Insurance Journal West 2016-05-23 by Insurance Journal

WEST REGION Earthquake Resilience Hot Topic Schwarzenegger Discusses Risk Employee Engagement Platform

Exceptional Partnerships. Extraordinary Solutions. Not many companies can boast of a business built on a foundation of partnership. We can. Whether it’s working with our Agents’ Advisory Board or collaborating with our agents, brokers, and program managers, the relationships we’ve fostered have fueled our growth and helped us to become a leading excess and surplus carrier. We offer a collection of solutions unrivaled in the marketplace, and pride ourselves on our strength and expertise. We’re reaching higher to grow profitably and take our mutual success to the next level.

E&S/Specialty Agents’ Advisory Board

E&S/Specialty nationwideexcessandsurplus.com A.M. Best rating of A+ (Superior) FSC XV Fortune 100 company

™

MVP.EarthquakeAuthority.com

APPLIED PROTECTS THE TITANS OF INDUSTRY. ®

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

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

Contents May 23, 2016 • Vol. 94 No. 10 • West

West W1 Earthquake Resilience Topic at Southern California Conference

W12 SCHWARZENEGGER DISCUSSES RISK AT CALIFORNIA INSURANCE FORUM

W2 GuideOne CIO: Commitment to Employee Engagement Platform Paying Off

National 10 .Large, Mid-Sized Agencies See Revenue Growth in Q1: Reagan 12 Tough Times for Commercial Auto Insurance: Fitch 15 The Squeeze that Hurts: Agents Sound Off on Compensation

W4 Damages from Lawsuits Against State Limited by Oregon Supreme Court

21 .Spotlight: 10 Things to Know About Flood Insurance

W4 3 Died in Southern California Hospital Outbreak Linked to Scopes

22 Spotlight: Independence, Objectivity in Workers’ Comp Remain NCCI’s Core Values, Says New Chief Donnell

W8 FAA Creates Drone Advisory Panel, Lifts Barrier to Education

24 Industry Takes Notice After Travelers’ CGL Cyber Ruling

W10 California Regulators Reopening Settlement over San Onofre Nuke Plant

28 Chubb CEO Greenberg Rolls Out Welcome Mat for High Net Worth Competitors

W12 Schwarzenegger Discusses Risk at California Insurance Forum

SR1 Special Report: 2016 Super Regional P/C Insurers™ Revealed

Idea Exchange

32 Spotlight: AAMGA’s Incoming President Levy Talks About Challenges, Opportunities

33 Drones: An Emerging Market Quickly Taking Flight 36 Minding Your Business: Catherine Oak & Bill Schoeffler 38 Closing Quote: Staying Relevant in the Age of the Customer

33 DRONES: AN EMERGING

MARKET QUICKLY TAKING FLIGHT

36 MINDING YOUR BUSINESS

Departments W6 People

6 | INSURANCE JOURNAL | WEST MAY 23, 2016

14 Declarations

14 Figures

16 Business Moves 27 MyNewMarkets

INSURANCEJOURNAL.COM

AT LAST, A PRODUCT THAT GIVES YOU LESS TIME. Online quotes and orders take just 3 minutes. And with only 4 questions for a $5 MM standalone personal umbrella from an Admitted carrier rated A+ by A.M. Best, youâ&#x20AC;&#x2122;ll get more time for those you really, really love.

Family-owned and operated. Proudly dog-friendly. Available nationally. Underwriting criteria varies by state. Visit us online for guidelines. California Insurance License 0D08438 A.M. Best rating effective April 2016. For the latest rating, visit ambest.com.

OPENING NOTE

Write the Editor: awells@insurancejournal.com

Furry Friends

The average cost per claim nationally has risen more than 94 percent from 2003 to 2015.

Publisher Mark Wells mwells@wellsmedia.com

EDITORIAL

SALES

Editor-in-Chief Andrea Wells awells@insurancejournal.com

Sales Manager Lauren Knapp (800) 897-9965 X161 lknapp@insurancejournal.com

East Editor Young Ha yha@insurancejournal.com

West Sales Dena Kaplan (800) 897-9965 X115 dkaplan@insurancejournal.com

Southeast Editor/MyNewMarkets Amy O’Connor aoconnor@insurancejournal.com

Romeo Valdez (800) 897-9965 X172 rvaldez@insurancejournal.com

Chief Content Officer Andrew Simpson asimpson@insurancejournal.com

South Central Editor/ Midwest Editor Stephanie K. Jones sjones@insurancejournal.com West Editor Don Jergler djergler@insurancejournal.com International Editor L.S. Howard lhoward@insurancejournal.com

Chief Marketing Officer Julie Tinney (800) 897-9965 X148 jtinney@insurancejournal.com

South Central Sales Mindy Trammell (800) 897-9965 X149 mtrammell@insurancejournal.com Southeast and East Sales (except for NY, PA and CT) Howard Simkin (800) 897-9965 X162 hsimkin@insurancejournal.com Midwest Sales Lisa Whalen (800) 897-9965 X180 lwhalen@insurancejournal.com

Columnists Catherine Oak, Bill Schoeffler

East Sales (NY, PA and CT only) Dave Molchan (800) 897-9965 X145 dmolchan@insurancejournal.com

Contributing Writers Matthew Grosack, Carl Poedtke, Susanne Sclafane, John Tiene, Luc Cohen

Advertising Coordinator Erin Burns (619) 584-1100 X120 eburns@insurancejournal.com

IJ ACADEMY OF INSURANCE V.P. of Education Chris Boggs cboggs@ijacademy.com

MyNewMarkets Sales Manager Kristine Honey khoney@insurancejournal.com

Online Training Coordinator Barbara Whiffen bwhiffen@ijacademy.com

Classifieds, Jobs, Agencies Wanted/For Sale Sr. Sales & Marketing Coordinator Kelly De La Mora (800) 897-9965 X125 kdelamora@insurancejournal.com

ADMINISTRATION

DESIGN/WEB

Chief Financial Officer Mark Wooster mwooster@wellsmedia.com

MARKETING

V.P. of Design Guy Boccia gboccia@insurancejournal.com

Marketing Administrator Gayle Wells gwells@insurancejournal.com

Senior Web Developer Chris Thompson cthompson@insurancejournal.com

NEW MEDIA

Web Developer Tim Layer tlayer@wellsmedia.com

Videographer/Editor Ashley Waldrop awaldrop@insurancejournal.com

States and Dog Bite Claims, 2015 FOR QUESTIONS REGARDING SUBSCRIPTIONS: Call: 855-814-9547

Chief Technology Officer/ Chief Innovation Officer Joshua Carlson jcarlson@insurancejournal.com

Marketing Director Derence Walk dwalk@insurancejournal.com

New Media Producer Bobbie Dodge bdodge@insurancejournal.com

embers of your family – specifically those with fur and a bark – are costing the industry mega dollars. Dog bites (and other dog-related injuries) now account for more than one-third of all homeowners liability claim dollars paid out. In 2015, those claims dollars cost more than $570 million, according to the Insurance Information Institute (I.I.I.) and State Farm, the largest writer of homeowners insurance in the United States. An analysis of homeowners insurance data by the I.I.I. found that while the number of dog bite claims nationwide decreased 7.2 percent in 2015, the average cost per claim for the year was up 16 percent. The average cost paid out for dog bite claims nationwide was $37,214 in 2015, compared with $32,072 in 2014 and $27,862 in 2013. “The average cost per claim nationally has risen more than 94 percent from 2003 to 2015, due to increased medical costs as well as the size of settlements, judgments and jury awards given to plaintiffs, which are still on the upswing,” said Loretta Worters, a vice president with the I.I.I. The study noted that California continued to have the largest number of claims in the United States at 1,684 in 2015, a decrease from 1,867 in 2014. Illinois had the second highest number of claims at 931. While Arizona had only the ninth largest number of claims at 393, it registered the highest average cost per claim of the 10 states with the most claims: some $56,654. The trend in higher costs per claim is attributable not simply to dog bites but also to dogs knocking down children, cyclists, the elderly, etc., all of which can result in fractures and other blunt force trauma injuries that impact the potential severity of the losses. Another factor might be the surge in U.S. Post Office worker attacks, many of which take place at the customer’s door.

Outside the U.S., call 847-400-5951 or you may subscribe or change your address online at:

insurancejournal.com/subscribe Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Media Group, Inc., 3570 Camino del Rio North, Suite 200, San Diego, CA 92108-1747. Periodicals Postage Paid at San Diego, CA and at additional mailing offices. SUBSCRIPTION RATES: $7.95 per copy, $12.95 per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this publication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended to be legal, accounting, tax, technical or other professional advice. Readers are advised to consult competent professionals for application to their particular situation. Copyright 2016 Wells Media Group, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. Insurance Journal is a publication of Wells Media Group, Inc.

Web Developer Jeff Cardrant jcardrant@insurancejournal.com

CIRCULATION

Circulation Manager Elizabeth Duffy eduffy@wellsmedia.com

Source: Insurance Information Institute

Andrea Wells Editor-in-Chief 8 | INSURANCE JOURNAL | NATIONAL MAY 23, 2016

POSTMASTER: Send change of address form to Insurance Journal, Circulation Department, PO Box 708, Northbrook, IL 60065-9967 ARTICLE REPRINTS: For reprints of articles in this issue, contact: Kelly De La Mora at 1-800-897-9965 ext. 125 or kdelamora@wellsmedia.com Visit insurancejournal.com/reprints/ for more information.

INSURANCEJOURNAL.COM

PROFESSIONAL COVERAGE IS OUR MIDDLE NAME. Only Burns & Wilcox has the depth and breadth of experience to deliver the right solutions right away.

burnsandwilcox.com

National

Large, Mid-Sized Agencies See Revenue Growth in Q1: Reagan

rganic revenue growth at privately-held large and mid-sized insurance agencies bounced to 5.1 percent for the first quarter of 2016, up from 4.6 percent for the full year 2015, according to the latest Reagan Consulting Organic Growth and Profitability (OGP) survey. Profit margins were slightly lower at 28.5 percent in the first quarter of 2016, compared with 29.0 percent for the first quarter of 2015. That median profitability, measured by EBITDA (earnings before interest, taxes, depreciation and amortization), was still strong by historic standards. First-quarter profit margins are always inflated due to contingent income, but are expected to finish 2016 at approximately 10 | INSURANCE JOURNAL | NATIONAL MAY 23, 2016

20 percent, which would be another solid year, according to Reagan Consulting. “Given the powerful headwinds of softening commercial property and casualty pricing and continued weakness in the U.S. economy, the upward movement in growth is a positive,” said Kevin Stipe, president of Reagan Consulting. Reagan Consulting conducts its quarterly survey with approximately 140 mid-size and large agencies and brokerage firms. By line of business, Reagan Consulting’s study found strongest growth in the employee benefits sector (6.9 percent growth during Q1). Commercial property/ casualty grew at a 5.1 percent rate while personal lines grew at 1.6 percent.

Stipe cautioned that commercial rates and the sluggish growth rate are pressuring agencies. “If pricing continues to deteriorate and the economy doesn’t pick up, agency growth rates are likely to suffer later this year,” he said. Reagan’s OGP study now measures sales velocity (new business written as a percentage of prior-year overall commissions and fees) — a figure that hit 12.1 percent during the first quarter of 2016. Sales velocity is the greatest differentiator of highgrowth agencies, according to Stipe, who said that firms that achieved a 15 percent or higher sales velocity grew by 7.1 percent, while those that achieved less than 10 percent grew only 2.2 percent. INSURANCEJOURNAL.COM

Are Your Operations All Theyâ&#x20AC;&#x2122;re Quacked Up To Be?

An s

ple

tic

aly

oc Pr

rat

Pe o

Follow The Industry Leader To Ensure Profitable Growth Operations are the foundation of your business and your productivity, performance and profitability. ReSource Pro helps you optimize your operations to unleash the full potential of your business. Contact us at 1.877.761.7276, or email: more@resourcepro.com

NATIONAL | News & Markets

Tough Times for Commercial Auto Insurance: Fitch

hile the property/ casualty industry has reported three consecutive years of significant underwriting profits, the commercial auto market as a whole reported an underwriting loss for the fifth consecutive year in 2015. In short, U.S. commercial auto insurance has evolved into a “chronically underperforming product segment” for U.S. property/casualty insurers, according to Fitch Ratings. At the same time, Fitch notes, a number of carriers underwriting the line continue to do well. Underwriting losses have accelerated with the segment statutory combined ratio rising to approximately 109 for the latest year. The commercial auto combined ratio averaged 106 from 2011-2015, according to analysts at Fitch. “The poor performance is a reflection of previous overly aggressive pricing in commer-

cial auto and a recent extended period of heightened claims severity, particularly relating to bodily injury claims,” said James Auden, managing director, Fitch Ratings. As Fitch noted, commercial property/casualty insurance prices continued to decline moderately — an average of 3.1 percent — during the third quarter of last year, according to a survey by The Council of Insurance Agents & Brokers. But, CIAB found, the market did see a slight uptick in rates for commercial auto in last year’s fourth quarter and again in the first quarter of this year. Fitch said commercial auto written premiums expanded by more than 7 percent in 2015. Insurers have responded to poorer underwriting results with repricing and underwriting actions, but these rate changes have not kept pace with loss experience. While pricing in the broader commercial lines market is

12 | INSURANCE JOURNAL | NATIONAL MAY 23, 2016

now more competitive with most sectors experiencing flat to declining pricing changes, Fitch says commercial auto rates are likely to continue to increase significantly in the near term, which should contribute towards better underwriting results in 2016. A shift to underwriting profits may still be several years away. “Despite a poor overall performance and weaker industry profits, a number of companies continue to produce significant underwriting profits in this line,” Auden added.

Top Writers

Progressive has grown to become the largest writer of commercial auto business based on net written premiums, while, according to Fitch, also generating substantial underwriting profits. According to the National Association of Insurance Commissioners, Progressive wrote $2.2 billion of commercial auto in 2015, just above Travelers, which wrote $2 billion. Nationwide ($1.7 billion), Zurich ($1.487 billion) and Liberty Mutual ($1.486 billion) round out the top five. Berkshire Hathaway Inc. ($1.072 billion to rank sixth), which has rapidly expanded in primary commercial line, has managed to generate underwriting profits in commercial auto, according to Fitch. Old Republic International Corp. ($1.071 billion and number seven) writes larger account trucking business, yet continues to report consistent modest commercial auto underwriting profits, Fitch said. In its fourth quarter last year, American International Group

(AIG) cited higher severe losses and an increase in current accident year losses in its U.S. commercial automobile liability line, which were partially offset by an improvement in specialty and property business. Last month, MetLife Auto & Home said it is entering the market and introduced its first commercial auto policy. The product is now available in Illinois, Indiana and Ohio, with more states planned in the near future.

‘Despite a poor overall performance and weaker industry profits, a number of companies continue to produce significant underwriting profits in this line.’ In January, A.M. Best gave commercial lines a negative outlook for 2016 and said that while it expected commercial automobile to continue experiencing rate increases in 2016 amid a positive accident-year trend, any benefit from the increase is being wiped away by adverse development. In its outlook for 2016, broker Marsh noted that many insurers have seen their combined ratios deteriorate as commercial automobile loss frequency and severity has increased. As a result, Marsh predicted that brokers and insureds will need to look at alternative markets. Insureds and insurers need to focus on loss control techniques, including driver safety training, fleet maintenance and the use of telematics through vehicle monitoring devices, Marsh said. INSURANCEJOURNAL.COM

AGENT EASE DELIVERED. CUSTOMER VALUE DELIVERED. OUR PROFESSIONAL LIABILITY COVERAGE SIMPLY DELIVERS.

Available to over 30 classes, including accountants and consultants, our Professional Liability endorsement is easily added to a Spectrum® Business Owner’s Policy. Purchasing Business Liability and Professional Liability from one carrier can help ensure there are no coverage gaps in the event of a claim. It can also help eliminate coverage disputes between carriers if a claim triggers both policies. Plus, your customers will appreciate the simplicity of one policy and one bill. It doesn’t get any easier. Visit THEHARTFORD.COM/PL for details. Prepare. Protect. Prevail.® 52680D

Certain coverages and features may vary and may not be available in all states. Applicants are individually underwritten and some may not qualify. This insurance is underwritten by Hartford Fire Insurance Company, Inc., and its property and casualty affiliates, Hartford, CT. The Hartford® is The Hartford Financial Services Group, Inc. and its subsidiaries, including issuing companies, Hartford Fire Insurance Company, Hartford Life Insurance Company and Hartford Life and Accident Insurance Company. Its headquarters is in Hartford, CT. 15-0435 © 2016 The Hartford Financial Services Group, Inc. All rights reserved.

Business Insurance Employee Benefits Auto Home

Figures

The number people aboard a Disney Wonder cruise ship headed from Miami to the Bahamas that were sickened by a stomach bug, according to the Centers for Disease Control and Prevention.

The percent rise in Michigan traffic deaths last year. The Michigan Office of Highway Safety Planning said the number of deaths rose from 876 in 2014 to 963 in 2015. The increase was most notable for bicyclist fatalities, up 57 percent from 21 in 2014 to 33 in 2015. Motorcyclist fatalities rose 29 percent, from 107 in 2014 to 138 in 2015.

The number of Massachusetts workers who died on the job in 2015, according to a report from the Massachusetts Coalition for Occupational Safety and Health and Massachusetts AFL-CIO. Transportation incidents were the leading cause of fatal injuries.

$7.5 MILLION

Declarations Campus Guns

“College campuses as gun-free zones present an environment where murderers, rapists and other criminals may commit crimes without fear of being harmed by their victims.”

— An NRA lobbyist who supported a new Tennessee law to allow state college faculty members to carry guns on campus, with certain restrictions.

Building Codes

“The science could not be more clear — global warming is real.”

— Connecticut Gov. Dannel P. Malloy said the state is facing more frequent and severe weather events as a result of global warming. Malloy issued an executive order directing state agencies to develop new building code standards for residential and commercial structures.

Home Sharing

“As homes and apartments are used in new ways in the sharing economy it is important that everyone involved understands what insurance coverage is available and who is providing it.”

— Armand Feliciano, vice president of the Association of California Insurance Companies, offered support for a bill that would require hosting platforms to disclose what insurance coverage they provide to protect the host’s property.

Baby Powder Distrust

The size of a settlement agreement in a lawsuit filed by homeowners who said the city of Bozeman, Mont., approved a subdivision near a former landfill that is leaking fumes and damaging their property values.

$330,000

“The more talc verdicts that come down against them adds to the public’s growing distrust of their baby powder, which is one of their iconic products.”

— Carl Tobias, product-liability law professor the University of Richmond in Virginia, comments on a recent $55 million verdict against Johnson & Johnson in a case linking the company’s talcum powder to ovarian cancer. It was the second such trial loss this year.

Uber Example

“Austin made Uber an example to the nation.”

— Political consultant David Butts, who led a successful campaign in Austin, Texas, to defeat the repeal of a city mandate requiring drivers for ride-hailing companies to be fingerprinted. Uber and Lyft spent $9 million on the effort to repeal the ordinance and have threatened to leave the city, which hosts major annual events such as Austin City Limits.

InsuranceJournal.com

Poll

The approximate amount of damage caused by two EF1 tornadoes on April 26, according to the Oklahoma County Assessor’s Office. One in southwest Oklahoma City and had a 3-mile path and winds of up to 95 mph; the other struck northeast Oklahoma City and Luther with winds up to 105 mph.

14 | INSURANCE JOURNAL | NATIONAL MAY 23, 2016

INSURANCEJOURNAL.COM

West

Earthquake Resilience Topic at Southern California Conference By Don Jergler

ost people aren’t prepared for the big one. If there was one common theme at a three-day earthquake conference in downtown Long Beach, Calif., that was it. The National Earthquake Conference that took place in early May is a quadrennial event bringing together academia, building professionals, FEMA directorates, first responders, geologists, emergency managers, insurance professionals, state and local governments, the private sector and others INSURANCEJOURNAL.COM

to discuss best practices for outreach, code advancement and policy initiatives. The conference was sponsored by the California Earthquake Authority, and had speakers including Lucy Jones, with the United States Geological Survey and Caltech, and several high ranking members of departments of insurance from several states. “We know that a minority of homes in earthquake countries, here in California

and elsewhere, have financial protection,” said CEA CEO Glenn Pomeroy. Pomeroy moderated a panel titled “Reducing Risk – The Role Insurance Plays in Building Resilient Communities.” Panelists were Maiclaire Bolton, senior product manager of global earthquake products at CoreLogic Inc., Laurie Johnson, principal of Johnson Consulting, and Buddy Combs,

‘We know that a minority of homes in earthquake countries, here in California and elsewhere, have financial protection.’

continued on Page W18

MAY 23, 2016 INSURANCE JOURNAL | WEST | W1

WEST | News & Markets

GuideOne CIO: Commitment to Employee Engagement Platform Paying Off By Stephanie K. Jones

s the new chief information officer and senior vice president in charge of business transformation at Des Moines, Iowa-based property/casualty carrier GuideOne Insurance, Doug Cretsinger faced some big challenges. He managed a staff of around 100 team members plus another 200 or so contract workers. Staff turnover in the IT department was high and employee commitment was low, the company was replacing its core technology systems and there were numerous problems with the physical workspace. Cretsinger, who joined GuideOne in 2013, decided to tackle the problems head on. Knowing it wouldn’t be easy, he decided to interview each of his team members in person to get their perspectives on the work environment. “I wanted to get to know my staff per-

W2 | INSURANCE JOURNAL | WEST MAY 23, 2016

sonally, so I started by literally interviewing all 100 people. Some of my peers and colleagues thought I was crazy to do that. … I set up half-hour interviews with all of my staff. I wanted to hear their concerns. I wanted to hear their proposed solutions. I wanted to give them a voice,” Cretsinger said during a webcast on employee engagement sponsored by Seattle, Wash.-based TINYpulse, a creator of employee engagement software, and the consulting firm Bersin by Deloitte. He started by asking each employee three questions: Where are you from? What challenges are you facing? What should we do about those challenges? The employees were given the questions in advance and came prepared for their 30-minute interviews, Cretsinger said. “Many of them came not with the problems but with solutions, [such as] ‘I really think we need to try this differ-

ent approach.’ “I got a lot of ideas and actually took a page of notes on every interview,” Cretsinger said.

‘Don’t do this unless you’re prepared to listen — and make a change.’ The interview process took 90 days. In the end, he had “100 pages of notes on peoples’ perceptions … problems they identified … and solutions they thought we should be pursuing,” he said. There were a number of commonalities. One prevailing theme: “I’ve worked here for 10 years, and this is the first time I’ve talked to the CIO one-on-one.” “That struck me. They didn’t have a communication channel with their CIO or their management team,” Cretsinger said. Other concerns were about the stress of replacing legacy systems that some had

continued on Page W20

INSURANCEJOURNAL.COM

â&#x20AC;&#x153;There is little success where there is little laughter.â&#x20AC;? -Andrew Carnagie

Marian Lockhart, VP Fresno marian@mjhallandcompany.com Delia Fabricante, VP Woodland Hills delia@mjhallandcompany.com

Pamela Lewis, VP Reno Pamela@mjhallandcompany.com

Sarah Marsh, VP Stockton sarah@mjhallandcompany.com

Yvonne Hall, VP Alaska Yvonne@mjhallandcompany.com

Stacey Shurson, VP Corporate staceys@mjhallandcompany.com

Winsome Westervelt, VP SF winsome@mjhallandcompany.com

Get to know us at mjhallandcompany.com M.J. Hall & Company, Inc. States Covered: AK, AZ, CA, NV, & HI

MJHALLCO16811.indd 1

License #0488901

10/2/15 4:10 PM

WEST | News & Markets

Montana City, Others Reach $7.5M Settlement in Landfill Suit

Damages from Lawsuits Against State Limited by Oregon Supreme Court

he city of Bozeman, Mont., a housing developer and an engineering firm have reached a $7.5 million settlement agreement in a lawsuit filed by homeowners who said the city approved a subdivision near a former landfill that is leaking fumes and damaging their property values. The city commission was asked in early May to approve the settlement for property owners in the Bridger Creek Phase III neighborhood. A majority of the settlement

he Oregon Supreme Court voted 5-2 to uphold a $3 million cap on damages injured people can collect in lawsuits against the state or its employees. The case was brought by a Klamath Falls couple who sued OHSU after a botched surgery in 2009 nearly killed their 9-month-old son. A Portland jury awarded the child more than $12 million, but the early May ruling means he’ll only get $3 million. Family attorney David Miller

will be covered by city insurers. Developer Golf Course Partners and the engineering firm Morrison-Maierle together will contribute $2.5 million. The city’s portion not covered by insurance is $750,000. Two studies, one done by a federal health agency, concluded health risks from the fumes attributable to the landfill are minimal. Attorneys for the developer and the engineering firm deny their clients are at fault. Copyright 2016 Associated Press.

said the boy’s mother is devastated by the ruling. The Portland jury found the boy’s past and future medical expenses would hit $6 million, and he deserved the rest for pain and suffering. The cap established by the Legislature is intended to protect cities, school districts and other taxpayer-supported organizations from massive payouts. Copyright 2016 Associated Press.

3 Died in Southern California Hospital Ferragamo SpA Sues Ex-Los Angeles Outbreak Linked to Scopes Rams QB Over Winery Name

t least three patients died last year at a Southern California hospital in a bacterial outbreak suspected to have been caused by tainted medical scopes, a newspaper reported. Officials at Huntington Hospital in Pasadena confirmed in August that three patients were sickened but declined to say more. The Los Angeles Times reported that officials later told Olympus Corp., the scope’s manufacturer, of the deaths. The revelation came in the company’s report to federal regulators, which was obtained by the Times. Hospital officials said they

believed patient privacy laws prevented them from revealing the unnamed patients had died. Contamination of duodenoscopes, lightweight tubes threaded through the mouth into the top of the small intestine, has been linked to bacterial outbreaks that sickened dozens of patients in hospitals around the country. Copyright 2016 Associated Press.

W4 | INSURANCE JOURNAL | WEST MAY 23, 2016

alvatore Ferragamo SpA, the Italian luxury goods maker, in early May sued former Los Angeles Rams football quarterback Vince Ferragamo, saying he infringed its trademarks by operating his namesake winery in southern California. Consumers are likely to be confused into thinking the Ferragamo Winery and Ferragamo SpA are related, the Italian company said in a complaint filed in federal court in Manhattan, where it has stores on Fifth Avenue and elsewhere. Vince Ferragamo was accused of illegally selling wine with the Tenuta di Ferragamo

name, and festooning the website for his winery with images of Tuscany and Italian countryside, even though it is located in Orange Park Acres, Calif., near Los Angeles. The lawsuit seeks to halt any infringements, recoup triple damages and alleged illegal profits from wine sales, and have wine bearing the Tenuta di Ferragamo name thrown out. The Ferragamo family in Italy also has a winery in Tuscany, known as Il Borro. The case is Ferragamo SpA v. Ferragamo Winery et al, U.S. District Court, Southern District of New York. Copyright 2016 REUTERS. INSURANCEJOURNAL.COM

Dec

line

Nop

Pass

Hu rry

PACIFIC GATEWAY INSURANCE AGENCY

27200 Tourney Rd Suite 360 Valencia, CA 91355

Phone: (800) 354-4844 - Fax (661) 257-5988 www.pgiainsurance.com - License #: 0C04869

We oﬀer a wide variety of commercial auto, garage, property, package and general liability products. All backed by an A++ ﬁnancial rating by AM Best.

WEST | PEOPLE

Rachael Woolsey

Kelly Pareti

Rusty Manzo

Brian Weaver

Leavitt Group in Utah has named Rachael Woolsey vice president of personal lines. Leavitt Group also named Kelly Pareti director of voluntary benefits enrollment. Pareti will work with employee benefits agencies to provide enrollment and voluntary benefits solutions to clients. Woolsey previously worked for MetLife counseling independent agencies. Pareti previously worked for a national insurance company as a regional enrollment strategist. Leavitt Group is a privately-held insurance brokerage. Roamnet Insurance Marketing in Ontario, Calif., has named Rusty Manzo director of marketing. He reports to Anthony Amorelli, president. Manzo will be responsible for new business development. Manzo began his insurance career with Safeco Insurance. He then worked as Western region small business manager at OneBeacon. He was most recently with The Hanover Group as national affinity group and program manager. Roamnet is an MGA/wholesaler. Brian Weaver, senior vice president of sales for Aegis Specialty, was given the Brokers Insurance Group Hall of Fame award in May. BIG is an association that works with the independent broker/producers in the state. Weaver’s insurance career dates back to the 1970’s. In 1980 he took a position as the Southern California sales manager for The McGraw Group. From the mid-1980’s through the early 2000’s, Weaver created a sales team to strengthen the company’s independent agent channel. Marsh has named David Fuhrman to lead its West zone. Fuhrman will be based in Marsh’s Los Angeles, Calif., office, and will report to Rob Bentley, president of Marsh’s U.S. and Canada division. Marsh also announced that John Fuhrman is joining the firm in California to lead its Pacific South partnership. David Fuhrman succeeds Peter Chandler. His experience includes working with Marsh earlier in his career. He was most recently Willis’ national partner for the California region. John Fuhrman is based in Marsh’s Irvine, Calif., office, and will report to David Fuhrman. John Fuhrman has held a range of management

W6 | INSURANCE JOURNAL | WEST MAY 23, 2016

roles, including at Marsh earlier in his career. He was most recently a managing director with Willis. Marsh is a wholly-owned subsidiary of Marsh & McLennan Companies Inc. Starr Cos. has named Andrea Coleman regional vice president for the Western region. Coleman will be located in Starr’s San Francisco office, where she will be responsible for the field leadership in the Western region. She reports to Robert Cruz, national branch officer and director of field operations in New York. She has been in the industry for 15 years. Coleman previously was with CNA as branch vice president. Starr provides property/casualty, and accident and health insurance products. Tyler Nicholson has joined Rancho Cordova, Calif.based Greenpath Insurance Co. as the director of marketing. Nicholson has more than 10 years of sales and marketing experience. He was previously with FSC. Greenpath’s specialties include the non-standard auto insurance market. Propel Insurance has named Michael McCormick a sales executive in the firm’s construction practice. McCormick will be working out of Propel’s Seattle, Wash., location. His prior experience includes sales at Kibble & Prentice. He also was with Hub Northwest as the business development manager. Propel is a Pacific Northwest-based insurance agency. Beecher Carlson Insurance Services LLC has hired Rammy Streit and Robert Streit in its California offices. The two will work out of the Woodland Hills and Orange County, Calif., offices and report to Kevin Maloy, executive managing director and national practice leader of the firm’s mergers and acquisitions practice. Rammy Streit previously worked as an investment banker for Bank of America Merrill Lynch, Barclays Capital and Lehman Brothers. Robert Streit has practiced corporate law as outside and in-house counsel. Previously, he was general counsel and senior managing director at Cadwyn Point Partners/Cadwyn Asset Management. Beecher Carlson is a risk management broker. INSURANCEJOURNAL.COM

Beyond Security®

“Seasoned Professionals”

Michele Tran Production Underwriter Ultra Risk Advisors Seasoned Tourist General Star Broker

“I love to travel the world. In fact, when it comes to touring, I’m a seasoned professional! “My Med Mal partners at General Star are also seasoned professionals. Needless to say, their A++ rating and Berkshire Hathaway backing are impressive, but it’s their deep knowledge, longevity and specialization in health care risk management that are most important to me. “Whether I’m navigating Budapest for the first time, or tackling an unusual risk with General Star, I’m confident of a positive outcome. I rely on seasoned experience, including my team at General Star, to help me solve every challenge.” To locate the General Star broker nearest you, visit our website at www.generalstar.com.

© 2016 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

Chicago 312 267 8600

A.M. Best A++ XV

Los Angeles 213 630 1930

S&P AA+

New York 212 859 3950

Stamford 203 328 5700

A Berkshire Hathaway Company

WEST | News & Markets

FAA Creates Drone Advisory Panel, Lifts Barrier to Education

he Federal Aviation Administration is establishing a broad-based advisory committee to provide advice on key unmanned aircraft integration issues. Also, under a new policy, the FAA will also make it easier for students to fly unmanned aircraft as part of their coursework. The drone advisory committee will include representatives from industry, government, academia, retail and technology fields, FAA Administrator Michael Huerta told the May convention of the Association for Unmanned Vehicle Systems International (AUVSI), which represents the drone industry. Intel CEO Brian Krzanich has been asked to chair the group. Huerta said the drone advisory committee is an outgrowth of the previous unmanned aerial systems

(UAS) registration task force and the rulemaking committee. Those panels were set up for a single purpose and for limited duration. In contrast, Huerta said the drone advisory committee is intended to be a long-term group. “Input from stakeholders is critical to our ability to achieve that perfect balance between integration and safety,” Huerta said. “We know that our policies and overall regulation of this segment of aviation will be more successful if we have the backing of a strong, diverse coalition.” Huerta also announced the FAA has begun allowing students to operate UAS for educational and research purposes. As a result, schools and students will no longer need a Section 333 exemption or any other authorization to fly pro-

W8 | INSURANCE JOURNAL | WEST MAY 23, 2016

vided they follow the rules for model aircraft. Faculty will be able to use drones in connection with helping students with their courses. “Schools and universities

make it easier for students and teachers to engage in unmanned aircraft research as a way to “inspire the next generation” of drone operators and aviators. However, at the same convention, a keynote speaker, former Cisco CEO John Chambers, criticized Huerta and the Obama administration for moving too slowly on federal regulations for drones. He argued that the U.S. is in danger of losing out on a market that could, he claimed, mean trillions of dollars to the U.S. economy. Chambers himself has invested in and is on the board of on a commercial drone startup called Airware. The firm has raised $30 million, according to Crunchbase. Airline pilots and air traffic controllers have warned that safety concerns are real. They have reported increased incidents of drones in airspaces around airports and urged that regulators restrict drones around airports including using technology such as geospacing that would cause drones that get too close to protected airspace to crash. Some insurance companies are proceeding cautiously into the drone market given the uncertainty over the regulations and the risks they represent for owners and operators. The FAA has promised to announce final rules soon. “The rule will be in place within a year,” FAA Deputy Administrator Michael Whitaker said last year in testimony before the U.S. House of Representatives Oversight and Government Reform Committee. “Hopefully before June 17, 2016,” he added.

‘Input from stakeholders is critical to our ability to achieve that perfect balance between integration and safety.’ are incubators for tomorrow’s great ideas, and we think this is going to be a significant shot in the arm for innovation,” Huerta said. Brian Wynne, president and CEO of AUVSI, welcomed Huerta’s announcements. He called the advisory committee “yet another example of government and industry collaboration AUVSI has been advocating, and we look forward to participating in the process.” He also praised the plan to

INSURANCEJOURNAL.COM

Earthquake Coverage

Take a bite out of nature’s unpredictable impact. Over 30 Years of Financial Strength / A.M. Best Rated “A-” Excellent / Through Appointed Wholesalers Exclusively

www.goldenbear.com

WEST | News & Markets CDI: Trucking Company Owners Cheated Workers’ Comp Carrier out of Millions

A California Regulators Reopening Settlement over San Onofre Nuke Plant

alifornia regulators said earlier this month they will re-examine a settlement that made consumers responsible for covering some $3.3 billion in costs for closing the San Onofre nuclear power plant. The Public Utilities Commission said parties involved in the case can submit briefs commenting on whether the deal reached in 2014 should be amended or is “still reasonable,” legal and in the public interest. The decision by a commissioner and a PUC administrative law judge also bars the parties from having private communications with PUC “decision-makers” and advisers to commissioners. That follows revelations that an executive of Southern California Edison, the primary owner of the nuclear plant, held private discussions with then-PUC President Michael Peevey before the PUC adopted the agreement. Edison was fined $16.7 million by the PUC last year for failing to report the back-channel talks. Edison said it was reviewing the new order but continues to believe that the settlement “remains in the public interest,” a company statement said. The San Onofre twin-reactor plant, located between Los Angeles and San Diego, was shut down in 2012 after a small radiaW10 | INSURANCE JOURNAL | WEST MAY 23, 2016

tion leak led to the discovery of extensive damage to hundreds of tubes inside the virtually new generators. Edison closed San Onofre for good in 2013 amid a fight with environmentalists over whether the plant was too damaged to restart safely. In 2014, the PUC approved a settlement between Edison and The Utility Reform Network, a consumer group better known as TURN, that had ratepayers paying $3.3 billion in costs stemming from the plant decommissioning, with shareholders of Edison and minority owner San Diego Gas & Electric covering $1.4 billion. TURN staff attorney Matthew Freedman said the improper communications cast a pall over the settlement deal. San Francisco-based TURN “looks forward to the opportunity to fight for better results for consumers,” Freedman told the San Diego Union-Tribune. “This proves that when a small group of people come together to fight to the end, justice can be done,” Michael Aguirre, an attorney who sued to overturn the agreement, told the paper. “This will have to be done openly and on the record,” he said. “We can win a fair fight.” Copyright 2016 Associated Press.

pair of California trucking company owners were arrested for cheating their workers’ compensation insurer out of millions of dollars. Alvin Shin Chen, 54, and Fiona Xilin Chen, 46, both of La Cañada Flintridge, Calif., were arrested in early May at their home by detectives from the California Department of Insurance and charged with multiple felony counts, including workers’ comp insurance premium fraud for allegedly cheating their carrier. The Chens, owners of Metro Worldwide Inc. and Pacific Coast Distribution, operate a trucking company in Long Beach and are accused of attempting to reduce their workers’ comp premiums by providing fraudulent information to their insurer regarding the number of their employees and what work those employees performed.

CDI detectives reportedly uncovered evidence indicating the Chens paid cash to employee truck drivers to avoid reporting them to the insurer and reduce their payroll tax obligation. Audits of the Chens’ records show they underreported their payroll by more than $4.7 million. As a result, the Chens allegedly cheated their insurer out of more than $1.6 million in workers’ comp premium. “Employers that cheat the system through premium fraud and tax evasion create an illegal marketplace advantage that costs California’s economy billions,” Insurance Commissioner Dave Jones said in a statement. INSURANCEJOURNAL.COM

One of a kind. Your customers are unique, and so are their homes. They deserve the very best protection available. Century-National’s focus is a steadfast commitment to serving your customers in their time of need. That’s why our mobile home products offer guaranteed replacement cost for homes 20 years old or newer and extended replacement cost for qualified homes over 20 years old. Looking for an agent-friendly carrier with an A.M. Best “A” rating, a suite of competitive products and a passion for service? The word’s out…the best security for your client is Century-National Insurance Company. Give us a call or visit our website to learn more about our products and apply to become a producer.

800.733.0880, ext. 2576

HOMEOWNER’S

EARTHQUAKE

| www.cnico.com

MOBILE HOME

COMMERCIAL AUTO

PERSONAL AUTO

UMBRELLA

WEST | News & Markets

Schwarzenegger Discusses Risk at California Insurance Forum By Don Jergler

t turns out characters like Conan the Barbarian, the cyborg from Terminator and Dutch the protagonist in the original “Predator” movie, know a thing or two about risk. Definitely the actor who portrayed them does. Actor Arnold Schwarzenegger in early May revisited a few of his more pro-

lific characters and what it took the portray them for a group of insurance students and industry professionals as a Southern California university.

builder to try and make it big in Hollywood, and then his foray into politics. His talk centered on risk was tailor-made for a conference titled “Insurance Industry Trends 2020 and Beyond” at Cal State University Fullerton. The event was staged by the administration and professors of the Center for Insurance Studies, which is part of the Mihaylo College of Business and Economics at Cal State

‘Let me tell you, it is quite a surprise when you get in there and you see that everything is political.’ The former California governor also talked about the risks he took leaving his home country of Austria after a career as the world’s greatest body

W12 | INSURANCE JOURNAL | WEST MAY 23, 2016

University Fullerton. Schwarzenegger was joined by Robert Hartwig, an economist and president of the Insurance Information Institute, who made what was likely his final stop in the region as the face of the property/casualty insurance industry. Schwarzenegger focused much of his talk on delivering a message to students in the audience: they should pursue their dreams instead of settling

continued on Page W14 INSURANCEJOURNAL.COM

Long Live the Royal Treatment e Proudly Serving the Insurance Industry for 30 Years f

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

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

WEST | News & Markets continued from page W12

for a career they may not really want. When he was first trying to break into acting in the 1970s, Schwarzenegger’s brawny frame did not fit the star prototype in an era of rangier men like Al Pachino, and Woody Allen, who at the time was considered a “sex symbol.” “My agent said Dustin Hoffman is hot and he only weighs 150 pounds,” Schwarzenegger said. Driven by dreams first formed through viewing 8 mm films as a Actor Arnold Schwarzenegger on May 9 talked to boy in his homeland, he ignored group of insurance students and industry profesthe advice of his agent and pursued sionals as a Southern California university. numerous roles in films. “You can’t be concerned about failure,” he said. Not of all of Schwarzenegger’s films turned out to be blockbusters, such as the embarrassing 1970 dud “Hercules in New York,” which the former muscle-man didn’t mind poking fun of. “It was a disaster,” he said. “It went into the toilet.” Following that failure he landed the role of Conan the Barbarian. The film of the same name was a resounding success — in fact Schwarzenegger is Robert Hartwig, an economist and president of set to appear in the yet-to-be-released the Insurance Information Institute, addressed a “Legend of Conan.” crowd of insurance students and industry profes A lion’s share of his speech took on sionals at Cal State University Fullerton. a “get up, don’t stay down” theme, a mindset he said carried him from air pollution exposure. body building, to acting, to his time as “the His topics, largely retrospective on the Governator.” success he had during his years as gov As California governor from 2003 to ernor, included political reform, such as 2011, the Republican was noted for his crusade against partisanship, particularly in a fighting against gerrymandering as well as state dominated by Democrats. supporting open primaries, workers’ compensation reform, afterschool programs, “Let me tell you, it is quite a surprise equal education and climate change. when you get in there and you see that everything is political,” he said. Despite his pro-business, conservative Schwarzenegger described fighting with bent, Schwarzenegger has embraced a number of pro-environment movements, both parties on topics like schools, infrastructure and the environment. particularly climate change. And those battles often made little sense He was decidedly approving when asked to him. about the Paris agreement hammered out “There is no Democrat air or Republican by world leaders last year to battle climate air. The air is polluted,” he said, backing up change, called the COP21. his anti-pollution stance with the World “I think it’s good to have a goal,” he said. Health Organization statistic that 7 million “It’s a good agreement. It’s not perfect by people per year in the U.S. die as a result of any means.” W14 | INSURANCE JOURNAL | WEST MAY 23, 2016

He again pointed to his time as California governor and noted that the state had early in the Millennium started being proactive on reducing greenhouse gases with an initiative that became law in 2006 after opponents battled it all the way up to the high court. “They told us they could not regulate our own air,” Schwarzenegger said. He scoffed at the opposition’s argument at the time that greenhouse gas is not a pollutant. Echoing an earlier comment, he put in: “Seven million people die every year because of pollution.” He took time to answer a few questions from students and other members of the audience. One student asked him about his new role on NBC’s “Celebrity Apprentice,” and if he would come up with a catch phrase like presidential hopeful and show predecessor Donald Trump’s, “You’re fired.” “You’re terminated” was one suggested move tie-in he may consider working into the show, the student said, to which Schwarzenegger offered another: “Get to the chopper.” The famous line from “Predator” drew roaring laughter from an audience that had largely been quiet until that point. Of Schwarzenegger’s few regrets, one is that he is a foreign-born citizen and therefore constitutionally prohibited for attaining the nation’s highest office. “I do regret that I wasn’t born in America,” he said.

Hartwig Slides

The event was possibly the final chance for people in Southern California to Robert Hartwig hear from the man who has been the face of insurance industry since 2007. Hartwig in February announced he is leaving the helm

continued on Page W16 INSURANCEJOURNAL.COM

with FIRST

Yes–yes, you can

AMERICAN.

Homeowners are worried about many things, but finding Homeowners Insurance shouldn’t be one of them. Offer them the security of a trusted leader in the industry. First American provides extensive

coverage at competitive rates, along with quality customer service. Questions or concerns? We’ll handle it, so you–and your clients can relax...and take a load off.

Be confident in working with the industry’s Homeowners experts. Think First. Think First American. 888.922.5343 888.922.5343 t www.firstam.com First American Property and Casualty Insurance Company makes no express or implied warranty respecting the information presented and assumes no responsibility for errors or omissions. First American, the eagle logo, First American Title, and firstam.com are either registered trademarks or trademarks of First American Financial Corporation.

NYSE: FAF

WEST | News & Markets continued from page W14

of I.I.I. this summer to join the faculty of the University of South Carolina’s Darla Moore School of Business. Hartwig travels throughout the U.S. sharing facts and figures on the insurance industry at a rapid pace as he points audi-

ence members to a blur of overhead slides to back up his assertions. Within an hour he covered a large array of topics: changing market dynamics; net premiums written across the U.S.; cyber insurance; the gig economy; workers’com-

pensation; disruptors; auto insurance; autonomous vehicles; and technology. “This is an industry going through a tremendous period of technological change,” Hartwig said. And with each of those changes, there’s no shortage of people trying to write off the insurance industry, such as the lingering prediction from myriad worrywarts that autonomous vehicles will kill off auto insurance, he added. Among his legion of slides was one showing that by 2035 it’s estimated that 25 percent of new vehicles coming off production lines will be fully autonomous. He also noted that while Google’s driverless car is making headlines, it couldn’t make the short trip today from the train station to his home without “ending up in a ditch.” “We are a long way off on this stuff,” he said.

‘This is an industry going through a tremendous period of technological change.’ Instead of succumbing to technology, the insurance industry has adapted by providing new products for ridesharing, property sharing and cyber-attacks, he added. Hartwig also dismissed the notion that technology companies will supplant insurers and insurance agents with disruptive innovations like online insurance shopping portals and software-enhanced aggregators. “There’s a lot of Silicon Valley hype nowadays,” Hartwig said. The event also included a panel discussion with Chris Baggaley, senior vice president at the Automobile Club of Southern California, Ron Guerrier, chief information officer of Farmers Insurance Group, Mark Costa, senior vice president at Kaiser Permanente, and Joe Celentano, senior vice president at Pacific Life Insurance Co. Proceeds went to benefit the center’s insurance marketing entrepreneurship program endowment, which provides funding for students interested in careers on the sales side of risk management and insurance. ABRAM16750.indd 1

W16 | INSURANCE JOURNAL | WEST MAY 23, 2016

5/9/16 1:42 PM

INSURANCEJOURNAL.COM

A AD 8102 0216 IJ

A Perfect Fit

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

Manufactured Home Dwelling Homeowners Motorcycle ATV

• • • •

Agriculture Personal Watercraft Watercraft and more

WEST | News & Markets continued from page W1

director of public policy and assistant general counsel with the Oklahoma Insurance Department. Bolton talked about earthquake science and categorized seismic events into high-frequency, mid-frequency and low-frequency categories. She noted that the 1994 magnitude 6.7 Northridge Earthquake would be categorized as a mid-frequency event. “That’s pretty scary to think of that as a mid-frequency event,” Bolton said. Johnson like Bolton talked about the impact of disaster from a numbers point of view, using as baseline comparisons disasters like Hurricane Katrina and Superstorm Sandy. Katrina caused $44 billion in damage from flooding and storm surge in the five affected states, and to help recovery efforts the federal government stepped in with $13 billion in Community Development Block Grant–Disaster Recovery assistance funds for Louisiana alone, while the government forked over more than $16 billion in CDBG– DR assistance to help Sandy recovery efforts. “When a disaster hits there’s a simultaneous depletion of capital,” Johnson said.

Integrity

Service

Until recently there would be little reason for a representative from Oklahoma to speak at an earthquake conference. Combs said that when he began with the Oklahoma Insurance Department more than five years ago he thought he’d be dealing exclusively with perils that are typically associated with that region like tornadoes and flooding. “When I started with the insurance department I never expected to be talking to a group of people about earthquakes,” he said. He said the insurance department has shifted a some of its efforts to educating the residents of the state about earthquakes and the need for earthquake insurance. “What we found out really quickly is that there are a lot of people who don’t understand how earthquake insurance works,” he said. In 2013 there were 209 M3.0 and above earthquakes recorded in Oklahoma, followed by 567 quakes in 2014, according to area seismologists. In 2015 there were 907 quakes at M3.0

‘What we found out really quickly is that there are a lot of people who don’t understand how earthquake insurance works.’

Security

Stability

Serving Independent Agents Since 1930 www.quirkco.com QUIRKCN16334.indd 1

W18 | INSURANCE JOURNAL | WEST MAY 23, 2016

and above recorded, Combs said. The shaking has gotten people’s attention, he added. “We’ve seen a large take up in earthquake insurance,” he said. He attributed many of the quakes to increased fracking operations in the state, saying “induced seismicity has become a big deal in Oklahoma.” Some policies do not cover man-made earthquakes, but there are many policies that do cover for earthquakes from fracking, he said. To deal with this the insurance department began requiring carriers to tell customers about earthquake insurance and whether their policies cover quakes thought to be due to fracking. Combs said of the 156 carriers who sell earthquake insurance in Oklahoma, 109 have policies that do protect people whose homes were damaged due to earthquakes believed to be generated by fracking activities. However, the increased seismic activity has led to increased rates for earthquake insurance and fewer carriers interested in selling policies, he said. “We’re starting to see some constriction in Oklahoma,” he said. Oklahoma Insurance Commissioner John D. Doak in April ordered a public hearing to investigate rising rates over concerns about a competitiveness in the state’s earthquake insurance market. The May 24 hearing will include data gathered by the insurance department as well as comments from insurers and citizens. Pomeroy emphasized the need to get the message out that earthquake insurance is not included in the standard homeowners policy, and he talked about new offerings from CEA designed to get more California homeonwers to purchase the coverage. Those include a premium calculator, more deductible options, a rate reduction and a television advertising blitz. The efforts seem to be working, he said. “We now have about 880,000 policyholders that we protect,” Pomeroy said.

(800)299-9421 4/4/16 8:05 AM

INSURANCEJOURNAL.COM

A Quick Snapshot of What We Do CommerCial General liability Top Classes

HIGHlIGHTs

• • • •

Bars/Taverns Contractors Home Health Care Manufacturers

Up to $5MM Underlying excess liability o&Cp package policies available

CommerCial property Top Classes

HIGHlIGHTs

• • • •

Factories office Buildings shopping Centers Warehouses

Builders Risk Building & Bpp Crime Inland ocean Marine

earthquake

Worker’s Compensation

HIGHlIGHTs

• • • • •

• Flood • 10+ Markets • $2500 Minimum premium

apartments Hoas office Buildings shopping Centers Dwellings

CommerCial auto

Top Classes

HIGHlIGHTs

• • • • •

• • • •

Manufacturing Contractors offices Restaurants Retail stores

Top Classes

20+ Carriers No prior oK Direct Billed low Mps

Top Classes

HIGHlIGHTs

• Contractors • Driving schools • Day Care & Church Buses • agg Haulers

• • • •

No Fees 6-Month Terms Cargo pUC/DMV Filings

professional liability

GaraGe/dealers

Top Classes

HIGHlIGHTs

• • • •

• • • • •

HIGHlIGHTs • eplI • e&o

accountants architects • D&o Insurance agents • Higher lawyers Commissions Medical • Misc. e&o

auto Repair Valet Mobile operations Heavy Truck sales Repair

property packaged 5+ Markets admitted Markets High per Vechile limits

standard market bops

personal lines

Top Classes

HIGHlIGHTs

Top Classes

HIGHlIGHTs

• • • • •

• Comprehensive Coverage • low Rates • payment options • No Fees

• • • • •

Manufacturing apartments property owners Restaurants Retail stores

Dp-3 Ho-3 paFs Umbrella Vacant/CoC

www.gorstcompass.com 800.437.6616 Ca Ins. lic. #0359417/#0443957

Xs Flood Up to $50MM TIV earthquake Quick Quotes Brush areas acceptable

WEST | News & Markets continued from page W2

worked on for decades, the overwhelming volume of work and assignment backlogs, outdated hardware and software, and other workplace transformations that were occurring. Cretsinger created a report from those 100 pages of notes that he shared not only with senior management but with his team as well. “We put together a list of actions. We were going to take on the top 10 trends that I heard through the interview process,” he said.

A Needed Solution

Cretsinger felt the initial interaction with staff was successful and wanted to keep the channels of communication open but knew he couldn’t continue the process of one-on-one interviews with 100 people in the long term. “I needed a better solution,” he said. He found out about the employee engagement application by TINYpulse through a mentor, so he decided to try it on a trial basis. The cloud-based software application allows for anonymous employee feedback via a regularly scheduled email survey, for instance, weekly, bi-weekly or monthly. In GuideOne’s case, weekly emails were sent that contained only one question, which typically varied from week to week. There is one recurring question, however, that TINYpulse sends to all of its client organizations on four-to-six-week intervals: How happy are you at work? According to a Bersin by Deloitte case study on GuideOne’s experience, “Getting to the Heart of Employee Engagement, How GuideOne Insurance Leverages W20 | INSURANCE JOURNAL | WEST MAY 23, 2016

Weekly Pulse Surveys to Monitor Employee Commitment,” that question “gets straight to the heart of employee engagement and gives a recurring benchmark against which executives can compare their teams within their business or across industries.” The Bersin by Deloitte case study noted that, on average, 66 percent of GuideOne employees regularly respond to the weekly survey question. The response rate goes as high as 75 percent when simple questions are asked. With complicated questions that require more thought and response time, the rate typically drops. Cretsinger is able to view his employees’ anonymous responses in real time and take action immediately on problems if needed. He reports back to his staff on a weekly basis regarding the issues and trends that were identified in the week’s emails. And he offers suggestions on how employees can empower themselves to make changes in their work environment. Cretsinger believes the anonymity of the responses is crucial to keeping high levels of employee engagement. He also made sure at every step of the way in implementing the survey process that his employees were on board. “I asked for permission and got permission to both implement the survey and share the results. That was important,” he said.

The Outcome

GuideOne has been using the TINYpulse app for more than a year, and it appears to be successful. Cretsinger said he’s seen a major improvement in employee engagement. The turnover rate in the IT department was reduced from 12 percent to just over 3 percent in 18 months. The company is now in the process of implementing the surveys companywide. Kevin Nakao, vice president of employee engagement at TINYpulse, said it’s very important for companies that want to ini-

tiate similar surveys to be prepared to take action on the results. “Please don’t do a survey or ask questions unless you’re prepared to take action. You have to have the engagement of the leadership team. This is why Doug has been so successful, because he had that commitment. Don’t do this unless you’re prepared to listen — and make a change,” Nakao said during the webcast detailing GuideOne’s experience. He also said it’s important not to wait too long. “If you’re going to wait a year to get results, chances are you’re not going to be able to address them,” Nakao said. And the results must be shared with the team. “If you’re going to ask an employee to take the time to do something, they want to see what other people are saying. And a lot of times that actually helps guide them into what they’re thinking about the problem,” he said. Nakao added that companies that share results get the highest employee participation rates. Companies also need to benchmark the survey results and filter the data, so that trends can be monitored over time so see if improvements have been made, he said. “Kevin is exactly right,” Cretsinger said. “Don’t go into this thinking you’re just going to ask for feedback and you’re going to get it and that’s the end. Completing that feedback loop, communicating back what you heard and what you’re going to do about it, that’s the most important step.” He said he had weekly dialogues with his staff about what he heard during the week and what he intended to do about it. “I couldn’t promise to fix everything, and I didn’t. But I did promise to take action on things that I could. In some cases, I needed their help in order to implement the changes,” he said. “I looked at the cost and the features and decided to pilot it with my team. And here we are two years later and I have found it to be extremely helpful in my organization. I had to commit, and I did,” Cretsinger said. Note: This article originally ran on the

website of Insurance Journal affiliate, Carrier Management. INSURANCEJOURNAL.COM

News & Markets | NATIONAL the ninth in an annual series examining agents’ views on property/casualty insurers and various marketplace issues. “Market forces can squeeze everyone along the value chain, and this survey indicates agents want to have a constructive dialogue with carriers about how to overcome margin issues,” says Peter van Aartrijk, principal of Channel Harvest. “Compensation is a hot button that carriers should not leave to chance or a business-as-usual attitude — if they truly seek to attract or retain valuable agencies.”

The Squeeze that Hurts: Agents Sound Off on Compensation

n a first quarter results call, W.R. Berkley Corp. President and CEO Robert Berkley cited a growing and alarming level of tension between carriers and distribution, driven by what he called a fight to grow margins in the face of declining rates. Berkley concluded that he fears this struggle will get in the way of carriers and agents working together to “bring more value to the customer.” A new Channel Harvest Research survey unpacks this dynamic by asking independent agents what they desire the most from their carriers and what they feel are the keys to a profitable relationship. INSURANCEJOURNAL.COM

It’s no surprise compensation is a key factor, with nearly 90 percent of respondents saying it is either “very important” or “somewhat important” when they think about carriers. Yet, many agents are less than satisfied with their compensation agreement with their lead companies. Nearly 40 percent say their top carrier is average or below average when it comes to compensation. This is among the findings of the national survey of agents conducted by Channel Harvest and sponsored by Insurance Journal. The study, “The Carrier Relationship: What Matters Most to Agents & Brokers,” is

Commercial Business

Other than compensation, where there appears to be a disconnect between agents’ expectations and their assessment of their lead carrier’s performance, the survey reveals general alignment between commercial carrier performance and agency expectations. While agents are less than enthusiastic about their lead carrier’s tech support, training, marketing support and digital/social media support, those attributes also fall to the bottom of the list of agent expectations. Agents who place commercial lines business gave their top carriers high marks for financial strength, underwriting responsiveness and expertise, customer service, and brand reputation. When asked why they placed so much busi-

ness with that carrier, agents mentioned things such as: • “Underwriter seems to be committed to helping us write business. Willing to look at each account and analyze it on its own merit.” • “Fully automated. Competitively priced.” • “Ease of quoting and writing business.” • “High level loss control and claim talent.”

‘Compensation is a hot button that carriers should not leave to chance or a business-as-usual attitude — if they truly seek to attract or retain valuable agencies.’ About 1,900 agency personnel responded to this year’s survey, conducted in February and March. Respondents including principals, producers, and CSRs answered 100 questions about personal lines and commercial lines carriers. The full Channel Harvest report explores how carriers can capitalize on agents’ interest in adding new companies. It also outlines agents’ ratings and rankings of the carriers with which they presently do business. It will examine agents’ views on a variety of insurance marketplace issues.

For more information on the 50-plus-page report as well accompanying raw data and other ancillary research products, contact John Campbell, Channel Harvest principal, at john@channelharvest.com.

MAY 23, 2016 INSURANCE JOURNAL | NATIONAL | 15

NATIONAL | Business Moves

Confie, Automobile Insurance Specialists Inc., Trinity Insurance LLC, Whitehead Insurance Inc.

Confie has acquired three insurance agencies in Las Vegas, South Florida, and Washington State. Confie acquired the assets of: Automobile Insurance Specialists Inc. of Las Vegas, whose primary focus since its founding in 2007 is personal auto insurance; Trinity Insurance LLC, operating three locations in South Florida, Homestead, Cutler Bay, and Palmetto Bay that have focused on providing auto insurance since 2009; and Whitehead Insurance Inc., an independent agency based in Yakima, Wash., primarily offering auto insurance since 1955. Valeria Rico, CEO of Confie, said, “As we continue to expand Confie’s insurance products to new markets, we are also focused on broadening our presence in existing markets we have not fully penetrated. Nevada, Florida, and Washington State are attractive markets, and we are pleased

to partner with these leading agencies and integrate them into the Confie family of companies.” Established in 2008, Confie is a California-based national insurance distribution company focused on personal lines and small commercial insurance. Confie has more than 700 retail locations and generates annual revenues approaching $500 million.

Walsh Duffield, Don Allen Agency

Walsh Duffield Companies Inc., an independent insurance agency based in Buffalo, N.Y., has acquired Don Allen Agency Inc., based in Rochester, N.Y. Terms of the transaction were not disclosed. This is the third agency acquisition for Walsh Duffield in the Rochester and surrounding region. Walsh Duffield previously acquired the Barry York Agency in Pittsford earlier this year and acquired Stuart G. Smith Agency — now doing business as Walsh Quinn Agency — in Brighton in 2014. The Don Allen Agency will

16 | INSURANCE JOURNAL | NATIONAL MAY 23, 2016

continue to operate from its current offices in Rochester and Avon, N.Y. Its 28 staff members will join Walsh Duffield as part of the transaction, bringing Walsh Duffield’s employee count to 110. With the addition of the Don Allen Agency, the Rochester market now represents approximately one-third of the Walsh Duffield book of business. Founded in 1860, Walsh Duffield is a fourth-generation, family-owned independent agency. With offices in Buffalo, Medina and Rochester regions, Walsh Duffield offers personal and commercial insurance products to clients across upstate New York.

JenCap, Trivedi-Capacity

JenCap Holdings LLC, a portfolio company of private-equity giant Carlyle Group, has acquired Trivedi-Capacity Associates LLC, a specialist managing general agent and wholesaler based in Mahwah, N.J. Terms of the transaction were not disclosed. Trivedi-Capacity is a provider of specialty programs focused on commercial risks, particularly in the hotel and community association space. It has been in business since 2004. Trivedi-Capacity’s staff of 10 will be part of the transaction, with Tushar Trivedi remaining as president. They will continue to operate from their current offices in Mahwah and San Diego, Calif., as TrivediCapacity Associates LLC, a JenCap Holdings LLC company. JenCap is a recently formed insurance holding company based in New York City. It serves as a consolidator of spe-

cialty insurance distribution and program management businesses, including MGAs, specialty program underwriters, transactional wholesale brokers and captive managers. JenCap is a holding of Carlyle Global Financial Services Partners II, a $1 billion fund closed in 2014. The fund invests in all verticals of financial services, including asset and wealth management, insurance, capital markets, business services, banks and specialty finance.

People’s United, Eagle Insurance

People’s United Bank, N.A. in Bridgeport, Conn., announced that its subsidiary, People’s United Insurance Agency, has acquired Eagle Insurance Group, a Raynham, Mass.based insurance brokerage. Terms of the transaction were not disclosed. Formed in 2010, Eagle Insurance Group provides property/casualty insurance, risk management, and consultation services to a diverse clientele including petroleum marketers, contractors, manufacturers, property managers, and trucking companies. People’s United Insurance Agency is headquartered in Hartford, Conn. It provides personal insurance, employee benefits and commercial insurance through a team of more than 160 professionals. It has eight locations across Connecticut, Massachusetts, New Hampshire, New York and Vermont. People’s United Bank, N.A. is part of People’s United Financial Inc., a diversified

continued on Page 18

INSURANCEJOURNAL.COM

I am a CEO. Protect me. I have thousands of employees worldwide, working in dozens of offices. I have a C-suite of talented executives and my company’s reputation and profitability to protect. I have a broad range of risks facing me, my business and my employees. I want a particular kind of protection and level of service that comes from decades of experience insuring large corporations and their unique assets. Not just coverage. Craftsmanship.SM Not just insured.

Chubb. Insured.

©2016 Chubb. Coverages underwritten by one or more subsidiary companies. Not all coverages available in all jurisdictions. Chubb®, its logo, Not just coverage. Craftsmanship.SM and all its translations, and Chubb. Insured.SM are protected trademarks of Chubb.

new.chubb.com

NATIONAL | Business Moves continued from page 16 financial services company with more than $39 billion in assets. People’s United Bank, founded in 1842, is a community-based, regional bank in the Northeast offering commercial and retail banking, as well as wealth management services, through a network of nearly 400 retail locations in Connecticut, Maine, Massachusetts, New Hampshire, New York and Vermont.

UPC, Interboro

United Insurance Holdings Corp. (UPC Insurance), a property/casualty insurance holding company based in St. Petersburg, Fla., completed its acquisition of Interboro Insurance Company in Mineola, N.Y. UPC Insurance first announced the $57 million deal last September. Established in 1914, Interboro is the oldest insurance company in New York’s Long Island region. Interboro writes homeowners insurance in New York and South Carolina through a network of more than 600 independent brokers. It is also licensed

to write business in Louisiana, Alabama, and Washington, D.C. Founded in 1999, UPC Insurance is an insurance holding company that sources, writes and services residential and commercial P/C insurance policies using a network of independent agents and a group of wholly owned insurance subsidiaries. UPC Insurance writes and services P/C insurance in Connecticut, Florida, Georgia, Hawaii, Louisiana, Massachusetts, New Jersey, North Carolina, Rhode Island, South Carolina and Texas, and is licensed to write in Alabama, Delaware, Maryland, Mississippi, New Hampshire, New York and Virginia.

Arthur J. Gallagher & Co., Charles Allen Agency, Insurance Plans Agency

Arthur J. Gallagher & Co. (AJG), acquired the Charles Allen Agency Inc. in Waite Park, Minn. Terms of the transaction were not disclosed. Founded in 2010, the Charles Allen

Agency Inc. (CAA) is a retail insurance broker that provides commercial surety bonding and insurance services in the Midwest. The firm specializes in coverage for the construction industry. Mark Gresser and his associates will continue to operate from their Waite Park location under the direction of Michael Pesch, head of Gallagher’s Midwest region retail P/C brokerage operation. In a separate deal, AJG acquired Insurance Plans Agency Inc. (IPA) in South Barrington, Ill. Terms of the transaction were not disclosed. Established in 1983, IPA is a retail insurance broker providing group employee benefits products and consulting services, and commercial P/C insurance services. Mark Andrew Varland and his team will continue to operate from their current location under the direction of William Ziebell, head of Gallagher’s North Central employee benefit consulting and brokerage operations.

Insurance and loss prevention go hand-in-hand. Don’t make your clients pay twice. Is education part of your book of business? If so, you know that limited budgets make it challenging to pay for both comprehensive coverage and training programs. But with United Educators schools get both. We include EduRisk learning programs as part of our liability coverage saving educational institutions additional training fees. Your clients will enjoy education specific insurance and targeted learning programs, and you’ll benefit from our 98% retention rate. When it comes to prevention and protection for education, UE has both sides covered.

Call us for a quote for your education client!

UNEDU001.indd 1

18 | INSURANCE JOURNAL | NATIONAL MAY 23, 2016

For more information: (301) 907-4908

info@ue.org

www.UE.org

4/4/16 11:13 AM

INSURANCEJOURNAL.COM

. O.N.E ason e r e r mo ess n i s u b to do tilus u a N with

... ea rs y + 0 by 3

ble a u l a i nv

shi r e n t ar

ps.

A.M. Best A+XV Rated Carrier

800.842.8972 | nautilusagents.com

Products and services described above are provided through various surplus lines insurance company subsidiaries of W. R. Berkley Corporation and offered through licensed surplus lines brokers. Not all products and services may be available in all jurisdictions, and the coverage provided by any insurer is subject to the actual terms and conditions of the policies issued. Surplus lines insurance carriers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds.

Flood | SPOTLIGHT

Things to Know About Flood Insurance

A large percentage of agents’ errors and omissions claims arise from failure to offer flood coverage. By offering flood coverage at the point of the homeowner sale, in addition to offering protection to clients from devastating losses, agents are also helping to protect themselves from potential E&O claims. — Keith T. Brown, CEO of Aon National Flood Services Inc.

age for footings, foundations, posts, pilings, piers or other foundation walls and anchorage systems required to support a building; stairways/ staircases; furnace, hot water heaters, electrical junction, circuit breaker boxes electrical outlets and switches. — Keith T. Brown, CEO of Aon National Flood Services Inc.

Innovative new private products can help a flood insurance policy act more like a homeowner’s policy, such as providing coverage for finished basements and additional living expenses. — Keith T. Brown, CEO of Aon National Flood Services Inc.

INSURANCEJOURNAL.COM

5 6

A total of more than 6.6 million homes along both the Gulf and Atlantic coasts of the U.S. are at risk of storm surge damage. The total reconstruction cost value of these structures is estimated at nearly $1.5 trillion. — CoreLogic’s 2015 Storm Surge Report

7 8

A 2015 poll found that 14 percent of U.S. homeowners had a flood insurance policy. — Insurance Information Institute

Floods are the most common natural disaster in the U.S. From 2010 to 2014, the aver-

percent of homeowners in the Northeast had a flood policy, while 9 percent of homeowners in the West and 10 percent in the Midwest had a flood policy. — Insurance Information Institute

9 In the past five years, all 50 states have experienced floods or flash floods. — NFIP

The National Flood Insurance Program (NFIP) does not include coverage for finished basements and additional living expenses. While the NFIP policy does not cover personal contents in a basement, it does provide valuable cover-

age NFIP flood claim amounted to nearly $42,000. Total flood insurance claims from 2005 to 2014 averaged more than $3.5 billion per year. — NFIP

The poll found the percentage of homeowners with flood insurance was highest in the South, at 21 percent. Eleven

NFIP has accumulated significant debt in recent years. As of 2015, NFIP owed the U.S. Treasury $23 billion. — U.S. Government Accountability Office

Private flood insurance is becoming more mainstream every day. In 2013, the Gainesville, Fla.-based Flood Insurance Agency became one of the first agencies to offer a private standalone flood policy in Florida. The agency has since registered over 2,000 retail agents to market its Lloyd’s Private Flood program across the U.S. — Evan Hecht, CEO of Flood Insurance Agency

MAY 23, 2016 INSURANCE JOURNAL | NATIONAL | 21

SPOTLIGHT | Workers’ Compensation

New Chief Donnell: Independence, Objectivity in Workers’ Comp Remain NCCI’s Core Values

or more than 90 years the National Council of Compensation Insurance (NCCI) has served the workers’ compensation industry as a provider of data and information. Its mission has been to “help enable a healthy workers’ compensation system,” according to William E. Donnell, president and CEO of the NCCI, who says the industry rating and advisory organization prides itself on fulfilling its mission in an “independent and objective” fashion. “The reason that is important is that we don’t support any one stakeholder or constituent group,” he said in a recent interview.

December, replacing Stephen J. Klingel who retired in February. Donnell spoke with Insurance Journal’s Andrea Wells about his vision for the organization, the challenges NCCI faces, and what role he believes NCCI should play in workers’ comp.

What is your vision for NCCI?

William E. Donnell, president and CEO of NCCI

Donnell, formerly president for Swiss Re America’s U.S. property and casualty reinsurance, joined NCCI in early

William Donnell: One of my early observations since joining NCCI is that our mandate — is very similar to the one that established the firm a little over 90 years ago. Our mission/mandate is to help enable a healthy workers’ compensation system. Having said that, this year we are taking a fresh look at the external environment. Not only how it looks today but how it may look five years out. We are right in the middle of that and it will be completed this year. One thing that will not change is the mandate and we will

compare any major change forward against that mandate. … From my early five months, I can tell you that feedback I’ve received externally is that NCCI is a strong brand. Employees are expert and engaged. The firm and employees are very well respected by our various constituents. We want to keep that leadership position. Quite frankly I don’t anticipate any radical changes.

Do you expect to expand in research?

Donnell: What we have done in the research area is appreciated by various stakeholders. We bring to the table the unique ability to analyze and report on industry information that we collect. … Our current focus is the term “applied research,” which supports our ability to make accurate loss cost recommendations. We’ve got to get that right. If we don’t get that right, then a lot of other things don’t matter as much. We presented some research at the NCCI conference in May. One of the most recent topics was to compare the impact of the Affordable Care Act on workers’ comp in terms of availability of services and also trends in workers’ comp prescription drug costs.

Is there an area or issue you would like to see NCCI take more of a leadership role on?

Donnell: When I look at our role in the industry it’s very, very strong. I’m very comfortable with our leadership role. But regardless of what we lead in it’s very important that we go back to that mandate and that we have a reputation for 22 | INSURANCE JOURNAL | NATIONAL MAY 23, 2016

INSURANCEJOURNAL.COM

independent objective recommendations. The reason that is important is that we don’t support any one stakeholder or constituent group. We have to be independent and objective and because of that we are able to achieve our mandate of a healthy work comp market. One of the things I want to focus on is making sure that we continue to be relevant in the system. I can’t say it enough, what we do is enable a healthy worker’s compensation system.

Who are NCCI’s constituents?

Donnell: We have a very broad group of constituents. You’ve got the insurers, the regulators, the legislators, agents, brokers, policyholders. It’s as broad as anyone that has a broad interest in workers’ compensation. With that broad of a constituent group it has to go back to independent and objective recommendations. Making sure that our knowledge and expertise are right on, and then tying it back to the system being healthy.

What are the challenges facing NCCI as an organization?

Donnell: I would say the challenges for NCCI mirror those of the system and its participants. Externally you’ve basically got challenges to the premise of the grand bargain. Maintaining this delicate balance between system benefits and cost, and then adopting to the ways employees will be working in the years ahead. Those are the external challenges and therefore they are our challenges. Our challenge is essentially to make sure that when people come to us with a question we have the ability to educate them; to provide data. … We at INSURANCEJOURNAL.COM

NCCI have the ability to back up what we say with data and I think that’s really important. … The one thing I do believe is that you don’t survive nearly 100 years by being stagnant.

I’m absolutely confident that NCCI is going to continue to succeed.

Do you see NCCI as an advocacy organization?

Donnell: What we do is provide objective, independent data of industry information and that’s not going to change. What we don’t do is advocate on behalf of any group or organization.

Workers’ Compensation Market Improved, Grew Premium in 2015: NCCI

he workers’ compensation market is healthy and profitable. This year’s “State of the Line” report, published by the National Council of Compensation Insurance (NCCI), indicates that the workers’ compensation calendar year 2015 combined ratio for private carriers was 94 percent. That is a six-point improvement over the 2014 combined ratio of 100 percent. Total market net written premium for workers’ compensation increased by almost 3 percent to $45.5 billion for the states NCCI serves, driven by an increase in payroll. NCCI President and CEO William E. Donnell said that in addition to the positive financial results in workers’ comp, the segment is also seeing transformational changes. “New monitoring technology, expanded automation, and innovation in how employees work are key indicators. The regulatory environment is transforming with new participants and shifting agendas. In addition, the frequency and potential severity of system challenges are creating levels of uncertainty as we move forward this year,” he said. “Overall, 2015 was another positive year for the workers’

compensation industry,” said NCCI Chief Actuary Kathy Antonello. “The combined ratio improved, claim frequency continued to decline, and operating results were strong,” she said. But Antonello cautioned that other trends could put pressure on the workers’ compensation system. “For example, even though overall medical severity has lessened in recent years, prescription drug costs have continued to increase. Unchecked, this alone may contribute to an increase in future medical costs.” The improving workers’ compensation calendar year combined ratio for private carriers was driven primarily by a decrease in the loss ratio, said the NCCI. On an accident year basis, the industry-reported 2015 workers’ compensation combined ratio was 98 percent. Other market indicators and trends highlighted in NCCI’s report include: • The overall reserve position for private carriers improved in 2015. NCCI estimates the year-end 2015 reserve position to be a $7 billion deficiency— down from $10 billion in 2014. Estimated reserve redundancy in Accident Year 2015 accounts for much of this reduction. • Average lost-time claim frequency across NCCI states

declined by 3 percent in 2015. • In NCCI states, the preliminary 2015 accident year average indemnity cost per lost-time claim increased by 1 percent relative to the corresponding 2014 value. For medical, the preliminary average cost per lost-time claim decreased by 1 percent relative to that observed in 2014. • The workers’ compensation residual market pool premium volume remained flat between 2014 and 2015, and the average residual market share remained stable at 8 percent. The latest NCCI data shows that total residual market premium declined in the first quarter of 2016 compared with the first quarter of 2015. Even so, the workers’ compensation industry faces challenges, according to the NCCI. Those include: • While the change in overall medical severity has lessened in recent years, prescription drug costs per active claim continued to increase • The extended low-interest-rate environment threatens investment results over the long term. • Ongoing challenges to the industry’s renowned “Grand Bargain” could impact future benefit levels and put upward pressure on loss costs.

MAY 23, 2016 INSURANCE JOURNAL | NATIONAL | 23

CLOSER LOOK | Cyber

Fallout from Travelers CGL Cyber Ruling: Insurance Buyers and Sellers Beware

By Andrew Simpson

xperts are cautioning insurance buyers and sellers not to overreact to the recent federal court decision finding data breach defense coverage under a commercial general liability (CGL) policy. Buyers would be mistaken to think the ruling means that they do not need a cyber policy if they have a CGL policy, and insurers might want to think twice before narrowing their general liability language to guard against cyber claims when the marketplace is clamoring for broader coverage. The April 12 decision in Travelers Indemnity vs. Portal Healthcare Solutions by the U.S. Court of Appeals for the Fourth Circuit presented facts that may not apply to other carriers’ CGL policies or to other insureds’ situations. Travelers had argued that its 2012 and 2013 CGL policies did not require it to defend its insured, Portal Healthcare Solutions, which was being sued over a data breach by patients of a New York hospital that had hired it to secure its data.

Defining Publication

The 2012 and 2013 policies — under Coverage Part B Personal and Advertising 24 | INSURANCE JOURNAL | NATIONAL MAY 23, 2016

‘This a positive decision for policyholders in not just the data breach context, but also with respect to other claims involving privacy issues, such as blast fax and ZIP code cases.’ Injury — obligated Travelers to pay if Portal became legally obligated to pay damages because of an advertising or website injury arising from the “electronic publication of material that … gives unreasonable publicity to a person’s private life” or … discloses information about a person’s private life.” The insurer had argued that there was no personal injury or publication as defined by the policies because release of the records was not intentional and they were not viewed by a third party. But the court said an unintentional publication is still publication. The court also said the definition of publication does not hinge on third-party access. Stephanie Snyder, senior vice president for Aon Risk Solutions, said the Travelers ruling turned on defining publication in a digital age and was not that surprising.

“The private healthcare information was viewed as being published. When information is published it really does fall under a CGL advertising injury personal injury type of coverage, and it really comes down to the definition of what is published information,” said Snyder. Whereas some CGL policies might have an explicit exclusion for this type of injury, this Travelers policy did not, she noted. Snyder said the other noteworthy aspect of the decision is that only defense costs would be covered. “You’re not talking about any of the expense costs,” she said, citing public relations, notification, credit monitoring and computer forensics costs that might be picked up by a cyber policy. “None of those are taken into account by this particular ruling. “We’ve seen other litigation going back where everyone’s trying to force coverage into a CGL in the case where they don’t buy a cyber policy,” she said. “But where we are starting to see cyber policies become more the norm, I think these types of cases will fall by the wayside.”

Taking Notice

Christopher Keegan, cyber and technology risk practice leader with broker Beecher Carlson, agrees that whether there is coverage comes down to the facts. However, “when you’ve got a word like publishing in the policy, if you can find some element of publishing there, then the courts are going to pick it up and interpret it in a way that’s going to help the insured. That’s a good thing, I think,” he said. He said a case like this makes people take notice of an issue and forces underwriters to consider whether they are covering things in a CGL, for instance, that they INSURANCEJOURNAL.COM

did not intend to cover. “It highlights it for us and brings it to our attention in a way that’s like, ‘OK, we know this exists. What are we going to do about it?’” He said cases like this are likely to arise where insureds have not bought a cyber policy and seek to leverage whatever policies they do have to find coverage. “They’re trying to take advantage of lessclear wording in those policies. Once you get lawyers involved in the process, that’s what happens,” he said. In these cases, he said, the businesses are really inviting litigation because they are going to “get some pushback” from underwriters who had no intention of covering what they claim. Keegan suggests that this is when the broker has to advise his clients: “Do you really want that situation? Or in the midst of a breach wouldn’t you rather have an insurer that’s going to be saying, ‘Hey, we’re standing behind you. We’re going to provide some of the services that are provided under the cyber policy,’ and have the underwriters be on your side rather than litigating those issues?” Keegan suggested that even this case is not yet finished because it will take some time for this to work its way through the legal system and states before everyone can understand its applications.

Beyond Data Breach

mation in this case, the potential to do so existed had someone run the right Google search. “According to the court, that possibility, even if it never became a reality, was enough to trigger the defense duty,” Kornfeld said.

Marketplace Pressure

Linda Kornfeld, an insurance recovery lawyer at Kasowitz Benson Torres & Freidman in Los Angeles, says the case goes beyond its data breach context. “This a positive decision for policyholders in not just the data breach context, but also with respect to other claims involving privacy issues, such as blast fax and ZIP code cases,” she said. Kornfeld said the decision is in line with other cases where “courts have broadly interpreted the publication language, finding that the undefined term is ambiguous and should be interpreted in the policyholder’s favor.” She said that while there was no evidence that anyone accessed personal infor-

While buyers need to understand what is covered and what isn’t, insurers do as well. Keegan believes the case offers a lesson for insurers to “make sure that they understand what the exposures are and how to explain them” for their own benefit. That process is evolving. ISO has developed exclusions carriers can use to say, “We want to take this risk” or, “We don’t want to take this risk.” “But there’s a long way to go,” he said, adding that many insurers are only now looking at cyber exposures and aggregations. “It’s not that easy,” he said. “You’ve got to anticipate all of the things that are going to happen.” While underwriters may want to be more precise in explaining what is covered under certain policies, perhaps even insert a full exclusion in a general liability policy, carriers have other factors to weigh, including the competitive marketplace with attentive brokers and customers. Keegan said carriers and brokers are competing with one another for clients and at some point a carrier that is pulling back on a wholesale basis is going to lose business to its competitors. For example, putting in a full exclusion could leave a hole that even a cyber policy won’t fill. “You can imagine what insureds are going to think about when someone says, ‘We’re removing coverage for you and we’re not giving you an option to actually fill the gap,’” he said. He said brokers and others in the marketplace want to “push for broader coverage and where there’s some interpretation involved in policies.” Keeping coverage open to certain risks is advantageous to sellers and their buyer clients.

Calling All Policies

It’s not only general liability policies that

continued on Page 26

MAY 23, 2016 INSURANCE JOURNAL | NATIONAL | 25

CLOSER LOOK | Cyber continued from page 25 are being challenged by cyber. Any number of different policies cover cyber risk in some way, shape, or form. “As a result of that, we’re finding situations where two or three policies may respond to a particular situation,” said Keegan. Joshua Gold, an insurance recovery attorney with Anderson Kill in New York who specializes in cyber, said the main takeaway from the Travelers ruling is that policyholders need to look to all of their policies for coverage, not just to general liability or even just to cyber. “The case is an important reminder that non-cyber-specific insurance policies may provide vital insurance protection for cyber-related claims,” he said. He also said the ruling offers hope that defense costs for cyber claims will be found in general liability policies and contends that could be significant. “There’s always an issue with these type of claims that you are going to attract a class action lawsuit so just getting the defense component of that can be hugely valuable,” he said. “This can be a big deal.” Gold agrees that the Travelers ruling is noteworthy for what it says constitutes “publication” of data in a breach of privacy. The court found that publication occurs upon disclosure of the medical data, does not need to be intended, and does not require proof that any actual third-party saw the data. “It’s a good development for policyholders but I would not put all of my eggs in that basket,” he said, stressing that most businesses need multiple policies and need to understand all of their exclusions. “Buyers should know before a claim where their coverage for cyber is,” he said and this requires looking at all policies. Gold said his firm has secured coverage for businesses for claims under various traditional policies including property, crime, general liability, business owners, errors and omissions, and directors and officers. As for how insurers may react to the Travelers ruling, Gold agrees with Keegan that the marketplace will have its say although reactions will vary. 26 | INSURANCE JOURNAL | NATIONAL MAY 23, 2016

‘A lot of cyber policies have tons and tons of exclusions and can be confusing so I don’t think you can just rely on the cyber policy either.’ “My guess is that underwriters will all do their own thing on this,” Gold said. While some will be “completely spooked” by the Travelers decision and narrow their offering, other underwriters will realize it’s a competitive marketplace and they might be able to offer a broker and client something better. “So like everything it’s always hard to generalize but I am quite sure there will be very different reactions,” he said.

of an incident — like investigation, notification and credit monitoring. But it only covers third-party claims or lawsuits. “If your cyber coverage only kicks in when a third party makes a claim, then practically speaking you may not have any coverage at all,” he warns. “For now, perhaps the most important thing to do is make sure you do not fall into the category of someone who thinks they are covered when they are not.”

Evolving Coverage

In recent testimony on Capitol Hill before a House homeland security subcommittee, Adam Hamm, North Dakota insurance commissioner, cautioned lawmakers and the public about cyber coverage. Cyber Gaps Speaking on behalf of the National While most businesses should buy a Association of Insurance Commissioners cyber policy, they should not assume (NAIC) prior to the Travelers ruling, then that they are completely covered if Hamm said many businesses probably they do, Gold said. do not realize that most standard com “A lot of cyber policies have tons and mercial lines policies do not cover many tons of exclusions and can be confusing cyber risks and thus they need a special so I don’t think you can just rely on the cybersecurity policy. cyber policy either,” he said. But they need to know that cyber pol Los Angeles policyholder attorney icies differ and the market is far from Kornfeld wonders how long traditional being standardized, he said. policies may be of help in “Commercial insurance cyber situations. policies are contracts between “As a policyholder, I would two or more parties, subject to not rely upon this ruling as a certain amount of customa substitute to purchasing ization, so if you’ve seen one cyber coverage because the cybersecurity policy, you’ve industry is working hard, seen exactly one cybersecurity through exclusions and othpolicy,” Hamm said. er language, to push data “All these nuances mean breach and cyber risks away securing a cybersecurity from the traditional coverAdam Hamm policy is not as simple as ages, such as GL (general pulling something off the liability) policies like that at issue in this shelf and walking to the cash register. decision, and toward cyber specific covInsurers writing this coverage are justifierages,” she wrote. ably interested in the risk management Richard Caplan, with the national law techniques applied by the policyholder firm LeClairRyan’s Atlanta office, echoed to protect its network and its assets. The the caution that cyber policies themmore an insurer knows about a business’s selves are not a panacea. He said a lot operations, structures, risks, history of can hinge on the meaning of certain key cyber attacks, and security culture, the words and phrases in a policy. better it will be able to design a product Some who buy cyber insurance assume that meets the client’s need and satisfies it covers all first-party costs in the event regulators,” Hamm said. INSURANCEJOURNAL.COM

MyNewMarkets | NATIONAL

Workers’ Comp High Risk Market

Market Detail: RWISI (www.

rwisi.com) offers non-standard workers’ comp coverage for high-risk, high mods, USL&H, construction, roofing, temporary staffing, oil & gas, steel & tower erection, small to medium (1-1000 employees), start-ups, and difficult-to-place risks. Commissions are typically higher than standard. Available limits: As needed Carrier: Varies by state, admitted States: All states excecpt Alaska, N.D., Ohio, and Wyo. Contact: Randy White at 813220-9220 or e-mail at Randy@ rwisi.com

Assisted Living Care

Market Detail: The Hanover’s

(www.hanover.com) assisted living care coverage offers coverage for customers who have spouses, parents or children living in assisted care facilities. Highlights include: coverage available for more than one relative, with a separate charge for each; affordable premium for each named person; personal property protection up to $10,000 and includes hearing aids, eyeglasses, false teeth and INSURANCEJOURNAL.COM

dentures, contact lenses, media alert devices, walking aids and wheelchairs that may be lost or damaged; personal liability coverage limits of $100,000 or $300,000; and additional living expenses coverage of $500 per month up to $6,000 if the facility operation is suspended or it is not fit to live in as a result of a covered loss. Available limits: As needed Carrier: The Hanover States: Ark., Conn., Ga., Ill., Ind., Maine, Mass., Mich., N.H., N.J., N.Y., Ohio, Okla., Tenn., Va., Wisc. Contact: Customer Service at 800-853-0456

Limousines

Market Detail: Lancer

Insurance Co. (www.lancerinsurance.com) offers 15 percent commission for new limousine accounts to retail brokers. Coverage is available for stretches, sedans, super-stretches and limo buses. Coverages include commercial automobile liability, automobile physical damage, commercial general liability, garage liability and garage keepers legal liability. Liability limits up to $5 million CSL. Coverage provided on a first-dollar basis. Larger

accounts can also be underwritten with a liability deductible. Program not available to radio-dispatched vehicles, car service operations and taxis. Available limits: As needed Carrier: Lancer Insurance Co. States: All states except Hawaii, La., Mont., and W. Va. Contact: Elsa Aleman at 516431-4441 or e-mail: ealeman@ lancerinsurance.com

License and Permit Bonds

Market Detail: Greenwood

General Insurance Agency (www.ggeneral.com) offers competitive rates with a new limit increase of $15,000. Access to online rating and account servicing, as well as instant e-filing to the CSLB. Downloadable documents available upon binding. Available limits: Minimum $12,500, maximum $15,000 Carrier: Western National Mutual Insurance Co. States: Calif only. Contact: Customer service at 626-817-9100

Excess & Umbrella Market Detail: Veracity

Insurance Solutions LLC (www. veracityinsurance.com) has

in-house authority to quote, bind, and issue excess and umbrella coverage on over 750 classes of business. If a class of business should fall outside its in-house authority, Veracity can access other markets to place the business. Excess/ umbrella capacity over the following lines: general liability; employers liability; products liability; liquor liability; commercial auto; professional liability; cyber & privacy liability. Available limits: Minimum $1 million, maximum $50 million Carrier: Multiple, admitted and non-admitted available States: All states Contact: Veracity Insurance at 866-395-1308 or e-mail: marketing@veracityins.com

Cyber Liability

Market Detail: JLNY Group

LLC’s (www.jlnygroup.com) policies include coverage for employee dishonesty; money & securities; forgery; and computer fraud. A number of additional enhancements are available by endorsement. Available limits: As needed Carrier: Unable to disclose, admitted States: Ariz., Conn., Ga., Ill., Md., Mich., Nev., N.J., N.Y., Ohio, Pa., and Va. Contact: Angelina Bocanegra at 631-421-9355 or e-mail: abocanegra@jlnygroup.com

This section brought to you by Insurance Journal’s sister website: www.mynewmarkets.com

Need a Market? Find it. FAST

MAY 23, 2016 INSURANCE JOURNAL | NATIONAL | 27

NATIONAL | News & Markets

Chubb CEO Greenberg Rolls Out Welcome Mat for High Net Worth Competitors By Susanne Sclafane

stimating that the high-net-worth (HNW) personal lines market has more than $30 billion worth of business up for grabs, and the small commercial lines market, another $80 billion, Chubb Limited CEO Evan Greenberg sees room for competitors. During an earnings conference this month, Greenberg was asked about a recent move by W.R. Berkley Corp. to hire some former Chubb executives to start up a new HNW operation. While neither Greenberg nor the analyst asking the question referred to Berkley by name, Greenberg basically told the new competitor to have at it. “The market needs choice,” he said, referring to the fact that the merger of ACE Limited and Chubb Corp. on Jan. 14 brought together three of the biggest players in the HNW. (ACE had previously acquired Fireman’s Fund’s HNW business.) “To anybody entering the space, it is a good business,” he said, noting that to do it right “takes a lot of patience, a lot of capital, and good luck. “And by the way, we’ll put the welcome mat out for you,” Greenberg said, after describing the years of investment and attention a startup would need to rise to the “gold standard of the business” that Chubb’s HNW represents. “You don’t build something like this overnight,” he said, referencing Chubb’s risk and engineering services, claims services and rich coverage offerings “all over the globe.” “I’ll tell you what. That’s not an easy lift. And you win these customers one by one,” he said, noting that average premiums for individual 28 | INSURANCE JOURNAL | NATIONAL MAY 23, 2016

customers can range from as low as $5,000 “to a couple of hundred thousand.” But Greenberg understands the attraction. Even though the HNW market is roughly $8 or $10 billion today, “the market that we imagine” is somewhere in the $30$40 billion range. Some individuals that belong in the HNW market — “who have a lifestyle and assets to protect” with richer coverages and services — are insured in standard lines companies right now. “The long-term play is to attract them and serve them in the high-networth market,” he said. Evan Greenberg Separately, last month, W. Robert Berkley, Jr., CEO of W.R Berkley explained his company’s foray into the market this way: “Ultimately, our view is that this piece of the personal lines space is no different than much of our strategic plan — that is to focus on specialty products” where knowledge and expertise are differentiators, with a customer base that is willing to pay for services and expertise. “It’s going to take some time for us to get the critical mass where we’re able to be as efficient as some others,” Berkley said, declining to provide a lot of details into the strategy.

No Small Commercial Roadmaps

At Chubb, which is making a push to expand its presence in the small commercial lines market, Greenberg was similarly reticent to give details of that strategy. “I’m hardly going to stick a roadmap out there” about what Chubb is building and

planning, he said. “But we have all the parts and ingredients. We have the sticks to rub together and make fire. And we have the distribution, we have the data and the know-how.” Adding ingredients like insight and increased resources that Chubb is focusing on the effort — and “the roadmap for technology,” Greenberg said simply, “We’re coming” to this market. ACE and Chubb together already have “a nascent small commercial business [that is] very modest in size, and specialty-oriented,” he noted. “Those efforts continue….But that’s not the main event for us,” he said. “This is an $80 billion marketplace, and we intend over the next number of years to grow to be a meaningful player,” he said, conceding that, like an HNW building effort, it takes time to ramp up services and product for the small commercial market, and gain insights into pricing. Because average premiums are small and transaction volume is high, “you’ve got to win over and wire up the distribution,” he added.

Dislocation and Wounded Animals

Berkley spent some time on his company’s earnings call last month discussing market dislocations — restructuring and M&A activity at other companies — that are benefiting his company in the war for talent. On the Chubb call, an analyst asked Greenberg instead about the opportunity to gain market share from dislocations at a time when some large global commercial insurers are focused on restructuring — a reference most likely to efforts at American International Group and Zurich to rework their businesses. INSURANCEJOURNAL.COM

“It’s a double-edged sword,” Greenberg replied, agreeing with the analyst that customers and brokers would seek stable capacity. But at the same time, “when there’s a wounded animal loose, [you must] be careful. Stay out of the way,” he warned. “Don’t try to corner it.” “We represent a very attractive market and [an] alternative for large accounts seeking a deep balance sheet, great underwriting expertise, global capability, broad product offerings,” and technology to meet growing customer expectations for selfserve data and information, he said.

Merger Progress and Market Conditions

Greenberg and other Chubb executives reported after tax operating income of just over $1 billion, net income of $439 million, a 90 combined ratio, and a 1 percent

amwins-webinar-print.indd 1

INSURANCEJOURNAL.COM

decline in net premiums for the first quarter (in a comparison to premiums for Chubb and ACE together in first-quarter 2015, in constant dollars — without the impact of foreign exchange factored in). Throughout the call, Greenberg stressed that the executive team focuses on growth in book value not revenue growth, but he also explained that premium declines in some areas — particularly in terms of writing new business — were attributable both to market conditions and a focus on merger integration activities which is gradually becoming less of an issue. During his opening remarks, Greenberg said that when the merger was planned, executives contemplated shedding and shrinking net premiums in some lines in 2016 and 2017 “simply because we cannot earn adequate underwriting returns or

because we want to reduce net cat-related exposures.” He noted that the pricing environment generally “continues to grow incrementally more competitive, particularly in shorter tail lines,” although casualty pricing also is not keeping pace with loss cost trends. There are variations by size of account and distribution channel, he suggested. Large account shared-and-layered business is more competitive than mid-sized, and wholesale is more competitive than retail business, he said. “I will never get baited into revenue growth” where profit hurdles can’t be met, he said later. “When my guys feel bad because they have to shed business to maintain margin, I suck it up and cheerlead it because it’s the right thing to do.” Addressing a specific question about lower levels of new business in North America for large accounts, Greenberg

continued on Page 30

5/6/16 1:11 PM

MAY 23, 2016 INSURANCE JOURNAL | NATIONAL | 29

NATIONAL | News & Markets continued from page 29 reviewed the market and merger impacts, noting that the new business level actually declined about 30 percent in the quarter, with the greatest impact coming in January. January is always a competitive month, Greenberg said, suggesting that other insurers have “some growth objectives that they want to achieve” in January, April and June/July periods. Specific to Chubb, there was a great deal of focus on merger integration in the fourth quarter of last year. January and February new business writings are impacted by work that underwriters do in November and December, but some of that activity fell off, he said. “There were [some] 11th-hour jitters of people as we come up to close and everybody is focused on [questions like], ‘Who am I working for?’ and ‘What is my job?’” “And then the integration itself... just takes time — and it’s some time away from working on new business,” he said.

30 ACRD16495.indd | INSURANCE JOURNAL | NATIONAL MAY 23, 2016 1

‘To anybody entering the space, it is a good business.’ But that’s behind Chubb now, he suggested. “There haven’t been a lot of surprises. Everybody’s known what to do, and it’s gone very smoothly….People spent a lot of time getting to know each other,” and getting to know about new capabilities and products of colleagues on the other side of the merger. We could really begin to feel that start to take hold in February, move into March, and as it moves into April it just keeps on building,” he said. During his opening remarks, Greenberg referred specifically to an increase in the expected level of integration-related expense savings from the merger — now projected at an annualized run rate of roughly $750 million by 2018, compared with an original estimate of $650 million — and about cultural integration. The cultural integration “is going well,” he said. “You don’t just wave a wand and put

two strong cultures together. It takes time. It’s a process that you pay attention to, that you care about and that you lead,” he said. “While there are some differences between our two cultures, they are not profound. We are far more alike than different,” he continued. “As we focus on dayto-day business activities, we are breeding familiarity and knitting ourselves together at every level of the company,” he said. At various times throughout the call, Greenberg also addressed the warm reception that the new Chubb is getting from customers and from agents and brokers. “We were really popular kids on campus,” he said, reporting on the reaction during the recent Risk and Insurance Management Society (RIMS) annual meeting. He also noted that the “continuity” of employees working with agents and brokers at local and regional office levels has been “confidence-building and much valued” by the distributors.

INSURANCEJOURNAL.COM 5/3/16 3:01 PM

NATIONAL | Special Report

2016 Super Regional P/C Insurers

Demotech Inc. Reveals Leading Multi-State Property/Casualty Insurers

2016

Regionals, State Specialists, Coverage Specialists, Strategic Subsidiaries, Risk Retention Groups, Surplus Lines Carriers, Reinsurers and companies with less than $1 million in direct premium written. A company cannot be assigned to more than one category. Therefore, a company not designated as a Super Regional is given another classification, perhaps Near National, Regional, or State Specialist.

Super Regional Criteria and Thresholds To determine the companies for the 2016 Super Regional Property/Casualty Insurer™ list, these specific, objective qualifying criteria and thresholds evaluated as of Dec. 31, 2015 were used:

n order to continue the discussion regarding what constitutes a Super Regional P/C Insurer™ and to give definition to this important group of insurers, Demotech Inc. analyzed year-end 2015 data for property/ casualty insurance companies. This data was utilized to classify and stratify insurers reporting data to the National Association of Insurance Commissioners. 2016 marks the 10th By Barry J. year of this effort, as Koestler II the original criteria and objective definition for Super Regional P/C Insurers™ was established in the Feb. 12, 2007, issue of Insurance Journal. Prior to the establishment of an industry-wide

• • • •

Active, individual companies reporting data using the property/ casualty annual statement format; At least $1 million of direct premium written in each of two to 34 states; Less than 90 percent of direct premium written in any one state; Less than 90 percent of direct premium

definition, a number of property/casualty insurers had referred to themselves as Super Regionals. Demotech, the official research partner of Insurance 2016 Property/Casualty Insurance Cos. Journal, has compared the Demotech Company Classifications data to the criteria and updated the list of Super Regionals Direct Premium Written Less than for 2016. Near Nationals 2% $1 million 4% Nationals 2%

Demotech Company Classification System

The Demotech Company Classification System categorizes property/casualty insurers into one of 11 categories based on an analysis of the data reported by the companies. The 11 categories that comprise the system are Nationals, Near Nationals, Super Regionals,

SR1 | INSURANCE JOURNAL | NATIONAL MAY 23, 2016

Reinsurers 2%

Super Regionals 6%

Surplus Lines Carriers 7% Risk Retention Groups 9%

Regionals 9%

Strategic Subsidiaries 16%

State Specialists 29%

Coverage Specialists 14%

INSURANCEJOURNAL.COM

written in any one line of business; • Policyholders surplus of at least $100 million; • Net premium written of at least $50 million; and • Direct premium written of at least $25 million. In general terms, a Super Regional is an individual company writing multiple lines of insurance in multiple states. Risk retention groups, surplus lines insurers, and reinsurers are not eligible for the Super Regional category as they are assigned to their own classifications.

The 2016 Super Regional Property/ Casualty Insurers™

For 2016, 156 Super Regional Property/ Casualty Insurers™ were identified. They are presented in this Insurance Journal Special Report both alphabetically and by size as ranked by direct premium written as of Dec. 31, 2015. For 2016, there are 12 Super Regional companies that were not classified as Super Regionals in 2015, as well as 10 insurers identified as Super Regionals in 2015 that have been reclassified into another category this year based on yearend 2015 information.

Of the 156 Super Regionals for 2016, 78 have been designated as such for all 10 years that the Company Classification System has been applied. Super Regional insurers are critically important to the insurance industry, and of particular importance to their agents, producers and insureds. These companies are typically strong, stable markets that work hard for their agents, insureds, and their reinsurers. This is why Insurance Journal continues to have Demotech quantify and identify the criteria used to define an insurer as a Super Regional.

2016 Super Regional Property/Casualty Insurers™ Alphabetical Listing

ACUITY, A Mutual Insurance Co. Alaska National Insurance Co. All America Insurance Co. Alterra America Insurance Co. American Commerce Insurance Co. American Family Home Insurance Co. American Family Mutual Insurance Co. American Hallmark Insurance Co. of Texas American Mercury Insurance Co. American Road Insurance Co. American Select Insurance Co. American Strategic Insurance Corp. Amerisure Insurance Co. Amerisure Mutual Insurance Co. AMEX Assurance Co. AmGUARD Insurance Co. Aspen American Insurance Co. Atlantic States Insurance Co. Auto Club Insurance Association Automobile Insurance Co. of Hartford, Conn. Auto-Owners Insurance Co. Bay State Insurance Co. Berkshire Hathaway Specialty Insurance Co. BITCO General Insurance Corp. BITCO National Insurance Co. Brethren Mutual Insurance Co. Builders Mutual Insurance Co. California Casualty Indemnity Exchange Cambridge Mutual Fire Insurance Co. Capitol Indemnity Corp. Caterpillar Insurance Co. Central Mutual Insurance Co. Central States Indemnity Co. of Omaha Century-National Insurance Co. Cherokee Insurance Co. Citizens Insurance Co. of America Civil Service Employees Insurance Co. Columbia Mutual Insurance Co. Concord General Mutual Insurance Co. Contractors Bonding and Insurance Co. COUNTRY Mutual Insurance Co. Courtesy Insurance Co. Cumberland Mutual Fire Insurance Co. Dentists Insurance Co. Donegal Mutual Insurance Co. Electric Insurance Co. EMCASCO Insurance Co. Endurance American Insurance Co. Erie Insurance Co. Erie Insurance Exchange Executive Risk Indemnity Inc. Farm Bureau Property & Casualty Insurance Co.

INSURANCEJOURNAL.COM

Farm Family Casualty Insurance Co. Farmers Alliance Mutual Insurance Co. Farmers Automobile Insurance Association Farmers Insurance Co. Inc. Farmers Insurance Exchange Farmers Mutual Insurance Co. of Nebraska Farmington Casualty Co. Farmland Mutual Insurance Co. FCCI Insurance Co. Federated Rural Electric Insurance Exchange Federated Service Insurance Co. Financial Pacific Insurance Co. Fire Insurance Exchange First Colonial Insurance Co. Frankenmuth Mutual Insurance Co. General Casualty Co. of Wisconsin Goodville Mutual Casualty Co. Grange Insurance Association Grange Mutual Casualty Co. Gray Insurance Co. Great Midwest Insurance Co. Hallmark Insurance Co. Harco National Insurance Co. Harford Mutual Insurance Co. Hartford Insurance Co. of Illinois Hastings Mutual Insurance Co. Home-Owners Insurance Co. Imperium Insurance Co. IMT Insurance Co. Insurance Co. of North America Integon National Insurance Co. Jewelers Mutual Insurance Co. Lightning Rod Mutual Insurance Co. Lititz Mutual Insurance Co. Lyndon Property Insurance Co. MemberSelect Insurance Co. Merchants Mutual Insurance Co. Mercury Casualty Co. Merrimack Mutual Fire Insurance Co. MHA Insurance Co. Mid-Continent Casualty Co. Middlesex Insurance Co. Milbank Insurance Co. Mitsui Sumitomo Insurance Co. of America Motorists Commercial Mutual Insurance Co. Motorists Mutual Insurance Co. Motors Insurance Corp. Mountain West Farm Bureau Mutual Insurance Co. Mutual of Enumclaw Insurance Co. National Lloyds Insurance Co. Nationwide Mutual Fire Insurance Co. NGM Insurance Co.

North River Insurance Co. North Star Mutual Insurance Co. Old Republic General Insurance Corp. Old United Casualty Co. Owners Insurance Co. Pacific Specialty Insurance Co. Peerless Insurance Co. Pekin Insurance Co. Penn National Security Insurance Co. Pennsylvania National Mutual Casualty Insurance Co. Pharmacists Mutual Insurance Co. Philadelphia Contributionship Insurance Co. Physicians Insurance A Mutual Co. Preferred Mutual Insurance Co. Progressive Casualty Insurance Co. Progressive Northern Insurance Co. Progressive Preferred Insurance Co. Property-Owners Insurance Co. Quincy Mutual Fire Insurance Co. Redwood Fire and Casualty Insurance Co. Republic Underwriters Insurance Co. SECURA Insurance, A Mutual Co. Securian Casualty Co. Selective Insurance Co. of America Selective Insurance Co. of South Carolina Selective Way Insurance Co. Shelter Mutual Insurance Co. Society Insurance, A Mutual Co. St. Paul Mercury Insurance Co. Star Insurance Co. State Auto Property & Casualty Insurance Co. State Automobile Mutual Insurance Co. Stillwater Insurance Co. Toyota Motor Insurance Co. TransGuard Insurance Co. of America Inc. Trinity Universal Insurance Co. Triton Insurance Co. Truck Insurance Exchange Unigard Insurance Co. United Financial Casualty Co. United Fire & Casualty Co. United Ohio Insurance Co. United Property & Casualty Insurance Co. Utica First Insurance Co. Utica Mutual Insurance Co. Vanliner Insurance Co. Vermont Mutual Insurance Co. West Bend Mutual Insurance Co. Western National Mutual Insurance Co. Western Reserve Mutual Casualty Co. Westfield Insurance Co. Westfield National Insurance Co.

MAY 23, 2016 INSURANCE JOURNAL | NATIONAL | SR2

Insurance Journal and Demotech expect this year’s report to advance the discussion on the role of Super Regionals, as well as the definition and criteria used in determining the classification, so that future reports can continue an industry dialogue on Super Regional Property/ Casualty Insurers™. Insurers and interested readers are encouraged to review the selection criteria and thresholds used to determine the 2016 Super Regionals. The selection criteria remain quantitative and transparent. Demotech is focused on setting benchmarks at levels that accurately categorize the industry. The relative consistency of

the company type distribution over time suggests that the categorizations that have been established are valid and effective in classifying the industry. It is important to reiterate that the Demotech Company Classification System is an objective stratification of the companies that comprise the industry based on their business models. It is not equivalent to or suggestive of ratings of the individual insurers. Moreover, inclusion on the list of Super Regionals does not imply that a company is superior to companies that were not included in that classification. Future issues of Insurance Journal will

report on the other categories within the Demotech Company Classification System. Since 1985, Demotech has been providing independent Financial Stability Ratings® of property/casualty insurers and title underwriters. Please send suggestions or comments to Barry Koestler at bkoestler@demotech. com or Andrew Simpson, vice president of content for Insurance Journal, at asimpson@insurancejournal.com. Koestler II is the chief ratings officer of Demotech Inc., a financial analysis firm specializing in evaluating the financial stability of regional and specialty insurers. Website: www.demotech.com.

NEW 2016 Super Regionals Company Name Alterra America Insurance Co. Berkshire Hathaway Specialty Insurance Co. Caterpillar Insurance Co. Executive Risk Indemnity Inc. Financial Pacific Insurance Co. Hallmark Insurance Co. Home-Owners Insurance Co. Pharmacists Mutual Insurance Co. Progressive Preferred Insurance Co. Property-Owners Insurance Co. Star Insurance Co.

2016 Demotech Company Classification

2015 Demotech Company Classification

2014 Demotech Company Classification

2013 Demotech Company Classification

2012 Demotech Company Classification

Super Regional Super Regional Super Regional Super Regional Super Regional Super Regional Super Regional Super Regional Super Regional Super Regional Super Regional

Strategic Subsidiary Strategic Subsidiary Coverage Specialist Coverage Specialist Regional Regional State Specialist Regional Coverage Specialist State Specialist Near National

Strategic Subsidiary Coverage Specialist Coverage Specialist Coverage Specialist State Specialist Regional State Specialist Regional Coverage Specialist State Specialist Near National

Strategic Subsidiary Coverage Specialist Coverage Specialist Coverage Specialist State Specialist Regional State Specialist Regional Coverage Specialist State Specialist National

Strategic Subsidiary Strategic Subsidiary Coverage Specialist Coverage Specialist Regional Regional State Specialist Regional Coverage Specialist State Specialist Near National

RECLASSIFIED 2015 Super Regionals Company Name

Horace Mann Property & Casualty Insurance Co. Mid-Century Insurance Co. Occidental Fire and Casualty Co. of North Carolina Pennsylvania Lumbermens Mutual Insurance Co. ProAssurance Casualty Co. Progressive Northwestern Insurance Co. Providence Mutual Fire Insurance Co. Public Service Insurance Co. Sussex Insurance Co. Yosemite Insurance Co.

2016 2015 Demotech Demotech Company Company Classification Classification Near National Near National Near National Near National Coverage Specialist Coverage Specialist Regional Regional Strategic Subsidiary Coverage Specialist

Super Regional Super Regional Super Regional Super Regional Super Regional Super Regional Super Regional Super Regional Super Regional Super Regional

2014 Demotech Company Classification

2013 Demotech Company Classification

2012 Demotech Company Classification

Why Company Does Not Qualify as a 2016 Super Regional

Super Regional Super Regional Near National Super Regional Super Regional Super Regional Super Regional Super Regional Super Regional Super Regional

Super Regional Super Regional Near National Near National Super Regional Super Regional Regional Super Regional Super Regional Super Regional

Regional Super Regional Super Regional Super Regional Coverage Specialist Coverage Specialist Regional Super Regional Super Regional Strategic Subsidiary

States > 34 States > 34 States > 34 States > 34 LOB > 90% LOB > 90% PHS PHS NPW LOB > 90%, PHS, NPW

LOB = Line of Business; NPW = Net Premium Written; PHS = Policyholders Surplus SR3 | INSURANCE JOURNAL | NATIONAL MAY 23, 2016

INSURANCEJOURNAL.COM

2016 Super Regional P/C Insurersâ&#x201E;˘

As developed by Demotech Inc. for Insurance Journal. Ranked by Direct Premium Written as of 12/31/2015. Company

12/31/2015 DPW OOOs omitted

Group Name

State Of Domicile

Number/States Greater than $1 Million DPW as of 12/31/2015

American Family Mutual Insurance Co.

$5,357,567

American Family Insurance Group

2 3

Erie Insurance Exchange Farmers Insurance Exchange

$4,365,566 $3,596,690

Erie Insurance Group Farmers Insurance Group

PA CA

Auto-Owners Insurance Co.

$2,687,547

Auto Owners Group

Owners Insurance Co.

$1,908,753

Auto Owners Group

Nationwide Mutual Fire Insurance Co.

$1,633,355

Nationwide Corp Group

7 8

Fire Insurance Exchange COUNTRY Mutual Insurance Co.

$1,565,422 $1,534,809

9 10

Shelter Mutual Insurance Co. ACUITY, A Mutual Insurance Co.

$1,394,989 $1,330,076

Farmers Insurance Group Country Insurance & Financial Services Group Shelter Insurance Group N/A

Progressive Northern Insurance Co.

$1,305,141

Progressive Group

Westfield Insurance Co.

$1,291,243

Westfield Group

Progressive Casualty Insurance Co.

$1,235,259

Progressive Group

$1,163,158

Iowa Farm Bureau Group

15 16 17 18

Farm Bureau Property & Casualty Insurance Co. West Bend Mutual Insurance Co. Erie Insurance Co. Farmers Insurance Co. Inc. United Financial Casualty Co.

MO 14 - AR,CO,IL,IN,IA,KS,KY,LA,MS,MO,NE,NV,OK,TN WI 24 - AZ,CO,ID,IL,IN,IA,KS,KY,ME,MI,MN,MO,MT,NE,NV,NM,ND,OH,PA,SD, TN,UT,WI,WY WI 23 - CT,DE,IL,IN,IA,KY,ME,MN,NE,NV,NH,NM,NY,OK,OR,PA,RI,SC,SD,VT, VA,WI,WY OH 25 - AL,AZ,AR,CO,DE,FL,GA,IL,IN,IA,KY,MD,MI,MN,MO,NM,NC,OH,PA,SC, TN,TX,VA,WV,WI OH 22 - AZ,AR,CA,CO,CT,DC,HI,KY,ME,MD,MA,MN,MO,NV,NY,OH,PA,RI,TX, VT,VA,WA IA 8 - AZ,IA,KS,MN,NE,NM,SD,UT

$1,057,469 $1,018,128 $983,027 $982,657

N/A Erie Insurance Group Farmers Insurance Group Progressive Group

WI PA KS OH

19 20 21

Home-Owners Insurance Co. MemberSelect Insurance Co. Citizens Insurance Co. of America

$963,052 $939,568 $827,444

Auto Owners Group Automobile Club MI Group The Hanover Insurance Group

Truck Insurance Exchange

$765,236

Farmers Insurance Group

23 24

$713,212 $699,230

Amtrust Group State Auto Mutual Group

25 26

Integon National Insurance Co. State Auto Property & Casualty Insurance Co. Progressive Preferred Insurance Co. Central Mutual Insurance Co.

$669,593 $588,171

Automobile Insurance Co. of Hartford, CT

$574,767

Progressive Group Central Mutual Insurance Co Group Travelers Group

28 29

Frankenmuth Mutual Insurance Co. Selective Insurance Co. of South Carolina

$570,805 $559,927

Frankenmuth Mutual Group Selective Insurance Group

MI IN

United Fire & Casualty Co.

$553,461

United Fire & Casualty Group

$548,524 $534,569 $507,488 $503,215

Pennsylvania National Insurance Group United Insurance Holdings Group Grange Mutual Casualty Group Progressive Group

32 33 34

Pennsylvania National Mutual Casualty Insurance Co. United Property & Casualty Insurance Co. Grange Mutual Casualty Co. American Strategic Insurance Corp.

State Automobile Mutual Insurance Co.

$462,438

State Auto Mutual Group

36 37

Motorists Mutual Insurance Co. Selective Insurance Co. of America

$441,254 $438,685

Motorists Mutual Group Selective Insurance Group

38 39 40 41

Hastings Mutual Insurance Co. FCCI Insurance Co. SECURA Insurance, A Mutual Co. Amerisure Mutual Insurance Co.

$427,480 $413,311 $396,907 $394,479

N/A FCCI Mutual Insurance Group Secura Insurance Group Amerisure Co Group

42 43 44 45

Pekin Insurance Co. Mercury Casualty Co. North Star Mutual Insurance Co. Farm Family Casualty Insurance Co.

$390,853 $380,719 $379,816 $376,110

Peerless Insurance Co.

$375,011

Pekin Insurance Group Mercury General Group North Star Co Group American National Financial Group Liberty Mutual Group

47 48

American Commerce Insurance Co. Amerisure Insurance Co.

$372,502 $370,244

Mapfre Insurance Group Amerisure Co Group

SR4 | INSURANCE JOURNAL | NATIONAL MAY 23, 2016

18 - AZ,CO,ID,IL,IN,IA,KS,MN,MO,NE,NV,ND,OH,OR,SD,UT,WA,WI

12 - DC,IL,IN,KY,MD,NC,OH,PA,TN,VA,WV,WI 33 - AL,AZ,AR,CA,CO,GA,ID,IL,IN,IA,KS,ME,MD,MI,MN,MO,MT,NE,NV,NJ, NM,ND,OH,OK,OR,SD,TN,TX,UT,VA,WA,WI,WY MI 26 - AL,AZ,AR,CO,FL,GA,ID,IL,IN,IA,KS,KY,MI,MN,MO,NE,NC,ND,OH,PA, SC,SD,TN,UT,VA,WI OH 25 - AL,AZ,AR,CO,FL,GA,ID,IL,IN,IA,KS,KY,MN,MO,NE,NC,ND,OH,PA,SC, SD,TN,UT,VA,WI OH 31 - AL,AZ,AR,CA,CT,DE,DC,FL,GA,IL,IN,KY,ME,MD,MI,MS,NH,NY,NC,OH, OK,OR,PA,RI,SC,TN,TX,VT,VA,WA,WV CA 16 - AL,CA,CO,MI,MN,MO,MT,NE,NV,ND,SD,TX,UT,WA,WI,WY IL 17 - AL,AK,AZ,CO,GA,IL,IA,KS,MN,MO,NV,ND,OK,OR,TN,WA,WI

11 - IL,IN,IA,KS,KY,MI,MN,MO,NE,OH,WI 13 - DC,IL,IN,KY,MD,NY,NC,OH,PA,TN,VA,WV,WI 5 - AR,IA,KS,MO,OK 27 - AK,AZ,AR,CA,CO,DE,ID,KS,KY,ME,MD,MA,MN,MT,NV,NH,NM,NY,ND, OH,PA,RI,SD,UT,VT,WA,WV MI 4 - GA,MI,OH,UT MI 9 - GA,IL,IN,IA,MI,MN,NE,ND,OH MI 24 - AL,AZ,CA,CO,CT,GA,IL,IN,ME,MA,MI,MN,MO,NH,NJ,NY,OH,PA,RI, SC,VT,VA,WA,WI CA 34 - AL,AZ,AR,CA,CO,CT,ID,IL,IN,IA,KS,MD,MI,MN,MO,MT,NE,NV,NJ,NM, NY,ND,OH,OK,OR,PA,SD,TN,TX,UT,VA,WA,WI,WY NC 17 - AL,AZ,CA,CT,FL,IL,ME,MA,MI,NJ,NY,NC,OH,PA,RI,TX,VA IA 27 - AL,AZ,AR,CT,GA,IL,IN,IA,KS,KY,MD,MI,MN,MS,MO,NC,ND,OH,OK,PA, SC,TN,TX,UT,VA,WV,WI OH 9 - AZ,CO,GA,MN,MO,NV,NM,OH,PA OH 19 - AZ,CO,CT,GA,IL,IN,KY,MA,MI,NH,NM,NY,NC,OH,OK,SC,TN,TX,VA CT

33 - AL,AZ,AR,CO,CT,DC,GA,ID,IL,IN,KS,KY,ME,MD,MN,MS,MO,MT,NV,NH, NY,NC,OH,OK,OR,PA,SC,TN,TX,UT,VA,WA,WI 14 - AL,GA,IL,IN,KY,ME,MI,NH,NC,OH,SC,TN,VT,WI 22 - CT,DE,GA,IL,IN,IA,KY,MD,MA,MI,MN,MO,NJ,NY,NC,OH,PA,RI,SC, TN,VA,WI 28 - AL,AZ,AR,CA,CO,FL,ID,IL,IN,IA,KS,LA,MI,MN,MS,MO,MT,NE,NM,ND, OK,OR,SD,TN,TX,UT,WI,WY 10 - AL,DE,MD,NJ,NC,PA,SC,TN,TX,VA

FL 8 - FL,LA,MA,NJ,NC,RI,SC,TX OH 9 - GA,IL,IN,KY,OH,PA,SC,TN,VA FL 24 - AL,AZ,CO,CT,FL,GA,IL,MD,MA,MI,MN,MS,NV,NJ,NC,OH,OR,PA,SC, TN,UT,VA,WA,WI OH 28 - AL,AZ,AR,CO,CT,GA,IL,IN,IA,KS,KY,MD,MA,MI,MN,MS,MO,NC,ND,OH, PA,SC,SD,TN,TX,VA,WV,WI OH 6 - IN,KY,MI,OH,PA,WV NJ 24 - CA,CT,DE,DC,GA,HI,IL,IN,IA,MD,MI,MN,MO,NJ,NY,NC,OH,PA,RI,SC, TN,VA,WA,WI MI 6 - IL,IN,IA,MI,OH,WI FL 18 - AL,AR,FL,GA,IL,IN,KY,LA,MD,MI,MS,MO,NC,OH,SC,TN,TX,VA WI 12 - AZ,CO,IL,IN,IA,KS,KY,MI,MN,MO,ND,WI MI 29 - AL,AZ,AR,CA,CO,FL,GA,IL,IN,IA,KS,KY,LA,MD,MI,MN,MS,MO,NJ,NY, NC,OK,PA,SC,TN,TX,UT,VA,WI IL 6 - AZ,IL,IN,IA,OH,WI CA 5 - AZ,CA,NV,NY,VA MN 6 - IA,MN,NE,ND,OK,SD NY 11 - CT,DE,ME,MA,NH,NJ,NY,RI,VT,VA,WV NH 26 - CA,CT,DE,GA,IL,IN,KS,KY,LA,ME,MD,MA,MN,MO,NH,NY,NC,OH,OK, PA,RI,SC,TN,TX,VT,VA OH 17 - AZ,CT,FL,ID,IL,IN,KS,KY,NJ,NY,OH,OR,PA,RI,TN,TX,WA MI 25 - AL,AZ,AR,FL,GA,IL,IN,IA,KS,KY,LA,MD,MI,MN,MS,MO,NC,OK,PA,SC, TN,TX,UT,VA,WI

INSURANCEJOURNAL.COM

Company

12/31/2015 DPW OOOs omitted

Group Name

State Of Domicile

AmGUARD Insurance Co.

$368,013

Berkshire Hathaway Group

NGM Insurance Co.

$366,247

Main Street America Group

Old Republic General Insurance Corp.

$365,847

Old Republic Group

Courtesy Insurance Co.

$361,257

JM Family Group

BITCO General Insurance Corp.

$341,887

Old Republic Group

54 55

Farmers Mutual Insurance Co. of Nebraska Electric Insurance Co.

$341,464 $340,046

N/A Electric Insurance Group

NE MA

56 57

Vermont Mutual Insurance Co. American Road Insurance Co.

$330,664 $328,004

Vermont Mutual Group N/A

VT MI

EMCASCO Insurance Co.

$322,310

EMC Insurance Co. Group

59 60

Merrimack Mutual Fire Insurance Co. Aspen American Insurance Co.

$310,121 $309,398

Andover Group Aspen Insurance Holding Group

MA TX

Caterpillar Insurance Co.

$307,019

Caterpillar Group

62 63 64

Westfield National Insurance Co. Preferred Mutual Insurance Co. General Casualty Co. of Wisconsin

$299,491 $296,596 $293,480

Westfield Group N/A QBE Insurance Group

OH NY WI

65 66 67

Donegal Mutual Insurance Co. Western National Mutual Insurance Co. Endurance American Insurance Co.

$287,846 $282,078 $280,747

Donegal Group Western National Mutual Endurance Group

PA MN DE

68 69 70 71

Redwood Fire and Casualty Insurance Co. Republic Underwriters Insurance Co. Mutual of Enumclaw Insurance Co. First Colonial Insurance Co.

$280,198 $271,504 $270,508 $270,346

Berkshire Hathaway Group Delek Group Mutual of Enumclaw Group Allstate Insurance Group

NE TX OR FL

Star Insurance Co.

$269,036

Meadowbrook Insurance Group

73 74

Alaska National Insurance Co. California Casualty Indemnity Exchange

$258,906 $245,522

AK CA

75 76

Farmers Automobile Insurance Association Farmington Casualty Co.

$244,619 $244,598

N/A California Casualty Management Group Pekin Insurance Group Travelers Group

Mitsui Sumitomo Insurance Co. of America

$232,037

MS & AD Insurance Group

Alterra America Insurance Co.

$226,949

Markel Corp Group

79 80 81 82 83

Builders Mutual Insurance Co. Selective Way Insurance Co. Quincy Mutual Fire Insurance Co. Pacific Specialty Insurance Co. Motors Insurance Corp.

$224,733 $216,361 $213,418 $211,425 $210,457

Builders Group Selective Insurance Group Quincy Mutual Group Western Service Contract Group GMAC Insurance Holding Group

NC NJ MA CA MI

Farmland Mutual Insurance Co.

$210,185

Nationwide Corp Group

North River Insurance Co.

$208,360

Fairfax Financial Group

86 87 88 89

Auto Club Insurance Association American Select Insurance Co. Century-National Insurance Co. Utica Mutual Insurance Co.

$207,818 $206,927 $202,697 $199,047

Automobile Club MI Group Westfield Group N/A Utica Group

MI OH CA NY

90 91 92

Cherokee Insurance Co. Merchants Mutual Insurance Co. AMEX Assurance Co.

$195,381 $192,497 $191,237

N/A Merchants Mutual Group N/A

MI NY IL

Securian Casualty Co.

$190,125

Minnesota Mutual Group

American Family Home Insurance Co.

$189,969

Munich Amer Holding Group

95 96

Society Insurance, A Mutual Co. Mountain West Farm Bureau Mutual Insurance Co. Atlantic States Insurance Co. Jewelers Mutual Insurance Co.

$189,519 $188,231

N/A Mountain West Farm Group

WI WY

$183,876 $174,341

Donegal Group N/A

PA WI

$172,358 $170,496

Berkshire Hathaway Group QBE Insurance Group

KS WI

97 98

99 Old United Casualty Co. 100 Unigard Insurance Co.

SR5 | INSURANCE JOURNAL | NATIONAL MAY 23, 2016

IL CT

Number/States Greater than $1 Million DPW as of 12/31/2015

25 - CA,CT,DE,DC,FL,GA,IL,KS,LA,ME,MD,MA,MI,MS,MO,NH,NJ,NY,NC, PA,SC,TN,TX,VT,VA 23 - AZ,CT,DE,FL,GA,IL,ME,MD,MA,MI,NV,NH,NJ,NY,NC,PA,RI,SC,TN,TX, UT,VT,VA 28 - AL,AZ,AR,CA,CO,CT,DC,FL,GA,HI,IL,IN,KS,LA,MD,MA,MI,MO,NV,NJ, NM,NY,NC,OK,PA,TN,TX,VA 23 - AL,AR,CA,CO,FL,GA,IL,MD,MA,MS,NV,NH,NJ,NM,NC,OH,OR,PA,SC, TN,TX,VA,WI 34 - AL,AZ,AR,CO,FL,GA,ID,IL,IN,IA,KS,KY,LA,MD,MI,MN,MS,MO,MT,NE, NM,NC,OK,OR,PA,SC,SD,TN,TX,UT,VA,WA,WI,WY 2 - NE,SD 34 - AL,AZ,CA,CO,CT,FL,GA,IL,IN,KS,KY,LA,ME,MD,MA,MI,MN,MO,NV,NH, NJ,NY,NC,OH,OK,PA,SC,TN,TX,UT,VT,VA,WA,WI 7 - CT,ME,MA,NH,NY,RI,VT 33 - AL,AZ,CA,CO,CT,FL,GA,IL,IN,IA,KS,KY,LA,MD,MA,MI,MN,MS,MO,NE, NJ,NM,NY,NC,OH,OK,OR,PA,SC,TN,TX,VA,WI 30 - AL,AZ,AR,CO,CT,GA,IL,IN,IA,KS,LA,MI,MN,MS,MO,NE,NM,NC,ND,OH, OK,OR,PA,SC,SD,TN,TX,UT,VA,WI 8 - CT,IL,ME,MA,NH,NJ,NY,RI 32 - AL,AZ,CA,CO,CT,DC,FL,GA,IL,IN,KS,KY,LA,MD,MA,MI,MS,MT,NV,NJ, NY,NC,OH,OK,PA,SC,TN,TX,VA,WA,WV,WI 34 - AL,AZ,AR,CA,CO,FL,ID,IL,IN,IA,KS,KY,LA,MA,MI,MN,MS,MO,NE,NV,NJ, NY,NC,ND,OH,OR,PA,SC,TN,TX,UT,VA,WA,WI 17 - AZ,CO,IL,IN,IA,KY,MD,MI,MN,NM,NC,OH,PA,TN,VA,WV,WI 4 - MA,NH,NJ,NY 31 - AL,AZ,AR,CA,CO,CT,GA,IL,IN,IA,KS,MA,MI,MN,MS,MO,MT,NE,NJ,NY, NC,ND,OH,OR,PA,SD,TN,TX,UT,WA,WI 13 - AL,DE,GA,IN,IA,MD,NE,NC,OH,PA,TN,VA,WI 6 - IL,IA,MN,ND,SD,WI 31 - AZ,AR,CO,DE,DC,GA,HI,IL,IN,IA,KS,KY,LA,MD,MA,MI,MS,MO,NV,NJ, NY,OH,OK,OR,PA,RI,SC,TX,UT,WA,WI 15 - AK,AZ,CA,CO,ID,IL,KY,MI,NE,NV,NC,SC,TN,TX,VA 8 - AZ,AR,CA,LA,MS,NM,OK,TX 5 - AZ,ID,OR,UT,WA 25 - AL,AZ,CO,FL,GA,IL,IN,KY,LA,MA,MS,MO,NV,NJ,NC,OH,OK,OR,PA,SC, TN,TX,UT,VA,WA 33 - AL,AZ,AR,CA,CT,FL,GA,IL,IN,IA,KS,KY,LA,MD,MA,MI,MN,MS,MO,NE, NH,NJ,NY,NC,OK,PA,RI,SC,TN,TX,VT,VA,WI 7 - AK,CA,CO,ID,LA,OR,WA 19 - AL,AZ,CA,CO,CT,DE,GA,IN,KS,LA,MD,MN,NV,NM,OK,PA,TN,TX,VA 4 - IL,IN,IA,WI 29 - AL,AZ,CO,CT,DE,DC,GA,IL,IN,KS,KY,LA,MD,MI,MN,MS,MO,NH,NM,NY, NC,OK,OR,PA,RI,SC,TN,TX,UT 32 - AL,AZ,CA,CO,CT,FL,GA,HI,IL,IN,KY,LA,MD,MA,MI,MN,MS,MO,NV,NJ, NY,NC,OH,OR,PA,SC,TN,TX,UT,VA,WA,WI 34 - AL,AZ,CA,CO,DC,FL,GA,HI,IL,IN,IA,KS,LA,MD,MA,MI,MN,MS,MO,NE, NV,NJ,NY,NC,OH,OK,OR,PA,SC,TN,TX,VA,WA,WI 9 - DC,FL,GA,MD,MS,NC,SC,TN,VA 10 - DE,DC,GA,MD,MI,NJ,NY,PA,SC,VA 4 - CT,MA,NY,RI 7 - AZ,CA,CO,CT,FL,NJ,TX 27 - AL,AR,CA,CO,FL,GA,IL,IN,IA,KS,LA,MI,MN,MS,MO,NE,NJ,NY,NC,ND, OH,OK,PA,SC,SD,TN,TX 32 - AL,AZ,AR,CA,CO,FL,GA,ID,IL,IN,IA,KS,KY,MI,MN,MS,MO,NE,NC,ND, OH,OK,OR,PA,SC,SD,TN,TX,UT,WA,WI,WY 29 - AL,AZ,CA,CT,FL,GA,HI,IL,IN,KY,LA,MD,MA,MI,MN,MS,MO,NJ,NY,NC, OH,OK,PA,RI,SC,TN,TX,VA,WI 5 - IL,MI,MN,NE,WI 12 - CO,GA,IL,IN,IA,MI,MN,OH,PA,SC,TN,WV 7 - AZ,CA,FL,IL,NV,TX,WA 24 - CT,DE,GA,IL,IN,KY,MD,MA,MI,MN,MO,NH,NJ,NY,NC,OH,PA,RI,SC, TN,TX,VA,WA,WI 17 - AL,AR,CA,IN,KS,MI,MS,MO,NE,NC,OH,OK,PA,SC,TN,TX,VA 9 - MA,MI,NH,NJ,NY,OH,PA,RI,VT 31 - AL,AZ,CA,CO,CT,DC,FL,GA,HI,IL,IN,KY,LA,MD,MA,MI,MN,MO,NV,NJ, NY,NC,OH,OR,PA,SC,TN,TX,UT,VA,WA 34 - AL,AK,AZ,CA,CO,FL,GA,ID,IL,IN,IA,KS,KY,LA,MD,MI,MN,MS,MO,MT, NE,NM,NY,NC,OH,OK,OR,PA,SC,TN,TX,VA,WA,WI 29 - AL,AZ,AR,CA,CO,FL,GA,IL,IN,KY,MD,MI,MS,MO,NE,NJ,NM,NY,NC,OH, OK,PA,RI,SC,TN,TX,VA,WA,WI 4 - IL,IN,IA,WI 2 - MT,WY 9 - DE,GA,IN,IA,MD,OH,PA,TN,VA 34 - AL,AZ,AR,CA,CO,CT,FL,GA,HI,IL,IN,KS,KY,LA,MD,MA,MI,MN,MO,NV, NJ,NM,NY,NC,OH,OK,OR,PA,SC,TN,TX,VA,WA,WI 6 - AZ,CA,FL,KS,MI,TX 8 - AZ,CA,ID,MT,NV,OR,UT,WA

INSURANCEJOURNAL.COM

Company

12/31/2015 DPW OOOs omitted

Group Name

State Of Domicile

101 Federated Rural Electric Insurance Exchange 102 Vanliner Insurance Co.

$154,965

N/A

$152,078

American Financial Group

103 Berkshire Hathaway Specialty Insurance Co.

$150,634

Berkshire Hathaway Group

104 105 106 107 108 109

Grange Insurance Association United Ohio Insurance Co. Utica First Insurance Co. National Lloyds Insurance Co. Concord General Mutual Insurance Co. Federated Service Insurance Co.

$150,584 $148,884 $144,421 $141,486 $140,383 $137,779

Grange Insurance Group Ohio Mutual Group N/A NLASCO Group Concord Group Federated Mutual Group

WA OH NY TX NH MN

110 Central States Indemnity Co. of Omaha

$132,783

Berkshire Hathaway Group

111 112 113 114 115 116 117 118 119 120 121

$130,765 $130,081 $129,182 $128,174 $127,342 $122,423 $122,194 $121,267 $120,591 $119,502 $116,415

American Hallmark Insurance Co. of Texas Goodville Mutual Casualty Co. Cambridge Mutual Fire Insurance Co. Columbia Mutual Insurance Co. Brethren Mutual Insurance Co. Harford Mutual Insurance Co. Farmers Alliance Mutual Insurance Co. Middlesex Insurance Co. Stillwater Insurance Co. IMT Insurance Co. Pharmacists Mutual Insurance Co.

Hallmark Financial Services Group TX Goodville & German Mutual Group PA Andover Group MA Columbia Insurance Group MO N/A MD Harford Group MD Alliance Insurance Group KS Sentry Insurance Group WI WBL Group CA IMT Mutual Holding Group IA Pharmacists Mutual Group IA

122 Executive Risk Indemnity Inc.

$113,960

Chubb & Son Inc Group

123 124 125 126

$111,074 $109,561 $108,653 $108,031

Cumberland Group American Financial Group Ace Ltd Group Protective Life Insurance Group

NJ OH PA MO

127 Penn National Security Insurance Co.

$106,794

128 Property-Owners Insurance Co. 129 Great Midwest Insurance Co. 130 Harco National Insurance Co.

$106,494 $105,683 $102,697

Pennsylvania National Insurance Group Auto Owners Group Lightyear Delos Group IAT Reins Co. Group

131

$100,874

Lightyear Delos Group

Cumberland Mutual Fire Insurance Co. Mid-Continent Casualty Co. Insurance Co. of North America Lyndon Property Insurance Co.

Imperium Insurance Co.

132 Philadelphia Contributionship Insurance Co.

$99,605

133 134 135 136 137 138 139 140

Western Reserve Mutual Casualty Co. Financial Pacific Insurance Co. Hartford Insurance Co. of Illinois Toyota Motor Insurance Co. Lightning Rod Mutual Insurance Co. TransGuard Insurance Co. of America Inc. Milbank Insurance Co. Physicians Insurance A Mutual Co.

$98,181 $97,331 $97,011 $95,082 $92,035 $91,641 $90,896 $87,176

141 142 143 144 145 146 147 148 149 150 151

Hallmark Insurance Co. Triton Insurance Co. MHA Insurance Co. St. Paul Mercury Insurance Co. BITCO National Insurance Co. Lititz Mutual Insurance Co. Gray Insurance Co. American Mercury Insurance Co. Contractors Bonding and Insurance Co. Dentists Insurance Co. Capitol Indemnity Corp.

$85,604 $83,197 $82,960 $80,120 $78,919 $71,335 $69,208 $68,556 $68,113 $66,564 $65,939

152 153 154 155

Bay State Insurance Co. Civil Service Employees Insurance Co. Trinity Universal Insurance Co. All America Insurance Co.

$58,047 $51,476 $42,612 $42,330

156 Motorists Commercial Mutual Insurance Co.

$35,752

IN TX IL

Number/States Greater than $1 Million DPW as of 12/31/2015

34 - AL,AZ,AR,CO,FL,GA,ID,IL,IN,IA,KS,KY,LA,MI,MN,MS,MO,MT,NE,NM, NC,ND,OH,OK,OR,PA,SC,SD,TN,TX,VA,WA,WI,WY 31 - AK,AZ,CA,CO,CT,FL,GA,IL,IN,IA,KS,KY,MD,MA,MI,MN,MS,MO,NE,NJ, NY,NC,OH,OK,PA,SC,TN,TX,VA,WA,WI 23 - AL,CA,CO,CT,DE,FL,IL,IN,MD,MA,MI,MN,MS,NJ,NY,NC,OH,PA,RI,TN, TX,VA,WI 6 - CA,CO,ID,OR,WA,WY 6 - CT,ME,NH,OH,RI,VT 6 - CT,MA,NJ,NY,OH,PA 5 - GA,MO,OK,TN,TX 3 - ME,NH,VT 31 - AL,AZ,AR,CA,CO,FL,GA,IL,IN,IA,KS,KY,LA,MI,MN,MS,MO,NE,NV,NY, NC,OH,OK,OR,PA,SC,TN,TX,VA,WA,WI 27 - AZ,AR,CA,CO,GA,IL,IN,IA,KS,KY,LA,MI,MN,MO,NE,NY,NC,OH,OK,OR, PA,SC,TN,TX,UT,WA,WI 18 - AZ,AR,GA,HI,ID,IN,MT,NM,OH,OR,PA,SC,TN,TX,UT,VA,WA,WY 8 - DE,IL,IN,KS,OH,OK,PA,VA 8 - CT,IL,ME,MA,NH,NJ,NY,RI 12 - AR,GA,IL,IA,KS,MS,MO,NE,OK,SD,TN,TX 3 - MD,PA,VA 8 - DE,DC,MD,NJ,NC,PA,TN,VA 8 - CO,ID,KS,MT,NE,ND,OK,SD 12 - CA,CT,FL,GA,IN,MI,NJ,PA,TN,TX,WA,WI 15 - AZ,CA,FL,MO,NE,NV,NM,NY,OH,PA,SC,TN,TX,VA,WA 6 - IL,IA,MN,NE,SD,WI 33 - AL,AZ,AR,CA,CO,CT,GA,IL,IN,IA,KS,KY,LA,MA,MI,MN,MS,MO,NE,NJ, NM,NC,ND,OH,OK,PA,SC,SD,TN,TX,VA,WA,WI 23 - AL,CA,CO,DC,FL,GA,IL,IN,KY,MD,MA,MI,MN,MO,NJ,NY,OH,OR,PA, TX,VA,WA,WI 4 - DE,MD,NJ,PA 11 - AR,FL,KS,MO,MT,ND,OK,SC,TX,UT,WY 3 - CA,MA,NY 23 - AZ,CA,CO,FL,GA,IL,IN,IA,MA,MI,MN,MO,NV,NC,OH,OK,OR,PA,TN, TX,VA,WA,WI 9 - AL,DE,MD,NJ,NC,PA,SC,TN,VA 3 - GA,IN,MI 15 - AL,AZ,CO,GA,IL,IN,KY,NV,OH,OK,PA,TX,VA,WV,WI 27 - AL,AR,CA,CO,CT,FL,GA,ID,IA,LA,MI,MN,MS,MO,NV,NJ,NY,NC,OH,OK, PA,SC,TN,TX,VA,WA,WI 21 - AL,AZ,CA,CO,FL,GA,IL,KY,LA,MD,MA,MS,NV,NJ,NY,OK,PA,TX,UT, VA,WV 2 - NJ,PA

Philadelphia Contributionship PA Group Western Reserve OH 2 - IN,OH United Fire & Casualty Group CA 2 - CA,NV Hartford Fire & Casualty Group IL 3 - IL,NY,PA N/A IA 17 - AZ,CA,CO,DE,FL,IL,KS,MD,MA,NV,NJ,NY,OH,OR,PA,VA,WA Western Reserve OH 2 - IN,OH IAT Reins Co. Group IL 11 - CA,CO,FL,GA,IL,MT,NJ,NC,TX,VA,WA State Auto Mutual Group IA 7 - AZ,CO,IN,MN,ND,SD,UT Physicians Insurance, a Mutual WA 3 - ID,OR,WA Group Hallmark Financial Services Group AZ 20 - AL,AZ,AR,CA,FL,GA,IL,IN,LA,MI,MO,MT,NV,NM,NC,OH,OK,PA,TX,WA Fortress Group TX 12 - CA,DE,FL,GA,IL,NJ,NY,NC,OH,PA,TX,VA Promutual Group MI 8 - IN,IA,MI,MN,ND,OH,SD,WI Travelers Group CT 17 - CA,CO,CT,FL,IL,KS,MA,NM,NY,ND,OH,PA,TX,UT,WV,WI,WY Old Republic Group IL 17 - AR,CO,FL,GA,IL,IA,LA,MO,NE,NC,OK,PA,SC,TN,TX,VA,WI Lititz Mutual Group PA 9 - DE,KS,MD,MO,NC,PA,SC,VA,WV Gray Insurance Group LA 8 - AL,CA,FL,GA,LA,MS,OK,TX Mercury General Group OK 4 - CA,OK,TX,VA RLI Insurance Group IL 9 - AZ,CA,FL,MT,NV,NM,OR,TX,WA N/A CA 4 - CA,HI,IL,PA Alleghany Group WI 25 - AZ,CA,CO,FL,GA,IL,IN,MI,MN,MO,MT,NE,NV,NY,ND,OH,OK,OR,PA, SD,TN,TX,VA,WA,WI Andover Group MA 3 - MA,NJ,NY Civil Service Employee Group CA 3 - AZ,CA,NV Unitrin Group TX 7 - AL,AR,ID,MT,OK,TX,UT Central Mutual Insurance Co OH 14 - AZ,CT,GA,IL,IN,MA,MI,NY,NC,OH,OK,SC,TN,VA Group Motorists Mutual Group OH 12 - IL,IA,KY,ME,MA,MI,MN,NE,NH,OH,PA,WI

Data Source: The National Association of Insurance Commissioners, Kansas City, Mo., by permission. Information derived from an SNL product. The NAIC and SNL do not endorse any analysis or conclusion based upon the use of its data. INSURANCEJOURNAL.COM

MAY 23, 2016 INSURANCE JOURNAL | NATIONAL | SR6

Get full admission to all upcoming live webinars, plus unlimited access to our entire catalog of 200+ course recordings for only $99/mo. ijacademy.com

NATIONAL | News & Markets

AAMGA’s Incoming President Levy Talks About Challenges, Opportunities

or 90 years the American Association of Managing General Agents (AAMGA) has dedicated itself to the growth and sustainability of the global specialty distribution marketplace. This year’s incoming AAMGA president, Ed Levy, vice president, Western region binding, for Risk Placement Services Inc., says that while AAMGA’s core values remain unchanged, diversifying and adjusting to new market realities will be a focus of his tenure. As the AAMGA prepares to open the doors of its 2016 Annual Meeting in Scottsdale, Ariz., May 22-25, Levy took some time to discuss the association’s changing dynamics and what he hopes to accomplish as its new leader.

via underwriting operations. Our focus will be on some of the challenges we face. One of those challenges is succession. We have seen more young people enter the industry, but it’s still challenging to get new talent to look at our end of the business. Getting them trained is also an issue because there’s not a lot of training for what we do. And creating a more diverse industry.

What challenges and opportunities are members of the AAMGA facing today?

The insurance business world is changing from the standpoint of what and who we are. There is a tremendous amount of specialization occurring so we have a strong focus on trying to build that end of the association – program managers and program administrators. We are still

The association is continuing to follow its strategic plan, which we revised last year, that states we are to be the association that specializes in wholesale distribution

Why is diversity an issue?

There are more and more women in the industry but adding more diversity throughout the industry is still a concern. While it’s a challenge, we think it’s also an opportunity.

At this year’s convention there’s a new focus on program business. Why?

specifically wholesale based. We are true to our core, which is we are an association representing the wholesale distribution model. But yet we have adjusted to reflect the changes in the marketplace. This year’s convention will have well over 230 people representing the program space and more than 50 risk bearers that specialize in program business. It will continue to be a strong emphasis for us.

gy business. Whether it’s oil fields to fracking to transportation; that business has slowed down, businesses have shut their doors, truckers are no longer transporting, oil or waste water or whatever else in and out of those fields, that business is gone. So it’s a challenge. Then when you look at transportation, everyone talks about how bad the loss experience

Given the changing dynamics of the industry, would you say the model of an MGA is also changing? The model is still evolving. In reality, our venture into the program space is because they do what we do. They are underwriters. We believe that that model will persist. It’s an interesting dynamic that’s taking place. People are looking at MGA operations and program administrators because of the viability of what they bring to the table and quite honestly the returns.

How would you describe the market today? There’s quite a bit of competition.

Times are difficult today. The market is soft but there are also opportunities out there. But those opportunities are interesting. Some of the opportunities are economically related and some of the challenges are economically related. There are some new businesses starting and our membership is usually the people who get those opportunities because the standard market doesn’t want startups. Some of the challenges that are economically driven are things like the ener-

Ed Levy

has been but yet the competition in that market in many states is now fierce even with fewer markets available. That is interesting. … The market today is really a two-edged sword. On one hand there are challenges, but on the other hand there are opportunities. You just have to find those opportunities and that’s the goal of a wholesale operation – adjust to the needs of the time.

What is your top goal as the new leader of the AAMGA? Education, diversity and recruitment.

INSURANCEJOURNAL.COM

Idea Exchange

Emerging Risks

Drones: An Emerging Market Quickly Taking Flight

By Carl H. Poedtke III & Matthew Grosack

o what is all the buzz about? Lately it is about unmanned aerial vehicles (UAV) or drones, which are emerging as a valuable component in a vast array of American businesses and markets. While UAVs are generally associated with their military uses, the smaller and non-lethal variety are just now trickling into mainstream consumption channels revealing their many commercial applications and benefits. As these applications give rise to substantial opportunities for commercial use in the years INSURANCEJOURNAL.COM

ahead, the emerging insurance markets will need to adapt to the ever-morphing technology.

Growth of Drones in Commercial Settings

What are the opportunities for the commercial use of UAVs? Today, numerous industries are utilizing UAVs to expand capabilities and minimize costs. The increasing commercial utilization of UAVs in the agriculture, real estate, cinema, energy construction, and insurance industries underlie conservative estimates that the commercial UAV market will have an $80 billion economic impact (globally) within the next 10 years.

Commercial UAVs are now routine in filming and photography, and are also becoming essential tools in transportation infrastructure maintenance, energy facility inspections, border control, emergency response, wildlife preservation, and insurance claims adjusting and risk analysis. The widespread use of this technology in such varied ways is a product of both pragmatism and economy. UAVs offer low-altitude and detailed views that were previously reserved to the feather winged creatures. Unlike more traditional forms of low-altitude aviation, UAVs offer new analytics at a fraction of the cost of a

gas-guzzling plane or helicopter and with little risk to the pilot-in-charge. These present benefits aside, aerial inspection may only scratch the surface on the commercial applications of this technology. Although the current regulatory environment only allows commercial UAV use within the visual line-ofsight of the operator, many predict that widespread UAV delivery services may be on the horizon as UAVs become safer and more autonomous. Many in the instant delivery space are betting big on this futuristic vision becoming reality. The commercial benefits

continued on Page 34

MAY 23, 2016 INSURANCE JOURNAL | NATIONAL | 33

Idea Exchange

Emerging Risks

continued from page 33 aside, UAVs also hold enormous promise for impacting our lives in such areas as hunger and health. UAVs will undoubtedly impact hunger issues by providing domestic agriculture unparalleled and cost-effective analytics into the factors affecting crop yield with many experts projecting significant yield upswings as a result. Also consider the possibility of a UAV delivering a defibrillator in a congested urban or remote rural setting to a cardiac arrest event before professional first responders are able to arrive. For the individual in peril, it may prove to be the most important delivery they ever receive and one that is only possible with the assistance of a UAV.

Risk Exposures in Commercial Operations

As many benefits and applications as there may be for this technology, there are also various risks attendant with UAV operations – both obvious as well as obscure. General property damage and liability are certainly primary concerns for underwriters. As with general aviation, UAV operations raise the potential for first party loss of property, including damage to the aircraft, loss of payload, and harm to other critical system equipment (camera, LiDar equipment, etc.). Given the velocity at which UAVs operate commercially and the fact that they routinely fly at high altitudes, there is also significant exposure associated with property damage to sites owned by the owner, operator, or lessor of the UAV equipment in the event of power loss or a malfunction. Of course, there is also the risks associated with bodily injury and property damage to persons not involved in the UAV commercial operation. Any number of scenarios are possible as UAVs are complex pieces of hardware requiring routine maintenance and seasoned handling for more complex commercial operations. Operator error– whether in flight preparation or mission execution – can cause injuries or property damage that likely will result in negligence, recklessness, or even strict liability claims. Product liability claims based on negligence, strict liability and breach of war34 | INSURANCE JOURNAL | NATIONAL MAY 23, 2016

Matthew Grosack ranty of any number of manufacturing or design defects are also realistic exposures. UAV and parts manufacturers will face risk exposure in the event of a cataclysmic hardware malfunction. Since UAVs rely heavily on software for the multitude of passive autonomous functions, programmers face exposure as well in the event operational or safety features fail to perform as intended. Underwriters and market participants must also be mindful of exposure resulting from privacy violations, trespass and data breaches and the use of data retrieved. While generally small in size, UAVs have substantial capabilities to collect images and data from the most intimate of vantages. This will undoubtedly spawn a variety of privacy related claims, such as (for example only) intrusion upon seclusion or common law or statutory trespass. In the absence of federal preemption on these UAV specific privacy issues, many states and localities have already taken steps to regulate and criminalize various UAV activities in light of the privacy concerns of their citizens. Indeed, in some states and localities, laws already on the books: (i) prohibit UAVs from electronically recording information about “critical infrastructure”, (ii) criminalize the use of UAVs for “peeping tom” activities, and (iii) create civil liability for capturing an image or other information of a person or privately owned property without consent. Additionally, given the fact that sensitive business information may be transmit-

ted from the UAV to the operator or cloud, cyber security risks are of material concern. While today there can be no certainty or agreement on the full breadth of risks associated with commercial UAV use, what is certain is that there will be a panoply of considerations that underwriters will face as this technology proliferates.

The Emerging Insurance Market

Although insurance is not mandated by current or proposed Federal Aviation Administration (FAA) regulations, the reality is that commercial operations will be supported by insurance protection purchased by operators, owners, lessors and manufacturers. As the insurance market develops, it becomes more obvious that there are unique challenges and considerations involved in the commercial operation of this technology such as the intended uses, the experience of operators, and the limited data relative to the operational risks. Underwriters can expect a robust market to evolve that they will likely satisfy with aviation and hull coverages, commercial general liability (CGL), or other specifically tailored offerings developed based on the specific risks of the account.

Carl H. Poedtke III INSURANCEJOURNAL.COM

Aviation policy forms are now being adapted to meet the demands of the drone market and stand-alone UAV policies are becoming more common. Coverage is available for first party damages, including physical damage to the UAV, payload, and ground equipment, and third party liability exposures for property damage and bodily injury relating to losses arising out of operation of a scheduled UAV. Some policies may address certain circumstances, such as hijacking risks, through endorsements and additional premium requirements, and sub-limited for separate damage categories (such as cargo). As for CGLs (which generally include an “aircraft” exclusion in Coverage A), the Insurance Services Office (ISO) recently developed optional Unmanned Aircraft Endorsements for use in CGL and other general liability policies. Various optional endorsements can be added to the CGL to address exclusions of UAV operations (e.g., from Part A or Part B, or both), or to clarify the limited coverage under CGL policies in relation to scheduled projects and UAVs. Important coverages to consider beyond property damage and bodily injury include, among other things, personal and advertising injury (e.g., wrongful intrusion upon right of privacy by owner or landlord, also e.g., oral or written publication of material that violates a person’s right of privacy), in light of the unique capabilities of UAVs. While there are certainly coverage options available today, many should expect a conservative approach by underwriters as they begin to understand this technology and the commercial UAV market. Considering the varied commercial applications and the sheer multitude of commercial operators (over 5,000 as of today and growing exponentially), scheduled coverage for specifically identified UAVs will likely be the preferred practice

for some time. Moreover, until insurers obtain sufficient experience and data regarding the nuances of commercial UAV operations, the markets may favor modest limits and assume risks gradually as risk assessment and understanding matures. However, risk appetite may increase as safety advancements become perfected.

Looking Ahead

Even considering these recent safety developments, tomorrow’s risks will undoubtedly look vastly different than today’s. This is especially true when considering the possibility of a complex aerial highway of UAVs traveling long distances, autonomously, and beyond the visual line of sight of any operator. Such a highway would be utilized by varied UAV models offering a host of different commercial services to those above and below its aerial roadways.

AMSEAL001.indd 1

INSURANCEJOURNAL.COM

While some might perceive this as overly “Jetsonian,” many in the UAV industry would strongly disagree. Indeed, while this future is nowhere near regulatory approval, large technology companies are investing significantly in preparing the hardware and logistics to take advantage of a commercial UAV highway. As this future becomes a reality – and in the opinions of these authors this is more eventuality than possibility – underwriters will continue to analyze the risks and will partner with clients to support the commercial growth of an exciting and versatile technology to capitalize on the vast opportunities. Grosack in an associate in the Miami office of DLA Piper. He focuses his practice on commercial litigation and arbitration matters. Poedtke is a partner in the Chicago office of DLA Piper. He has a broad range of litigation experience in domestic and international insurance, reinsurance and insurer receivership matters.

4/22/16 11:36 AM

MAY 23, 2016 INSURANCE JOURNAL | NATIONAL | 35

Idea Exchange

Minding Your Business

What to Know About Gifting Agency Stock & Grantor Retained Annuity Trusts

By Catherine Oak and

Bill Schoeffler

aul Simon wrote that there are “50 Ways to Leave Your Lover.” For business owners, there are a few less options, however, there are many more permutations of those options. For family businesses, the key is to understand everyone’s needs and expectations and then design a plan well in advance of the transfer of ownership. Two great ways to “leave your business” are gifting and the GRAT.

Gifting

The 2016 estate and gift tax limits for the federal estate tax exemption is $5.45 million per person, and the annual gift exclusion amount is $14,000. The federal estate tax exemption is the amount an individual 36 | INSURANCE JOURNAL | NATIONAL MAY 23, 2016

can gift or leave to heirs without having to pay federal estate tax. For anything beyond those limits, the top federal estate tax rate is 40 percent. Gifting could be a good approach to transfer ownership if the value of the business is the bulk of the estate and it falls below the $10.90 million combined total limit (husband and wife) or the $5.45 million limit per person. There can be no taxes with this approach. The downside is when an owner would still like to receive some money from the business after the transfer of ownership. If the owner continues to work after gifting the stock, then they can receive a salary. However, for tax purposes, defining any transfer of money becomes a problem after the owner is no longer involved with the business. Another issue with the gifting of the stock is that the owner’s tax basis for the stock is transferred to the new owners after it is gifted. This means there is no step-up in basis for the new owners to the current value of the agency. When the new owner sells the business, their capital gains taxes are calculated from the difference between previous owner’s original basis amount and the value of the stock when sold. The capital gains taxes are just deferred until the new owners sell their stock further down the road.

that dividends are paid to the shareholders. Keep in mind that this is not the most tax-efficient way to pull money out of the business, since there will be both corporate and personal taxes on the dividends paid. However, if the original owner retains some fraction of the stock and keeps it until their death, the beneficiary will then receive a step-up in tax basis for that portion of the retained stock. This could help offset some of the taxes paid when the business issued the dividends. Planning also needs to happen if there are multiple beneficiaries for the estate and the business is gifted to only a portion of them. First, it is important to designate who receives the stock. Next, the other beneficiaries that were not gifted the stock should have an equivalent value of the estate designated for them.

Gifting Options

If the owner still wants to receive money from the business after they transfer ownership, one approach is to not gift 100 percent of the stock. Instead, the owner can gift 51 percent (or more) of the stock. This allows the new owner to get control of the business, but it also allows the original owner the opportunity to receive dividends. The agency needs to be structured to let the profits drop to the bottom line, so INSURANCEJOURNAL.COM

Grantor Retained Annuity Trusts

GRAT stands for Grantor Retained Annuity Trust and is also an excellent tool that is used as a perpetuation vehicle between owners and key employees or family members. A GRAT is an irrevocable trust to which the Grantor transfers assets while retaining an annuity or “unitrust” payment for a set period of time. At the end of the payment period, the assets in the trust pass to the trust beneficiaries. To determine the impact on the federal estate tax exemption, the value of the retained annuity is subtracted from the value of the property transferred to the trust (i.e., a share of the business). If set up properly, the retained annuity is zero, so there is no impact on the estate tax exemption. First, a valuation is done on the firm. Then, one or more GRATS are set up to transfer the stock. Annuity payments are determined by the value of the stock in the

INSURANCEJOURNAL.COM

GRAT and the payment period, often three to 10 years. The payments are deductible to the corporation and are capital gains to the recipient. If the Grantor dies before the payment period ends, then the tax benefits are lost for the stock in any active GRAT. There are a number of idiosyncrasies about establishing a GRAT so it is best to use an attorney that specializes in this tool.

Summary

Gifting the business is a great way to transfer the ownership of a business. Based on the circumstance, there are options to change the tax burden and/or have the owner still receive some money from the business. In some cases, the GRAT may be a preferred vehicle to gifting, especially if the estate is large. Working with the firm’s CPA and a qualified attorney will provide the owners the answers they need to use one of these two vehicles properly.

Oak is the founder of the consulting firm, Oak & Associates, based in Northern California. Schoeffler is an associate of the firm. Oak & Associates specializes in financial and management consulting for independent insurance agencies, including valuations, mergers acquisitions, sales and marketing planning as well as perpetuation planning. Phone: 707-935-6565. Email: catoak@gmail.com.

Advertisers Index

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

AAMGA www.aamga.org 39 Abram Interstate www.abraminterstate.com W16 Academy of Insurance www.ijacademy.com 31 Accident Fund www.accidentfund.com SE5 ACORD www.acordlomaforum.org 30 American Reliable www.assurantspecialtyproperty.com 3, W17 American Seals www.americanseals.com 35 Applied Underwriters www.auw.com 4, 5, 40 Brecht & Associates www.brechtassoc.com SC8 Burnett & Company www.bcoinc.com SC6 Burns & Wilcox Ltd. www.burnsandwilcox.com 9 California Earthquake Authority mvp.earthquakeauthority.com 3 Century National www.cnico.com W11 Chubb www.chubb.com 17 EZLynx www.ezlynx.com 19 First American Specialty Insurance Co. www.firstam.com W15 General Star www.generalstar.com W7, SE3, E3 M3 Golden Bear Insurance Company www.goldenbear.com W9 Gorst & Compass Insurance www.gorstcompass.com W19 M.J. Hall & Company www.mjhallandcompany.com W3 Monarch E&S Insurance Services www.monarchexcess.com W13 Nationwide E&S www.wearenownationwide.com 2 Nautilus Insurance Company www.nautilusinsgroup.com 10 Pacific Gateway Insurance Services www.pgiainsurance.com W5 PersonalUmbrella.Com www.personalumbrella.com 7 Quirk & Company www.quirkco.com W18, SC7 ReSource Pro www.resourcepro.com 11 South & Western www.southandwestern.com SC3 Texas Mutual www.texasmutual.com SC5 The Hartford Insurance Group www.thehartford.com 13 United Educators www.ue.org 18 United Fire Group www.ufgsolutions.com E5

MAY 23, 2016 INSURANCE JOURNAL | NATIONAL | 37

Closing Quote Staying Relevant in the Age of the Customer competitors and make data work for them. At the ANE conference, I asked several industry executives and ANE member agents for their thoughts on how agents can stay relevant in the age of the customer:

By John Tiene

aptops, smartphones and tablets are giving consumers the power to make buying decisions from anywhere, and at any moment of their choosing. “We’ve entered this new age — the age of the customer,” said Ellen Carney, principal analyst, Forrester Research at the ANE, Agency Network Exchange annual conference in April. “Digital has moved that power shift into the hands of customers.” Forrester predicts 2.4 billion smartphone users and another 651 million tablet users by the end of 2017. The pervasiveness of these devices has changed consumer expectations: insurance agents need to provide their clients with the tools they want to interact with the agency. Agencies must have a robust mobile-friendly website, a mobile app, client portal and provide a location-specific experience. Agents must rethink how they use technology to improve, differentiate from

• Matt Kirk, senior vice president, The Hartford: “Your clients are going to need advice and counsel about the products they are buying. They expect you to take care of their needs. That doesn’t change. What is their expectation of that engagement? How will you communicate with them? The way they are engaged is going to change, and it will change rapidly.” • Gary Capone, vice president, Franklin Mutual Insurance Co.: “People still want to do business with an independent agent. Millennials are not just looking to buy online. They want professional advice. You have to listen to the customer, give them what they want, the way they want it, be very flexible and use many channels.” • Bob Redden, vice president, Selective Insurance Companies: “The challenge is where to start. Everyone has limited resources. Where do you get the best return? Moving forward, a focus on an omni-channel experience for the customer becomes even more critical. You may have customers who prefer to interact by phone, some by web or text. One way

38 | INSURANCE JOURNAL | NATIONAL MAY 23, 2016

The pervasiveness of mobile devices has changed consumer expectations. to be relevant is to let them know their options.” • Ellen Carney, principal analyst, Forrester: “A lot of organizations are available to help independent agents. You can have the same advantage as the most technically sophisticated agency. Someone else can manage the infrastructure, make sure the experience is fast, easy to navigate, and meets expectations in terms of mobile, social and whatever the next digital touchpoint could be. Technology is a lot different than it was in the 1990s when you had to build it yourself. Now there’s someone else who will build it and by the end of the day, you are up and running.” • Freddie Marin, ANE agent, Your Insurance Solutions: “I was afraid that physical agencies were no longer relevant. Everybody is addicted to cellphones and 80 percent are doing research online, but they

are looking for agents. You have to learn to interact in a new way through technology, but still provide the personal touch that a digital device can’t provide.” • Doug Mohr, vice president, Vertafore: “It’s those little touches. I get the Starbuck’s card on my birthday, a note when it’s time for renewal. I think of my agent first before I think of the company. It’s because my agent has that personal touch.” • George Reese, agent, Henry Young Insurance Agency: “We are in a changing world and the pace of change is accelerating. We need to be open to everybody in all the various ways they want to communicate, and be responsive to that.” Tiene is CEO of ANE, Agency Network Exchange, an alliance for independent insurance agents in the mid-Atlantic region, based in Monmouth Junction, N.J. Website: www.ane-agents.com. INSURANCEJOURNAL.COM

WE’RE GETTING BETTER CONNECTED

THE WORLD IS CHANGING AND SO ARE WE. The AAMGA and our members recognize the importance of better connecting with our clients; of building solid business partnerships that can solve complex risk management problems. To meet this challenge, we’re shaping ourselves to better reflect an increasingly diverse worldwide insurance market. Cultivating our own diversity will be key to our continued success. That’s why we’re continuously seeking smart, motivated and diverse business grads to join our ranks. With their help, we’re making better connections, and capitalizing on ever-changing specialty market opportunities.

Expect big things in workersâ&#x20AC;&#x2122; compensation. Expect to save a third of your clients 30% or more. Most classes approved, nationwide. For information call (877) 234-4450 or visit auw.com/us. ÂŠ2016 Applied Underwriters, Inc., a Berkshire Hathaway company. Rated A+ (Superior) by A.M. Best. Insurance plans protected U.S. Patent No. 7,908,157.