Insurance Journal West 2016-04-04 by Insurance Journal

WEST EDITION Farmers CEO Recalls Joplin Attack at Resortâ&#x20AC;&#x2122;s Oktoberfest OSHA Fine for N.M. Pot Business

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Inside This Issue

On The Cover

Special Report:

Cyber Risks and Rewards

April 4, 2016 • Vol. 94 No. 7 • West

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WEST COVERAGE

IDEA EXCHANGE

10 ISO to Collect Terrorism Insurance Data for Treasury

W4 Farmers CEO Remembers Joplin Tornado at California Gala

34 Recruitment Strategies for the Big Leagues

10 Vehicles ‘Increasingly Vulnerable’ to Hacking, Warns FBI

W8 Utah Judge Limits Suit over Drunken Attack at Ski Resort’s Oktoberfest

36 The Competitive Advantage: Chris Burand

14 Spotlight: Prepare for Disruption in High Net Worth Insurance Segment

W8 July Explosion Leads to OSHA Fine for New Mexico Pot Business

38 Closing Quote: The Risk in Insurance Reviews

16 10 Things to Know About Public Entities & Schools 20 Special Report: Cyber Risks and Rewards 24 Special Report: Rating Agency Warns P/C Insurers Taking On Too Much Cyber Risk 28

Special Report: Young Agents Survey Reveals High Optimism on Career Choice, Income and Future of Agency System

4 | INSURANCE JOURNAL-WEST April 4, 2016

DEPARTMENTS W2 11 11 12 19

People Declarations Figures Business Moves MyNewMarkets

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Opening Note

Publisher Mark Wells | mwells@wellsmedia.com

What Young Agents Like & Don’t

his issue of Insurance Journal features exclusive results from the 2016 Young Agents Survey in which more than 500 young agents nationwide shared their views on the insurance industry and their experience as an agent. (see page 28 for the full report). Overall, young agents seem happy with their career choice. They enjoy the freedom and challenges that come with the job of an independent agent. Here are two top 10 lists of what young agents like MOST and LEAST about being an independent insurance agent. What Agents Like MOST: 1. Flexible schedule. 2. Opportunity for professional development and community involvement. 3. Earning potential. 4. The daily challenges. No two days are the same. 5. Work-life balance. 6. The ability to check several markets to attain the best insurance coverage for each client. 7. Establishing relation‘What I like most about being ships with clientele and an independent agent is the educating them about the freedom and flexibility to importance of insurance and how it can impact grow my own business, the their business. way I want to.’ 8. Helping people. 9. Own boss. 10.Residual income. What Agents Like LEAST: 1. Doing servicing work. 2. The pressure from carriers to produce for them in order to keep an appointment. 3. Overcoming the negative perceptions set forth by those before me. 4. Having to regularly deal with new (revolving door) insurance carrier representatives and what seem like the constantly evolving appetites. 5. The stigma that comes with selling insurance. 6. The lack of young talent in the business and awareness of our business. 7. Having to negotiate many different online production/quoting systems. 8. The hours can be demanding. 9. The first three-to-five-year grind as a new young agent. 10. Lack of response by carriers to agent Andrea Wells feedback.

Editor-in-Chief

6 | INSURANCE JOURNAL-NATIONAL April 4, 2016

EDITORIAL Chief Content Officer Andrew Simpson | asimpson@insurancejournal.com Editor-in-Chief Andrea Wells | awells@insurancejournal.com East Editor Young Ha | yha@insurancejournal.com Southeast Editor Amy O’Connor | aoconnor@insurancejournal.com South Central Editor/Midwest Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Don Jergler | djergler@insurancejournal.com International Editor Lisa Howard | lhoward@wellsmedia.com Senior Editor Susanne Sclafane | ssclafane@insurancejournal.com ClaimsJournal.com Editor Denise Johnson | djohnson@claimsjournal.com Columnists Chris Burand Contributing Writers David Coons, David Eggert, Gregory Hoeg, Steve Titus, Mike Householder, David Shepardson, William Stander SALES Chief Marketing Officer Julie Tinney (800) 897-9965 x148 | jtinney@insurancejournal.com Sales Manager Lauren Knapp (800) 897-9965 x161 | lknapp@insurancejournal.com West Dena Kaplan (800) 897-9965 x115 | dkaplan@insurancejournal.com Romeo Valdez (800) 897-9965 x172 | rvaldez@insurancejournal.com Midwest Lisa Whalen (800) 897-9965 x180 | lwhalen@insurancejournal.com South Central Mindy Trammell (800) 897-9965 x149 | mtrammell@insurancejournal.com East (NY, PA and CT only) Dave Molchan (800) 897-9965 x145 | dmolchan@insurancejournal.com Southeast & East (except for NY, PA and CT) Howard Simkin (800) 897-9965 x162 | hsimkin@insurancejournal.com New Markets Sales Manager Kristine Honey | khoney@insurancejournal.com Classifieds, Jobs, Agencies Wanted/For Sale Kelly De La Mora (800) 897-9965 x125 | kdelamora@insurancejournal.com MARKETING/NEW MEDIA Marketing Administrator Gayle Wells | gwells@insurancejournal.com Advertising Coordinator Erin Burns (619) 584-1100 x120 | eburns@insurancejournal.com New Media Producer Bobbie Dodge | bdodge@insurancejournal.com DESIGN/WEB Chief Technology Officer/Chief Innovation Officer Joshua Carlson | jcarlson@insurancejournal.com V.P. of Design Guy Boccia | gboccia@insurancejournal.com Audience Development Elizabeth Duffy | eduffy@wellsmedia.com Marketing Director Derence Walk | dwalk@insurancejournal.com Web Developer 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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SIX QUESTIONS TO ASK YOUR CONSTRUCTION CLIENTS BEFORE THEY BEGIN USING DRONES.

By Tom Boudreau Drones and Unmanned Aerial Vehicles (UAVs) have quickly become a pretty common sight on many construction sites in the United States – and for good reason. The benefits they can provide are vast – ranging from monitoring projects for employee safety reasons, surveying large sites, and inspecting difficult to reach locations, to ensuring quality on projects such as bridge construction. The relative ease of operating these devices, coupled with a fairly reasonable price tag for many models, makes it all too easy to get comfortable using them – perhaps, a little too comfortable.

In fact, many policies specifically exclude the usage of them. ISO has recently availed new endorsements that help to better clarify coverage for the use of UAVs. The Unmanned Aircraft Exclusion (CG 21 09) and the Limited Coverage for Designated Unmanned Aircraft (CG 24 50) allow the market to definitively exclude or cover drone/UAV usage for bodily injury and property damage, as well as personal and advertising injury.

WITH NEW TECHNOLOGY COMES NEW RISK The Federal Aviation Administration (FAA) continues to review commercial use of UAVs and drones. Currently, any UAV or drone that’s being utilized for commercial purposes requires FAA approval (section 333 exemption).1 To date, across all industries, more than 3,927 exemptions have been granted. 6.

Do you have construction clients thinking of using UAVs or drones? MAKE SURE TO ASK THEM THESE QUESTIONS: 1.

Have you applied for and received your FAA approval? You can be subject to fines without obtaining proper approval.

Have you developed a plan on exactly how you intend to use drones or UAVs, including risk management and safety procedures? Specific flight plans for usage on job sites will be an important component in improving risk management and safety.

Have your operators passed the aeronautics test required for them to serve as a pilot?

Are you aware of the surroundings the drone will be operating in? Currently, you cannot operate drones or UAVs over people who aren’t involved with your project/flight. This is especially important in cities or congested areas where your project may be immediately adjacent to property not involved with your project, such as public parks/spaces and private residences.

Have you considered the reputational risk your firm could face if your drone/UAV was found operating too close to others’ property, especially if you accidentally (or intentionally due to a rogue operator) film something that others didn’t want taped and it was released to the public?

It’s exciting to see new technology being used in the construction industry. And it’s important for many reasons: Productivity can be increased, worker safety enhanced, and the new technology will certainly help attract the next generation of construction workers, as it’s well documented that this generation is technologically savvy. Drones and UAVs can also be utilized to help improve quality and reduce liability for construction defects when used to document a project as it’s being built. But as is the case with any technology, there is risk. Mitigating that risk is imperative to fully gain the advantages it can provide.

About the Author

Have you considered the insurance implications for using UAVs or drones in your business? Although insurance is becoming increasingly more available, don’t assume you are covered for your drone/UAV activities.

Tom Boudreau is Vice President of Specialty Construction at The Hartford. The Hartford is a premier provider of property and casualty insurance and risk management services for midsize and large construction companies, with a focus on heavy trade contractors, commercial builders and subcontractors.

To learn more, visit THEHARTFORD.COM/CONSTRUCTION.

Prepare. Protect. Prevail. With The Hartford.®

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Company, Property and Casualty Insurance Company of Hartford and Sentinel Insurance Company, Ltd. The Hartford® is The Hartford Financial Services Group, Inc. and its subsidiaries, including Hartford Fire Insurance Company. Its headquarters is in Hartford, CT. 16-0216 © 2016 The Hartford Financial Services Group, Inc. All rights reserved.

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News & Markets ISO to Collect Terrorism Insurance Data for Treasury

he property/casualty insurance data and rating organization ISO will collect and help analyze terrorism data this year for the U.S. Department of the Treasury, the federal agency charged with gauging the effectiveness of the federal terrorism risk insurance program. ISO, a unit of Verisk Analytics, said it will collect premium, exposure and policy data for 2015 from insurers participating in the program. The program, initially established in 2002 by the Terrorism Risk Insurance Act (TRIA), requires insurers to make available terrorism risk insurance with respect to commercial property/casu-

alty losses and provides a mechanism for the federal government to share the risk of loss from terrorist attacks. A spokesperson for ISO said the arrangement on terrorism data is an “extension of an existing long-term contract in which ISO, a sub-contractor, is the data aggregator in the event of an insured loss event.” ISO is in the data collection business and maintains one of the world’s largest insurance databases. According to Beth Fitzgerald, president of ISO Solutions, ISO receives data from insurers containing more than 2.8 billion records of property/casualty insurance premiums and losses each year.

Vehicles ‘Increasingly Vulnerable’ to Hacking, Warns FBI

he FBI and U.S. National Highway Traffic Safety Administration issued a bulletin last month warning that motor vehicles are “increasingly vulnerable” to hacking. “The FBI and NHTSA are warning the general public and manufacturers – of vehicles, vehicle components, and aftermarket devices – to maintain awareness of potential issues and cybersecurity threats related to connected vehicle technologies in modern vehicles,” the agencies said in the bulletin. In July 2015, Fiat Chrysler Automobiles NV recalled 1.4 million U.S. vehicles to install software after a report raised concerns about hacking, the first action of its kind for the auto industry. Also last year, General Motors Co. issued a security update for a smartphone app that could have allowed a hacker to take control of some functions of a plug-in hybrid electric Chevrolet Volt, like starting the engine and unlocking the doors. In January 2015, BMW AG said it had fixed a security flaw that could have allowed up to 2.2 million vehicles to have doors remotely opened by hackers. 10 | INSURANCE JOURNAL-NATIONAL April 4, 2016

NHTSA Administrator Mark Rosekind told reporters in July 2015 that automakers must move fast to address hacking issues. The Fiat Chrysler recall came after Wired magazine reported hackers could remotely take control of some functions of a 2014 Jeep Cherokee, including steering, transmission and brakes. NHTSA has said there has never been a real-world example of a hacker taking control of a vehicle. Two major U.S. auto trade associations – the Alliance of Automobile Manufacturers and Association of Global Automakers – late last year opened an Information Sharing and Analysis Center to share cyber-threat information and potential vulnerabilities in vehicles. The FBI bulletin warned that criminals could exploit online vehicle software updates by sending fake e-mail messages to vehicle owners looking to obtain legitimate software updates. The recipients could be tricked into clicking links to malicious Web sites or opening attachments containing malicious software. 2016 Copyright Reuters

ISO also provides insurers with tools to help them address terrorism exposures and changes in federal legislation. For this first collection of information under Section 111 of the Terrorism Risk Insurance Program Reauthorization Act of 2015, the Treasury Department is requesting, but not requiring, that insurers submit data. The deadline for insurers to report data this year is April 30. Reporting insurers can register at https://www.tripsection111data.com/. Terrorism Data The Institute for Economics and Peace has been collecting economic data on terrorist attacks since 1997. In 2014, acts of terror cost the world $52.9 billion, according to a November 2015 report by the international group, which calculates the value of property damage and the cost of death and injury, including medical care costs and lost earnings. It doesn’t take into account the increased number of security guards, higher insurance premiums, or city gridlock in the aftermath of an assault. IEP also estimates the global national security expenditure to be approximately $117 billion. In 2007, researchers at the University of Maryland launched a searchable global terrorism database was developed by START, the National Consortium for the Study of Terrorism and Responses to Terrorism based at the University of Maryland, with funding from the U.S. Department of Homeland Security (DHS). www.insurancejournal.com

Beyond Security®

“It Takes Discipline”

Marty Hacala Fitness Enthusiast General Star President & CEO

“Rolling out of bed at 5am every morning to work out requires discipline. It’s my way of getting the very most out of my busy day. “At General Star, we strive to get the very most out of our wholesale broker relationships. As a member of the Berkshire Hathaway family of companies, our financial strength is unsurpassed. But it’s our disciplined approach to building and maintaining profitable partnerships with a select group of brokers that drives us. “Discipline: Whether sticking with an early morning exercise regimen or standing firm with a limited number of valuable wholesale broker relationships, it remains the cornerstone of our success.” To locate the General Star broker nearest you, visit our website at www.generalstar.com.

© 2015 General Star National Insurance Company is licensed in the District of Columbia, Puerto Rico and all states. General Star National Insurance Company has its principal place of business in Stamford, CT and operates under NAIC Number 0031-11967. Insurance is placed with General Star National Insurance Company by licensed producers. General Star Indemnity Company is an eligible surplus lines insurer in all states, the District of Columbia, Puerto Rico, and the Virgin Islands. It has the status as an unlicensed insurer in California and operates under NAIC Number 0031-37362. Insurance is placed with the General Star Indemnity Company by licensed producers and, for risk that qualify, by licensed surplus lines brokers. Atlanta 404 239 6777

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People Brian McDonnell

Matt Noonan

Edgewood Partners Insurance Center named Brian McDonnell a managing principal, and the formation of a national construction specialty group. McDonnell will be based in EPIC’s Concord, Calif., office and report to Derek Thomas, chief strategy officer and co-leader of EPIC’s national specialty practices and programs group. McDonnell joins EPIC from Wells Fargo Insurance Services. EPIC is a retail property/casualty and employee benefits insurance brokerage and consulting firm. Matthew Noonan has been named principal of San Diego, Calif.-based Cavignac & Associates. He will participate on the company’s executive board of management. Noonan, who joined Cavignac & Associates in 2007, is an account executive in the agency’s employee benefits department. He spent five years in the financial services industry, managing a branch office of a national bank, prior to Cavignac & Associates Cavignac & Associates is a risk management and commercial insurance brokerage.

Lucy Jones

Jeff Huebner

Mark Sektnan

Kyle Richards

Seismologist Lucy Jones, the face of earthquake science and safety in Southern California, is retiring from the U.S. Geological Survey. Jones said in a Twitter posting that she’s leaving federal service but will remain at the California Institute of Technology. Jones has for years been the scientist the public has turned to when quakes strike. Jones ended her 33 years with the USGS on March 30. Jeff Huebner, vice president of treasury for CSAA Insurance Group, has been named chairman of the board of governors for the California Insurance Guarantee Association. Huebner joined CSAA Insurance Group in 2001 as manager of risk finance and captive operations. CIGA provides insurance for more than one hundred member companies, administering and paying claims for insolvent property/casualty carriers. CSAA, a AAA Insurer, offers automobile, homeowners and other personal lines of insurance to AAA members through partnerships with AAA clubs. Association of California Insurance Companies President Mark Sektnan has been named chairman of the board for the Civil Justice Association of California.

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Sektnan will serve a two-year term. His duties will include overseeing board meetings and serving on the CJAC executive committee. CJAC works in the state Legislature and the courts to reduce excessive litigation. ACIC is part of the Property Casualty Insurers Association of America. Woodruff-Sawyer & Co. has named Kyle Richards an associate producer in the Southern California office. Richards’ specialties include real estate, technology and manufacturing. He was an associate client executive at Marsh prior to Woodruff-Sawyer. Woodruff-Sawyer is an independent insurance brokerage, and a partner of Assurex Global and International Benefits Network. Susan Gordon, head of workers’ compensation underwriting at Zurich North America, was elected board chair of the California Workers’ Compensation Institute for 2016. Gordon most recently was the executive committee vice chair in 2015. Joining Gordon on the executive committee: Vernon Steiner, president of the State Compensation Insurance Fund; Rose Barrett, AIG; Martin Brady, Schools Insurance Authority; John Dickey, Liberty Mutual Insurance; John Gice, Travelers; and Kevin Harnetiaux, The Hartford Insurance Group. Also serving on the board of directors will be: Bryan Bogardus, CompWest Insurance Co.; Kris Mathis, Pacific Compensation Insurance Co.; Amanda Granger, ICW Group; Nora Greathouse, AmTrust North America; Eric Hansen, Preferred Employers Group; Diana Harrelson, Zenith Insurance Co.; David P. Mitchell, Republic Indemnity Company of America; Roger Moseley, Alaska National Insurance Co.; Janice Murphy, Kaiser Permanente; Christina Ozuna, Employers; Barbara Shandelands, CHUBB; and Paul Ziegler, Allianz Global Corporate and Specialty. The CWCI is a nonprofit that provides workers’ comp research, information, education and representation. Bruce Thompson has joined The Iroquois Group as a regional manager in Southern California. His background is in property/casualty, as well as life insurance, and includes experience as a producer, agency owner, and carrier territory manager. Thompson was the territory manager responsible for the Inland Empire for MAPFRE Insurance Co. prior to joining Iroquois. The Iroquois Group is headquartered in Allegany, N.Y. and has more than 2,250 member agencies. www.insurancejournal.com

Difficult? I Love Difficult. As the Assistant VP and local bar wench for the brokerage department, Cindy’s ready to serve – especially on those hard-to-place risks. Cindy’s your girl for commercial lines and risks: • Product Liability/ Manufacturers, Importers and Distributors • Contractors (including Wraps and Re-Wraps) • Commercial Property including Earthquake • Professional Liability • EPLI • Pollution Liability • Commercial Inland Marine • Ocean Marine Isn’t it nice to know that someone out there will respond? Give Cindy a call and find out why she’s everyone’s favorite!

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News & Markets Farmers CEO Remembers Joplin Tornado at California Gala By Don Jergler

eff Dailey, CEO of Farmers Insurance, turned what could have been a mere acceptance speech into a lesson-filled personal account of his first time seeing the devastation wreaked by the May 2011 tornado in Joplin, Mo. “Joplin was a major disaster,” Dailey said, offering a description looking down from his first aerial view of the path the EF5 twister tore across the community. “It looked like somebody erased a 6-mile swatch 20-miles long.” With that Dailey grabbed the attention of a large group of insurance professionals gathered to see him presented with the Insurance Industry Charitable Foundation’s Golden Horizon Award at the organization’s annual Horizon Award Gala on March 16 Farmers Insurance CEO Jeff Dailey remembered the Joplin, Mo., tornado while receiving the IICF Golden Horizon Award on March 16 at the Alexandria Hotel in downtown Los Angeles, Calif. at the Alexandria Hotel in downtown Los Photo by Daniell Klebanow/IICF Angeles, Calif. Dailey and the insurer group were recognized with the IICF award for the Los Angeles-based carrier’s efforts in helping rebuild the communities of Joplin, Mo., and Sea Bright, N.J., following the weather events that struck those communities. This annual Horizon Award Gala (formerly known as the Club100 Dinner) brought together insurance professionals from dozens of companies to support local nonprofits as part of IICF’s Western Division Community Grants program. Event proceeds are earmarked to benefit local nonprofits with targeted programs in child abuse prevention, disaster preparedness, education, and health and human services. Jon Axel, senior vice president of Hub International Insurance Services Inc. and ‘I believe that our Dailey was introduced by Horizon Award Gala Dinner chair, said the gathering was a “true testament to the industry is filled character and quality of our industry.” Steve Marohn, senior vice presiPhoto by Daniell Klebanow/IICF with some of the dent and Western zone officer of CNA and IICF Western division most generous, chair, who said he “epitomizes” community-minded the Golden Horizon Award. individuals.’ Marohn and Jon Axel, senior vice president of Hub International Insurance Services Inc. and Horizon Award Gala Dinner chair, both spoke before Dailey and called attention to the charitable nature of the industry. A large crowd of insurance professionals gathered for the Insurance Industry “I believe that our industry is filled with some of the most genCharitable Foundation’s Golden Horizon Award at the organization’s annual erous, community-minded individuals,” said Marohn said. Horizon Award Gala on March 16 at the Alexandria Hotel in downtown Los Angeles, Calif. continued on page W6 Photo by Daniell Klebanow/IICF

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News & Markets continued from page W4 Axel, who opened up the evening, looked out at the packed the room and said the gathering was a “true testament to the character and quality of our industry.” Farmers efforts were a big part of help-

ing to rebuild Joplin, Dailey said. He emphasized the value of the volunteer efforts from “hundreds of Farmers employees,” who helped the city rebuild far faster than the original seven-year

timeline from the Federal Emergency Management Agency at the time. “We had the entire city rebuilt in three years,” he said. Dailey said those kind of volunteer efforts go beyond the concept of helping others, and generate feelings of goodwill for the industry. “It is a tremendous benefit for us as an industry and as an organization to give back,” he told the IICF crowd. Among the good deeds Farmers was celebrated for at the ceremony was its creation of the Disaster Recovery Playbook, which compiles best practices for municipalities and communities in preparing for, responding to and recovering from disaster.

Farmers also donated thousands of volunteer hours and made financial contributions to support recovery efforts. The featured nonprofit for the evening, an element of each year’s gala ceremony, was the Center Theatre Group Young Audiences Program. The program brings thousands of students to matinee performances, while themes from the production are incorporated into their classroom learning. More than 5,000 students attended the program last year, with more than 53 percent of those students attending for the first time and roughly 66 percent were from low-income schools, according to the group. Through its grant program, IICF reinvests funds raised by a region back into that same region and its communities. IICF was established in 1994 and is directed and funded by the insurance industry. ABRAM16748.indd 1

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3/21/16 11:42 AM

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News & Markets Utah Judge Limits Suit over Drunken Attack at Ski Resort’s Oktoberfest

Utah judge in late-March tossed out part of a lawsuit filed by a family who says they were beaten by drunken revelers at a ski resort’s Oktoberfest celebration because the event has turned into a booze-fueled Rocky Mountain spring break. Snowbird ski resort officials who have also been under scrutiny from the state liquor board say they have never been cited for breaking alcohol rules at the Germanthemed festival, and the 2014 incident was the only one of its kind in more than 40 years. The family initially sued for unlimited damages, arguing that Snowbird let the men get too drunk and didn’t do enough to protect the family from the attack that happened after

they took a tram to a relatively isolated stop on the mountain. Judge Heather Brereton ruled that the family can only sue under a Utah law that makes bars liable for up to $1 million a person and $2 million per incident if patrons get too drunk and hurt someone. She dismissed claims that the resort didn’t have enough security to protect people. Lawyers for the plaintiffs — Brent Anderson, his wife, Laura, and their stepson Thadius Grzeskiewicz — say the lawsuit will still move forward. They say they were on the tram when a group of drunken men started singing explicit versions of a Mormon children’s song. When asked to quiet down, the men attacked, punching Anderson several times and threatening Grzeskiewicz along with his wife

“There is little success where there is little laughter.” -Andrew Carnagie

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July Explosion Leads to OSHA Fine for New Mexico Pot Business

medical marijuana dispensary in New Mexico has been fined for safety violations after an explosion badly burned two workers. The federal Occupational Safety and Health Administration spent about eight months investigating the July 23 explosion and found 12 serious health and safety violations. OSHA has ordered New MexiCann Natural Medicine to pay fines totaling $13,500. Online records show that inspectors verified in January that there were no continuing hazards. The explosion occurred while the two workers were making hash oil, which involves soaking marijuana in butane to extract THC, the active ingredient in pot. A report from the Santa Fe Fire Department said the blast was caused when a butane leak met with an ignition source. A report from the Santa Fe Fire Department said a butane leak from one of the lines met with an ignition source to cause the blast. Fire inspectors couldn’t pinpoint what caused the ignition, but noted that the extraction equipment is moved often and could have caused a leak in one of the butane lines. Copyright 2016 Associated Press.

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and baby, according to the lawsuit. Three of the men were arrested and later pleaded guilty to misdemeanor charges. The Utah Department of Alcoholic Beverage Control considered denying Snowbird a permit in 2014 for the event, but authorities changed their minds after critics said it would put the state’s staunchly sober image in an unflattering light. Copyright 2016 Associated Press.

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FIGURES

$3,099

The average auto repair cost per claim in New York, which is 28 percent higher than the countrywide average of $2,422, according to the National Association of Insurance Commissioners’ (NAIC) Auto Insurance Database Report published in January. The report used figures from 2012, the latest available.

DECLARATIONS

$5.8 Million

The judgment amount against Tyson Foods Inc. that was upheld by the U.S. Supreme Court in an employee pay dispute. Justices ruled 6-2 that Tyson was wrong in not paying employees at a pork-processing plant in Iowa for time spent putting on and taking off protective work clothes and equipment. Tyson is based in Springdale, Ark.

Delaware Bulletin

“All Delawareans should have access to quality health care, regardless of their gender identity.”

— Delaware Insurance Commissioner Karen Weldin Stewart on prohibiting health insurers from unlawfully discriminating against transgender Delawareans. Stewart said in her March 23 bulletin that any blanket policy exclusion for gender dysphoria, gender identity disorder, medically necessary surgeries or other treatments related to gender transition or related services is a violation of the Unfair Trade Practices Act.

Unconstitutional Curfews

“Unconstitutional gang injunction curfews forced several thousand black and brown residents of Los Angeles indoors on a nightly basis.”

— Olu K. Orange, an attorney for the plaintiffs in a massive lawsuit, said a decision by the city to spend up to $30 million to settle is a step toward recognizing that they matter.

35 $1 Million

The percentage of banks in Arkansas that have closed in the past decade. A lack of succession planning, the costs of fighting cyber attacks and competition with online mortgage companies that have no brick and mortar branches are some of the reasons cited for the closing of such institutions. There were 161 banks based in Arkansas at the end of 2005 and 104 at the end of 2015.

“Many insurers have jumped at the opportunity to design products to meet the needs of this new insurance market.”

— Melanie Smith, state affairs regional manager for the Property Casualty Insurers Association of America (PCI), praised South Dakota Gov. Dennis Daugaard for signing a law requiring commercial rideshare drivers to carry insurance for all phases of the rideshare experience. South Dakota is the 32nd state to approve such legislation.

Oklahoma Budget Crisis

“Due to efficiency and conservative spending, our unspent funds went to the other agencies and programs that desperately needed it. We will continue to do all we can to help Oklahoma weather this financial storm.”

That’s how much an Oregon woman is suing a spa for over claims that a massage she received in February was sexual battery.

$115 Million The amount a Florida jury awarded Hulk Hogan in his lawsuit against media company Gawker, which posted a sex tape of the former wrestling star on its website in 2012. Hogan said the tape was obtained illegally and posted without his permission, and sued the media company for invasion of privacy. Hogan was also awarded $25 million in punitive damages. www.insurancejournal.com

South Dakota Ridesharing

— With the state facing a massive budget crisis, Oklahoma Insurance Commissioner John D. Doak has requested that the Oklahoma Insurance Department (OID) no longer receive funds from the state. He said his office has the ability to function on the licensing fees it collects.

Drunk Driver Crackdown

“As a state, we’re definitely growing stronger in our crackdown on drunk drivers through our partnerships, through legislation and through public awareness. We see all that collaboration is helping.”

— Katie Richie, program director for the Tennessee division of Mothers Against Drunk Driving, on drunk driving arrests and fatalities. Tennessee saw 1,800 fewer arrests in 2015 than in 2014 and 165 fewer drunk driving arrests.

April 4, 2016 INSURANCE JOURNAL-NATIONAL | 11

NATIONAL COVERAGE

Business Moves

AmWINS Group, Group Benefit Services AmWINS Group Inc. has acquired Group Benefit Services Inc. and GBS Payroll Plus Inc., known collectively as Group Benefit Services, in Hunt Valley, Md. Terms of the transaction were not disclosed. Founded in 1980, Group Benefit Services is a third-party administrator and general agent offering products and services to support the distribution, delivery and administration of employee benefits and healthcare services. Group Benefit Services provides employee benefit services to both fully-insured and self-insured groups. AmWINS said the acquisition would help grow AmWINS’s Group Benefits presence in the Mid-Atlantic region and complement its existing Group Benefits division capabilities. The deal would help AmWINS’s Group Benefits division enhance its mid-market self-funded product offerings and expand capabilities in fully-insured product administration, AmWINS said. Group Benefit Services, with more than 200 employees, represents more than 20 insurance carriers while supporting in excess of 8,000 employer groups nationwide through its relationships with more than 800 benefits brokers. Established in 1998, AmWINS is a Charlotte, N.C.-based wholesale brokerage 12 | INSURANCE JOURNAL-NATIONAL April 4, 2016

with nearly 100 locations around the world and more than 3,600 employees. AssuredPartners, MRW Group AssuredPartners Inc. has acquired MRW Group Inc., an independent agency based in Hauppauge, N.Y. Terms of the transaction were not disclosed. MRW Group’s staff of 25 will continue to provide risk management and insurance services under the leadership of President Rich De La Sota. MRW Group offers a multitude of insurance products, including personal, business, life and employee benefits. The agency reports approximately $4.2 million in revenues. Based in Lake Mary, Fla., AssuredPartners acquires and invests in insurance brokerage businesses (property/ casualty, employee benefits, surety and MGU’s) across the U.S. and in London. Marsh & McLennan, Aviation Solutions Marsh & McLennan Agency LLC (MMA), the middle-market agency subsidiary of Marsh, has acquired Aviation Solutions LLC, an aviation risk advisor and insurance broker based in Lee’s Summit, Mo. Terms of the transaction were not disclosed. Founded in 2004, Aviation Solutions offers customized aviation risk insurance programs for individual, corporate, and commercial clients across the United States. Aviation Solutions will operate out of MMA’s existing Overland Park, Kan., office, which is part of MMA’s upper Midwest region. Hub International, Greene-Hazel & Associates Inc. Global insurance brokerage Hub International Ltd. (Hub) has acquired the assets of Greene-Hazel & Associates Inc., based in Jacksonville, Fla. Terms of the acquisition were not disclosed. Greene-Hazel specializes in providing multiline insurance, including property

and casualty, personal lines and employee benefits. Greene-Hazel’s CEO, Chip Greene, will join Hub Southeast and report to Chris Gardner, CEO of Florida, Hub Southeast. Headquartered in Chicago, Hub International Ltd, provides property and casualty, life and health, employee benefits, investment and risk management products and services from offices located throughout North America. Protector Holdings, BetterWay Insurance Protector Holdings has acquired Concord, Calif.-based BetterWay Insurance Services. Terms of the deal were not released. BetterWay specializes in providing insurance services to Hispanic consumers, and writes auto, motorcycle, RV, boat, homeowners and renters insurance coverage from additional California locations in Fairfield, Sonora and Visalia. Protector Holdings was founded in 2013 as a partnership between EPIC, a retail property/casualty and employee benefits insurance broker/consultant, private equity firm Dowling Capital Partners, and Premier Insurance Services. Northwest Bank, Best Insurance Northwest Bank, based in Warren, Pa., has acquired Best Insurance Agency Inc., an employee benefits and property/casualty insurance agency in Butler, Pa. Terms of the transaction were not disclosed. Best Insurance Agency currently has 11 full-time employees, 10 of whom are joining Northwest Bank. Rick McClean, the agency’s corporate treasurer, will be retiring after 43 years of service. Best Insurance Agency principals Don Best, Carol Best McClean, Mike Reese and Ray Rosenbauer will continue to operate from their current Butler location as representatives of Northwest Bank. In its 100th year, Best Insurance has provided personal and commercial insurance in Butler and the surrounding area. Northwest Bank launched its insurance brokerage division in 2010. In 2015, the division had $7.9 million in revenues. www.insurancejournal.com

WT Phelan, Martini Insurance WT Phelan & Co., an independent insurance agency based in Belmont, Mass., has acquired Martini Insurance Agency in Woburn, Mass. Terms of the transaction were not disclosed. Martini Insurance was founded in 1960 by John C. Martini. He is retiring from the insurance industry and has selected WT Phelan for the sale. Martini Insurance’s eight staff members — including the agency founder John C. Martini’s three children, Julie, Michael and Kathy — have joined WT Phelan and will stay on at the Woburn office. Established in 1898, WT Phelan is a fourth-generation, family owned and operated agency with more than 50 employees. The Hilb Group, RWO The Hilb Group, a middle-market insurance agency based in Richmond, Va., has

acquired Raley, Watts & O’Neill (RWO), an independent agency based in the town of California in Maryland. Terms of the transaction were not disclosed. The Hilb Group said the RWO acquisition will strengthen its Mid-Atlantic arm. RWO offers general insurance products and services, and a variety of specialty programs for healthcare facilities, social services providers, federal contractors, fire and EMS organizations, and marinas. Rick Tepel, RWO’s chief executive officer, and Gordon O’Neill, president, will continue to lead RWO’s 21 employees under its existing name. RWO has offices in California, LaPlata and Columbia, Md., as well as an office in Charleston, S.C. All four locations will continue to operate after the transaction. Marshall & Sterling, Valley Group Marshall & Sterling Insurance has

acquired the Valley Group Inc., an insurance and financial services agency based in Kingston, N.Y. Terms of the transaction were not disclosed. Founded in 1927, the Valley Group’s operations will continue at their two current locations, under the name the Valley Group, a division of Marshall & Sterling. The Valley Group’s 15 employees will join Marshall & Sterling and transition to become employee-owners through Marshall & Sterling’s Employee Stock Ownership Plan (ESOP). The Valley Group President and CEO Kevin Ryan will be vice president and branch manager for the Kingston and Hopewell Junction offices. Michael Ryan, principal and registered investment advisor for Valley Group, will be vice president for Marshall & Sterling Wealth Advisors Inc., a subsidiary of Marshall & Sterling Enterprises Inc.

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April 4, 2016 INSURANCE JOURNAL-NATIONAL | 13

SPOTLIGHT

High Net Worth Prepare for Disruption in High Net Worth Insurance Segment

CEâ&#x20AC;&#x2122;s $28.3 billion purchase of Chubb will create a major disruption in the luxury insurance market. When the integration of the two insurers is complete, the new company is anticipated to control approximately $6 billion of annual premiums on personal insurance, of which $4.6 billion will represent the high net worth segment, according to The Wall Street Journal. The merger will By Gregory Hoeg also decrease the total number of major insurers focused on the high net worth segment. While this has prompted some commentators to sound warning bells about a possible oligopoly forming in the space, the current consolidation thatâ&#x20AC;&#x2122;s unfolding in the high net worth insurance market could actually be the great opportunity for other firms that have been angling for some time. The high net worth client segment has been and will continue to be a strongly pursued segment for all financial institutions. The unique needs of this group for financial products and services combined with their ability to pay for them makes the group attractive to serve. In the North American insurance industry, where the number of high net worth individuals is highest, competition for the business of these individuals has been fierce over the years. But will other insurers see an opportunity to capture more market share by luring away clients not happy with the combined company? This is a critical issue now that the industry appears to be in another soft market with prices, and therefore margins, down on most lines of business. The high net worth segment has, for most companies serving it, been a high margin and reliable 14 | INSURANCE JOURNAL-NATIONAL April 4, 2016

book of quality business in difficult times. No doubt several of the traditional competitors, and possibly some new entrants into this segment, will seek to gain market share in 2016 and beyond. The most difficult issue facing these companies is knowing how to win over customers in this segment. Their needs are different from those of most individual insureds and their expectations for service are high. Investing time and capital in the wrong products, services and supporting infrastructure could be devastating for a carrier, especially in a soft market. Having a deeper understanding of the drivers of customer satisfaction and how this market differs from the market generally is key to making the right investment in this business. Understanding their needs requires knowing how to analyze the responses to the right questions to identify what are the true drivers, not merely stated drivers of customer satisfaction. Beyond that, each insurer interested in this segment must be able to align the identified drivers of high net worth customer satisfaction with product and service features best suited to address them. This implies understanding the cost/benefit trade-off related to customer satisfaction so that a carrier does not over-invest in satisfaction efforts.

Commercial Insurance Potential Because the opportunity of capturing high net worth individual clients also includes the potential of capturing commercial insurance business with which these individual clients are associated, impressing high net worth clients can pay off in premium many times as great as their individual premium. Most of them will need something beyond only their individual experience with a carrier to get them to recommend one to their companyâ&#x20AC;&#x2122;s risk manager. Once this hurdle is overcome, the rewards for the insurer multiply. This is why competition for this customer segment is so fierce. It is also why the merger of ACE and Chubb should be sparking more competition for this segment. No one can be sure if the merged ACE/Chubb entity will be able to retain its leadership position with high net worth insureds. It has never been an easy challenge for insurers to provide products and services for specialty segments, but those who are successful at it reap great rewards for the effort. Understanding the needs and preferences that drive the insurance buying behaviors of the high net worth segment is not part of the expertise of most carriers, yet it is critical to their success in this market. Merely understanding the unique technical risk aspects is not enough. Hoeg is VP, insurance operations at J.D. Power

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SPOTLIGHT

10 Things to Know About Public Entities and Schools When underwriting an educational institution for the purposes of sexual assaults and Title IX, a little further digging may be required. Looking into who the people are who will be responsible for Title IX compliance and investigations is an extra step that could provide a better assessment of the risk. — Claudia A. Costa, special counsel and a member of the professional liability department at Marshall Dennehey Warner Coleman & Goggin The higher education space faces a complex legal landscape particularly with respect to issues such as discrimination under Title IX, educators’ professional exposures and the challenge of making sure that board members are adequately protected for their personal liability. It’s important to work with a carrier that has the specialized underwriting and claims experience in this marketplace, and to provide risk management resources to help your clients with these challenges. — Tom Herendeen, nonprofit directors and officers’ product manager for Travelers

Educators legal liability (ELL) insurance is designed to cover a range of non-bodily injury/non-property damage liability claims made against the administrators, employees, and staff members of both schools and colleges. ELL, also known as “school board legal liability insurance,” is a hybrid of traditional directors and officers and errors and omissions coverages. — International Risk Management Institute

16 | INSURANCE JOURNAL-NATIONAL April 4, 2016

The liability exposure faced by a public official from “wrongful acts” is usually defined under public officials liability insurance policies as actual or alleged errors, omissions, misstatements, negligence, or breach of duty in his or her capacity as a public official or employee of the public entity. — International Risk Management Institute

An aging workforce was the top concern of higher education risk management professionals (57 percent), followed by returning employees to work (56 percent) and controlling claims frequency (39 percent). — Poll of higher education risk management professionals conducted by PMA Cos. and the University Risk Management and Insurance Association

Elementary schools (66,689) outnumbered secondary schools (24,357) in the U.S. as counted in 2015. — U.S. Department of Education, National Center for Education Statistics

The number of private schools has risen since 1980. As of 2012, there were 30,861 private schools compared with 20,764 in 1980. — U.S. Department of Education, National Center for Education Statistics

The Los Angeles Unified School District in late 2014 agreed to a settlement awarding nearly $140 million to dozens of Miramonte Elementary School students who had filed a civil lawsuit against the district over its handling of the sexual abuse case of a former teacher. It is considered the largest civil settlement L.A. Unified has ever agreed to in a sex abuse case. — Insurance Journal Nearly half of higher education risk management professionals (46 percent) say their workers’ compensation claim costs increased during the past three years, while 22 percent saw a reduction. — Poll of higher education risk management professionals by PMA Cos. and the University Risk Management and Insurance Association

Male risk managers earn an average of $110,791 annually compared with an average of $96,628 annually for women. — University Risk Management & Insurance Association 2015 survey

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MyNewMarkets Brokerage Property Market Detail: Maximum (www.maxib.com) has wholesale access to more than 50 markets and is licensed in 50 states with both brokerage and underwriting facilities available. Industry expertise includes: construction, energy, gaming, healthcare, habitational, manufacturing, real estate investment trusts (REITs), real estate and vacant buildings. Available limits: Minimum $25,000, maximum $1.5 billion Carrier: Various, admitted and nonadmitted available States: All states Contact: Leanna Rak at 312-559-9343 or email: leannar@maxib.com

Carrier: Unable to disclose, admitted and nonadmitted available. States: All states Contact: Brian Thornton at 484-321-2335 or email: brian.thornton@ prowritersins.com

Affordable Housing Market Detail: Hai Group (www.housingcenter.com) offers an affordable housing insurance program with an “A” rated, admitted carrier designed for commercial multifamily apartment risks with portfolios containing at least 20 percent subsidized or low-income housing. Coverage is available for property and general liability. The program is targeting accounts with more than 200 units and favorable performance. Coastal properties have wind restrictions. This is not a market for student housing, construction, substandard risk (such as vacant buildings). The portfolio may not contain assisted living, restaurants or significant commercial exposure (office exposure acceptable). Am agency contract and appointment are necessary. Available limits: As needed Carrier: Housing Enterprise Insurance Company States: All states except Alaska, Fla., Hawaii, and N.Y. Contact: Roque Orts at 203-272-8220 or email: rorts@housingcenter. com

Cyber, Privacy & Data Breach Insurance Market Detail: ProWriters’ (www.prowritersins.com) has a new cyber/privacy program for accounts with less than $100 million in revenues. Quotes can be turned around same day. Coverage features include: limits of $500,000, $1 million and $2 million available; coverage available for risks up to $100 million in revenue; retentions available ranging from $5,000 to $25,000 — scaled based on revenues; full limit for breach notification costs, with an option for breach costs outside the limit; full limit for computer forensics; and duty to defend policy. Also available: coverage for breach of contract claims, including those under a payment card processing or service provider agreement; coverage for regulatory actions, including investigations by the federal trade commission (FTC) or state attorneys general, as well as coverage for civil penalties (where allowed), and compensatory awards such as consumer redress funds; $25,000 of PCI fines coverage and PCI remediation coverage included at no additional premium. Additional coverages can be added including: multimedia liability; hacker damage; cyber business interruption; and cyber extortion. Available limits: Minimum $500,000, $10 million www.insurancejournal.com

Non-Medical Miscellaneous E&O Market Detail: Healthcare writer Proassurance Mid-Continent Underwriters (www.proassurancemidcontinent.com) has the ability to underwrite professional liability for nonmedical related risks. Coverage is claims-made with the option to add contingent bodily injury/property damage. The policy is worldwide and key classes include consultants, home inspectors, title agents, associations, medical billing and collection agencies. Available limits: Minimum $100,000, Maximum $2 million Carrier: Unable to disclose, admitted States: Lloyd’s Contact: Customer service at 713-965-6900

Environmental Market Detail: Breckenridge Insurance Services (www.breckis. com) covers a range of considerations with tailored coverage for even the most challenging environmental risks. Target classes include: above and underground tanks; airports; asbestos, lead and mold abatement; chemical risks; contractors (across the board); fire and water restoration contractors; golf courses; hazardous waste transporters; hotels, motels and resorts; laboratories and testing firms; main street stores; manufacturers and distributors; onsite cleanup; public swimming pools; recycling facilities; repair garages; restaurants; tank inspection contractors and removal companies; and waste treatment facilities. Lines of business include: commercial auto liability; commercial excess liability; commercial general liability; contractors pollution liability (job specific); environmental liability; lender environmental liability; products pollution liability; professional liability; site pollution liability; storage tank liability; and workers’ compensation. Submission requirements include: Acord forms; supplemental application; and five years currently valued loss runs. Available limits: As needed Carrier: Unable to disclose, admitted and nonadmitted available States: All states Contact: Breckenridge Insurance Services at email: partner@ breckis.com April 4, 2016 INSURANCE JOURNAL-NATIONAL | 19

SPECIAL REPORT

Cyber Risk Growth in Cyber Coverage Expected as Underwriting Evolves

By Stephanie Jones and Andrea Wells

ith cyber insurance premiums expected to grow from around $2 billion in 2015 to an estimated $20 billion or more by 2025, insurers and reinsurers are continuing to refine underwriting requirements, according to industry observers with expertise in the area. “Take up rates are growing astronomically for this line of business and really for good reason,” said Jim Rice, senior business development executive at Xuber, a software

Web Resource: To listen to the podcast interview with Jim Rice, senior business development executive at Xuber, visit: www.insurancejournal. tv/videos/13287/

20 | INSURANCE JOURNAL-NATIONAL April 4, 2016

vendor focused on the MGA, insurance and reinsurance sector. The potential is high for a widespread cyber event and underwriters are taking notice, he said. Standalone cyber insurance purchases among U.S.-based Marsh clients increased 27 percent from 2014 to 2015, driven mainly by an increasing awareness and appreciation of cyber risk, according to Marsh’s “Benchmarking Trends: Operational Risks Drive Cyber Insurance Purchases.” The broker said this continues a pattern of strong growth in cyber insurance purchasing, which grew 32 percent increase in 2014 over 2013, and 21 percent increase in 2013 over 2012. “This purchasing is supported by more than 50 carriers from around the world that potentially can provide more than $500 million in capacity,” said Matthew P.

McCabe, senior vice president, Marsh LLC in recent testimony before the Homeland Security Subcommittee on Cybersecurity, Infrastructure Protection and Security Technologies. “Underwriting requirements are rising and both insurers and reinsurers are increasing their retentions, as well,” added Rice. “In some cases, we’re seeing some capacity reduction in some players who saw an opportunity, and are leaving the market altogether and really focusing their attention on other lines of business.” In addition to well publicized “hacktivist” incidents, the simple fact that nearly all businesses are vulnerable to attacks may be one reason for the increased interest in cyber coverage. There’s “no question of whether a business will be a victim of a cyber attack, it’s really a question of when a business is going to be a victim,” said Ted Shaer, an attorney with Zarwing Baum DeVito Kaplan Shaer Toddy PC in Pennsylvania. It’s a potential threat for which all businesses need to prepare, he added. “Any business that stores data that has value, personal information or financial data is going to be a target,” Shaer said during an A.M. Best law webcast on cyber risks. So far, the cyber line has been untested in terms of claims-paying ability, according to Rice, who’s based in Detroit. While there have been large losses, such as those at Sony, Target and Anthem, to date there has been no widespread, catastrophic occurrence to test insurers’ ability to pay claims on these losses. And there has been no indication that insurers are not paying the claims that have come in so far. The insurance market as a whole is in a far better financial position than it was following the hurricane season of 2005, which included Hurricane Katrina and multiple other large-scale cat events, Rice noted. But, “cyber is a different animal, and …the nature of potential catastrophic cyber loss is likely far more reaching than the industry probably understands. Therefore, as cyber www.insurancejournal.com

matures and loss and underwriting data become more available, I think we’re going to see a lot more specialization in the cyber market, as we’re seeing now,” Rice said. Two Moving Pieces Market immaturity and lack of standardization are two reasons why underwriting cyber products today make it an interesting place to be in the insurance world, says Timothy Zeilman, vice president of Hartford Steam Boiler, part of Munich Re. Zeilman recently developed a stand-alone insurance product, HSB Total Cyber, which offers mid-size companies direct coverage for data and cyber exposures. “For one thing, cyber insurance is an immature marketplace, a fairly new marketplace, developed in the late ‘90s,” Zeilman said. Zeilman added the market has yet to reach a point where it’s standardized in any way, as well. “If you look at 10 different cyber liability policies, you’re likely to find 10 different packages of coverage,” he said. It’s like working with two moving pieces at the same time. “It’s still very immature, the coverage itself is changing, and the market is trying to find a standard,” he said. At the same time, the exposures are changing dramatically. Exposures are technology based, but they’re also human behavior based, Zeilman said. “Unlike most other kinds of insurance, you’re not insuring against something that exists in nature. You’re insuring primarily against criminal behavior by other human beings.” And that can be risky. “Not only do you have an insurance marketplace that’s trying to reach a standard and accommodate the needs of today’s insured, but you also, at the same time, have a rapidly developing exposure landscape.” There also haven’t been any high profile coverage disputes to help define what will and what will not be covered in cyber policies going forward, according to Lynda Bennett, a partner the law firm of Lowenstein Sandler in the New York/New Jersey area. She said cyber insurance policies have “given new meaning to a complex and difficult to navigate insurance product.” www.insurancejournal.com

Over the last several years, traditional commercial general liability policies have begun to include cyber exclusions, “because the insurance industry is moving in a direction of developing products dedicated specifically to covering cyber risk. It just is becoming a more prominent issue and concern. They’re trying to isolate all of the different coverage grants that touch and concern data, privacy-related issues, all in one product,” Bennett said. The market today continues to be “volatile, because we still have a number or insurers that are entering and leaving the market of even providing this type of coverage. There are upwards of 40 different types of insurance policy forms out there,” she said. Bennett compared the development of cyber coverage with the early days in the evolution of coverages such as environmental and employment practices liability, where it took several years before claims and coverage disputes were litigated and policies began to be stabilized. There are carriers that are emerging as leaders in the cyber area and they too are continuing to adjust the coverages, Bennett said. “What I find interesting and a trend that’s developing with those leaders … is that they’ve developed policy forms, but they’re still tinkering one year over the next. On renewal, the terms and conditions are still very different. Some things are being taken

back through exclusions. There are some enhancements that are being added to make the policies more attractive,” she said. Part of the problem is simply a lack of claims data, Zeilman said. “When you’re starting to develop or underwrite a new insurance product, obviously the best place to look is historical claims data. For most other kinds of insurance that sort of a data is available through industry institutions like ISO and others. That’s simply not there for cyber insurance.” According to Zeilman, the market has been fragmented, so there’s been no sharing of data. While ISO is now trying to gather cyber claims-related data, it’s still in the early days. “Even the people who’ve been doing this for a relatively long time have been doing it for 10 years or less, so even individual companies don’t have a lot of their own loss data,” Zeilman said. “It’s an interesting place, and certainly some creativity and a sense of innovation is required in order to try to underwrite risks in this area.” It’s true that relative to other coverages — property, general liability, even employment practices — it takes some time for coverage to solidify around claim precedent and that’s still happening in the cyberspace, said Tim Francis, enterprise lead for cyber insurance at Travelers. But the industry has witnessed enough data breaches that “coverage has begun to be a little bit more continued on page 22

April 4, 2016 INSURANCE JOURNAL-NATIONAL | 21

SPECIAL REPORT

Cyber Risk continued from page 21 standard than maybe it was two, three, four years ago.” There are still plenty of differences in one carrier’s cyber coverage form versus another carrier’s cyber coverage form to be cautious, Francis said. “But as we see more claims, we’ll have a better body of case law to act upon,” Francis said. Even so, there are enough cases and cyber related claims “out there that you’re starting to see some commonality in language and approach.” Some carriers are beginning to specialize in certain as to types of cyber risks, as well, according to Rice. “For instance, there are cyber markets seeking just healthcare risks or markets seeking combinations of retail and other related industries. Naturally, each will come with their own policy forms and sets of exclusions including their own available capacities reflective of certain market segment experience,” he said. Broker Specialization Specialists brokers are an important part of the coverage equation when it comes to protection for cyber risks, according to Bennett. “There are brokers that specialize in placing cyber insurance policies. That’s literally all that they do every day, all day long. They

22 | INSURANCE JOURNAL-NATIONAL April 4, 2016

are on top of all of the they know it or not,” he ‘As cyber matures and different policy forms said. loss and underwriting that are out there. They He added that a are negotiating with the data become more standalone cyber-liabilavailable, I think we’re underwriters at all of ity policy is not always these insurance compa- going to see a lot more required. nies,” she said. “Typically, businesses specialization.’ Bennett said she’s with say less than $10 seen clients make big million in annual revmistakes by using a typical broker to place enues, which don’t store or process large this type of specialized policy. amounts of sensitive data, may not need “Even though I’m sure the broker standalone cyber policy. Instead, they may approaches it using their best skill set posbe able to endorse the coverage onto their sible, when you’re not living and breathing existing commercial business policy,” Rice these policies day to day, as the terms are said. changing on a mere weekly basis, you’re not Because cyber insurance comes in all in a position to provide the best service and varieties, shapes and sizes, “when it comes the best advice and the best placements for to advising clients, agents and brokers your clients,” Bennett said. shouldn’t just take into account afforded She advised agents and brokers without coverage limits, but the additional services someone on their team dedicated to staying and expertise that comes with the product,” on top of developments in the cyber insurRice said. ance market to affiliate with brokers that “Having sufficient limits in place in tando specialize in placing cyber coverage. dem with coverage that’s really best suited Agents and brokers also need to underfor the insured’s needs in the event of a stand no matter how large or small their breach not only puts the insured in the best clients may be, there’s a good chance that … position, but it places a high value on they need some sort of cyber liability covthe agent or broker especially in their clierage, Rice said. “Any business that comes ent’s hour of need,” Rice said. with data, whether transactional or any Travelers’ Francis advises agents who are other, is susceptible to cyber risk, whether trying to make a determination as to which carrier they want to purchase cyber insurance from, to not just look at the policy cover, but also examine what network of services come with that policy. “If there is an event that happens, what does the claims response team with the carrier look like? What other companies might they partner with — whether it be a breach coach, which is often used to be the legal liaison between the consumer and other breach constituents — forensic vendors, notification vendors, call centers,” Francis said. “Having that all set up and prepackaged ahead of time, and having a carrier that has those relationships, and knowing what those are, is critically important.” All of those services together are becoming, more often than not, part of the overall package of cyber insurance, Francis said. www.insurancejournal.com

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SPECIAL REPORT

Cyber Risk

Uncertainties Outweigh Growth Benefits When P/C Insurers Take On Too Much Cyber Risk, Rating Agency Warns By Andrew Simpson

f they are not careful, property/casualty insurers could jeopardize their credit ratings with their expansion into standalone cyber insurance, a rating agency has warned. Cyber attacks pose dangerous risks and uncertainty within many industries, and thus “aggressive expansion” by insurers into cyber insurance could be credit negative for carriers, according to Fitch Ratings in a report, “Global Cyber Insurance Update: Expanding Threats Amplify Underwriting Opportunity, Loss Potential.” According to Fitch, cyber risk insurance is the fastest growing segment in property/ casualty insurance, with an estimated $3 billion in premiums in 2015 that is expected to triple within four years. Approximately 50 insurance carriers now offer some form of standalone cyber insurance coverage. Yet there remains considerable uncertainty surrounding potential losses, proper pricing and appropriate policy terms, notes the report. The uncertainties of the market outweigh the potential benefits, Fitch said. “Cyber risks are a broad peril affecting organizations of all sizes and in all market sectors. Insurance losses can materialize from several existing products including standard commercial liability, property, business interruption and professional 24 | INSURANCE JOURNAL-NATIONAL April 4, 2016

liability and potentially several unforeseen product lines,” said James Auden, managing director at Fitch. Auden said that while catastrophes, natural disasters and other risks are fairly well modeled and understood, modeling and available data for cyber risk are in their infancy. “Determining loss exposures from a cyber catastrophe is difficult, as it requires an assessment of events that are feared, but not yet experienced in reality,” Auden said. The report says an attack on a power grid or other major infrastructure could have a wider geographic scope than a natural disaster or conventional bomb attack. The lack of past precedents raises questions regarding claims and coverage. Also, the relative newness of cyber risk creates challenges in establishing policy terms and in pricing risks. Fitch said it would view “aggressive growth” in standalone cyber coverage, or movement to high portfolio concentration, as ratings negatives. “Underwriting, pricing and reserving uncertainties currently outweigh the potential earnings growth benefits,” Auden said. Controlled growth as part of a diversified portfolio, coupled with continually enhanced underwriting standards, would generally be neutral to ratings, Fitch said. Evolving Ability Fitch said it believes that insurers’ ability

to monitor and evaluate cyber risks will continue to evolve. Regarding pricing, insurers do appear to be adjusting their rates. Cyber insurance was the only line in the third quarter of 2015 where insurers saw consistent and large rate increases, which averaged more than 15 percent in the United States, according to an analysis from Marsh. There are indications that insurers are being cautious in their underwriting as they jockey to be part of a market pegged to grow to $20 billion by 2025. “The potential is high for a widespread cyber event, and underwriters are taking notice,” according to Jim Rice, a senior business executive at Xuber, who said insurers and reinsurers are continuing to work out underwriting requirements (see page 20), “Underwriting requirements are rising, and both insurers and reinsurers are increasing their retentions, as well,” said Rice. “In some cases, we’re seeing some capacity reduction by some players who saw an opportunity and are leaving the market altogether and really focusing their attention on other lines of business.” Along with Fitch, Rice believes the cyber line has been untested in terms of claims-paying ability thus far. While there have been large losses, such as those at Sony, Target and Anthem, there has been no widespread catastrophic occurrence to www.insurancejournal.com

test insurers’ ability to pay claims on these losses. “[T]he nature of potential catastrophic cyber loss is likely far more reaching than the industry probably understands,” Rice said. “As cyber matures and loss and underwriting data become more available, I think we’re going to see a lot more specialization in the cyber market, as we’re seeing now.” Kevin Kalinich, global practice leader for cyber/network risk at Aon Risk Services, said that as the market develops, providers will need some time to model risk sufficiently and to set premiums accordingly. This is difficult, Kalinich said, because the threat is evolving quickly. He said two decades of reliable data are needed to feed models. “We’re much farther along than we were two years ago; we have much better information now,” he said. “But it’s not a static model. It The uncertainties changes over time and in of the market two years, currently it will be outweigh the much betpotential ter.”

security insurance report to NAIC on their claims, premiums, losses, expenses, and in-force policies in these areas. It requires separate reporting of standalone policies and those that are part of a package policy. The first batch of company filings was

“

due April 1. “With this data, regulators will be able to more definitively report on the size of the market, and identify trends that will inform whether more tailored regulation continued on page 26

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benefits.

Legal and Regulation Another reason insurers should be cautious is because there haven’t been any high-profile coverage disputes to help define cyber coverage, according to Lynda Bennett, a partner at the law firm of Lowenstein Sandler in the New York/New Jersey area. She said cyber insurance policies have “given new meaning to a complex and difficult-to-navigate insurance product.” State insurance regulators share the anxiety over this market. The National Association of Insurance Commissioners (NAIC) has begun collecting financial data on cyber security and identify theft coverage data in required insurer financials. According to Adam Hamm, North Dakota insurance chief and head of NAIC’s cyber task force, this mandatory data supplement requires that all insurance carriers writing either identity theft insurance or cyber www.insurancejournal.com

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Cyber Risk continued from page 25 is necessary,” Hamm said. He said the data will enable regulators to better understand the cyber security market and help them know what to look for as the market grows particularly if small and mid-size carriers increase their cyber business. Cyber Demand At the same time that insurers and regulators are learning about cyber risk, so are insurance customers. Matthew McCabe, senior vice president with insurance broker Marsh, told lawmakers in Washington that his firm’s U.S.-based clients purchasing standalone cyber insurance increased 27 percent in 2015 compared with 2014. That followed a 32 percent increase in 2014 over 2013, and a 21 percent increase from 2012 to 2013. This purchasing is supported by more than 50 carriers around the world 1 A&M IJfrom Personal Umbrella.pdf

that potentially can provide more than $500 million in capacity, he said. Fitch noted, for example, that market limits are increasing, and cites Marsh & McLennan data showing large companies (with revenue above $1 billion) purchased 22 percent higher cyber insurance limits, on average, during 2014. Financial institutions are purchasing the highest limits, and education is buying the lowest limits, according toAM Fitch. 12/28/15 10:22

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Buyers have been seeking to buy more coverage than insurers are willing to offer, and even insurers with larger market shares have been cautious due to the lack of actuarial data. Insurers have been writing policies with low limits and excluding damages resulting from data handled by an external contractor. Sarah Stephens, partner and head of Cyber, Technology and Media Errors and Omissions at JLT Specialty Ltd., said there were definitely some insurers in the past few years writing cyber with very little information, but that approach has not been sustainable. “Insurers have swung the pendulum a little bit back to actually asking for detailed information, and really trying to differentiate a good risk from a bad risk. They’ll continue to do that,” she said. Manny Cho, regional underwriting manager at Axis Pro in San Francisco, said carriers are “picking and choosing” the different areas where they feel most comfortable. “The interest in cyber is phenomenal right now. It’s never been hotter. This is a product line that’s been around for only 15 years. 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. According to Newman, insurers are reevaluating their products and pricing, while new players are entering and others are leaving. “The interesting thing is going to be how it develops over the next 12 to 24 months,” Newman said. www.insurancejournal.com

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Young Agents Survey

Young Agents’ Optimism High on Career Choice, Income and Future of Agency System By Andrea Wells

t’s no secret that the insurance industry is facing a huge talent gap. Almost half of

all insurance professionals are over age 45, with 25 percent of the industry expected to retire by 2018. That’s a concerning trend for the property/casualty industry but one that could offer opportunity for young agents of today and tomorrow. 9.5% Optimism is higher 24.5% today among young insurance agents than 27.7% in the recent past, 14.2% according to results 8.9% from Insurance Journal’s 4.5% 2016 Young Agents Survey. The aging of 3.8% the insurance industry 6.8% is one reason young professionals see a 25 30 35 bright and secure

What Young Agents Earn Under $30,000 $31,000 to $50,000 $51,000 to $75,000 $76,000 to $100,000 $101,000 to $125,000 $126,000 to $150,000 $151,000 to $200,000 More than $200,000

28 | INSURANCE JOURNAL-NATIONAL April 4, 2016

future career. From young agents’ views on their own career and the U.S. economy to their own agencies’ ability and the overall industry’s ability to attract quality talent — the future looks bright, according to the more than 500 young agents responding to this year’s survey. “I believe that the insurance industry is a great way to start a career,” said a young agent responding to the survey. “You’re always learning and a lot of individuals will be retiring. Who will replace those people? Young insurance agents!” Another Millennial agent described the property/casualty industry as “one of the top industries to consider.” She said: “The industry is just starting its technology revolution and recognizing the value that young www.insurancejournal.com

Profile of Young Agents Older Side of Young

Young Agents’ Outlook on Their Career 4.2% 9.8%

26.7%

Very Optimistic 59.2%

Optimistic Cautious Not Optimistic

professionals can bring in that space.” More young agents (32.1 percent) view the independent agency channel’s ability to advance in technology as “very optimistic” in 2016 compared to 2015 when just 22.7 percent took that view. There also appears to be a growing level of optimism when it comes to their own career. The survey found that nearly 60 percent of young agents consider their outlook on their career as “very optimistic,” which is up from 51.6 percent in 2015. One young agent noted: “There is job security in the industry if you find the right place to work because of the shortage of agents.” The survey found there’s a growing percentage of young agents who feel “very optimistic” on the overall outlook on the future of the independent agency system, as well. Some 41.5 percent of respondents said they felt “very optimistic” in 2016 whereas just 35.5 percent felt “very optimistic” about the independent agency channel’s future in 2015. Overall, young agents feel confident that the industry and their own agencies will attract quality talent to fill the talent gap in the coming years. In 2016, more than half (56.6 percent) of young agents reported feeling “very optimistic” or “optimistic” about their agency scooping up quality employees while 43.2 percent rated the overall P/C industry’s ability to attract quality talent as “very optimistic” or “optimistic.” Even young agents’ outlook on their future earning potential seems to be looking up, according to this year’s survey. The survey found young agents feel more confident about their ability to grow their income and market share in both personal and commercial lines in 2016. Some 84.0 percent feel “very optimistic” or “optimistic” about earning a higher income in 2016 continued on page 30 www.insurancejournal.com

62.5% are 31 to 40 years old; 37.5% are 30 and under.

Career Choice

85.05% consider insurance to be a permanent career choice; 13.3% are unsure; 81.6% would recommend career choice to another young person but 18.4% are not sure they would.

Experience

24.7% have less than three years in insurance; 23.1% have three to five years; 28.5% have six to 10 years; 17.5% have 11 to 15 years; 6.2% more than 15 years.

Education

62.5% have a college degree; 8.0% have a master’s, doctorate or other advanced degree; 57.3% have completed or are working on an insurance designation. 81.2% have benefitted from an insurance agent mentor.

Family Affairs

59.7% work in family-owned agencies. 57.0% work for agencies generating $1 million to $25 million in property/casualty premium volume

90.0% are privately held.

Employment Status

88.0% are independent agents; 11.4% presently are sole owners of an agency; 14.2% share ownership with partner(s)

Ownership Dreams

74.4% do not presently own an agency; of these, 59.6% would like to own someday but just 40.7% report feeling very confident ownership dreams will come true. 21.9% don’t beleive it will happen.

Working class

60.6% work between 41 and 55 hours a week. 61.0% target mostly commerical lines; 39.0% target mostly personal lines.

Gender ID

62.0% Male 38.0% Female

Hired

26.9% were recruited for the family business; 19.4% were referred by a friend or family member; 12.8% were employee referrals; 11.8% answered a job posting; 9.5% directly contacted the agency; 6.7% knew owner from previous employer; 4.8% worked for a competitor; 4.6% used a recuriter; 4.4% were recruited from college; 3.4% used to be a captive agent and just 1.3% used social media

Recruitment Target

62.9% have been offered a job by another agency. April 4, 2016 INSURANCE JOURNAL-NATIONAL | 29

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Young Agents Survey continued from page 29 than they earned in 2015. (See charts below) “No better place to be rewarded financially and relationally than in our business,” said a young agent. “You must work, but you will be rewarded for results.”

“Income potential is limitless,” said another young agent. The potential to grow and the freedom that comes with the job were reasons cited most often by young agents in the survey

Industry Offers Men More Opportuity Than Women Basically True

23.2% 40.9%

Basically False No Opinion

35.9%

Believes 2016 Income Will Be Greater Than 2015 6.8%

Very Optimistic

9.2% 26.0%

58.0%

Optimistic Cautious Not Optimistic

Outlook on the Future of the Independent Agency System

when asked if they would recommend a career in insurance to other young people. “I would definitely recommend a career in insurance for a young individual,” said one respondent. “It’s a great way to build residual income, freedom and a life for your future family.” Outlook on U.S. One young agent said startEconomy in 2016 ing her career at a tech startup 6.4% company opened her eyes to 14.5% Very Optimistic 16.2% the value of the independent Optimistic agency channel. 43.8% 35.3% Cautious “Most young people don’t Not Optimistic realize/care about stability,” she said. “They go after the fun, fancy bells and whistles. Independent Agents' Ability to Working in an industry and Grow Personal Lines Market Share company that will still be around in 20 years from now 9.1% 25.3% Very Optimistic is important to me. The youth Optimistic 25.3% needs to learn to appreciate Cautious why working for a growing, 40.3% Not Optimistic stable company can benefit them. There is a lot of growth opportunity in this industry.”

Independent Agents' Ability to Grow Commercial Lines Market Share 3.4%

4.0% 17.5%

Very Optimistic 41.5%

Cautious 36.9%

Not Optimistic

Outlook on Attracting Quality Talent to the Industry Very Optimistic 33.1% 42.7%

Very Optimistic

31.5%

Optimistic Cautious

47.6%

Not Optimistic

Outlook on Financial Stability of P/C Insurers 1.4%

10.1% 14.1%

17.5%

Optimistic

8.7% 34.0%

Optimistic Cautious Not Optimistic

Outlook on Attracting Quality Talent to the Agency

Very Optimistic Optimistic Cautious

55.9%

Not Optimistic

Independent Agency Channel’s Ability to Advance in Technology Use 4.4%

10.6%

19.2%

Very Optimistic Optimistic

32.8% 37.4%

16.2%

32.1%

Optimistic

Cautious Not Optimistic

30 | INSURANCE JOURNAL-NATIONAL April 4, 2016

Very Optimistic

47.3%

Cautious Not Optimistic

Stability Residual income and career stability are reasons why 38-year-old Matthew Peterson, president of Marlton, N.J.based Mills Insurance Group LLC, entered the insurance world right after college. Peterson graduated from West Virginia University shortly after Sept. 11. “There was a lot of uncertainty about the economy at that time,” he said. He had no family history in the insurance business but knew that he wanted to choose a career that offered more stability than his own father’s industry — manufacturing. “I really wanted to be in a business that I was not going to be squeezed out of because of efficiency … the way manufacturers cut out middle-men by going direct. They cut out www.insurancejournal.com

reps, which is what my father did,” he said. Seeing his father’s career struggles left an impression Peterson never forgot. “I wasn’t born into insurance, I didn’t fall into it, I chose it because I wanted an industry that could be stable,” Peterson said. First he obtained a claims adjuster license and it was during his first insurance class that he decided the agency side of the business would be the right choice for him. “After I was done with that class, I was convinced that I wanted to go on to the agency side of things,” he said. “It all came to me: you can’t operate a business, you can’t drive a car, you can’t own a home” without insurance. Peterson was hooked. He started with an insurance agency in south Florida and Peterson attributes his success during those first years to a great mentor. Even now as an agency owner, Peterson says producer success weighs heavily on the ability of an agency to provide a great mentor. “That’s something at our firm we believe in now, developing talent, learning from somebody that is doing it right.” Living and working in south Florida through Hurricanes Jeanne, Francis and Katrina laid a groundwork for Peterson’s passion about insurance. “I spent a few years down there working on habitational beach. Dealing with things like wind. Large property schedules,” he said. “Those things made me fall in love with the insurance world, too, because you could be young, and if you worked hard, and were commitcontinued on page 32 www.insurancejournal.com

Young Agents’ View on Quality of Agency Technology

Young Agents’ View on Office (Physical Environment) 4.6%

6.0% 32.1%

15.2%

Excellent Good

Excellent

14.3%

44.2%

Good

Fair 46.7%

Poor

Young Agents’ View on Quality of Agency Management System

Fair 37.0%

Poor

Young Agents’ View on Administrative Support

8.6% 29.9%

16.8%

Excellent Good

8.3%

Excellent

30.7%

Good

22.0%

Fair

Fair 39.1%

Poor

44.7%

Young Agents’ View on Quality of Their Agency’s Management

Poor

Young Agents’ View on Their Agency’s Reputation 1.2%

5.9%

Excellent

15.0% 42.8%

Good Fair

36.4%

7.3% 36.4%

Excellent Good

55.1%

Fair

Poor

Young Agents’ View on Employee Compensation and Benefits

Poor

Young Agents’ View on Opportunities for Education 5.8%

8.0% 28.7%

19.4%

Excellent Fair

43.9%

Poor

Young Agents’ View on Quality of Their Agency’s Carriers

Excellent

10.6%

Good

51.2%

Good Fair

32.3%

Poor

Young Agents’ View on Their Agency’s Telecommuting

3.8%

Excellent

10.6%

Good 50.4% 35.1%

13.7% 16.3%

Excellent 42.9%

Fair Poor

Young Agents’ View on Agency’s Advancement Opportunities

Good Fair

27.0%

Poor

Young Agents’ View on Their Agency’s Work-Life Balance 7.2%

11.9%

Excellent 31.7%

20.4%

Good Fair

36.0%

Poor

Excellent

15.3% 47.7% 29.8%

Good Fair Poor

April 4, 2016 INSURANCE JOURNAL-NATIONAL | 31

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Young Agents Survey continued from page 31 ted to your craft and education, you could make money.” Residual income was another motivator. “Residual income was something that I really was fascinated with, which a lot of kids out of college don’t understand when they’re picking to go into the mortgage world, or selling copiers, or whatever they decide. Residual income was something that I grasped pretty young.” Other young agents responding to the survey seem to agree with Peterson. One young agent wrote in the survey: “I

am my own boss but I ‘If you do a good job being an agent is flexibilidon’t have to manage ty: “I have the flexibility to taking care of your anyone but myself. … set my own schedule and clients, you could I also have complete build my business. I am flexibility with my basically hold onto that building a business within schedule and unlimitclient for a long time a business with no start-up ed vacation time. A lot I don’t pay overhead, and continue to get paid costs, of agents work three I don’t have to hire and fire for that account.’ days a week, some anyone, but I have all the take month-long vacasupport I need.” tions; it’s the type of industry that if you Peterson says there are plenty of oppormake enough money you can do that.” tunities for aggressive, honest, well-round Another said what they enjoy most about ed, smart business people in the agency world. “If you do a good job taking care of your clients, you could basically hold onto that client for a long time and continue to get paid for that account,” he said.

What Young Agents Think As a younger agent, I have to work harder to gain the confidence of clients.

Basically True

Basically False

73.3%

21.5%

I fear that my career will be hurt by a merger or sale of my agency.

26.1%

58.6%

I wish I could specialize more than I am now permitted to do.

25.1%

60.6%

Much of my production supports older producers in the agency.

30.7%

57.9%

During my career, I have worked for more than one agency.

39.9%

57.7%

While in my present position, I have been offered a job with another agency.

62.9%

33.1%

Success in this business is mostly about building relationships.

92.0%

5.8%

Success with 40 and younger clientele is built first by relationships online.

26.5%

57.6%

Efficiency and effectiveness are more important than relationships to succeed in this business.

30.7%

57.3%

I propose new ideas but our firm rarely seems to get to them.

27.4%

56.7%

The agency ranks could use more women and minorities.

38.8%

37.0%

I wish my agency would expand into new markets.

34.7%

48.9%

I think my compensation is fair.

67.5%

22.7%

I think my agency’s management is fair.

77.4%

15.4%

I believe advancement is based on relationships more than performance.

32.6%

52.4%

I would like to increase the time I spend on sales versus servicing or administrative tasks.

65.6%

23.0%

32 | INSURANCE JOURNAL-NATIONAL April 4, 2016

About the Survey Insurance Journal’s Young Agents Survey 2016 polled more than 500 young agents nationwide on their opinions about the industry, their agency, and how they feel about being an insurance agent. Insurance Journal wishes to thank Foremost Insurance for serving as this year’s Young Agents Survey sponsor.

What Young Agents Do 51.7% 47.7% 60.3% 15.2% 36.7% 29.9% 24.0% 15.4% 37.1% 24.6% 71.9% 82.2% 31.7% 14.8% 91.4% 60.9% 54.3% 39.3% 19.0% 63.1%

Attend local business or community meetings. Attend insurance trade association meetings. Volunteer in the community. Get involved in local politics. Attend church regularly. Participate in a sports league. Belong to country or athletic club. Teach or write articles on insurance. Attend meetings of industries I insures. Speak before business and community groups. Use Facebook. Use LinkedIn. Use Twitter. Write a blog. Use an iPhone or other Smart phone device. Use an iPad, Kindle or similar device. Utilize insurance coverage or other checklists. Utilize web conferencing. Utilize a provider of sales leads. Take insurance courses on the Internet.

www.insurancejournal.com

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Human Resources Score a Grand Slam: Recruitment Strategies for the Big Leagues

he insurance industry talent crisis is here. Insurers are now face-to-face with a shallow talent lineup thanks to an aging workforce, an impending wave of retirements and an increasingly shallow talent pool. Throughout the past 10 years, the number of insurance professionals age 55 and older has increased by 74 percent. As a result, 25 percent of the industry’s workforce is poised to retire by the year 2018. Further complicating the issue is a dramatic shortage of young industry talent. Currently, By David E. Coons only 27 percent of insurance employees fall under the age of 35. To remain fully staffed, the industry needs to add 400,000 open positions to its bench by 2020. Unfortunately, graduates from risk and insurance programs currently meet only 10 percent to 15 percent of this growing need. Adding to the challenge is the reality that less than 5 percent of Millennials are interested in working in insurance. 34 | INSURANCE JOURNAL-NATIONAL April 4, 2016

To stay successful in today’s increasingly challenging labor market, insurance organizations must rethink their current recruitment strategies. No longer will the status quo be acceptable. Rather, now is the time to determine whether your organization is going to step up to the plate or find itself relegated to a bench warmer in the highstakes game of insurance recruitment. Avoid the Employment Curveball Transparency is key to a truly successful engagement and recruitment strategy. In today’s hiring climate, your organization is being interviewed just as much as you are interviewing the candidate. It is a candidate’s market, and the industry is finding itself competing for the attention of today’s top talent. No longer are job candidates fighting for our attention. Rather, companies are trying to sell them on the benefits of working for their organizations. These individuals want to know the “good, bad and ugly” of your organization. They want to get the inside scoop on the culture and day-to-day operations. They don’t want to be blindsided by a workplace or position that doesn’t fit their needs. Most

of all, they want to make an informed decision before taking the first, or next, step in their careers. Connect them with members of the team they would be working with and have them meet with someone who is in a similar role. These experiences can be the game-changing strategy needed to get these emerging professionals on your team. Don’t Send Hiring to Extra Innings Insurers need to realize that we are competing for talent not only among ourselves, but also among a number of outside industries that are putting monumental effort into filling their lineups with top emerging professionals. Unfortunately, organizations are failing to adjust the pace of hiring to keep up with today’s staffing reality. A slow recruitment process is one of the top pet peeves of today’s job candidates. They want and expect timely feedback regardless of the outcome. Often, when there is a lag in communications, these emerging professionals feel like they are being benched by the organizations and they actively lose interest in the position. In today’s increasingly competitive recruitment climate, organizations cannot afford www.insurancejournal.com

to draw out the hiring process. Time is of the essence when hiring. Organizations must realize that extending the process and waiting to hit one out of the park does not translate to lower turnover or any sort of cost savings. Rather, it often has the opposite effect with top talent instead accepting offers from competitors both inside and outside the industry. Today’s forward-thinking insurers must bite the bullet, trust their instinct and hire the top talent that comes their way. Moving quickly and decisively on top-quality candidates can be the key to getting your organization off the bench and in the game. Recruitment Is Not a Spectator Sport Amid today’s challenging recruitment environment, only those organizations that step off the sidelines and get in the game will find success.

www.insurancejournal.com

To ensure your organization Amid today’s Amid today’s isn’t stuck in the bleachers, ever-evolving labor marever-evolving labor ket, finding and engaging now is the time to embrace market, finding and Millennial employees is a culture of recruitment. Finding talent becomes much engaging young, key to your organization’s more difficult when organiMillennial employees future. Already 77 million zations wait until a strong and accounting is key to your position needs to be for more than 25 percent filled. By advocating, organization’s of the U.S. workforce, selling and engaging can- future success. Millennials are the didates before a need solution to the growing arises, your organization can build an talent gap. Recruiting this dynamic generopportunity pipeline to draw upon ation requires a bit of re-thinking in terms in its time of need. of engagement and recruitment strategies, Ensure your organization is but the potential payoff is huge. Now is the visible to potential talent. Use your time to think through a different lens and website and social networks as get your foot in the game. promotional tools. Make sure you are putting your best foot forward Coons is senior vice president of The Jacobson and sharing your message with Group, a provider of talent to the insurance the public. Don’t just be a specindustry. Phone: 800-466-1578. Email: dcoons@ tator; step onto the field. jacobsononline.com.

April 4, 2016 INSURANCE JOURNAL-NATIONAL | 35

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The Competitive Advantage Conflicts of Interest and Rebating

ime flies but history repeats. Enough time has passed that many people working in insurance today have no experience relative to the disruption, fear and frustration generated by the inquires of various state attorneys general (AG) into contingency contracts more than 10 years ago. The AG’s positions were that conBy Chris Burand tingency contracts created a conflict of interest whereby agents would steer business to companies paying the highest contingency bonuses even if their clients’ coverages/rates were inferior. I recently saw a headline regarding the new Department of Labor (DOL) fiduciary rules that read, “DOL’s fiduciary target is Wall Street culture, not commissions.” That headline was like an immediate flashback to the contingency investigations. I do not know much about these new DOL rules but I understand the message: The DOL wants to eliminate conflicts of interest. That is an admirable goal, assuming the conflicts are real and the “solution” does more good than harm. The contingency investigations may have had a point specific to certain bad apples, although whether any bad apples actually existed still is not clear to me. Regardless, the overarching investigations were designed on purpose, or in ignorance, to throw the baby out with the bath water. The majority of the contingency contracts used by companies, agencies, and brokers, were used in ways that benefited all the players and consumers. In other cases, mostly due to not paying attention to the contracts to the point of not even reading the contracts and therefore, not being able to cognitively and intelligently steer business even if the agents tried, the effects the contracts had were completely nonfactors. This headline regarding the DOL’s new regulations makes me wonder if something 36 | INSURANCE JOURNAL-NATIONAL April 4, 2016

is not lurking to light a fire in the P&C investigations again because the DOL proposal involves financial insurance products. Politicians and regulators often go after perceptions rather than reality, damaging those they investigate for imaginary harm and then causing more harm by not pursing real misdeeds. Rebating A possible example is rebating. Rebating, defined generally as giving a policyholder material consideration in return for buying insurance, has been illegal to extremely varying extents in at least 49 states (California is, at least, the partial exception) for decades. The basis for outlawing rebating makes sense. First, rates for admitted carriers are filed based on the company having an expense rate of X percent. That expense rate includes commissions. If agents give away their commissions or give away gifts/ services in lieu of giving away commissions, the expense rate in the filing is not necessarily correct. If agents do not need commissions, an argument some people might make is that lower rates should be filed. A second twist is that rebates are not usually offered to all consumers. Insurance is supposed to be sold without discrimination (underwriting is discrimination but of the reasonable kind, thereby avoiding the oxymoronic situation nondiscriminatory underwriting otherwise creates). This is why redlining neighborhoods was banned 30, 40 or 50 years ago. If some consumers get a lower price through rebates, this means discrimination, not of an accepted underwriting nature, arguably occurs. The difference today is likely to be that customers paying larger premiums will get rebates rather than discrimination based on race, creed, religion, political party, etc. Whether the rebate is cash, gifts or services makes a key difference in many peoples’ and some regulators’ minds. Cash

is too crass. Cash back is too much like a bribe. Gifts of significance are slightly removed and are a gray area because clients are also often good friends. The definition of “significance” is interesting. Some states have quite precise definitions and the amounts involved are sometimes tiny. Additionally, to the chagrin of some commercial producers, some state laws use absolute amounts. The gift limit is the same regardless whether the client spends $500 or $100,000. This limitation makes no sense to some. Maybe if limits exist, the limits should be scaled by account size. Value-Added Service Rebates The gray area, the most important area in my mind, involves value-added services. www.insurancejournal.com

Agents and brokers have been offering value-added services such as loss control, MVRs, training and other similar services for decades without raising the ire of many competitors, much less catching the attention of regulators. One reason these kinds of rebates have not caused a problem is many agents offering these services did not really bring anything to the table. It was just talk to help make a sale. However, since the last hard market, the true value and the quality of these services have been increasing and improving. For example, if an agency offers a wellness program, loss control service, payroll service, compliance, time/attendance tracking, benefits administration or PEO outsourcing that is available for the client to otherwise purchase from a third party for, say $5,000, and that service is of true value making the difference between who the consumer chooses as their agent, is this a rebate? If two agents use the same admitted carrier and the same filed rate, but one offers a service worth $1,000 and the other offers a cash back rebate of $1,000, is the filing still valid in either case? The answer is important in so many ways. First, if some agents can afford rebated services, then do companies need to file rates including the cost of these rebates or should companies reduce rates for all? Second, if rebates are here to stay and likely grow, agents better find a way to www.insurancejournal.com

reduce their cost of sales without reducing quality to remain competitive. Third, how do regulators assure fairness? Some agencies/brokers have access to considerable capital, more than likely ever envisioned when state regulations were originally written. These firms can use their capital to offer services at huge discounts to build market share. Such capital burns are part of the high tech model, not the insurance model. Insurance laws are designed to insure insurance companies set actuarially sound rates, thereby minimizing using loss-leader prices to capture a market and in turn protect the public from carrier insolvency. The laws

may not adequately address an agent/broker doing the same. Insolvency would not necessarily be the result (but it is not excluded either if alternative markets are involved, which in itself is an entirely different issue, at times, with vertical integration). Iâ&#x20AC;&#x2122;m not sure regulators are fully informed related to these cash burns at the broker level. Loss of competition is an issue, as is using an E&O term, invariable practice. It potentially opens the door to treating customers differently. The industry might want to get in front of this rebating issue before the regulators again throw the baby out with the bathwater, and definitely before new entrants with millions, and even hundreds of millions, to burn put a lot of traditional agencies out of business. Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719485-3868. Email: chris@burand-associates.com.

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April 4, 2016 INSURANCE JOURNAL-NATIONAL | 37

IDEA EXCHANGE

Closing Quote

The Risk in Insurance Reviews

H By Steve Titus

ow is it that a certificate of insurance — that seemingly simple, straightforward and most innocent of documents — can be so complex? The certificate of insurance acknowledges the writing and existence of an insurance policy. It should accurately reflect the coverage provided by a specific policy and be aligned with, for instance, a complementary written contract setting out an insured’s insurance requirements. In a perfect world, every contract and corresponding certificate of insurance would be reviewed by the insured’s attorney, who would advise regarding the changes necessary for the insured’s actual insurance coverages to be in compliance with the requirements of the contract. This information would then be communicated to the insured’s broker, who would obtain the appropriate coverage. In the real world, this doesn’t always happen. Attorneys may be engaged later in the process — or not at all. How then do we as brokers best serve our clients? By considering a few best practices. When a client does not engage its attorney to review and compare the conditions of the coverage with the exposures of the contract, the next best scenario is the client sending the insurance provisions in the contract to his or her insurance broker for review.

38 | INSURANCE JOURNAL-NATIONAL April 4, 2016

In such cases, often the same person charged with issuing the certificate of insurance is asked to perform the initial contract review. Under such circumstances, it may be helpful if a second set of eyes with greater expertise reviews the initial analysis. Once completed, communication can occur with the client on such items as: additional insured wording (type and form); waivers of subrogation; primary and noncontributor wording; notice of cancellation provisions; coverage deficiencies; and coverages not available in the market. To avoid any doubt, it is advisable that the insurance broker make clear to the client that he or she is not providing legal advice. Having discussions with clients about the scope of the broker’s review protects both clients and brokers. There are times, all too frequent, when clients dangerously enter into a contract that has not been reviewed by either an attorney or an agent/broker. Consequently, brokers may either find out that a fully executed contract exists when they receive a request for a certificate of liability insurance or when they actually receive the executed contract. In the first case, a broker, unaware of the contract terms, may issue a certificate to the insured describing the actual coverage, only to receive a rejection due to noncompliance with contractual language. Normally the insured then shares the contract with the broker, and the broker is able to identify where deficiencies exist and then Adhering to best attempt to align the policy practices in contract language, coverage and limand certificate of its with what the insured has agreed to contractually. insurance reviews When dealing with may help mitigate these seemingly “benign” risk. documents, clients should consider retaining the services of a qualified attorney. When that’s not possible, they should provide their broker with the insurance language in the proposed contract for review. Brokers may determine how a client’s current insurance program matches up with the contract requirements. Adhering to best practices in contract and certificate of insurance reviews may help mitigate risk and prevent unpleasant surprises. Titus is managing principal with Integro. He specializes in applying a risk management approach to middle-market and complex private clients.

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