Ways to Differentiate Your Agency from Internet Marketers

I

t’s self-defeating to believe that the independent agency universe is a legacy sales system that’s floundering in the age of mobile media. As a reaction to this unwarranted fear of obsolescence, some agents seek remedies from outside of their environs and experience — and overlook more local cures.

Viable solutions often reside within the agency itself.

Successful selling requires knowledge

By Alan Shulman and self-assurance — primed by effective Combine Build an image marketing. these three core elefor your agency ments to strengthen that’s entirely your resolve and your distinct from competitiveness. are six Internet basicBelow boosts to dismarketers and tinguish your agency.

your carriers.

Tout Savings. You, too, can offer desirable discounts. But, don’t just search for policy credits at the point of sale and then forget about them forever. Demonstrate to your insured that you value their account as much at renewal time as you did when you first wrote it.

Continuously look for additional discounts to engender goodwill and to reinforce your worth.

Provide Periodic Reviews. Face-to-face (or voice-to-voice) insurance needs reviews distinguish your office from faceless

www.insurancejournal.com

Internet marketers. You can also employ tailored questionnaires for your insureds to complete. Most consumers and businesses initially buy from you for your expertise, so offer clients the opportunity to take advantage of your skills as their renewal date approaches. Don’t rely on automatic increases and carrier-only communications to fulfill this need.

Add Agency Services. Online shoppers must manipulate their own coverages and limits to arrive at what they consider to be a palatable premium. You can enhance the insurance shopping experience by offering intelligent options — plus a variety of free or discounted agency services. These extras can add value to your proposal and differentiate you from online rivals. Ask your carriers and managing general agents for viable suggestions. Just make sure that whatever you offer aligns well with your insurance regulator and errors and omissions advisor.

Assign a Service Agent. Make sure that each personal lines insured has one primary agency contact (with a pre-established backup). Forgo the touted efficiency of the first-available representative approach employed by Internet marketers and cable companies. Instead, follow the loyalty-enhancing path of alphabetically assigned reps — or a similar approach — that engenders continuity of service.

Use Your Local Office. As noted in my Jan. 28, 2013 column, “How Independent Agents Can Use ‘Being Local’ to Their Advantage,” use your place of business

for more than a workspace; employ it to your agency’s advantage. “It’s something that most national marketers don’t have … Wield it aggressively to demonstrate your connection to the community and to sell in ways that only a locally based operation can.” Host special events to drive office visits from insureds and prospects.

Possibilities include policy savings classes, teen driver and retirement seminars, visiting appraisers, and policy organization sessions where people bring in their new and old policies, including those written elsewhere.

Develop Your Own Brand. Build an image for your agency that’s entirely distinct from Internet marketers and your carriers. Trying to mirror either one puts you at a competitive disadvantage, as you’ll have no distinct image of your own. Ditto if you promote your office as a generalist operation that quotes any human or commercial entity. Instead, select your target markets and build your image within each group — using both online and offline media. Targeted branding is more focused and more affordable. Don’t overlook the value of these classic image-building tools: a memorable agency name (not always yours) and an attractive logo. Every successful brand demands both.

Shulman, CPCU, is the publisher of Agency Ideas® sales and marketing newsletter (free basic subscription at www.agencyideas.com/ join). Email: alan@agencyideas.com. Website: www.agencyideas.com.

March 21, 2016 INSURANCE JOURNAL-NATIONAL | 41

IDEA EXCHANGE

Human Resources The Search for Innovative Talent: Decoding the Secret of an Adaptable Workforce

T

he insurance industry has entered an era of rapid change and evolution — the rise of analytics, the growing influence of technology, and the emergence of disruptors. In light of the industry’s shift toward fast-paced transformation, innovation and

By Diana Shay flexibility are being touted as the keys to unlocking future success. Insurance organizations are now facing increased pressure to embrace the age-old adage, “innovate or die.”

However, incorporating a mindset of evolution and innovation into day-to-day operations can be challenging. It is difficult to create an organizational culture that fosters creative thought, cultivates fresh ideas and quickly adapts to industry changes. The first, and possibly most important step, is to fill the ranks with professionals who are highly innovative, creative and adaptable.

However, hiring specifically for these in-demand skills is no easy task and requires organizations to rethink recruitment and engagement strategies.

Insurance organizations are struggling to find talent that can succeed in the new workplace reality.

How can organizations adjust to the new business reality and transition into a hub of innovate thought?

Coachable Characteristics Within insurance, the ability

to adapt to changing business practices is vital given the constantly evolving marketplace conditions, growing climate concerns, rapidly changing technology risks, ever-shifting compliance demands, and continued globalization.

However, this ability can be challenging to measure. As an industry, insurance has above-average tenure rates and a reputation for low turnover. With employees opting to stay in their jobs and companies, determining if they can readjust to changing circumstances is not as easy as reviewing their job histories.

A propensity for adaptability and innovation is difficult to discern from a resume or job application. These characteristics often require out-of-the-box thinking and creativity — both skills that can be difficult to vet in the interview process. Often, resume details and job application questions are not targeted toward highlighting these soft skills. As a result, organizations must look beyond traditional business skill-sets and focus instead on personal characteristics and reactions in their quests for creative-thinking talent.

Today’s forward-thinking insurance organizations should look at coachable characteristics to determine if a candidate will be able to adapt easily in the workplace. Are they stuck in their ways and unable to accept new processes? Do they appreciate and accept new perspectives? Are they

Today’s forward-thinking insurance organizations should look at coachable characteristics to determine if a candidate will be able to adapt easily in the workplace.

willing to undertake new responsibilities or adapt to a new role? The answers to these questions are key to determining whether the candidate will be able to thrive in an in-flux business environment.

Rethink the Interview Insurance organizations also should update their current interview strategy. The focus needs to shift toward implementing practices aimed at discerning an individual’s propensity for creative thought and adaptability.

Focus on asking open-ended questions that go beyond the standard interview stock. Provide opportunities for candidates to share anecdotes of their past experiences.

Ask them for details about an event when they had to adapt to a particular situation or an instance where they showed their creativity in dealing with an issue.

Follow-up questions should be used to gain a better understanding of a candidate’s personality and their work persona. Simply asking a candidate to “tell me more” can be a great way to get real-life examples of how they have handled various aspects of the job in the past. The key is to avoid leading them to answers and instead let them be open and honest with their responses.

Providing case studies and writing exercises can also be a way to determine an individual’s innovative tendencies.

Have candidates provide a brief write-up on something particularly innovative that they have completed

on the job or in their personal lives. Share an organizational case study and have them put together an innovative solution. These exercises are a great way to vet candidates who may not always have an extensive work background, but potentially have the skills and competencies you are looking for.

Go to the Source To find talent with the potential for innovation and adaptability, insurance organizations should go directly to the source.

Many of these forward-thinking, progressive individuals are highly active on social media and view it as a key part of the job search process. In fact, studies now show that 58 percent of today’s professionals are more likely to want to work at a company that uses social media.

As a result, organizations looking to hire innovative and creative talent must be present on social media. Is your current social media presence up-to-date? Are you monNOTICE OF SANCTION AND EFFECTIVE DATE OF AMENDING SCHEME OF ARRANGEMENT Claim Nos. 5812 and 5813 of 2014 IN THE HIGH COURT OF JUSTICE (IN ENGLAND AND WALES) CHANCERY DIVISION COMPANIES COURT IN THE MATTERS OF OIC RUN-OFF LIMITED (formerly Ralli Brothers Insurance Company Limited and The Orion Insurance Company plc) – and – THE LONDON AND OVERSEAS INSURANCE COMPANY LIMITED (formerly Hull Underwriters’ Association Limited and The London and Overseas Insurance Company plc) (both subject to a scheme of arrangement) – and – IN THE MATTER OF THE COMPANIES ACT 2006 NOTICE IS HEREBY GIVEN that, by an order dated 29 October 2015 made in the above matters (the “Order”), the High Court of Justice of England and Wales (the “Court”) has sanctioned an amending scheme of arrangement proposed to be made between the above companies (the “Companies”) and their respective Scheme Creditors pursuant to Part 26 of the Companies Act 2006 (the “Amending Scheme”), which was voted on and approved by Scheme Creditors during six meetings held on 11 December 2014. Unless otherwise defined in this notice, all capitalised terms used in this notice have the same meaning as given to them in the Amending Scheme.

On 11 January 2016, the United States Bankruptcy Court issued an order under Chapter 15 of the United States Bankruptcy Code (the “US Bankruptcy Code”) granting recognition to and enforcing the Amending Scheme under the US Bankruptcy Code from 11 January 2016 (the “US Order”).

Following the issuance of the US Order, a copy of the Order sanctioning the Amending Scheme was delivered to the Registrar of Companies in England and Wales for registration on 14 January 2016. The Amending Scheme became effective for the Companies on that date. All Scheme Creditors are therefore now bound by the provisions of the Amending Scheme.

Claim Forms may be submitted to the Companies either via the Website at www.oicrun-offltd.com or, upon request by the Scheme Creditor, by completing and returning a hard copy of the Claim Form by post. The Website contains important information and guidelines explaining the process for the submission of Claim Forms.

Scheme Creditors are required to provide full details of their claim(s) against the Companies, including any Notified Outstanding Liabilities and IBNR Liabilities, together with all Supporting Information, by completing and submitting a Claim Form, either electronically or (on request by the Scheme Creditor) by post, so as to be received by the Companies by no later than midnight (English time) on 12 September 2016 (the “Bar Date”).

The requirement to submit a Claim Form before the Bar Date applies to all Scheme Creditors other than NNOFIC, Opt Out Qualifying ILU Policyholders, Protected Policyholders, Potentially Protected Policyholders, No Notice Individual Creditors and those Qualifying ILU Policyholders who may, in certain very limited circumstances, bring a claim against the Companies after the Bar Date under the terms of the Amending Scheme.

Any Scheme Creditor to whom the Bar Date applies and who does not return a Claim Form so as to be received by the Companies before the Bar Date, and who has not elected to have its voting and proxy form or any other form that it has submitted (as the case may be) treated as its Claim Form, will be deemed to have accepted COURTSAD001.indd 1

itoring your networks to see how you are perceived? Are you accurately and positively presenting your company brand across each channel? With social networking rapidly becoming a standard tool in the job hunt, having a positive, engaged presence is important to finding top candidates.

Today’s progressive insurance organizations are looking for strategic ways to succeed in the new, rapidly evolving business world. To create a company culture that embraces innovative thought and adaptability, insurers must focus on adding talented, creative individuals to their current talent line-up. Regardless of the strategy or tactic, recruiting and engaging professionals who are innovative and flexible is the key to staying competitive in today’s market.

Shay is assistance vice president and fulfillment director of The Jacobson Group, a provider of talent to the insurance industry. Phone: 800-466-1578. Email: dshay@jacobsononline.com. the details of its claims (net of any Security Interest and Offset Amount) set out in the Claim Form made available to the Scheme Creditor by the Companies on the Website. Scheme Creditors who have additional Scheme Liabilities (including any Notified Outstanding Liabilities and/or IBNR Liabilities): (i) which are not shown on their Claim Form; or (ii) who do not have a Claim Form, and who, in each case, do not submit details of their claims on their Claim Form before the Bar Date, will receive no payment in respect of those additional claims under the Amending Scheme.

The Companies will make available on the Website a Claim Form for each Scheme Creditor whom the Companies believe has or may have a claim against either or both of the Companies. The Claim Form will include, to the extent known by the Companies details of: a. certain policies held by that Scheme Creditor; b. the Scheme Creditor’s Established Liabilities; and c. the Scheme Creditor’s Agreed Liabilities.

Each Scheme Creditor will be provided with an individual Website login ID and password, which will enable that Scheme Creditor to access the secure area of the Website containing their Claim Form as prepared by the Companies. Alternatively, Scheme Creditors may request a hard copy version of the Claim Form by post from the Run-off Company.

Any Qualifying ILU Policyholder who wishes (in respect of all Qualifying ILU Policies held by that Qualifying ILU Policyholder) to opt out of the crystallisation and payment provisions of the Amending Scheme must submit an Opt Out Form, either electronically or (upon request by the Qualifying ILU Policyholder) by post, so as to be received by the Companies by no later than the Bar Date.

Any Scheme Creditor which has any questions concerning this notice or the action that it is required to take, or which requires assistance in completing its Claim Form, should contact the Run-off Company using the contact details set out below. Any person who is, or who considers itself to be a Scheme Creditor, and who has not received by post a copy of this notice, an Opt Out Form, a Postal Service Request or a schedule with its individual Website login ID and password, should also contact the Run-off Company using the contact details set out below.

Copies of the Amending Scheme documents can be downloaded from the Website at www.oicrun-offltd.com. Alternatively, hard copies can be obtained, free of charge, by sending a request to the Run-off Company using the contact details below. Further information may be obtained from the Website or upon request from the Run-off Company.

The contact details for the Run-off Company are as follows: By post: Armour Risk Management Limited, 4th Floor, 20 Old Broad Street, London, EC2N 1DP, United Kingdom By email: Oicclosurehelpdesk@armourrisk.com By phone: +44 (0) 20 7382 2020 By fax: +44 (0) 20 7382 2001 Dated 15 February 2016 Hogan Lovells International LLP Atlantic House 50 Holborn Viaduct London EC1A 2FG United Kingdom Tel: +44 (0) 20 7296 2000 Fax: + 44 (0) 20 7296 2001 www.hoganlovells.com Ref: Joe Bannister/Will Beck Solicitors to the Scheme Administrators 2/28/16 7:38 AM

March 21, 2016 INSURANCE JOURNAL-NATIONAL | 43

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Minding Your Business Agency Performance Enhancement with the Power of Habit

I

magine the effect on owners, managers, producers and staff if they knew how to improve anything they did by having a good understanding of how specifically the brain enforces great new habits. Managers can assist employees in learning from each other and can provide rewards that reinforce these habits.

Create Habit Loops Habits are a natural adaptation of the brain to conserve

By Catherine Oak & brainpower, capacity and energy. The first time a person does a task, the brain must expend energy and bandwidth figuring out how to do it.

Nature has created a system in the brain to Bill Schoeffler build in an automatic playback of the steps required to do the task, so the arduous process does not have to be repeated.

Habits are actually hard-wired into the brain. This process engages the basal ganglia and the creation of neural pathways. To reinforce the behavior and create an automatic response, the brain squirts out a little dopamine to make a person feel good when the task is repeated with positive results.

Charles Duhigg describes in his book “The Power of Habit” what he calls the “habit loop,” a three-step process. First, there is a cue, or trigger, which signals the brain to turn a behavior into an automatic routine. This is followed by the actual routine of the behavior. Finally, there is a “reward” of some type, which is reinforced with the release of dopamine. Without this habit building mechanism, our brains would be in overwhelm-mode all the time.

Once the habit has created a strong neural pathway in the brain, it can focus on other things. “In fact, the brain starts working less and less,” Duhigg said. “The brain 44 | INSURANCE JOURNAL-NATIONAL March 21, 2016

can almost completely shut down. And this is a real advantage, because it means a person has all of this mental activity to devote to something else.”

When one thinks about habits, it is often the “bad” habits that come to mind — putting off tough tasks, not calling prospects, constant email checking, etc. Getting rid of these “bad” habits isn’t easy. The good news is that habits can be revised or modified to end in neutral or even positive results.

The framework to change habits starts off with identifying the routine, such as calling prospective new customers for appointments or service staff tackling tough projects first each day. Develop an awareness of the cues or triggers that ignite a craving for a specific reward, for example, the commission a producer receives from a new sale.

Sometimes there are multiple cues that can trigger a routine. Triggering events can often have some or all of the following components: time of day, location, emotional state, other people, inflection points.

Identify Important Rewards Next, identify the reward that is desired.

This can be psychological or physiological and is usually not apparent at first. Duhigg describes how he had the habit of leaving his desk at work to go eat a cookie in the cafeteria. At first he thought the reward was the cookie itself, through the sugar entering his system. He tried eating other food at his desk, but he still had the urge to get up. Eventually, through trial and error, he realized he needed human interaction as his reward. Keep in mind that as with cues, there can be multiple rewards from a habit.

Next, find a new routine that provides the feeling of a “reward.”

Duhigg suggests that one develop a plan to change the habit. That is to say, prepare to make conscious decisions rather than have automatic

behavior when a triggering event occurs.

If one feels stressed and gets the urge to smoke a cigarette, a pre-existing plan with alternatives allows one to make other choices. Mentally rehearse new routines. It also helps to engage others and work on building a new routine with a group. Producer or staff meetings can be an excellent place to discuss routines that worked.

Summary Habits that result in unwanted results can be changed by getting off autopilot to make the decision-making process conscious again. Whenever possible, agency owners can assist employees in creating new, better habits by discussing how people have improved their performance in meetings and providing rewards to reinforce great habits.

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

Phone: 707-935-6565.

Email: catoak@gmail.com.

www.insurancejournal.com

NATIONAL COVERAGE

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Homeowner coverage features available include: dwelling $130,000 to $1.2 million; LLCs and partnerships are OK; protection class 1 to 7; 1,001 feet from brush or less than submit; one to two losses; homes built in 1941 and newer, or if completely renovated OK; wildfire hazard score higher than seven is ineligible. Dwelling coverage requirements include: DP2 and DP3 available - tenant occupied; dwelling $130,000 up to $800,000; must write primary to write DP3; one to two losses OK; and earthquake California Earthquake Authority.

Available limits: Minimum $130,000, maximum $2 million Carrier: Hyundai Marine & Fire Insurance Co. States: Calif. Only Contact: Vanessa Treff at 800-488-4096 or email: vanessa@ kinginsuranceca.com

Interpreters and Translators

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Liability, Property and/or Excess coverages for Large Operations Market Detail: Insurance Brokers of Indiana (www.goibi.com) partners with a competitive carrier that is willing to write liability, property and excess coverages for large construction, manufacturing, energy, environmental and railroad accounts. Both admitted and nonadmitted options available. High limits available. In addition to general liability, property and excess, IBI can offer coverage for pollution, product recall, professional liability, directors and officers, and inland marine.

Available limits: Minimum $1 million, maximum $25 million Carrier: Liberty International Underwriters States: Ill., Ind., Ohio, and Pa. Contact: Brian Collins at 317-888-2593 or email: bcollins@ goibi.com.

Market Detail: Professional Program Insurance Brokerage (www. ppibcorp.com) offers professional liability policies that protect against claims alleging errors, omissions and/or negligent acts from translating or interpreting services. Policies are rated based on gross receipts and can include coverage for domestic and foreign subcontractors and/or employees as long as those receipts are included.

Coverage can also be extended for general liability.

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Advertisers Index

Aviation and Aerospace Insurance Market Detail: Transport Risk Management, Inc. (www.transportrisk.com) practices of aviation insurance and risk management services with offices located in Denver; Austin, Texas; Los Angeles; and Scottsdale, Ariz. As an aviation and aerospace brokerage, Transport Risk provides clients with a complete service for all their insurance, reinsurance and risk management needs.

Available limits: Minimum $1 million, maximum $1 billion Carrier: Various, admitted and nonadmitted available www.insurancejournal.com

Accident Fund www.accidentfund.com SE5 Apartment Insurance Consultants, LLC www.aicinsure.com 1, 12, 13 Applied Underwriters www.auw.com 2, 3, 48 Burns & Wilcox Ltd. www.burnsandwilcox.com 7 Contractor Connection www.contractorconnection.com 35 Courts Advertising Limited www.courts-advertising.com.uk 43 EZLynx www.ezlynx.com 22, 23 Great American Insurance Group www.gaig.com 14, 15 IAA www.iaa-auctions.com 29 Insurance Technologies Corp. www.getitc.com 39 K&K Insurance Group www.kandkinsurance.com 16, 17

Leavitt Group Enterprises, Inc www.leavitt.com 20, 21 Midlands Management Corporation www.midlandsmgmt.com SC4 Monarch E&S Insurance Services www.monarchexcess.com 26, 27 PersonalUmbrella.Com www.personalumbrella.com 5 Philadelphia Insurance Companies www.phly.com 47 Regions Bank www.regions.com 9 Ryan Specialty Group www.ryansg.com 18, 19 Siracusa Staffing & Leasing www.ssandlnow.com SE3 South & Western www.southandwestern.com 24, 25 Texas Mutual www.texasmutual.com SC3

March 21, 2016 INSURANCE JOURNAL-NATIONAL | 45

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Closing Quote

Why Companies Won’t be Opting Out of Opt-Out Anytime Soon

A

By Michael Vitulli

recent ruling by the Oklahoma Workers’ Compensation Court undercutting so-called “opt-out” systems has set off a flurry of speculation about such systems, including whether this ruling signals the beginning of their end.

The short answer is: no.

While this ruling turned on some rather arcane details, there is a simpler reason why it is unlikely these less worker-friendly alternatives to traditional workers’ comp will be discarded or the push into other states halted.

The 100-year old “no-fault” system is a grand bargain; workers trade their right to sue for on-the-job injuries in return for guaranteed medical care and lost wages. Why would an employer voluntarily opt-out and, in essence, turn all of their employees into potential third-party claimants? Cost.

It’s all about the money.

Today, a workers’ comp claim is comprised of about 65 percent medical costs and 35 percent lost wages. These figures were reversed 25 years ago. The flattening of wage growth has left rising high medical care costs as the main driver in any significant claim. This has pushed employers to extreme measures in attempts to control these costs.

Switching to an opt-out program saves on premiums and

46 | INSURANCE JOURNAL-NATIONAL March 21, 2016

creates control in managing claims expenditures. Under an opt-out plan employers pay the cost of all claims falling within their deductible, plus a premium for insurance above their deductible. They then aggressively manage the cost and number of claims to reduce their costs.

Employers now dedicate time to “managing” medical treatment and care directly with doctors. But, if the same doctors are handling the same injuries, how can an opt-out system lower medical costs? In many cases the answer is a limit on care, treatment and rehabilitation options.

Critics of opt-out systems have pointed to limitations on type and quantity of medical care, as well as lower payouts for specific injuries as inherent flaws. But, if your concern is cost control, you might see these as features.

An employer using opt-out to control costs, however, would likely see the potential of an employee to bring a third-party suit against them for providing an unsafe workplace as a bug. The opt-out “feature” to control that potential cost is forced use of arbitration to settle grievances — often controlled by the employer.

Reducing fraudulent claims has long been a goal of both employers and insurers. Opt-out proponents claim it saves resources for truly injured workers by allowing greater opportunity to weed out the bad cases. The “weeding” typically manifests as severe limits on accident reporting.

For example, a worker injured on Friday might not think it is serious enough to report a claim to management. Over the weekend, the worker realizes that the injury warrants treatment and so advises his or her employer on Monday. A “late-reporting” protocol written into Switching to an the opt-out program makes opt-out program it easy to deny this claim. saves on premiums These sorts of limitations on accident reporting and creates control suggest an attempt to in managing claims reduce all claims — includexpenditures. ing legitimate ones — not a focus on fraud. This brings us to back to the real drivers of, and the problem with, opt-out systems: a broken medical system and sense of moral obligation.

The rise of opt-out systems is yet another indicator that we have not solved the problem of rising medical costs.

Doing so would benefit the economy, reduce workers’ comp costs and reduce the appeal of switching to an optout program. Actively seeking ways to not provide care and compensation for a truly injured worker is a major step back to the early days of the industrial revolution.

Vitulli is senior vice president at Risk Strategies Co.

www.insurancejournal.com

Management & Professional Liability Division

Across-the-board protection

Lightweights to heavyweights, we’re in your corner.

Having the right insurance carrier in your corner can help your business withstand a changing regulatory environment and put the right policy in place to defend your organization from the risks inherent in doing business today. Philadelphia Insurance Companies offers Management & Professional Liability coverage with a broad product portfolio, including Directors and Officers, Employment Practices, Fiduciary, and Cyber Liability as well as a range of Professional Liability and Crime solutions. Our policyholders know we’re in their corner with across-the-board protection, quality support, and excellent service. We go the distance to help you come out on top.

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Call 855.411.0797 or visit PHLY.com/MPL Philadelphia Insurance Companies is the marketing name for the property and casualty insurance operations of Philadelphia Consolidated Holding Corp., a member of Tokio Marine Group.

All admitted coverages are written by Philadelphia Indemnity Insurance Company. Coverages are subject to actual policy language.

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

For information call (877) 234-4450 or visit auw.com/us. Š2016 Applied Underwriters, Inc., a Berkshire Hathaway company. Rated A+ (Superior) by A.M. Best.

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