Insurance Journal West 2016-11-07 by Insurance Journal

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Contents November 7, 2016 • Vol. 94 No. 21 • West

West W1 Jury in California Awards $18M Cosmetic Talc Cancer Verdict

National 10 Startup Auto Insurer Root Targets Good Drivers with Smartphones

W2 Study: Los Angeles Has Highest Workers’ Comp Claim Costs in California

12 InsuranceJournal.com Poll 18 Repeat Plaintiffs, Non Profits Target Businesses for ADA Compliance

W4 State Farm Agrees to Cut

Rental Rates in California by 40% W6 1.8 Million Western U.S. Homes at Extreme or High Wildfire Risk, Report Shows

W1 JURY IN CALIFORNIA AWARDS $18M

COSMETIC TALC CANCER VERDICT

W10 California Commissioner Wants Workers’ Comp Insurers to Reduce Rates

22 Spotlight: 10 Things to Know About Habitational/Dwellings 24 Special Report: Agency E&O Survey Agents: Treat Yourself Like You Do Your Clients

W12 BRONZE Best Agency to Work For – West MOC Insurance Services

Idea Exchange 36 The Competitive Advantage: Chris Burand

REPEAT PLAINTIFFS, NON-PROFITS TARGET BUSINESSES FOR ADA COMPLIANCE

38 Cyber, Risk Management & Claims for Accountants’ Liability 40 3 Ways Auto Insurers Should Adapt to Drivers’ Changing Road Habits

Departments 14 Declarations

42 Closing Quote: Want Innovation? Ask the Right Questions

14 Figures

40 3 WAYS AUTO INSURERS SHOULD ADAPT

TO DRIVERS’ CHANGING ROAD HABITS

6 | INSURANCE JOURNAL | WEST NOVEMBER 7, 2016

15 Business Moves 35 MyNewMarkets

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OPENING NOTE

Write the Editor: awells@insurancejournal.com

Shop Around: What’s Out There?

T 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 Elizabeth Blosfield eblosfield@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 Columnists Chris Burand Contributing Writers Adam Beam, Seth Birnhaum, Owen Callaghan, Craig Dandrow, Eric Kasen, Marcos Garcia Norris, John Torvi IJ ACADEMY OF INSURANCE V.P. of Education Chris Boggs cboggs@ijacademy.com Online Training Coordinator Barbara Whiffen bwhiffen@ijacademy.com

ADMINISTRATION

Chief Financial Officer Mark Wooster mwooster@wellsmedia.com

MARKETING

Marketing Director Derence Walk dwalk@insurancejournal.com Marketing Administrator Gayle Wells gwells@insurancejournal.com

NEW MEDIA

New Media Producer Bobbie Dodge bdodge@insurancejournal.com Videographer/Editor Ashley Waldrop awaldrop@insurancejournal.com

CIRCULATION

Circulation Manager Elizabeth Duffy eduffy@wellsmedia.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 East Sales (NY, PA and CT only) Dave Molchan (800) 897-9965 X145 dmolchan@insurancejournal.com Advertising Coordinator Erin Burns (619) 584-1100 X120 eburns@insurancejournal.com Insurance Markets Manager Kristine Honey (619) 584-1100 X132 khoney@insurancejournal.com Social Media Manager Ly Short (619) 890-7735 Lshort@insurancejournal.com Classifieds, Jobs, Agencies Wanted/For Sale Sr. Sales & Marketing Coordinator Kelly De La Mora (800) 897-9965 X125 kdelamora@insurancejournal.com

DESIGN/WEB

Chief Technology Officer/ Chief Innovation Officer Joshua Carlson jcarlson@insurancejournal.com V.P. of Design Guy Boccia gboccia@insurancejournal.com Senior Web Developer Chris Thompson cthompson@insurancejournal.com Web Developer Jeff Cardrant jcardrant@insurancejournal.com Web Developer Tim Layer tlayer@wellsmedia.com

here’s hot competition in agency errors and omissions market today, in price, policy terms and conditions. Most experts believe it’s a great time for agency owners looking to purchase or ramp up their limits. But most agency owners don’t shop coverage and few increase their limits it seems “There is a tremendous amount of capacity in the marketplace currently,” said Mark J. Mullarkey, executive vice president at RT ProExec. While rate has stayed consistent over the past couple years, there’s also heightened competition around terms and conditions in agency E&O, which could be great for agency owners. According to Insurance Journal’s 2016 Agency E&O Survey, average E&O premium increases over the past three years rang in at 9.9 percent for those policies that increased, but overall E&O policy premiums are holding flat or decreasing (see report on page 24). “At this point, there’s market availability for any size and any type of agency out there,” Mullarkey said. “I haven’t run across anything where I haven’t been able to come up with a quote.” Of course, every market has their likes and dislikes, but there’s a market for everyone, he said. What’s surprising is that even in such a competitive buyer’s market agency owners tend to keep the same limits they’ve always held. The E&O Survey showed that just 10.5 percent of buyers increased their limits at the last policy renewal. As agencies continue to grow, they should think about increasing their limits and an ideal time to review is at the E&O renewal, Mullarkey said. Right now, it can be very inexpensive for agencies to almost double their limits. It’s also a good time to keep an eye on cyber and privacy related exposures, Mullarkey said. “Some carriers are starting to include sublimits on their E&O policy for the cyber privacy exposures while some carriers are remaining silent on it,” he said. What is known is that carriers are thinking about cyber as it relates to agency E&O. Mullarkey said stand-alone cyber coverage would be ideal, but it’s better to have some coverage on the agency E&O policy than nothing at all. “But usually it’s sublimits, not at the full limits,” he said. “Separate is better, but at the end of the day, something is better than nothing.” Terms and conditions overall are one of the FOR QUESTIONS top issues agency owners should consider REGARDING SUBSCRIPTIONS: Call: 855-814-9547 negotiating in today’s competitive agency E&O Outside the U.S., call 847-400-5951 or you may subscribe or change your address online at: market. Why not? Now's the time to look. insurancejournal.com/subscribe “I don’t want to kid ourselves, price is Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Media always going to be a very important buying 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 decision for the agency,” said Mullarkey. “But per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this pubif I’m an agency principal or agency owner, it lication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended doesn’t hurt to shop and look around to see 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 what else is out there.” 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.

Andrea Wells Editor-in-Chief

8 | INSURANCE JOURNAL | NATIONAL NOVEMBER 7, 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.

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National

Startup Auto Insurer Root Targets Good Drivers with Smartphones By Mark Hollmer

oot officially debuted in the U.S. market on October 25. The fledgling auto insurer, just 18 months old, relies on telematics and a customer’s smartphone to deliver what it says will be significantly cheaper rates for the best drivers based on their current driving data. “We sell auto insurance entirely on a smartphone,” CEO and co-founder Alex Timm said. He added that Root’s business model is “enabling us to get the best drivers much, much better rates than currently on the market, which we feel is the rate they deserve.”

The company's “root” principle is to have “fundamental fairness in mind” in terms of pricing, Timm said. The startup’s home base is Ohio. It received regulatory approval earlier this year and is starting to sell there. The opening came after months of Root privately testing its signature app and insurance functions, which turn a user’s phone into a telematics device that monitors driving behavior. Customers can also purchase their policies entirely on their smartphones. Root expects Illinois regulatory approval by the end of the year or early 2017. After that, it plans to file for approval in 10 or

10 | INSURANCE JOURNAL | NATIONAL NOVEMBER 7, 2016

more states in the first quarter of 2017, with a goal of becoming “close to national” by the end of 2017, Timm said. Root has about $7 million in initial funding from Drive Capital and 20 employees. Timm said that his startup will be recruiting around the country as its expands. Munich Re, Odyssey Re and Maiden Re are providing reinsurance, and Silicon Valley Bank is backing Root’s reserves. The combined financing “gives us a very strong capital position,” Timm said. Root’s emergence follows the launch of a number of new insurtech brokers and insurers, all with related pitches about

continued on page 12

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Poll

What will be the fate of the technology-first, or insurtech, insurance startups over the next year? Which of the following will come true? 16.97%

A few will be successful on their own, be bought out, or go to IPO (56 votes)

11.21%

Most will fail and the overall impact of insurtechs on the P/C industry will be minimal (37 votes)

5.76%

They will morph into more traditional carriers and brokerages (19 votes)

12.42%

They will spur development of new insurance coverages and risk management services (41 votes)

19.39%

Traditional carriers and brokers will adopt similar technologies (64 votes)

3.33%

Venture capitalists will get bored and move onto another industry (11 votes)

7.27%

They will have the most impact on distribution (24 votes)

6.06%

They will change underwriting and claims processing (20 votes)

6.36%

They will start attracting top talent in the P/C industry (21 votes)

11.21%

There will be more startups and more disruption than the current industry expects (37 votes)

Total Votes: 330

continued from page 10 making the insurance-buying experience easier and more cost effective for consumers. Another startup insurer, peerto-peer venture Lemonade, opened for business last month in New York, selling homeowners and renters insurance.

How Root Works

Potential Root customers download its app onto their smartphones, which enables a scan of their driver’s license. Then comes a two-week wait, while Root gathers data on the potential customer to determine what kind of driver he or she is. The Root app turns a consumer’s smartphone into a telematics device, gathering data on driving behaviors, and whether there are less-thansafe habits on the road. Once approved, Root sends a push notification electronically, and the customer can use Apple Pay to purchase the coverage. Aside from the wait period, the initial enrollment takes less than a minute. Consumers can use the Root app to obtain a quote, purchase a policy and make a claim. “Over 70 percent of people are” safe, Timm said, and they get the best rates. The rest — roughly 30 percent — are less-than-ideal drivers. The Root app sifts out “bad” drivers using the smartphone data, measuring elements such as how fast a driver accelerates or breaks, tailgating patterns, swerving, breaking patterns, changing lanes, distracted driving and other related data. Of the plan to insure only good drivers, Timm said Ohio regulators approved the business plan as legal and proper, and he added that all carriers typically have target markets

12 | INSURANCE JOURNAL | NATIONAL NOVEMBER 7, 2016

Alex Timm and underwriting guidelines. “They may target older people, or people in the prime of life,” Timm said. “We are saying we are only targeting insurance to that good driver … we are not necessarily telling these bad drivers they cannot be insured. We tell them there is a better carrier for you, maybe Progressive or GEICO, aligning the risk with who we are really looking for. The insurance company we are building is really for good drivers.” Root’s pitch still relies on demographic data that a traditional insurance carrier would use, including gender, marital status and age, but the insurer places greater emphasis on driving records generated from telematics as part of the underwriting process. Timm hopes to shift the balance even more this way down the line, and said it will be fair for consumers because the business model encourages safer driving. Programs such as Progressive’s Snapshot device rely on driving data to save 10 percent, but Timm says that the process to qualify for the discount includes a lot of bureaucracy. He said only a minority of carriers use telematics data, a statistic he hopes to change.

“The majority of the market is still based on traditional underwriting variables — credit score, age, gender, year/make/model of vehicle, marital status. Some still have occupation, some ask your level of education … They will use these reports and that information in order to try to predict whether you will get into an auto accident,” Timm said. “It is not very granular.” Timm found that experience only counts so much, as some newer drivers have safer behaviors and records. That’s where telematics and regular monitoring of driver behavior gives Root the edge. “How you drive — telematics data — can predict future accidents way more than any other individual [element],” Timm said. “That’s why a telematics device has been such a huge focus of some carriers. What they haven’t been able to do is align that with a really good consumer value proposition, still not giving good drivers the rate they deserve. We have taken away those barriers.” Root’s other goal is to make customers happy with their digital insurance experience, something he said has ranked low for property/casualty customers of traditional carriers. sumer first.

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Figures

The percentage drop in the number of flood insurance policies sold in Iowa between 2011 and this year. The number of policies fell to 13,872 at the end of September from 17,861 in 2011, but the total number of policies statewide is still higher than it was in September 2008, when massive floods caused $5 billion in damage in Cedar Rapids. Nearly 12,000 flood insurance policies were in force then.

$613 MILLION

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Declarations Driver’s License Smear

“This is just an ill-informed and incorrect attempt to smear the governor’s initiative to end the dangerous practice of issuing driver’s licenses to illegal immigrants.” Ben Cloutier, a spokesman for New Mexico’s Taxation and Revenue Department, slammed new complaints about revisions to the state’s immigrant driver’s license law supported by Gov. Susana Martinez.

He Would Have Known

“If there were $17 million dollars of damage, we sure as hell would have known about that. I would have known if there was anything in the magnitude of $100,000.”

Tim Frank, the Palm Beach, Fla., planning administrator after 2005’s Hurricane Wilma, discussing the $17 million payout Donald Trump received from his insurance company to fix damage to his private Mar-a-Lago Club caused by the storm. Frank says permits for repairs of that magnitude were never ordered.

A Life Saver

“Like any measure, your first inclination is to vote no. If I wouldn’t have seen it with my own eyes, I would have been in the same boat probably.” The amount a Connecticut-based Native American tribe is suing the state for land it says was taken from the tribal reservation more than a century ago. The Schaghticoke Tribal Nation is seeking damages after the state took 2,000 acres without compensating the tribe.

900

The number of wildfires that burned in Alabama between the end of September and October, destroying more than 11,000 acres, according to the Alabama Forestry Commission. The state has been suffering a drought for months. The governor declared a drought emergency for 46 of the state’s 67 counties.

Linda Kersten, a staunch supporter of North Dakota’s medical marijuana ballot initiative, Measure 5. Kerstan says marijuana successfully countered the side-effects of her daughter’s surgeries and chemotherapy treatment for stage 4 colon cancer. “It was pretty much a life saver,” said the 70-year-old retired teacher.

The amount Harry Shearer is seeking in a fraud and contract-breach lawsuit against Vivendi and StudioCanal over the 1984 rockumentary classic This Is Spinal Tap. Through the lawsuit, Shearer reveals he is attempting to claw back rights to the film and its continually popular soundtrack.

$88,000 The amount in restitution Rosemary Phelan, owner of Rose’s Houston Healthcare Clinic, must pay after pleading guilty to insurance fraud. The Texas Department of Insurance said Phelan billed for medical services — often provided to injured employees — despite having no licensed medical staff. Investigators found that the clinic was using foreign medical students to provide care.

14 | INSURANCE JOURNAL | NATIONAL NOVEMBER 7, 2016

Clearer Flood Disaster Data

“Our data on housing damages is getting more and more clear. Impacts to small businesses are starting to come into view, and we are just beginning to gather critical data relative to infrastructure damages … Our needs are still great.”

Louisiana Gov. John Bel Edwards in a letter to President Obama bumped up his request for federal flood disaster aid to more than $4 billion to repair south Louisiana’s flood damage. The Democratic governor’s earlier request totaled $2.8 billion for the flooding in August.

Workers’ Comp Gaps

“We need to be asking ourselves what we need to do to mitigate some of these holes and gaps in workers’ compensation. It doesn’t appear as though a community of the industry is coming together to have that discussion, and we believe this is something that we should all be partaking in and have a voice.”

Kimberly George, senior vice president at Sedgwick, speaking at the American Society of Workers’ Compensation Professionals (AMCOMP) Fall Meeting in New York. She and panelist Mark Walls, vice president of communications and strategic analysis at Safety National, discussed a lack of uniformity around state workers’ compensation programs that has become an increasing source of concern for the industry.

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West

Jury in California Awards $18M Cosmetic Talc Cancer Verdict

Los Angeles, Calif., jury in October returned an $18.07 million verdict against talc supplier Whittaker Clark & Daniels for its role in causing California political figure Philip Depoian’s mesothelioma. The jury verdict is the largest award on record for a mesothelioma claim linked to cosmetic talc exposure, according to trial lawyers at Dallas-based Simon Greenstone Panatier Bartlett, PC. The jury reached its verdict on Oct. 19 following six weeks of trial. A second phase for punitive damages was set to resume before the sole remaining defendant — talc supplier Whittaker, Clark & INSURANCEJOURNAL.COM

Daniels — reached a confidential settlement on Oct. 26. In agreeing to the settlement, Whittaker, Clark & Daniels avoided the prospect of additional penalties based on the jury’s finding that it had acted with malice in marketing its talc as asbestos-free without adequately testing the substance. Depoian, a longtime aide to Los Angeles Mayor Tom Bradley, was diagnosed in May 2015 with mesothelioma, a deadly form of cancer primarily caused by asbestos exposure. His attorneys successfully argued that Depoian was exposed to asbestos in talc products at a barber shop where his father

worked and through his use of products including Old Spice, Clubman, Kings Men and Mennen Shave Talc. Asbestos and talc are both natural silicate minerals often mined in the same deposits, but asbestos can cause cancer and should not contaminate talc products. The jury’s fault apportionment found Whittaker, Clark & Daniels was 30 percent at fault. Philip and Julie Depoian were represented at trial by Jay Stuemke and Stuart Purdy. The case is Philip John Depoian and Julie Pastor Depoian vs. American International Industries, et al., filed in Los Angeles Superior Court.

NOVEMBER 7, 2016 INSURANCE JOURNAL | WEST | W1

WEST | News & Markets

Study: Los Angeles Has Highest Workers’ Comp Claim Costs in California

he Los Angeles area continues to be a drag on California’s overall workers’ compensation costs, according to a study out in late October from the Workers’ Compensation Insurance Rating Bureau. The WCIRB’s study centers on regional differences in California workers’ comp claim costs and frequency. The study includes nine maps illustrating regional differences. Key findings of the study include: • The Los Angeles/Long Beach area continues to show higher indemnity claim frequencies than the rest of California, while the Silicon Valley region continues to

•

show lower indemnity claim frequencies. The median permanent disability rating is higher in northern regions of California than in the central and southern regions. The Los Angeles/Long Beach Area is the most litigious region in California. Medical legal costs are over 2.8 percent of total incurred costs on indemnity claims in the Los Angeles/Long Beach area compared with 2.0 percent statewide. Pharmaceutical spending as a percentage of total medical costs also varies by region. Even after controlling for wage level and industrial mix, significant differences among California regions

New Mexico Workers’ Comp Costs May Drop in 2017

ew Mexico employers could see a decrease in their insurance costs for on-the-job injuries and deaths. The state Office of Superintendent of Insurance says a key factor in calculating individual employers’ workers’ compensation costs will drop by an average of 9 percent in 2017. The office says this is the second consecutive year in which businesses will see an average decrease in the pure premium. That’s the portion that employers pay insurers to cov-

er costs for claims stemming from job-related injuries and deaths. The office says there other costs related to workers’ comp but that the pure premium is the main factor between annual cost changes. The office notes that the 9 percent decrease is an average and individual employers’ costs also vary by industry, claims experience and payroll. Copyright 2016 Associated Press.

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were observed in the study. • Indemnity claim frequencies in the Los Angeles/Long Beach area were 24.0 percent higher than statewide, while indemnity claim frequencies were 25.8 percent lower than statewide in Silicon Valley. “The Los Angeles/Long

Beach area has the highest share of indemnity claims, 39.0 percent, compared to a statewide average of 35.2 percent, and the highest share of all claims that are cumulative trauma, 8.3 percent, compared to a statewide average of 5.2 percent at first report,” the study states.

Teen Traffic Deaths Continue to Rise in Utah

ore Utah teens have died in car crashes during the first nine months of this year than in all of 2015, according to new state data. A total of 26 teenagers had died on Utah roads as of the end of October. That compares with 15 teen fatalities at the same point last year. If this year’s trend continues, this will be the deadliest since 2009. Teen road deaths had been declining until two years ago, when the death toll jumped to 29, according to the data. Teens in the state are more likely to die in a car crash than any other means, according to the Utah Department of

Health. Most killed last year were not wearing a seatbelt properly. Teenagers have the lowest rate of seatbelt use of any age group, the agency said. “If I could change a single behavior of every Utahn, it would be to make sure they are always buckled up, no matter what,” Utah Department of Transportation executive director Carlos Braceras said in a statement. Crashes involving teens are also twice as likely to have contributing factors like failing to yield the right of way or speeding. Copyright 2016 Associated Press. INSURANCEJOURNAL.COM

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State Farm Agrees to Cut Rental Rates in California by 40%

alifornia Insurance Commissioner Dave Jones late last month announced he obtained an agreement from State Farm

General Insurance Co. to reduce their rental dwelling program policyholders’ rates statewide by an average of 40 percent.

The reduction will result in an estimated $101.1 million savings to rental property owners and small business people, with an average savings to individual policyholders of $359 annually, according to the California Department of Insurance. “This is good news for the approximately 200,000 State Farm Rental Dwelling policyholders, most of whom will receive a rate reduction as a result,” Jones said in a statement. Under Proposition 103, passed by California voters in 1987, insurers must get approval from the insurance commissioner before increasing or reducing rates. The commissioner approves rates sufficient to cover claims costs, reasonable administrative expenses and a reasonable return for the insurance company, and has the authority to reject what he feels are excessive property/ casualty insurance rates. Whether a policyholder receives a decrease and the amount of the decrease depends on a number of factors, including the location of the insured property, and other individual risk characteristics and coverage features, according to the CDI. ABRAM16757.indd 1

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WEST | News & Markets

1.8 Million Western U.S. Homes at Extreme or High Wildfire Risk, Report Shows By Don Jergler

ata provider CoreLogic’s new annual Wildfire Risk report designates 1.8 million single-family homes across 13 Western states as being at “Extreme” or “High” risk of wildfire damage, representing a combined total reconstruction cost value of nearly $500 billion. The analysis was released in late October. It assigns risk levels to individual properties based on a risk score ranging from 1 to 100 as “Extreme,” “High,” “Moderate” and “Low.” The score indicates the level of susceptibility to wildfire, as well as the risk due to the property’s distance from high-risk areas. California and Texas rank first and second for the total number of homes in the “Extreme” risk category. This is due to a large number of residential properties in these states combined with the proximity of high-risk vegetation and terrain, according to the report. California tops the list for total number of properties in the “Extreme” and “High” risk

‘In the high brush exposure areas there’s probably been at least a 50 percent reduction in the available carriers, if not more.

categories with 645,445 properties at risk. Texas (532,317) and Colorado (195,601) follow. California also has the highest reconstruction value in each of the top two risk levels at more than $250 billion, followed by Texas and Colorado at nearly $94 billion and $54 billion. California’s Riverside-San Bernardino-Ontario area has the nation’s largest number of homes at “Extreme” risk with 51,775 properties, followed by Sacramento-Roseville-ArdenArcade (41,937) in Northern California and Denver-AuroraLakewood in Colorado (33,226). Over the past 20 years 5.8 million acres in the West on average have burned yearly, but 2015 saw 10.1 million acres burned, the highest ever recorded, according to the National Interagency Fire Center. “Last year was kind of the worst-case scenario,” said Tom Jeffery, an author of the report and a senior hazard scientist at CoreLogic. During the years running up to 2015 all indications were it would be a bad year due to drought and record high temperatures. “There’s no question the drought played a major role in that,” Jeffery said. Last year’s record wildfire season and continuing drought have made life a bit tougher for agents who write high-risk property insurance. Scott Smith, vice president of Networked Insurance Agents, has seen the number of carriers with appetites for California’s

W6 | INSURANCE JOURNAL | WEST NOVEMBER 7, 2016

riskier areas dwindle over the past year. “In the high brush exposure areas there’s probably been at least a 50 percent reduction

in the available carriers, if not more,” Smith said. After shopping clients with preferred markets, Smith has

continued on page W8

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had to take some of them to the surplus lines market. If he can’t get them placed in either of those markets, he takes them to California’s Fair Access to Insurance Requirements plan, commonly known as the FAIR plan, then adds on contents or other coverages. “In a worst-case scenario you go to the California FAIR plan and write a wrap up around it,” Smith said. Going forward he may have to take more clients to the surplus market or the FAIR plan if the drought persists and continues to curb insurer appetites. “Right now it’s not that significant in terms of the total percentage of our book of business, but it’s becoming something that we’re dealing with more and more on a dayto-day basis,” Smith said. A more average wildfire year in the Western U.S. in 2016 may be of some help to agents like Smith. And with the year’s wildfire season nearly at a close, it’s a good bet 2016 will go down as quietly average, according to Jeffery. “This year we’re about half of that,” Jeffery said in contrasting 2016 with 2015. “It certainly doesn’t appear like it’s going come close to the record-setting year like

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last year.” Some impetus behind 2016’s average wildfire season might be just good fortune — fewer man-made fires, fewer lighting strikes in critical areas, a lull in winds at just the right time. “I’ve always said over the last few years that luck does play a role,” Jeffery said. But it wasn’t only a favorable roll of the dice that made this year an average one for wildfires. Governors in states like California who were concerned about the pervasive drought over the Western U.S. have put more resources into fighting wildfires and getting on top of them early, helping to limit burned acreage and losses, according to Jeffery. “I attribute a big portion of it to the responders,” he added. Individual homeowners also get some of the credit. “People in high risk areas, and especially in California with the drought, everybody

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gets the story,” Jeffery said. “They understand that there’s a risk, and I think that individual homeowners are doing more to mitigate their property and that’s helping a lot too,” One stat that 2016 has over 2015’s record-setting year is the number of homes in danger. But that’s just a function of growth. New construction has continued to surge following the 2008 downturn, while crowded urban populations push people further and further into the wildland urban interface where wildfire danger is greater. “Overall we certainly do see an increase in the number or properties year-over-year,” Jeffery said. “That’s going to be greater year-over-year moving forward.” Carole Walker, executive director of the Rocky Mountain Insurance Information Association, has been working to get the word out on the need for residents in wildland areas to take mitigation steps for years. “Wildfire is a risk that science demonstrates that we can reduce damage and destruction of property by doing ongoing wildfire mitigation both as individuals and communities,” Walker said. “(Wildland urban interface) residents also need to consider their insurability and at least on an annual basis update their insurance coverage and costs to repair and rebuild their homes.” Also growing from year to year, Jeffery noted, is the capacity for more acreage to burn as long as the drought keeps its grips on the West. “It’s going to fuel more fires, bigger fires, and that is a threat to property,” he said.

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WEST | News & Markets

California Commissioner Wants Workers’ Comp Insurers to Reduce Rates

workers’ comp system, has no authority to regulate workers’ comp rates. He can only make recommendations. “Insurers’ net costs in the workers’ compensation system continue to decline as a result of SB 863 and other reform laws enacted by the Legislature and Governor Brown, which is good news,” Jones said in a statement. “Workers’ compensation insurers should pass these cost savings onto employers, but there is no legal requirement that they do so, and workers’ compensation insurers continue to file pure premium rates that are higher than the pure premium rate warranted by their costs.” Jones’ request follows the Workers’ Compensation Insurance Rating Bureau’s pure premium advisory rate filing for Jan. 1, 2017. Data filed by the WCIRB concluded that insurers’ filed pure premium rates are

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alifornia Insurance Commissioner Dave Jones issued a formal finding that costs to insurers in the workers’ compensation system are declining and he’s asking workers’ comp insurers to pass those cost savings on to employers in the form of lower rates. Jones late last month issued a workers’ comp advisory pure premium rate of $2.19 per $100 of employer payroll, which is 13.8 percent lower than the pure premiDave Jones um rates filed by workers’ comp insurers. Jones, who noted that the state’s workers’ comp reform law, Senate Bill 863, has reduced costs throughout the state’s

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‘Workers’ compensation insurers should pass these cost savings onto employers, but there is no legal requirement that they do so, and workers’ compensation insurers continue to file pure premium rates that are higher than the pure premium rate warranted by their costs.’ higher than needed. The commissioner’s newly issued pure premium rate includes projected savings as a result of recent anti-fraud legislation in SB 1160 and AB 1244, which limit the ability of medical and other service providers indicted or convicted of fraud in the workers’ comp system to pursue liens against insurers for alleged failure to reimburse medical expenditures incurred by the indicated or convicted medical or other services providers. The Association of California Insurance Companies in response to Jones’ request said insurers have been passing along savings from the historic reforms to their customers. “California’s competitive market keeps insurers charging the most affordable rates they can while covering the losses from their book of business,” an ACIC statement reads. “Each workers’ compensation insurer has to take the pure premium benchmark and balance that with their individual loss costs in order to manage solvency. Employers have seen rates come down from over $6.00 per $100 of payroll because of the important and effective reforms enacted by both Governors Schwarzenegger and Brown.”

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Employees at MOC Insurance Services overwhelmingly believe the work-life balance offered by the firm makes it one of the best places to work.

A Work-life Balance Makes Employees Happy By Don Jergler

ant to know how important offering a work-life balance is to employees? Just ask the people at MOC Insurance Services in San Francisco, Calif. The agency of 50-plus employees won Bronze for Best Agency in the West. The ranking was based on a number of factors. What put the firm at the top were the quality and insightfulness of employee comments, as well as its high score on IJ’s grading scale. “I really enjoy working at MOC Insurance Services,” wrote one employee. “I’ve been here for almost 14 years, and continue to stick around because of the flexibility I’m provided. I’m trusted to do my job without being micro-man-

aged, which is very important to me. I work harder because of this.” The employee, who described herself as a working mom, said the flexibility enables her to deal with family issues whenever they pop up. “The management here is very understanding when I have to attend parent/teacher conferences or have to attend to matters that sometimes happen when raising school age children,” she wrote. Flexibility and a free lunch were selling points for others. “We have the ability to work remotely, which is very important to me,” wrote another employee. “We are all given the benefit to use the building fitness center and is paid for by the agency. We have lunch brought into the office once a month and the owner appreciates everyone’s

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contribution to the agency.” More than one employee included free food as a favorite MOC trait. One employee hit on the oft-listed flexibility, having a diverse workforce, motivation from the leadership, company outings to promote comradery, and “free snacks, coffee and drinks for all employees.” Respecting the need for work-life balance is important to Van Maroevich, president and CEO of MOC. “We understand the importance of work-life balance and we strive to accommodate the needs of our team members, both professionally and personally,” said Maroevich, who joined the firm started by his parents Ivan and Gladys Maroevich after he graduated from the University of California Berkeley in 1973. One employee described a search for a new agency when looking to exit the old one. “I reached out to industry friends and asked them their thoughts on about a half dozen independent retail brokerages in San Francisco,” the employee wrote. “Everyone had negative or bland/neutral things to say about all of them except for MOC. Not one negative thing was said about MOC. And now that I am here, I concur.” The quality of salary reviews and feedback from management was important to many survey respondents. “MOC’s performance/salary reviews are not static,” wrote

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171 results for "cyber"

Business Moves | NATIONAL Verisk Analytics, Analyze Re

Data firm Verisk Analytics Inc. has acquired Halifax, Novia Scotia-based Analyze Re, a software analytics provider for the reinsurance and insurance industries founded in 2013. Analyze Re will become part of Boston-based AIR Worldwide, the Verisk Analytics catastrophe risk modeling business, and will enable AIR to provide its clients with additional real-time pricing, exposure management and enterprise portfolio roll-up capabilities. Bill Churney, president of AIR Worldwide, said Analyze Re’s advanced analytics will complement AIR’s existing software. Analyze Re says its PRIME product helps reinsurers improve complex reinsurance portfolios and insurers design reinsurance coverage to optimize coverage. Analyze Re founder and CEO Adrian Bentley co-founded Analyze Re along with Oliver Baltzer and Shivam Rajdev. The three left Flagstone Re after it was acquired by Validus in 2012. According to crunchbase, Analyze Re raised $1.4 million in November, 2013, with Innovacorp as lead investor.

Northwest Insurance Services, Winans Insurance & Employee Benefits

Northwest Insurance Services has signed a definitive agreement to acquire Winans Insurance & Employee Benefits. As part of the acquisition, the entire Winans team will continue to operate from its current office. Winans’ owner, David G. INSURANCEJOURNAL.COM

Winans, will become vice president of Northwest Insurance Services, serving Northwestern Pennsylvania and New York’s Southern tier. Northwest Insurance Services is a Warren, Pa., headquartered subsidiary of Northwest Bank. Founded in 1896, Northwest Bank is a full-service financial institution offering business and personal banking products, employee benefits and wealth management services, and the fulfillment of business and personal insurance needs. Winans Insurance & Employees Benefits is a property and casualty insurance and employee benefits firm also located in Warren. Founded in 1927, it has grown through a series of acquisitions to be one of the largest insurance agencies in its area.

Tarpey Insurance Group Inc., TSB Insurance Services

Tarpey Insurance Group Inc. has acquired TSB Insurance Services. TSB Insurance Services will be relocated to Tarpey Insurance Group’s home office. Tarpey Insurance Group is a family owned and operated independent insurance agency headquartered in Wakefield, Mass. The three-generation agency has additional offices in Melrose, Saugus, Newton and Lexington. The agency represents several national and regional companies offering insurance products to both businesses and individuals.

The Windham Group, Logical IME The Windham Group has

launched Logical IME, an independent medical examination company that serves workers’ compensation payers. Based in Manchester, N.H., Logical IME provides independent medical exams (IMEs), as well as peer review, functional capacity examinations, permanency ratings and record review. Operating as a business affiliate of Windham Group, Logical IME has its own separate management team and staff. Typical IMEs are conducted by physicians who specialize in treating a certain condition and have not previously cared for the injured employee. They involve a comprehensive medical record review and physical examination. IME reports render opinions on diagnosis and treatment, and are often used to determine return-to-work capacity and disability ratings, identify treatment options, and help settle claims. Logical IME was created to manage and streamline the process and provide pricing transparency to the industry. It seeks to simplify the process by

working to identify physician examiners, schedule appointments, arrange transportation and translation services, and manage other details. It is rolling out services regionally, starting with New England, and plans to provide services nationally in the next six to 12 months.

NSM Insurance Group, Vantage Holdings

NSM Insurance Group has acquired Vantage Holdings. The acquisition is subject to FCA approval. NSM Insurance Group is a Conshohocken, Pa.-based insurance program administrator. This move marks its first international acquisition and will serve as a platform for expanding NSM’s presence in U.K. markets. Vantage Holdings, which includes Vantage Insurance Services and Classic Insurance Services, is an industry-specific insurance program administrator that was established in 2004 and is based in the U.K. The Classic Insurance Services

continued on page 16

NOVEMBER 7, 2016 INSURANCE JOURNAL | NATIONAL | 15

NATIONAL | Business Moves continued from page 14 program, which specializes in insuring classic cars, classic motor trade and high-networth collections, is the fourth collector car insurance program to be added to NSM’s portfolio. Additionally, Vantage Insurance Services is one of the largest insurers of outdoor leisure and tour operator liability in the U.K. Going forward, NSM Insurance Group is seeking to acquire additional niche specific insurance businesses and program managers.

The Hilb Group, Fundamental Insurance & Retirement Planning The Hilb Group LLC (THG) has acquired Indianapolisbased Fundamental Insurance

“

& Retirement Planning Inc. (FIRP). FIRP provides a range of insurance offerings including property and casualty, life and health for businesses and individuals. All of FIRP’s employees, including President Michael Weisemann, are joining THG and will continue to operate out of their four offices located throughout Indiana under their existing name. With this acquisition, THG expands its footprint into the Midwest and establishes its commitment to building a distinguished network of nationwide agency partners. THG is headquartered in Richmond, Va., and is a portfolio company of Boston-based ABRY Partners.

Acrisure

Grand Rapids, Mich.-based Acrisure LLC has signed a definitive agreement for a management-led buyout of the company, led by Greg Williams, Acrisure’s CEO and co-founder, and a consortium of minority investors. Acrisure management and its operating partners are acquiring control of the company from Genstar Capital. Genstar acquired Acrisure in 2013 and has worked with Williams and the Acrisure management team to expand Acrisure’s geographic footprint and to broaden its insurance offerings. Under Genstar’s ownership, the company acquired more than 138 retail insurance brokerages and generated indus-

try-leading organic growth. Annual revenues today exceed $670 million. Acrisure is a retail insurance brokerage offering risk management and consulting solutions, including property/ casualty, employee benefits, human resource outsourcing, loss and claims management, surety bonding and personal lines coverage.

Confie, Alamo Auto Insurance

Confie, a national provider of personal and commercial lines insurance, has acquired Hulme Corp., dba Alamo Auto Insurance of East Texas. Founded in 2001 and based in Tyler, Texas, Alamo Auto focuses on providing non-standard auto insurance.

There is a lot of money from private equity and public brokers buying agencies of all sizes.

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NATIONAL | News & Markets

Repeat Plaintiffs, Non-Profits Target Businesses for ADA Compliance By Denise Johnson

mericans with Disabilities Act (ADA) Title III lawsuits are up 63 percent over 2015, according to law firm Seyfarth Shaw. ADA Title III prohibits businesses open to the public from discriminating on the basis of disability. The Act applies to a variety of businesses and restaurants, including warehouses, movie theaters, schools, office buildings, day care facilities, doctors’ offices and any new construction of same must comply with the ADA construction standards. According to Minh Vu, partner and ADA Title III leader at Seyfarth Shaw, the fact that more attorneys are getting into this line of business can be attributed to the rise in ADA suits. The firm states that the number of suits filed in federal court may top more than 7,000, noting that more lawsuits were filed in the first half of this year than in all of 2013. “More lawyers are finding out that this is a very…lucrative practice,” said Vu. The ADA only applies to persons who fall under the definition of having a disability, such as: • Has a physical or mental impairment that substan tially limits one or more major life activities such as walking, seeing and hearing; • Has a record of such an impairment;

• Is regarded as having such an impairment. In 2013, the most complaints were filed in California, Florida and New York but other states may be catching up. An April Forbes article by Stephanie Grimoldby focused on Chicago, Ill., businesses increasingly being targeted by ADA lawsuits. She explained the increase may be due to new ADA Accessibility Guidelines that went into effect in 2012. Phoenix, Ariz., businesses were also noted to be increasingly targeted according to a July article by Maria Polletta of The Republic/azcentral.com. Under Title III of the ADA, a plaintiff doesn’t get damages, but is entitled to attorneys’ fees and costs and injunctive relief. According to Vu, the vast majority of cases settle for $15,000 or less. It’s a business decision, said Vu, indicating it would cost three times as much to file a motion to dismiss. Doug Dennington, partner with Rutan & Tucker, LLP in California, echoed Vu in noting that most ADA suits settle. “If a client gets sued because, for example, they have a parking deficiency, they don’t have enough disabled parking spaces for their facility or the parking spaces are accessibly sloped, what will happen is the client will go out and fix it and try to negotiate a settlement because the cost of the litigation is typically much greater than what they can do in terms of settling the case,”

18 | INSURANCE JOURNAL | NATIONAL NOVEMBER 7, 2016

Dennington explained. Dennington explained the two applicable statutes: the California Disabled Persons Act and Unruh Act, and both allow for statutory damages and compensatory damages. The Unruh Act provides for statutory damages of $4,000 per offense and the California Disabled Persons Act is $1,000 per offense. “A lot of plaintiffs sue under the Unruh Act,” said Dennington. “Constructionrelated defect claims, there’s some ability if you get your property inspected by a certified access specialist and make the corrections…They’re very complicated rules, but there’s some way to lessen the maximum damage, or the $4,000 damage, to a $1,000 offense if you get it corrected within I believe it’s 120 days. There has been litigation on what “per offense” actually means, said Dennington.

“If you have, for example, a parking space that isn’t compliant, what if the plaintiff comes back every day for the next year? Is that 365 offenses, or at some point are you limited by due process considerations in terms of how much you can actually recover for penalties? What is clear under the statutes is that it’s per occasion, per visit to the facility. There may be multiple violations at a particular facility. You don’t get to tack on $4,000 for each different violation for the same facility, if that makes sense,” Dennington said. “The counters may be too low or too high. There may be a parking issue. There may be no insulation on the pipes under the bathroom counters. You don’t get $4,000 for each one of those. It’s just $4,000 per time you patronize the facility.” The fact that most people file under the Unruh Act, is because of the $4,000 dam-

continued on page 20

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age opportunity, Dennington explained. Plaintiffs can’t sue under both statutes, it’s one or the other. “Sometimes they just do the Unruh Act. I’ve had some plaintiffs that just filed under the California Disabled Persons Act. For facilities issues, that’s a term of art, “construction-related access claims,” then there is the ability to get the $4,000 lessened to the $1,000 per offense, if you get those things corrected and get it signed off by a certified access specialist,” Dennington said. Because of specialized California legislation, businesses have an opportunity to fix a problem alleged in an ADA suit. “There was a new law put into place this year that is called Senate Bill 269. It provides some relief to small businesses. If you’re a business that has 25 or fewer employees, there are a number of listed technical violations that, if you correct within 15 days of being on notice of those violations, then you’re not going to be subject to the statutory penalties,” Dennington said. According to Dennington, parking is targeted frequently in ADA suits. “I’ve been doing it for several years now, and throughout the time I’ve been doing ADA work,

more of my cases have parking issues than don’t. That’s a big component of the claims,” Dennington said. “I think the reason is that’s something that you can see just from driving by, without having

‘More lawyers are finding out that this is a very…lucrative practice.’ to go inside. It’s easy to see where somebody’s stall is not wide…or something like that. That’s a big red flag. Parking is a big issue in terms of what they call construction-related access claims. There are many different types of Title III, Title II, and Title I claims, but in terms of the facilities that are inaccessible, parking’s a major component of most claims.” According to Vu, shopping centers, retailers, hotels and restaurants tend to be targeted the most. Vu said there isn’t much a business can do to avoid these types of suits. She said a barrier can be a sink too low, a toilet seat that is not high enough or a toilet paper roll holder might be off by an inch. Certain law firms regularly file these types of claims, both legal experts said.

20 | INSURANCE JOURNAL | NATIONAL NOVEMBER 7, 2016

“I’m not sure there’s much that will deter the kind of repeat plaintiff that are driving these numbers,” said Vu. Though modern buildings are more likely to be ADA compliant, Dennington said it is unlikely that lawsuit volume will go down any time soon. “You have an unlimited possibility of existing buildings and sites that were constructed prior to 1991. They’re considered existing buildings that may not be compliant. There’s the potential for claims against them to go on,” Dennington said. “For newer facilities and newer construction, the architects and the engineers that design new facilities, that’s one of the big criteria they use is the ADA and the accessibility standards, so you’re not going to see violations of accessibility standards in newer facilities.” Businesses can make themselves a less attractive target by taking care of the items that are most visible. Vu suggested businesses make sure that accessible parking is properly striped and has proper signage, sales and service counters should have a lower accessible counter and aisles should be kept clear – there needs to be 36 inches of space for wheelchairs to maneuver. Another new trend are suits alleging that business’ websites are not compliant with ADA Title III, Dennington said. “Whether websites, online shopping like Amazon, CNN, just viewing a website, whether that is a public accommodation within the meaning of Title III,” Dennington explained. There’s been a split among the circuit courts, he said. “The Ninth Circuit has held – surprisingly, because the

Ninth Circuit tends to favor the plaintiffs in these cases – that a website is not a public accommodation,” he said, noting that he has heard of other circuits that have held that websites do constitute a public accommodation, meaning they have to be accessible for the hearing and visually impaired. Sometimes allegations may be intertwined with a negligence or personal injury claim, but Vu said most Title III claims aren’t covered by insurance because the damages component isn’t covered. Some employment practices liability insurance policies may cover defense costs related to ADA lawsuits. According to a July 2015 blog by insurance brokerage The Leavitt Group, EPLI policies generally cover claims related to the requirements of the ADA. According to General Insurance Services, an insurance agency serving Northwest Indiana, determining coverage may require careful review of the policy: “Many policies define a claim as a demand for monetary damages. This definition can present a problem in an ADA claim, because many of these claims are asking for reasonable accommodations, not monetary awards. That’s why it is important to ensure that your policy’s definition of a claim includes claims for non-monetary damages. A policy with this expanded definition will cover defense costs and indemnity connected with an ADA claim, but will not provide the funds to bring your organization into compliance with the law.” Share this

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“Provide a good habitational supplement and loss history with your submission. Thorough underwriting information is key to getting a quick turnaround and a competitive quote.” — Gabriel Derzhavets, Roush Insurance Services Inc.

Asst. Vice-President / Broker, M.J. Hall and Co.

6 4

“Do your research on the location. Look it up online because your underwriter will. Let them know up front any issues they may find such as a less than well maintained location or multiple bad ratings from tenants.” — Jill Bay-Weber, Paragon Insurance Holdings LLC

“It’s important when looking for habitational insurance carriers to consider their position of either excluding, limiting, or remaining silent on the habitability of premises.” — Patrick Flores,

— Martin Burlingame, CEO of Commercial Insurance Group LLC

“Thoroughly review the currently valued loss runs prior to marketing an account and look at the kinds of losses occurring most frequently. In an effort to mitigate or possibly eliminate claims, insureds are becoming more proactive with risk management.” — Phillip B. Burke, executive vice president of AmWINS Brokerage of Georgia LLC

“Understand the state laws and requirements when writing condo insurance. Many states require additional coverages — such as fiduciary — and lack of knowledge can lead to large claims against your E&O.”

22 | INSURANCE JOURNAL | NATIONAL NOVEMBER 7, 2016

“For those agents working with real estate investors, it is a constructive use of your time to discuss the feasibility of requiring tenants to purchase renter’s insurance. Nuisance claims are far more prevalent than total losses and having these shifted to a renter’s insurance carrier will help in reducing overall premium costs to the owner.” — Graham Doran, executive vice president of Prospect General Insurance Agency

“We are seeing a lot of big portfolios of apartment buildings spinning off older, less-profitable properties. Get the five-year loss history of the property. If there are a lot of past losses, note any mitigation techniques that may have improved the properties.” — Barry Whitton, managing director in Burns & Wilcox Brokerage Atlanta, Ga., office

“We are seeing issues with wording on flood policies where one building of a multi-building property may be exposed for a Zone A flood and the other buildings are outside of the zone. Many times, any buildings located in Zone A areas, or 100-year zones, are excluded by policies in the standard market because the coverage can be purchased through the government.” — Barry Whitton, managing director in Burns & Wilcox Brokerage Atlanta, Ga., office

“The client should be advised to insure their property for the cost to repair or replace (insurance to value). Consider the worstcase scenario when seeking insurance; the price for fully insuring assets should not be second to saving money.” — Yolonda Callies, underwriter at Topa Insurance Co.

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NATIONAL | Special Report | Agency E&O Survey

By Andrea Wells

ndependent agency owners spend their entire careers worrying about the risks and exposures of others. Managing the risks of their own agencies can take a backseat to helping their clients. When it comes to managing risk in an independent agency, the agency’s errors and omissions (E&O) exposures are top on the list of concerns. While agents appreciate the importance of agency E&O coverage and the need for a strong risk management approach they are at times “a little like the childhood fable of the cobbler’s children having no shoes,” says Mark Angelucci, resident senior vice president and E&O segment leader, Utica National Insurance Group.

“They are so focused on their clients’ insurance needs that they can neglect their own,” Angelucci said. In other words, they treat their clients better than they do themselves. Agents E&O is an important coverage. It’s “vital to protecting the agency’s hard earned assets and reputation,” notes Sabrena Sally, head agents U.S., senior vice president, Westport Insurance Corp., which serves as an underwriting carrier for the Big “I’s” Professional Liability Program. “In the same way agencies recommend their customers periodically assess their risks, agencies too should review their E&O coverage versus their exposure,” Sally said. The first step for agents is to buy the

24 | INSURANCE JOURNAL | NATIONAL NOVEMBER 7, 2016

INSURANCEJOURNAL.COM

right insurance protection. According to Insurance Journal’s 2016 Agency E&O Survey, the majority (83.5 percent) of agency owners purchase E&O coverage to protect their agency’s assets. Agents should be alert to many of the same issues they weigh when they are recommending coverages for their clients. “Coverage terms and limits relevant to the exposures of the agency’s operations, the experience of the carrier in the agent’s E&O space, the reputation of the carrier’s claims team, the longevity and stability of the association program through which the coverage is being purchased — all of these are important considerations when purchasing agency E&O,” Sally said. According to Sally, there are certain questions agency owners should be asking at the time of purchasing insurance: “Has their agency experienced growth? Has their customer base changed to include insuring higher values and limits or customers with higher exposures? Has the ownership structure of the agency changed to one which might prefer higher limits?” Also, has the agency moved from a sole proprietor to a partnership or incorporated with multiple owners? Angelucci believes that a good relationship with their E&O underwriter can provide agents with additional coverage and limits options that might have been overlooked. Aside from buying the right agency E&O coverage, just as they tell their clients to implement workplace safety measures and adopt best practices for their industry, agents themselves must stay focused on risk management within their agency. Certain areas can always use improving, the experts say.

Knowledge and Time

Coverage knowledge is one area where agencies can always strengthen themselves and their employees, says Chris Burand, founder and owner of Burand & Associates LLC based in Pueblo, Colo., which provides agency management

No. 1 Reason Agencies Carrry E&O Coverage

0.4% 16.1%

Protect the assets of the agency Required by my carriers Access to risk management information

Agency E&O Premium Change in 2015 Compared to 2014

83.5%

42.2%

Increased Decreased Stayed the same

41.8%

16.1%

Agency E&O Premium Change in the Past Three Years Increased Decreased Stayed the same

24.4% 18.8%

56.8%

Prediction on E&O Premium m Change at Next Renewal 49.6% Increase Decrease Remain the same

42.8%

7.6%

continued on page 26

INSURANCEJOURNAL.COM

NOVEMBER 7, 2016 INSURANCE JOURNAL | NATIONAL | 25

Increased Agency E&O

10.7%

49.2%

s ago

&O ears

22.3%

NATIONAL | Special Report | Agency E&O Survey continued from page 25 consulting services including agency E&O exposure reviews. Agencies continue to be sued for failure 6.4% to provide the right coverage to insureds, and often this occurs with less experienced agency staff, he said. Some agents just don’t know their coverages well enough. 33.2% “It’s not only that they60.4% don’t understand their coverages, they also don’t understand what coverages their clients often need,” Burand adds. “I see that a lot.” Burand says that while continuing education is important, so is putting in the time and effort needed to properly address the needs of every client and eliminate this E&O exposure. Burand cites an E&O incident he came across in consulting recently that could have been avoided. In an email chain about the incident, the producer was questioned: “Why didn’t you read the policy so that you would know that there was no coverage? You could have either found a different policy, or you could have at least addressed it with the client?” Burand said the producer’s response was that he didn’t have time. “That’s just lazy,” Burand said. “That’s your job.” Unfortunately, Burand says it’s not uncommon. “Agents struggle with this

New E&O Risk Management Steps in the Past Year 37.5% 62.5%

Yes No

and they do deserve credit; there’s a lot on their plates, and time is precious. But that is their job.” The best agents are good at thoroughly understanding what their clients’ needs are, he says, and they take the time — make the time — to find out what those needs are. “They really do a good job of searching the marketplace for the policies that fit those needs closest,” Burand says. Westport’s Sally believes agencies are becoming more knowledgeable about the coverages available for their customers and are using technology to increase efficiency

Annual Cost of Agency E&O Coverage $1,000 or less

5.2%

$1,001 to $2,500

17.1%

$2,501 to $5,000

24.3%

$5,001 to $10,000

Best Defenses

21.1%

$10,001 to $15,000

9.2%

$15,001 to $25,000

6.8%

$25,001 to $50,000

6.4%

More than $50,000

10.0%

10%

26 | INSURANCE JOURNAL | NATIONAL NOVEMBER 7, 2016

15%

20%

in providing that coverage. But in her view, where agencies struggle the most is in finding a consistent balance in their workload. “The struggle remains in balancing the need to perform all transactions the same way every time, and to document each transaction, balancing that against being customer friendly, and managing the daily work flow,” she said. “For example, the ‘best’ documentation would consist of a detailed analysis of a commercial customer’s exposures, insurance options to address each one, with the customer signing off on declined coverages.” In theory that approach is best, but Sally understands the real-world environment and demands placed on today’s independent agents make that practice difficult. “In a business that is still relationship based, this is not always achievable,” she said. “In addition, we are human beings. The best processes and procedures are still prone to human error.”

25%

30%

Proper documentation, consistent policies and procedures and coverage knowledge are an agent’s best defenses when it comes to E&O, the experts agree. For years, perhaps even decades, the leading cause of claims against agents has been lack of coverage or inadequate coverage. “Failure to procure coverage, obtain coverage in adequate limits — it’s the knowledge-based errors that make up half of all the errors in an agency,” said Mark

continued on page 28

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More than $50,000 $25,001 to $25,000 $50,000 $15,001 to More than $50,000 $25,001 to $50,000

10.0%

6.4% 6.8%

10%

15%

6.4% 10.0%

20%

NATIONAL | Special Report | Agency E&O Survey More than $50,000

10%

15%

20%

10%

15%

20%

10.0%

continued from page 26

Comparison of Changes in E&O Premium By Region Comparison of Changes in E&O Premium By Region Decreased Increased Same Region Midwest 22.0% 31.0% 47.0% Comparison of Changes in E&O Premium By East 17.0% 45.0% 38.0% Region Decreased Increased Same Region South Central 5.0% 60.0% 35.0% Midwest 22.0% 31.0% 47.0% Southeast East Region

West Central South Midwest Southeast East West South Central Southeast West Change Why

9.0% 17.0% Decreased

22.0% 5.0% 22.0% 9.0% 17.0% 22.0% 5.0% 9.0% 22.0% in E&O

55.0% 45.0% Increased

29.0% 60.0% 31.0% 55.0% 45.0% 29.0% 60.0% 55.0% 29.0% Carriers

36.0% 38.0% Same

48.0% 35.0% 47.0% 36.0% 38.0% 48.0% 35.0% 36.0% 48.0%

Why in E&O Carriers LowerChange price Nonrenewed due to claims Lower price due to change in underwriting criteria Nonrenewed Why Change in claims E&O Carriers Nonrenewed due to Carrier withdrew from agency E&O market Nonrenewed due to change in underwriting criteria Lower price Needed broader coverage Carrier withdrew agency E&O market Nonrenewed due from to claims Other reasons Needed broader Nonrenewed due coverage to change in underwriting criteria Other reasons Carrier withdrew from agency E&O market Needed broader coverage Other reasons

Risk Management Steps Implemented in Past Three YearsSteps Implemented Risk Management in Past Three Years Attended an E&O class Risk Management Steps Implemented Agency staff has achieved additional designations Attended an E&O class inAgency Past Three Years More actively utilized an exposure checklist staff has achieved additionalanalysis designations Hiredactively a third-party to perform an agency audit More utilized Attended an E&O classan exposure analysis checklist Enhanced agency focus on internal quality control Hired a staff third-party to perform an agency audit Agency has achieved additional designations Developed/updated agency procedural Enhanced agency focus on internal qualitymanual control More actively utilized an exposure analysis checklist Developed/updated procedural Hired a third-party toagency perform an agencymanual audit Enhanced agency focus on internal quality control Developed/updated agency procedural manual

26.9% 2.5% 26.9% 2.1% 2.5% 7.0% 2.1% 26.9% 7.9% 7.0% 2.5% 8.7% 7.9% 2.1% 8.7% 7.0% 7.9% 8.7%

79.9% 35.5% 79.9% 36.4% 35.5% 6.1% 36.4% 79.9% 56.1% 6.1% 35.5% 38.3% 56.1% 36.4% 38.3% 6.1% 56.1% 38.3%

25% 25%

30% 30%

Wolf, vice president for Big I Advantage. “You’ve got the general errors that people make. They just make mistakes. They don’t place the coverage. They don’t check to make sure an excess policy is follow form,” Wolf said. Mistakes happen and that’s why agency E&O coverage is there to respond. Then, there are the knowledge-based errors, Wolf said, which can be avoided. The best way to combat these is to specialize, Wolf said. “You really need to be a specialist in today’s world,” Wolf said. Specialists know the market, know the coverages available, and can potentially avoid knowledge-based errors, he adds. “Specialists, especially in certain coverage areas, are definitely a much better risk,” he said. “People that dabble are going to have claims and if you’re dabbling in something that has high-severity risks, you’re going to be looking at very large claims.” Mark D. Harris is president and CEO of Quadrant Insurance Managers, a national program administrator, managing general agency and wholesaler based in Westerville, Ohio, that has been writing agency E&O programs since 1989. Harris agrees that failure to provide the proper coverage is a leader in claims in the agency E&O space. He says larger agencies may face different E&O problems than their smaller counterparts. “Small agents may struggle with obtaining and properly documenting coverage rejections from a client — for example, rejections of flood and excess flood insurance,” Harris said. “So there needs to be a procedure that demands client acceptance or rejection of the terms offered, as well as certain disclaimers and warranties on every proposal to protect themselves. It’s a tall order and for small agencies it will be really hard,” Harris admits. But those kinds of policies and procedures protect agencies from E&O claims, he said. Harris practices what he preaches and utilizes these same risk management procedures when selling agency E&O coverage to independent agents. “We have to put

25%

30%

continued on page 30

28 | INSURANCE JOURNAL | NATIONAL NOVEMBER 7, 2016

&O Risk Management

INSURANCEJOURNAL.COM

Increase Increase Increase Increase Decrease Decrease Decrease Decrease Remain the the same same Remain Remain the same Remain the same

49.6% 49.6% 49.6% 49.6%

42.8% 42.8% 42.8% 42.8% 7.6% 7.6% 7.6%

7.6%E&O Survey NATIONAL | Special Report | Agency

Midwest East East East East South Central Central South South Central South Central Southeast Southeast Southeast Southeast West West West West

continued from page 28

Increased Agency E&O Increased Agency E&O Limit at Last Last Policy Limit Limit at at Last Policy Policy Renewal Renewal Renewal No No No No Yes Yes Yes Yes

Satisfaction with Agency Satisfaction with Agency E&O Terms, Conditions E&O Terms, Conditions and Limits and and Limits Limits Yes Yes Yes Yes No No No No Somewhat satisfied satisfied Somewhat Somewhat satisfied Somewhat satisfied

E&O Claims History E&O Claims History of Respondents of of Respondents Respondents Never had had aaa claim claim Never Never had claim Never had a claim Had a claim in the past past 555 years years Had Had aa claim claim in in the the past years Had a claim in the past 5 years Had aaa claim claim 666 to to 10 10 years years ago ago Had Had claim to 10 years ago Had a claim 6 to 10 years ago Had a claim more than 10 years ago ago Had Had aa claim claim more more than than 10 10 years years ago Had a claim more than 10 years ago

Number of Agency E&O Number of Agency E&O Carriers in Past Past Five Years Years Carriers Carriers in in Past Five Five Years One carrier carrier One One carrier One carrier Two carriers carriers Two Two carriers Two carriers Three carriers Three Three carriers carriers Three carriers

10.5% 10.5% 10.5% 10.5%

89.5% 89.5% 89.5% 89.5%

23.5% 23.5% 23.5% 23.5% 5.7% 5.7% 5.7% 5.7%

17.8% 17.8% 17.8% 17.8% 10.7% 10.7% 10.7% 10.7%

70.9% 70.9% 70.9% 70.9%

49.2% 49.2% 49.2% 49.2%

22.3% 22.3% 22.3% 22.3%

Why Change Why Why Change Change

Risk Managem Risk Managem in Past Three in Past Three

Agency staff staff has has aaa Agency Agency staff has Agency staff has More actively actively utili utilia Technology Helps More More actively utili More utili Technology makes E&O risk man- actively Hired a third-part third-part Hired a Hired a third-part agement easier today. If usedHired properlya third-part Enhanced agency Enhanced agency technology can also be an agency’s best Enhanced agency Enhanced agency defense in an E&O situation, Harris said. Developed/updat Developed/updat Developed/updat Agency management systems allow Developed/updat agencies to more readily verify that policies and procedures are adhered to and provide a higher level of client satisfaction, according to Harris. But technology can also be a double-edged sword. “It offers you a great place to store documentation but when you say you are going to do something and you don’t, or you say you will document and you do but you have problems with how you do it,” then problems can happen. Technology, when used correctly, helps if a claim ends up in E&O litigation, says Bob McCabe, partner at Houston-based law firm Thompson Coe, which specializes in Yes coverage litigation. Yes agency E&O Yes Yes “Technology No certainly makes it easier No No to track things No when people are utilizing agency management systems,” McCabe

New E&O Risk Management New E&O Risk Management Steps in the Past Year Steps in the Past Year

6.4% 6.4% 6.4% 6.4% 33.2% 33.2% 33.2% 33.2%

everything in writing in our proposal and there has to be a way for us to ensure that they read it and comment,” he said. Harris says agencies that excel in E&O risk management always have good policies and procedures in writingLower and can price verLower price Lowerare price ify that those policies and procedures Lower price due Nonrenewed due being followed by agency staffNonrenewed through the Nonrenewed due Nonrenewed due use of controls. The best agencies also have Nonrenewed due Nonrenewed due Nonrenewed due staff stability and management that insists Nonrenewed due Carrier withdrew Carrier on excellence in product delivery and iswithdrew Carrier withdrew Carrier withdrew always involved in the process, he says. broader Needed broader cc Needed Needed broader “The agencies that struggleNeeded with this broader c Other reasons reasons Other reasons may not have written policiesOther and proceOther reasons dures or training programs. Many cannot audit (procedures) and don’t know how to measure performance in different areas of their operations. We have seen E&O losses follow staff turnover or when they experience difficulty replacing staff. Oftentimes, management focus is on something other than quality or client satisfaction, like driving revenue,” Harris said. Of course, all agencies must drive reveAttended an E&O E&O nue but not at the expense ofAttended agency E&O,an Attended an E&O Attended an E&O he added.

60.4% 60.4% 60.4% 60.4%

continued on page 32

30 | INSURANCE JOURNAL | NATIONAL NOVEMBER 7, 2016

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5. Availability of risk management information/advice

Agency Requires

0.4%

E&O Limits Purchased E&O from Agent Tradee $2 millionPurchased or less per claim

54.0% 13.2% $4 million per claim 6.4% 45.7% 54.3% $5 million per claim 14.4% 73.9% “I find a lot of times there may be a funcemails to and from clients, making $6 million toYes $10 sure million per claim 6.8% tion where if you send me an email then that these emails make it into the No agency $11 million-plus per claim 2.8%

NATIONAL | Special Report | Agency E&O Association Continuing Education $3 million perSurvey claim 25.7% continued from page 30 Yesare better managed than they said. Files were in No years past, he said. Not Sure Agencies could improve their storing of

management systems, McCabe advised.

$2 million or less per claim $3 million per claim $4 million per claim $5 million per claim $6 million to $10 million per claim $11 million-plus per claim

54.0% 13.2% 6.4% 14.4% 6.8% 2.8%

5 Most Important Issues When Selecting E&O

0.4%

Education 1. Claims Continuing handling experience 25.7% 2. Longevity of the E&O carrier in providing this coverage 3. ExtendedYes reporting period (tail) options 73.9% 4. Direct access No to underwriting and claims personnel NotofSure 5. Availability risk management information/advice

Purchased E&O from Agent Tradee Association

1. Claims handling experience 2. Longevity of the E&O carrier in providing this coverage 3. Extended reporting period (tail) options 4. Direct access to underwriting and claims personnel 5. Availability of risk management information/advice

45.7%

54.3%

Yes No

E&OPurchased Market: Stable Pricing, Terms & Conditions E&O from AgentCompetitive Tradee

continued on page 34

5 Most Important Issues When Agency Selecting E&O Requires

E&O Limits Purchased

Association ewer independent agencies are facing increased premiums for their agency errors and omissions Yes (E&O) coverage, according to Insurance No Journal’s exclusive 2016 Agency E&O Survey, which found that just 41.8 percent of agencies responding saw an E&O premium increase in 2015 compared to 2014, while 42.2 percent reported their Agency Requires premiums stayed the same in 2015 comEducation pared toContinuing 2014. Some 16.1 percent reported an E&O premium decrease. The percentage of agencies that saw Yes increases in Nopremium is down from last year’s survey, which found 48.2 percent Not Sure of agencies reported premium increases in 2014. Only 37.1 percent reported premiums staying the same in 2014 and just 14.6 percent saw decreases that year. It’s a highly competitive market, with entrants coming and going, according to agency E&O experts, and agencies should be taking advantage of current market conditions.

I’ve got to get that email into the file once

0.4%

Agency Requires “The market is as soft now as I’ve ever cent less than carriers that have been Continuing Education

seen it, and I’ve been doing professional 45.7% 54.3% liability for 30 years,” said Mark Wolf, vice president for Big I Advantage. Yes “This has been a 10-year soft market cycle Nofor agency E&O. The competition’s intense and there’s Not Sure broad availability. We know this because we track and analyze almost every carrier 0.4% offering agency E&O. Right now, I have 40 carriers on my list. On average, we see a25.7% new carrier about every 60 to 90 days, entering the agency E&O market.” On the other hand, carriers are drop73.9% ping out almost as quickly as they come into agency E&O, too, Wolf adds. “I think there’s a lot of naïve carriers, especially in soft market cycles,” he says. “They tend to come in and come out thinking that they can penetrate the market, gain a foothold, and then try to grow.” That environment is wreaking havoc for some traditional E&O carriers. “These (newer) carriers are trying to jump in with pricing that’s anywhere from 20 to 40 per-

32 | INSURANCE JOURNAL | NATIONAL NOVEMBER 7, 2016

25.7% writing the coverage for 20 or 30 years,” Wolf said. Mark D. Harris, president and73.9% CEO of Quadrant Insurance Managers, described the agency E&O market as having “a surplus of capacity chasing a higher incidents of claims.” He said there are more claims today than ever before in his experience with this class. And yet, “there are more people writing the class” than ever before. “There are lot of new entrants … some are disciplined in their underwriting approach and some don’t even care if they get a completed application,” he said. Will they be around going forward? Only time will tell, Harris said. What he does know is that the scales will have to find a balance. Right now, “some carriers are offering unsustainable enhancements but there is plenty of availability,” Harris said. “It’s a very much changing landscape.”

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NATIONAL | Special Report | Agency E&O Survey continued from page 32 I receive it and a lot of people don’t and instead leave it in their inbox or delete it. Then we have to drag it out later,” he said. The best E&O defense is about being able to document conversations and being able to show that documentation later, McCabe said. “By and large most agents are doing a good job and are doing what they should do. But when someone has a claim that doesn’t get paid because of a policy exclusion or policy that expired or a piece of property wasn’t scheduled, or something else, the insured will oftentimes say they didn’t discuss that with their agent, or was told something else. Proper documentation and saving those email conversations will get agents away from the ‘he said, she said’ problem. “The more things I have in my favor to back up what the client (agent) said, the better chance I have to convince a jury,” McCabe added.

Signed Applications

Westport’s Sally warns about an increasing number of claims stemming from carriers’ use of online application processes that do not require an affirmative signature of the applicant prior to binding coverage. “Unless the agency takes steps to document their file regarding the application information represented by the customer, the agency may face a classic ‘he said, she said’ situation should an E&O claim arise and there is no signed application in the file,” Sally

said. Angelucci has seen some court cases involving agent’s or insured’s material misrepresentations (from the carrier’s perspective) with the carrier bringing an action against the agent for the value of the claim. “Obtaining signed applications, use of exposure checklists and being thorough in understanding a client’s operation are the best way to avoid these types of claims,” Angelucci said.

Technology Hurts

Technology can also contribute to E&O concerns. The 2016 Agency E&O survey respondents listed privacy and cyber-related exposure as areas where they feel most vulnerable to an E&O claim. One agency owner wrote: “The interplay between the E&O policy, technology E&O, and cyber/privacy coverage will be important as more agencies diversify the method in which they interact with clients/carriers.” “We feel it’s a major area of concern,” Harris said. “There is always the possibility that absent an exclusion and, sometimes with an exclusion, a court could find coverage for cyber in the E&O policy.” Typically most agency E&O policies have exclusions for cyber or will have “throwin” coverage. “Many carriers have gone to a ‘baby cyber policy,’” Harris said, “and add breach coverage but it’s not robust coverage.” Others put sublimits on cyber coverage. “The real issue is dilution of the limits. If someone is going to put cyber (on an E&O policy) as a throw-in, make sure they are not diluting limits,” he said. Most agree that just as agents tell their clients that cyber exposures are becoming so important that coverage should be on a separate policy, so are they important enough for an agency to have a separate policy. Angelucci advises agents to look for policies that include breach notification services, not just reimbursement for expenses incurred for notification.

Social Media

New E&O exposures are emerging. One is business defamation as it relates to social media, where negative comments made about a competitor are looked at as libelous, according to Utica’s Angelucci. “The use of social media is becoming an increasing part of how agents interact with their clients,” he said. Agencies need to communicate with clients about the proper way to make requests. “If an action occurs via social media it should be documented in their agency management system.” Angelucci says an agency must strike

34 | INSURANCE JOURNAL | NATIONAL NOVEMBER 7, 2016

a balance when making claims about its agency’s capabilities versus a competitor. “Factual statements must be used and you must be cautious about any reference to a third party or competitor,” he said. The most common type of defamation claim in an E&O context concern statements made to clients or prospects. “Social media creates the potential for any statement to be communicated to a much larger audience than a statement made in person,” he noted. Thus agencies need to be cautious about making any statements, especially unflattering ones, about others on social media. “This is where a well written social media policy for agency employees is important,” Angelucci said. In cases against agents for E&O claims, agency websites and marketing materials (which could include social media posts or blogs) are used as evidence to argue the merit of a claim. Angelucci offered the following tips for a good staff social media policy: • Lay out which social media tools are acceptable or not acceptable for business use. • Detail the need to be careful about dis- closing confidential customer information on any social media sites. • Be sure that everyone who may use social media sites for the company understands the behavioral expectations when communicating in this forum (respectful, honest, accurate, etc.). • Determine what correspondence or requests the agency will accept from customers or prospective customers with these tools and how to properly document and handle them. “For example, will you take an endorsement request via a Facebook posting? If so, do you expect a screen shot of the request to be copied to the customer’s file in your agency management system? Or will your agency not accept any requests except via phone call or written correspondence? Expectations need to be specifically laid out in either situation,” Angelucci said. Insurance Journal wishes to thank

Demotech Inc. for providing analysis once again for this year’s Agency E&O Survey. INSURANCEJOURNAL.COM

MyNewMarkets | NATIONAL admitted States: All states Contact: Keith George at 717-214-7603 or e-mail: keith. george@amwins.com

Drone Manufacturer Product Liability Insurance Market Detail: Unmanned

Vacant Property

Market Detail: American

Modern Insurance Group (www.amig.com) offers a special policy for those properties with vacancy of up to a year with named peril protection that covers those causes of loss listed by name in your policy documents (fire, lighting, wind, hail, explosion, and others). It covers the essentials, but not everything. Actual cash value loss settlement for a total or partial loss, American Modern settles at the actual cash value (ACV) of the loss, which takes depreciation into account when settling the claim. Three, six, and 12-month policy terms available. Eligible home types include: home should be in fair or better condition, showing proper maintenance; up to four-family construction, with no age restriction; valued up to $500,000 (most states less than $1 million in a few); renovations in process are accepted without surcharge. Shorter vacancies can be handled with an endorsement. Available limits: As needed Carrier: Unable to disclose, admitted and non-admitted available States: All states INSURANCEJOURNAL.COM

Contact: Customer service at 800-759-9008

Condominiums

Market Detail: Kevin Davis

Insurance Services, Inc. (www. kdisonline.com) offers D&O liability, crime, umbrella and E&O. The team at Kevin Davis Insurance Services (KDIS) has been a wholesale broker of risk products for the community association industry for over 25 years. KDIS has developed several products designed specifically for community associations and management companies like condo associations, homeowners associations & property managers. Available limits: As needed Carrier: Unable to disclose States: All states Contact: Sherry Branson at 213-833-6190 or e-mail: sbranson@kdins.com

Franchised, LimitedService Hotels

Market Detail: The McGowan

Companies (www.mcgowancompanies.com) offer general liability; auto liability (nonowned & hired), liquor liability, crime, employee benefits, and property (max TIV $15 million). Available limits: As needed

Carrier: Unable to disclose,

non-admitted States: All states Contact: Suzanne Young at 800-545-1538 or syoung@ mcgowancompanies.com

Pizza Pro Delivery Program

Market Detail: AmWINS

Group Inc. (www.amwins.com) offers a program for producers who control pizza delivery businesses want to place their client’s coverage with an A-rated admitted carrier. Coverages include: hired and non-owned auto liability coverage, auto physical damage, business owner’s policy form for property and GL coverages, workers’ compensation, employment practices liability coverage and umbrella coverage. Qualified prospect considerations: insured should have established mvr; insurance monitoring and training procedures in place; and insured should have minimum of three year's restaurant experience. Requirements: BOP and auto coverages are mandatory, loss information for lines to be quoted (three complete years). Available limits: As needed Carrier: Unable to disclose,

Risk Management (www. UnmannedRisk.com) maintains a large and active comprehensive general liability and products liability account book including some of the world’s largest UAV and UAS manufacturers, dealers and distributors. Products liability may be broadly split into UAS manufacturers ‘products, UAS sales and UAS repair & service. Manufacturer, sales and repair & service commercial general liability insurance covers manufacturers’ of UAS, UAS components, sellers of those UAS and components and repair & service facilities that maintain those UAS and their components, for liability arising from a UAS accident. An additional coverage available is “grounding” liability. Available limits: Minimum $1 million, maximum $100 million Carrier: Allianz States: All states Contact: Terry Miller at 720208-0844 or e-mail: uav@ transportrisk.com

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

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NOVEMBER 7, 2016 INSURANCE JOURNAL | NATIONAL | 35

Idea Exchange

The Competitive Advantage

Are Your Companies Stealing Your Expirations? • They do not fear agents’ associations doing anything.

By Chris Burand

hree times in three months now, I have seen major carriers “provide” contracts that in some cases outright take ownership of agency expirations and in another case only take an “interest” in them. I’ve seen it with both P/C and benefits. These are alarming developments to say the least, from multiple perspectives. Prior to getting into the details, I will eliminate some common agent responses. First, I won’t disclose the names of such companies because that goes against confidentiality agreements I have signed. Second, a key reason this happens is because agents don’t read contracts before signing them. Even if you really don’t think you can get a carrier to change a contract where they have inserted damaging language, much less stealing your expirations, at least protest. Get on record that you’re signing under duress.

You can give carriers the benefit of the doubt that they did not mean to take the most valuable asset agencies own (and I have heard companies make this statement). They might say the only reason their contract was changed was because their in-house counsel was too aggressive (she didn’t understand she was being aggressive, and she did not really understand what the insertion of, “Carrier owns expirations” means, and therefore, they did not mean to take the book of business). But even if we give them the benefit of the doubt, what does this say about the carrier? It says they have an ignorant in-house counsel. It also says that all the people that should be reviewing contracts before sending them out to agencies are lazy, incompetent, too scared to address nefarious language with their superiors or

they are complicit. What other explanation exists? Agents have a choice of doing business with a carrier that is some combination of unethical, incompetent, or lazy or proactively moving the book to a carrier that is ethical, competent and possesses a work ethic.

Don’t Just Give It Away

Agents have signed these contracts, and you have to wonder, “What are the agents thinking? Why in the world would an agent just give away ownership or even a security interest in their book of business? At least sell it, but do not just give it away!” Even if an agent works another 20 years, not owning the book of business has serious implications on myriad levels. The agency cannot get a legitimate loan without disclosure. An agency may not be able to obtain new carrier contracts if the carriers understand their competitor owns

Conflicting Messages

These developments are alarming for a number of reasons: Some companies clearly are sending multiple and conflicting messages such as: • They do not care about their agents’ property rights. • They do not fear agents moving their books in response to inserting damaging language (or cutting commissions severely in some situations). 36 | INSURANCE JOURNAL | NATIONAL NOVEMBER 7, 2016

INSURANCEJOURNAL.COM

some portion of the agency’s book. Think about it from an insurance perspective. Is the company now an additional insured?

Lazy and Lazy

If an agency signs without reading, that is just pure lazy. Combine lazy and lazy and the outcome will not be pretty. Furthermore, if an agency owner is not reading key contracts, this is indicative of other issues. If reading contracts is so painful, which is different than being lazy, hire someone to do it for you. Do not just sign the contracts. The price of outside help is likely 99 percent less than the value of losing ownership.

Agents Always Have a Choice

As I noted, some agency owners sign contracts because they do not feel they have a choice (kind of like software contracts that flash whenever you add software or an app to your phone). It is not the same thing. With carrier contracts, agents always have a choice. Some choices are not pretty, but choices always exist. Do not ever sign contracts with egregious clauses without at least discussing and putting in writing to the company your concerns. If you sign such a contract, discuss the tax issues with your CPA because you may have just lost hundreds of thousands, maybe millions of dollars. At least take a tax C write-off. M Sometimes companies really do not Y have a clue the damage such clauses cause. CM The agencies that constructively address these situations sometimes gain improved MY contracts and even better subsequent relaCY tions. An agent that signs such a contract when the company knows what its doingCMY might as well put a sign around its neck K that states, “I can be kicked around as much as any company wants.” It is not a size issue either. A tiny book does not count, but an agency does not have to have $50 million to make its case ($1 million is not even required). It is not a size issue. It is a spine issue. Understand, when you do not own your expirations, you may also cease being an independent agent at times because you

likely cannot move the book. Furthermore, be sure your procedures are modified because your agency errors and omissions (E&O) exposures may be different if you don’t own your expirations. For those agency owners who did not or do not read their contracts but insist that: • The company will not enforce the clause; • The clause does not apply to them because they’re special; • Let’s wait and see what happens when push comes to shove. You might have a point with some carriers. Otherwise, the denial, ignorance, or cowboy approach probably just digs you a deeper grave.

Read Contracts

By no means am I suggesting the majority of carriers taking these actions or A&M are IJ Self Serve.pdf 1 5/16/16 that even dozens are taking these actions.

Burand is the founder and owner of Burand & Associates LLC 2:29 PM based in Pueblo, Colo. Phone: 719-485-3868. E-mail: chris@burand-associates.com.

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Some key carriers are though. The place to begin putting a stop to it is to read your contracts and addendums thoroughly. At least don’t be a doorstop. Then think seriously about what carriers you represent. As an independent agent, you do have a choice. Make your other carriers cognizant of these situations and learn if they’ll negotiate a rollover. Then, instead of losing your business, you are paid more and maintain ownership. (Note: None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules and regulations.)

10/19/16 4:43 PM

NOVEMBER 7, 2016 INSURANCE JOURNAL | NATIONAL | 37

Idea Exchange

Accountants

Cyber, Risk Management & Claims for Accountants’ Professional Liability

By John Torvi

he environment for accountants’ professional liability (APL) insurance programs continues the trend of the past few years of both expansions in coverage and risk management with many programs. The market is also experiencing some upheaval in relationships between carriers and managing general agencies that may affect client and agent opportunities for new business and renewal placements. Unsatisfactory underwriting experience has caused some carriers to leave the market, while more stable programs are looking to respond to increasingly complex accounting practices, especially driven by technology and the associated risks. Most of the available programs offer coverage for small, medium and larger firms

as well as the various modes of practice — CPA firms, tax preparers, enrolled agents and bookkeepers. As with all coverage offerings however, the programs have their “sweet spots” in terms of preferred areas of practice, firm size or even geographic location. As only so much tweaking can be done to policy language or supplemental coverage limits for example, carriers and program managers may be instead focus on more aggressive pricing or underwriting considerations in their preferred zones, as well as ease-of-use tools such as short form or self-rating applications, on-line services or automatic renewals. Two areas where much attention is focused is in privacy/cyber coverages and issues, and the availability of risk management services.

Cyber

First, there has been a significant increase in available coverage for privacy or data breach incidents in professional liability programs for accountants. Many policy forms now include some sublimit for network or security breach with the opportunity to expand both limits and breadth of coverage by endorsement for additional premium. Endorsement language may approach the coverage available in standalone privacy/cybercrime policies, providing the opportunity for the producer and policyholder to evaluate the merits and costs of the various coverage options. The risks associated with data breach and cyber security are fluid and expansive and claim experience data is still developing. The merits of including coverage in an APL policy versus obtaining standalone coverage is beyond the scope of this article. The agent

must however carefully evaluate the needs of the accounting practice (such as if they have custodial control of trust accounts where funds can be misappropriated through social engineering fraud), its IT capabilities and management and types of data. Other considerations should include the consequences of shared limits if all coverage is under one policy, as well as the costs of coverage in the various options. While no one solution works for all firms, it is safe to assume that the intent of a professional liability policy is not to necessarily extend broad coverage to privacy and cyber claims, though again APL policies offering some degree of cyber coverage may be perfectly appropriate for many clients.

Risk Management Services

The second area of focus for many APL programs is in risk management services. Assuming again that there are limitations to pricing and coverage options that can be offered, risk management is one area that allows programs to offer policyholders essential and desired services. INSURANCEJOURNAL.COM

returns or forms, take proper deductions, calculation errors and other areas of negligence in the preparation and filing of tax forms and returns. It seems despite the proliferation in accounting software, the human element drives malpractice claims. Other common scenarios that relate to the availability of coverage include countersuits over fee disputes and suits for unpaid bills. Firms that sue their clients over fees often get sued back for some type of alleged negligence. Underwriters typically take a dim view of applicants who engage in fee suits. Subpoenas for records and information (subpoena response is often included in the supplemental coverages and different carriers provide differing limits and applicability of a deductible), payroll errors and employee embezzlement (variably covered by carrier) are other common scenarios. For agents considering placements in the accountants’ professional liability arena,

Malpractice claims against accounting professionals follow some familiar trends, with tax preparation leading the way. More than “value-added” trifles, accounting practices both large and small are expecting the availability of legal hotlines, pre-claim assistance, webinars, classes, sample professional documents and whitepapers from risk-management websites and other program-provided sources. Policyholders may further benefit from those carriers that offer premium credit for professionals that participate in carrier-approved risk-management programs or earn no-cost CE credits by taking a webinar or class.

there are numerous opportunities to obtain quality coverage, as well as concern about programs in flux. Agents should remember that a typical accountant client is informed and expecting broad coverage from a highly rated carrier providing some form of risk management services. Becoming familiar with the particular appetites of the programs can guide the agent to a more expedient submission and placement process, as well improve retention.

Share this article with a colleague. IJMAG.COM/117VX Torvi is the vice president of marketing and sales at the Herbert H. Landy Insurance Agency of Needham, Mass. The Landy Agency provides professional insurance services for attorneys, real estate professionals and has been insuring accountants since 1962. Phone: 781-292-5417. Email: johnt@landy.com. Website: www.landy.com.

To give real service you must add something which cannot be bought or measured by money— only sincerity and integrity. Douglas Adams

Frenkel/AIG Psychoanalysts Professional Liability Program For over 40 years, Frenkel & Company has proudly delivered our exclusive insurance products to psychoanalysts industry wide, including APsaA members. This insurance program and other insurance products are a testament of both our knowledge and our commitment to this prestigious industry. We appreciate the opportunity to serve you.

Claims

Malpractice claims against accounting professionals follow some familiar trends, with tax preparation leading the way. Allegations of malpractice relating to tax work often include failure to timely file

Kenneth C. Hegel, Jr. Senior VP/Unit Manager, Frenkel & Company khegel@frenkel.com // 201-356-0057

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www.frenkel.com

5/11/16 1:15 PM

NOVEMBER 7, 2016 INSURANCE JOURNAL | NATIONAL | 39

Idea Exchange

Auto

3 Ways Auto Insurers Should Adapt to Drivers’ Changing Road Habits

By Seth Birnhaum

or a historically slow-moving industry, changes are occurring at a rapid rate in today’s auto insurance world. Drivers’ road habits are shifting and auto insurers should adapt to the changing behavior behind the wheel. The National Safety Council released estimates that traffic fatalities were up 9 percent in the first six months of 2016 since 2015 and up nearly 18 percent since 2014 in the same time period. While a stronger economy and lower gas prices will likely result in more miles driven, there is still an increase in traffic fatalities once that is accounted for. With all the safety technology out there, what’s causing the jump? The truth is that driver inattention on the road is growing as motorists become more distracted. Some states have even seen distracted driving fatalities doubling. Agents and insurers should adapt to these changing road habits in three major ways.

Implement a ‘Pay How You Drive’ Model Usage-based insurance is expected to increase globally in the next few years, from 12 million to 142 million customers. Insurers should consider adopting a “pay how you drive” model — if they haven’t already — to save themselves and consumers money, and agents may want to

encourage the use of it. “Pay how you drive” is more efficient and accurate than previous risk pricing models and will make insurers more aware of shifting driving habits. Instead of responding to behaviors after an accident has occurred, carriers can make informed decisions and determine a premium price based not only on location, age or driving record, but also on individual driving behaviors and patterns. With less bias, UBI’s adoption may even raise consumer satisfaction. While data has previously been used to price premiums, it has operated under generalizations. A more personalized model will be appealing to drivers who have previously been frustrated by auto insurers’ assumptions. In other pricing models, 23-year-old drivers may have a risk profile that does not accurately represent them and is based on the average data for all 23-year-old drivers in their city. With UBI, they can be priced accurately based on their risk and that will offer a value to them. “Pay how you drive” will help keep drivers safe by providing peace of mind and highlighting driver improvement areas. The driver can then work to improve his or her habits for a safety and cost benefit. Providers will also understand driver habits to a greater degree. If a driver is

40 | INSURANCE JOURNAL | NATIONAL NOVEMBER 7, 2016

found to be speeding 10 mph over the limit on most drives, their premium may be adjusted to reflect that risk. Similar

Things on the road are changing. Insurers and agents should keep up and remain aware of ways to adapt to the shifting industry. adjustments may be made for behavior such as harsh braking or unsafe acceleration. For agents, recommending “pay how you drive” may help keep your customers safe and save them money. Additional unique services can also be offered through this technology, such as vehicle diagnostics, real-time navigation and in-vehicle entertainment systems, which may boost customer satisfaction.

Use Technologies Available Now

Not all insurers have adopted telematics or “pay how you drive” yet, though many are at least in the process of developing it. However, the insurtech industry is booming and technology is available now for drivers to use. Insurers and agents should consider building up their current customer pool INSURANCEJOURNAL.COM

with these technologies to account for drivers’ changing road habits. Agents can recommend technologies to help their insured become safer drivers on their own. Safer drivers mean less accidents, and in turn, lower costs for all. By encouraging independent use of these technologies, drivers may be more motivated to improve their own skills and become better drivers. There are apps such as CellControl and LifeSaver that help stop distracted driving by blocking incoming calls and texts when a driver is behind the wheel. Other apps like EverDrive give drivers an overall score on trips and suggest improvement areas. They measure driving skills such as speeding, braking, acceleration and phone use. These apps can make drivers more aware of their own habits, and give them feedback to improve. Additionally, there are various hands-free devices available as well as backup cameras to help drivers operate safely on the road. There is safe-driving technology available now that insurers and agents can recommend to build up their current customer pool. Drivers that improve their skills are less likely to get into accidents and file claims, which will cut costs for everyone involved.

Stay Flexible

Auto insurers and agents may want to remain flexible and look ahead to semi-autonomous and fully autonomous vehicles as they will change drivers’ habits and perhaps, make them obsolete. The car technology is coming, and while it may not be widely adopted for several years, insurers may want to consider preparing for the paradigm shift now. How insurers adapt to this transportation disruption will determine the severity of its effect on the industry. While the government may still implement their own laws, insurers and agents should determine a roadmap to prepare for further integration of the Internet of Things. The National Highway Traffic Safety Administration stated that they are not planning to determine strict guidelines, but rather remain flexible and nimble INSURANCEJOURNAL.COM

as the technology proves itself. By 2035, auto insurance premiums could drop 20 percent under 2015 levels with a moderate pace adoption of autonomous car technology. Car insurers may not be dealing with driver negligence anymore — instead, there may be an increase in product liability claims. Risk profiles may rely predominantly on the make and model of the vehicle rather than the operator. That said, computers make errors, too, and there will be new risks to insure for — possible hacks, satellite failure or sensor damage. If sensors are placed on the bumpers, they’ll be one of the first things damaged in small collisions. Will providers decide to create a baseline coverage rate or follow a no-fault model? Will auto insurance become similar to a utility cost? The role of the agent could also change dramatically if coverage shifts to insuring technology. There will also be an “in-between” period before this technology is fully adopted, which may also present unique claims and coverage needs. How well will driver-operated cars interact with fully autonomous vehicles? Pittsburgh’s self-driving car passengers have already noted the slower speed of the vehicle, and its inclination to brake when it may not be necessary. That kind of behavior many not only frustrate other drivers but could lead to rear-end accidents or other minor collisions. For a while, drivers will still be predominantly responsible for keeping the vehicles in control and stepping in when necessary. Driverless cars will happen, so insurers and agents may what to do what they can to prepare for them. Just don’t disregard the changes in driving habits that have already occurred. Things on the road are changing. Insurers and agents should keep up and remain aware of ways to adapt to the shifting industry.

Share this article with a colleague. IJMAG.COM/117VK Birnbaum is the CEO of EverQuote, an auto insurance marketplace with nearly $100 million in revenue and more than 5 million unique visitors per month. Email: press@everquote.com.

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NOVEMBER 7, 2016 INSURANCE JOURNAL | NATIONAL | 41

Closing Quote Want Innovation? Ask the Right Questions By Eric Kasen, Craig Dandrow & Owen Callaghan

nnovation is a hot topic, with websites, researchers, authors and consultants sharing insights and revelations about how businesses can be more innovative in a continually challenging economy. While innovative businesses typically point to famous industry disrupters like Apple, Google, Amazon and Uber for creating new products and services while ramping up the quality of consumer experiences, pioneers do not have to have a household name. Smart, nimble insurance brokerages regularly deliver innovative programs using the same principles that have made major disrupters famous. According to a study of insurance sector innovation by KPMG International, disrupters and innovators do not necessarily create something brand new, such as a new coverage or programs. Instead, they learn from traditional competitors and other disrupters, and they leverage successes and experiences to create new propositions and approaches to “delight customers and create value.” Disrupters, by nature, are always customer-centric. Innovators do not take the first solution they come up with. Instead, they ask questions: How can I make this better? What can I learn from the past? What approaches can I borrow from other industries/ companies to make something

old new again? Innovation is built on generating a lot of ideas, learning from successes and failures, and putting together something new through this process. This is the key, according to Wharton professor and author Adam Grant’s book, “Originals: How Non-Conformists Move the World.” He notes that “originals learn to see failure not as a sign that their ideas are doomed, but as a necessary step toward success. “A failure signals a gap in knowledge or a poor strategy, and motivates us to go back to the drawing board and get it right. Without failure, complacency can creep in.” Innovators regularly identify gaps in their knowledge that may lead to failure. Such experience creates a strong, cross-pollinated breeding ground for new approaches. A recent Wall Street Journal article on innovation reports that “most companies continue to assume that innovation comes from that individual genius, or, at best, small, sequestered teams that vanish from sight and then return with big ideas. But the truth is most innovations are created through networks — groups of people working in concert.” Innovators identify and try out ideas to find approaches that work best — and customers benefit from a range of choices. Are you giving your customers options or offering the “oneand-only proprietary solution that they’ll ever need?” When it comes to innova-

42 | INSURANCE JOURNAL | NATIONAL NOVEMBER 7, 2016

When it comes to innovation, bigger is not always better.

tion, bigger is not always better. One of the most valuable attributes of innovators is their independence, giving them the ability to find and develop the best ideas, regardless of source. How does independence play out in the insurance sector? It means a broker can provide the widest range of program choices that meet customers’ needs. Privately held, debt-free, independent brokers can also review the entire marketplace to find solution-neutral options that are not tied to any one carrier or to their own ownership interests. Leadership consultant and author Simon Sinek is often quoted for his insight into why customers choose innovative companies: “People don’t buy what you do; people buy why you do it. If you talk about

what you believe, you will attract those who believe what you believe.” Customers want their broker to provide innovative solutions that still satisfy the basics of providing the right coverage, controlling expenses, and delivering exceptional, experienced service — all in the name of helping their company thrive in a more competitive economic environment that rewards the innovators of our world. Editor’s note: The above is an edited version of an article that was previously posted on Hays Companies’ website on Aug. 2, 2016. Kasen is president of Hays Cos. Northeast. Dandrow is employee benefits practice leader, and Callaghan is property & casualty practice leader. INSURANCEJOURNAL.COM

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