Insurance Journal West 2017-10-16 by Insurance Journal

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Contents October 16, 2017 • Vol. 95 No. 20 • West

West

National 12 Q3 Could Be Most Expensive Ever for Natural Disasters: Report

W1 California Governor Jerry Brown Signs Surplus Lines Association Backed Bill

15 Driver Concerns Over Autonomous Vehicles: Study

W2 Idaho Workers’ Comp Rates to Decrease for 2018 W2 Directors for Hawaii Workers’ Comp Insurer HEMIC Declare $3.5M Dividend W6 SILVER Best Agency to Work For - West: Wood Gutmann & Bogart W14 Get Very Used to Drone Usage in the Insurance Industry

W14 GET VERY USED TO DRONE USAGE IN

THE INSURANCE INDUSTRY

Q3 2017 COULD BE MOST EXPENSIVE FOR NATURAL DISASTERS: AON REPORT

W16 Worker Safety, Regulation Overload Among Highlights of Drone Expo in California

16 Workers’ Comp Costs and Benefits Decline as Share of Payroll 20 Special Report: Agency E&O Before and After the Storm 21 Special Report: Agency E&O Survey Results 25 Special Report: How to Help Clients with Disaster Claims 28 Spotlight: Catastrophes and the Habitational Property Market 29 New Association for Insurance Agency Networks Forming

Idea Exchange W10 Autonomous Vehicles: Getting Highly Automated Vehicles on the Road 30 The Growing Cannabis Industry and Captive Insurance 32 Minding Your Business: 9 Ways to Change and Positively Influence Employees

Departments

36 The Wedge: A Simple Concept that Changed How We Sell

W4 People 14 Declarations

38 Closing Quote: Build a Personal Brand

14 Figures

30 THE GROWING CANNABIS INDUSTRY

AND CAPTIVE INSURANCE

6 | INSURANCE JOURNAL | WEST OCTOBER 16, 2017

26 Business Moves 34 MyNewMarkets INSURANCEJOURNAL.COM

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OPENING NOTE

Write the Editor: awells@insurancejournal.com

Traffic Accident Deaths Still Up

Motorcyclist and pedestrian deaths accounted for more than a third of the year-to-year increase.

Publisher Mark Wells mwells@wellsmedia.com

EDITORIAL

SALES

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

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

East Editor Elizabeth Blosfield eblosfield@insurancejournal.com

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

Chief Content Officer Andrew Simpson asimpson@insurancejournal.com

Southeast Editor/MyNewMarkets Amy O’Connor aoconnor@insurancejournal.com South Central Editor/ Midwest Editor Stephanie K. Jones sjones@insurancejournal.com West Editor Don Jergler djergler@insurancejournal.com International Editor L.S. Howard lhoward@insurancejournal.com Columnists Catherine Oak, Randy Schwantz

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

Contributing Writers

Insurance Markets Manager Mark Gannaway, Matthew Queen, Kristine Honey (619) 584-1100 X132 Hilary Rowen, William Schoeffler, khoney@insurancejournal.com Robbie Thompson Social Media Manager IJ ACADEMY OF INSURANCE Ly Short (619) 890-7735 Director Lshort@insurancejournal.com Patrick Wraight pwraight@ijacademy.com Classifieds, Jobs, Agencies Wanted/For Sale Associate Director Sr. Sales & Marketing Coordinator Barbara Whiffen Kelly De La Mora (800) 897-9965 X125 bwhiffen@ijacademy.com kdelamora@insurancejournal.com

ADMINISTRATION

Chief Financial Officer Mark Wooster mwooster@wellsmedia.com

MARKETING

DESIGN/WEB

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

Marketing Director Derence Walk dwalk@insurancejournal.com

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

Marketing Administrator Gayle Wells gwells@insurancejournal.com

Senior Web Developer Chris Thompson cthompson@insurancejournal.com

NEW MEDIA

Web Developer Jeff Cardrant jcardrant@insurancejournal.com

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

raffic accident deaths in the U.S. continue to rise, even while deaths related to distracted driving decline. The number of vehicle miles traveled on U.S. roads in 2016 increased by 2.2 percent, producing a fatality rate of 1.18 deaths per 100 million vehicle miles traveled (VMT) – a 2.6-percent increase from the previous year, according to the latest overview and analysis from the National Highway Traffic Safety Administration. There were 37,461 lives lost on U.S. roads in 2016, an increase of 5.6 percent from calendar year 2015, according to NHTSA data, which was collected from all 50 states and the District of Columbia. The 5.6-percent increase from 2015 to 2016 is down from the 8.4-percent increase from 2014 to 2015. NHTSA found that distracted driving and drowsy driving fatalities declined, while deaths related to other reckless behaviors – including speeding, alcohol impairment, and not wearing seat belts – continued to increase. The number of fatalities in distraction affected crashes decreased by 2.2 percent from 3,526 in 2015 to 3,450 in 2016. Fatalities in distraction affected crashes were 9.2 percent of total fatalities in 2016. The number of fatalities involving a drowsy driver decreased by 3.5 percent from 832 in 2015 to 803 in 2016. Fatalities involving a drowsy driver were 2.1 percent of total fatalities in 2016. Motorcyclist and pedestrian deaths accounted for more than a third of the year-toyear increase. There were 11.5 times as many unhelmeted motorcyclist fatalities in states without universal helmet laws (1,923 unhelmeted fatalities) as in states with universal helmet laws (166 unhelmeted fatalities) in 2016. The 2016 national data shows that: • Distraction-related deaths (3,450 fatalities) decreased by 2.2 percent; • Drowsy-driving deaths (803 fatalities) decreased by 3.5 percent; • Drunk-driving deaths (10,497 fatalities) increased by 1.7 percent; • Speeding-related deaths (10,111 fatalities) increased by 4.0 percent; FOR QUESTIONS • Unbelted deaths (10,428 fatalities) increased REGARDING SUBSCRIPTIONS: Call: 855-814-9547 by 4.6 percent; Outside the U.S., call 847-400-5951 or you may subscribe or change your address online at: • Motorcyclist deaths (5,286 fatalities – the insurancejournal.com/subscribe largest number of motorcyclist fatalities Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Media since 2008) increased by 5.1 percent; 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 • Pedestrian deaths (5,987 fatalities – the per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this pub highest number since 1990) increased by 9.0 lication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended percent; and 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 • Bicyclist deaths (840 fatalities – the highest Media Group, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. number since 1991) increased by 1.3 percent. Insurance Journal is a publication of Wells Media Group, Inc.

Web Developer Terrance Woest twoest@wellsmedia.com

CIRCULATION

Circulation Manager Elizabeth Duffy eduffy@wellsmedia.com

Andrea Wells Editor-in-Chief

8 | INSURANCE JOURNAL | NATIONAL OCTOBER 16, 2017

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

Q3 Could Be Most Expensive Ever for Natural Disasters: Report

he third quarter of 2017 is likely to break a new record as one of the costliest quarters for natural catastrophes, according to Impact Forecasting, Aon Benfield’s catastrophe model development team. “The month of September was exceptionally busy and marked by the most active month on record in the Atlantic Ocean for hurricanes based on combined strength and longevity,” said Steve Bowen, Impact Forecasting’s director and meteorologist. As a result, when September’s event impacts are combined with those from July and August, Bowen affirmed that “the third quarter of 2017 is expected to tally as one of the costliest quarters ever registered for natural disasters.” His comments accompanied the latest Impact Forecasting report titled Global Catastrophe Recap – September 2017. “The most prolific damage resulted from Hurricane Irma’s impact across the United States and the Caribbean, and Hurricane

Maria’s track through the Caribbean,” he said. “These events were poised to cause a heavy financial burden for federal governments and the insurance industry,” Bowen continued. Another impact during the month of September were two major earthquakes in Mexico, as well as a powerful aftershock, he said. Hurricane Irma crossed through the northern Caribbean as a Category 5 hurricane, before making landfall in the United States to become the first Category 4 landfall in Florida since 2004 when Hurricane Charley hit the region. At least 124 people were killed or missing and hundreds more were injured. Major damage occurred in the United States, Cuba, Barbuda, the Virgin Islands, and Leeward Islands. Hurricane Maria became the second landfalling Category 5 hurricane in a matter of weeks, when it struck Dominica and grazed St. Croix. The storm later crossed Puerto Rico as a Category 4 storm — the

12 | INSURANCE JOURNAL | NATIONAL OCTOBER 16, 2017

strongest to hit the island since 1932 — resulting in catastrophic damage. Additional damage occurred in the Dominican Republic and Haiti. At least 78 people were confirmed dead and many others were considered missing. With assessments still ongoing for both Irma and Maria, Impact Forecasting said, it remains too early to provide a specific economic or insured loss estimate for each event. The overall financial toll of each storm is expected to reach well into the tens of billions of dollars. In each instance, public and private insurers faced payouts considerably exceeding US$10 billion. Mexico’s earthquakes included the strongest earthquake of 2017: a magnitude-8.1 event that struck offshore the state of Chiapas, followed by a magnitude-6.2 aftershock, which together killed at least 103 people. A magnitude-7.1 earthquake then struck central Mexico, killing at least 367 people and injuring thousands more. Total combined economic damage was expected to reach billions of dollars. INSURANCEJOURNAL.COM

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Philadelphia Insurance Companies is the marketing name for the property and casualty insurance operations of Philadelphia Consolidated Holding Corp., a member of Tokio Marine Group. All admitted coverages are written by Philadelphia Indemnity Insurance Company. Coverages are subject to actual policy language.

Figures

The number of staged car crashes involved in an auto insurance scam that federal prosecutors say was led by Mackenzy Noze, a Haitian man living in Connecticut. More than 15 people were involved in staging the crashes in and around Connecticut’s New London County between 2011 and 2014, authorities said.

Declarations Fighting Workers’ Comp Cuts

“These proposed regulations and guidelines … would leave thousands of injured workers with no compensation at all for their workplace injury.” — Robert Grey, chair of The New York Workers’ Compensation

Alliance (NYWCA). The group has launched a campaign to fight proposed Workers’ Compensation Board (WCB) regulations and impairment guidelines. The NYWCA says the guidelines would drastically cut compensation awards for injured workers.

49 Are Fine

“Forty-nine other states are doing just fine without this unlimited system.” — Detroit Mayor Mike Duggan, speaking at a news conference

about a proposed bill in Michigan that proponents say would significantly reduce the state’s auto premiums by, among other things, ditching the requirement that drivers buy unlimited medical benefit coverage. Duggan and House Speaker Tom Leonard say drivers could save 20 percent on the overall cost of a comprehensive auto insurance policy and nearly 50 percent on a basic policy if the bill is passed.

$1.3 MILLION

Java Addiction

“I’m addicted, like two-thirds of the population. I would like the industry to get acrylamide out of the coffee so my addiction doesn’t force me to ingest it.” How much the Seattle Archdiocese in Washington has paid to settle a sexabuse lawsuit involving a former member of a religious order who taught in its schools. A man sued the archdiocese in 2015, alleging the church knew Edward Courtney abused students at two archdiocesan schools in Seattle but later recommended him for a teaching job at a public school outside Tacoma.

$25 MILLION

The amount State Auto Labs Corp., the innovation arm of Columbus, Ohio-based State Automobile Mutual Insurance Co., is investing in the launch of a corporate venture fund to support entrepreneurs and innovations in the insurance industry. State Auto Labs said it is collaborating with Rev1 Ventures, a fund active in the Great Lakes region, to support insurtech and fintech.

The number of insurance companies approved to do business in Arkansas since January 2015. Twenty insurers have been granted certificates of authority by Arkansas Insurance Commissioner Allen Kerr so far this year.

$370,000

The amount McComb, Miss., is seeking to be reimbursed from building owner Talex Enterprises and its insurer, Hudson Insurance Co, for cleanup costs for the roof collapse of the Jubilee Performing Arts Center. The city has sued the owner and Hudson for repayment, but Hudson claims the city sued the wrong company. The city claims Jubilee knew the roof was in danger of falling in before it collapsed.

14 | INSURANCE JOURNAL | NATIONAL OCTOBER 16, 2017

— Attorney Raphael Metzger is among a group that wants coffee manufacturers, distributors and retailers to post ominous warnings about a cancer-causing chemical stewing in every brew. They have been presenting evidence in a Los Angeles courtroom to make their case.

Rethinking and Responding

“Every one of these storms should force anybody who’s been a victim of them to rethink where they are, where they live, and how they respond to natural disasters that continue to come and come with more frequency. … If you spend money on the front end on mitigation projects, you’ll save a lot of money and potential loss of life on the back end.” — New Orleans Mayor Mitch Landrieu, president of the U.S.

Conference of Mayor. He shared his city’s experience following Hurricane Katrina and discussed with other mayors how Houston is working to rebuild after Hurricane Harvey and what other communities can learn from the experience.

Illegitimate Classes

“We’re not talking about these classes were easy classes. These were illegitimate classes. ... We seek to hold the university accountable.” — Robert F. Orr, an attorney representing former student athletes at the University of North Carolina who filed suit against the school over what they called sham classes. Whether the academic scandal lawsuit should be dismissed is now in the hands of a state judge after being sent back by a federal judge in April.

INSURANCEJOURNAL.COM

West

California Governor Jerry Brown Signs Surplus Lines Association Backed Bill

ssembly Bill 1641, legislation offered and lobbied by the Surplus Line Association of California that is designed to give the California Department of Insurance more flexibility in deciding which coverages to add to the Export List, was signed into law by Gov. Jerry Brown. The new law will be crucial in ensuring coverage for commercial consumers and also for emerging new technologies, including high-speed rail and autonomous vehicles, as well as other large commercial projects, and new risks such as legal, recreational cannabis and cybersecurity risks, INSURANCEJOURNAL.COM

according to the SLA. AB 1641 was introduced and sponsored by Assembly Insurance Chair Tom Daly, D-Anaheim. “We commend Governor Brown for signing this important bill,” Benjamin McKay, the SLA’s executive director, said in a statement. “The governor has demonstrated a forward-thinking vision and an embrace of innovation, and we are grateful to him for enacting this law.” The Export List is a list of coverages, maintained by the CDI, which are eligible for placement in the surplus line market

without the necessity of a broker obtaining three declinations from the admitted market. Coverages are placed on the Export List after the CDI holds a public hearing and determines that the coverages are not readily available in the admitted market. The SLA operates as a self-governed private organization that serves as the statutory surplus line advisory organization to the CDI and facilitates the state’s capacity to monitor and direct surplus line brokers’ placements of insurance with eligible non-admitted insurers.

OCTOBER 16, 2017 INSURANCE JOURNAL | WEST | W1

WEST | News & Markets

Idaho Workers’ Comp Rates to Decrease for 2018

Database in Nevada Aims to Accurately Depict Opioid Crisis

he Idaho Department of Insurance has received a proposal from the National Council on Compensation Insurance for an overall rate drop of 5.8 percent percent to workers’ compensation insurance. The decrease is to become effective Jan. 1, 2018. Department Director Dean Cameron said the change in the 2018 workers’ comp rates reflects improvement in Idaho’s workers’ comp rating factors, such as “a slight decline in both the frequency

fficials say a new state database will help paint a better picture of the opioid crisis in Nevada, as existing data shows opioid-related deaths dropped in 2016 even though hospitalizations and prescription rates rose. The database is expected to help fight the opioid crisis by letting the state create its own opioids database and allowing for disciplinary action against practitioners who inappropriately prescribe the drugs. Doctors have said this could make it more difficult for their patients to access opioid prescriptions for legitimate medi-

of claims for lost work time and the average costs of those claims.”

NCCI collects information about the workers’ comp system in Idaho and submits proposed rates to the Department of Insurance for review and approval.

cal ailments, but Nevada Chief Medical Officer John DiMuro promises the program won’t handcuff providers. At an Opioid State Action Accountability Meeting on Monday, state agencies agreed that access to reliable data is a hindrance in fighting opioid problems. Copyright 2017 Associated Press.

Family of Oregon Cyclist Sues Garbage Truck Company for Death

Directors for Hawaii Workers’ Comp Insurer HEMIC Declare $3.5M Dividend

he family of a Portland, Ore., woman who died after a collision with a garbage truck is suing the company for $10 million. The lawsuit was filed in court in late Steptember against Republic Services Alliance Group after 41-year-old Tamar Monhait died in August while riding her bicycle. The lawsuit says that the gar-

he board of directors of Hawaii Employers’ Mutual Insurance Company Inc. has declared a $3.5 million dividend payable to qualifying policyholders. This is $500,000 dollars more than HEMIC’s dividend last year, and is the 11th consecutive year that the HEMIC board has authorized a multi-million-dollar dividend. With this dividend, the carrier will have returned more than $31 million dollars to Hawaii businesses over the last decade-plus, according to the company. Policyholders insured with

bage truck driver was traveling too fast and didn’t use a turn signal. It also says the company didn’t properly train its drivers. The truck driver was not issued any citations by police following the collision. The Multnomah County District Attorney’s Office is reviewing the case. Copyright 2017 Associated Press.

W2 | INSURANCE JOURNAL | WEST OCTOBER 16, 2017

HEMIC for more than one policy year and who possess demonstrated safety records qualify for the dividend, which will be distributed in November. HEMIC serves for more than 6,000 businesses and 75,000 workers across the Hawaiian Islands. INSURANCEJOURNAL.COM

Beyond Security®

“It Takes Discipline”

Marty Hacala Fitness Enthusiast General Star President & CEO

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

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

Chicago 312 267 8600

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WEST | PEOPLE

Robert Robinson

Richard Lynn

Robert Lance

Brandi Kyle

Brenda Grootendorst

Jenny O’Brien

Dietz, Gilmor & Chazen has promoted Robert E. Robinson, Richard A. Lynn and Robert Lance to partners in the firm in California. All three newly promoted partners were previously with Dietz, Gilmor & Associates, before the firm became Dietz, Gilmor & Chazen in 2012. All three have most recently served as managing attorneys for the firm. Robinson was previously a managing attorney with McDermott & Clawson. Lynn was previously an associate attorney with Gray & Prouty. Lance was previously an associate attorney with Reff & Ruggiero. DGC practices in workers’ compensation defense, subrogation, asbestos, labor code §132a, and serious and willful misconduct claims. Woodruff-Sawyer & Co. has named Brandi Kyle vice president in employee benefits in the firm’s Portland, Ore., office. Kyle has 15 years of insurance experience. She was previously with Wells Fargo Insurance as an employee benefits consultant. She was a lead consultant with Mercer Health & Benefits before that. San Francisco, Calif.-based Woodruff-Sawyer has offices throughout California, and in Oregon, Washington, Colorado, Hawaii and New England. Heffernan Insurance Brokers has promoted Brenda Grootendorst to branch manager of the firm’s Portland, Ore., office. Grootendorst, who is a senior vice president in the firm, has more than 30 years of insurance and risk management experience. Grootendorst was a principal shareholder of the insurance agency Fullerton & Co. prior to joining Heffernan. Walnut Creek, Calif.-based Heffernan has California offices in San Francisco, Petaluma, Menlo Park, Los Angeles and Irvine, as well as in Phoenix, Ariz., Portland, Ore., and St. Louis, Mo. USG has promoted Jenny O’Brien to branch manager in its Irvine, Calif., office. O’Brien will continue to develop USG’s California territory while managing the Irvine branch office. She was formerly a production manager. O’Brien started with USG in 2012 as producer/broker and was promoted to production manager in 2014. USG has 21 locations and four subsidiaries; USG Insurance Services Inc. a national wholesaler/MGA; Brokers Financial Services, a premium finance company; Allied American Underwriters, the specialty

W4 | INSURANCE JOURNAL | WEST OCTOBER 16, 2017

division of USG; and Innovations, a marketing, advertising and technology provider for the industry. MJ Insurance named Melissa Glissmeyer a risk management consultant in its Phoenix, Ariz., office. Glissmeyer will be part of the commercial insurance and risk management department and be responsible for driving sales and service. Glissmeyer previously was a fire protection management trainee at Cintas. Indianapolis, Ind.-based MJ Insurance is a commercial insurance, risk management and employee benefits consulting agency. Napa, Calif.-based The Doctors Co. has named Crystal R. Brown senior vice president of underwriting. Brown leads the company’s underwriting operations nationally, reporting directly to Bill Fleming, chief operating officer. Brown has more than 25 years of underwriting experience. She held several roles at CNA, including assistant vice president, underwriting director, and senior underwriter. She also previously worked as a healthcare specialist for Continental Insurance Co. in New York prior to the merger with CNA. The Doctors Co. is a physician-owned medical malpractice insurer with a reported 80,000 members and $4 billion in assets. USI Insurance Services has named Chris Swensen property/casualty practice leader for its Salt Lake City, Utah, office. Swensen has 18 years of insurance industry experience, including group captives, professional liability, workers’ compensation and property and casualty. He was previously vice president of sales and marketing for WCF Insurance. USI is a insurance brokerage and consulting firm. RIC Insurance General Agency has named Jason Reese a business development manager. Reese will work with retail insurance brokers and agents in San Diego and Orange County. Reese was a business development manager at Method Insurance Services Inc., specializing in workers’ compensation prior to joining RIC. Before that, he built and managed a retail agency in Las Vegas, Nev., handling all lines of business. RIC is a wholesale insurance brokerage and managing general agency with office locations across the Western U.S. INSURANCEJOURNAL.COM

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West

Wood Gutmann & Bogart Tustin, Calif.

Committed to Employee Engagement By Don Jergler

ne can say the managers of Wood Gutmann & Bogart Insurance Brokers have made a longterm commitment to their workers. “Employee engagement” is a term Kevin Bogart, CEO of the firm, almost couldn’t use enough. “I can’t tell you anything we talk about more than culture and employee engagement,” Bogart said, when asked to describe the culture at the firm. “It’s very, very engaged. It starts with care. It starts with a general philosophy. We care for one another as team members.” Employees at the Tustin, Calif.-based firm voted it as Insurance Journal’s Best Agency to Work For in the West region. The firm took home the Silver Award.

Wood Gutmann & Bogart, which reports more than $20 million in revenue and employs 150 professionals who provide risk management, insurance, and employee benefits consulting, scored high in several rating categories. Numerous employees who rated the firm highly did so because they liked the culture there. “We are a close-knit family that looks after each other which is only established by good morale, proper training, and shared goals,” wrote one employee. “Management cares about individuals who go through hardships and goes the extra mile to help them in their time of need. Employees get together socially outside of work. There is excitement in our success and group help in times of distress.”

‘I can’t tell you anything we talk about more than culture and employee engagement.’

Employees at Wood Gutmann & Bogart voted it as Insurance Journal’s Best Agency to Work For in the West region. The firm took home the Silver Award. From left to right are a number of executives in the firm: Robert Gore, partner; John Janssen, partner; Peter Barsky, vice president of the emerging business group; Kevin Bogart, CEO; Lisa Doherty, director of private client services; Robert Lieske, partner; Erik Johansson, partner. W6 | INSURANCE JOURNAL | WEST OCTOBER 16, 2017

Another gave the firm high marks for its review process. “WGB conducts performance reviews on an annual basis,” the employee wrote. “The review includes feedback from several team members in the office. The company values each employee, this is reflected in the review and salary increases as well as bonuses. WGB rewards their

employees with various bonus plan incentives.” Others liked the firm’s value-added offers for its clients. “We have a spectrum of specialists to help our clients at any point of the business needs: An OHSA Outreach Instructor, Certified First Aid and CPR Instructor, Medicare Specialist to work with our benefits clients, HACCP certified broker to name a few services,” the employee wrote. Bogart said the firm’s management looks to do numerous things to retain and motivate employees, such as promoting from within, and having a business casual environment every day. A sign at the reception desk in the front of the firm’s headquarters tells visitors they enjoy a business casual environment.

“Every employee gets one Friday a month off with pay,” Bogart said when asked to name some more perks they offer to their employees. “It’s like getting an extra 12 days of vacation every year.” They recently introduced a free corporate fitness membership with a boutique fitness company where all of employees can work out, and once a month fitness instructors come to their office and do a lunch and learn session to talk about sleep, water consumption, nutrition, supplements and give other health tips. During monthly staff meetings employees get to celebrate successes they and other team members have had, and for every success a random employee name gets drawn out of a hat and that person gets to spin wheel and win money and other prizes. “This is a great way to create engagement for everybody and I really think it helps to drive excitement for winning and client engagement and helping to serve in the marketplace,” Bogart said. Last month there were 17 spins dealt out. More success stories get more spins. “The message is ‘Hey we’re all engaged, and when we have success in one area or another, it’s because we’re all here pulling together,’” Bogart said. INSURANCEJOURNAL.COM

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Idea Exchange

Autonomous Vehicles

Getting Highly Automated Vehicles on the Road

By Hilary Rowen

number of current vehicle safety standards are blocking the development of the more sophisticated self-driving cars and trucks. The National Highway Traffic Safety Administration promulgates Federal Motor Vehicle Safety Standards (FMVSS)

that all vehicles sold in the U.S. must meet. Many of these standards are incompatible with highly automated vehicles (HAVs) — especially those designed to be operated exclusively by the vehicle’s software control system. For example, existing standards include requirements for brake pedals, manually controlled turn signals and many other vehicle design elements. For HAVs to move beyond developer testing and into deployment, either NHTSA will need to promulgate specific FMVSS for HAVs or Congress will need to enact another mechanism to facilitate deployment. With rapidly evolving technology, it is likely that any standards for HAVs issued in the next few years would quickly be rendered irrelevant and could be counterproductive to the development of this technology in the U.S. In recent months, NHTSA and the U.S. House of

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Representatives have taken steps toward developing a regulatory framework for self-driving cars and trucks. NHTSA has recently issued a revised guidance to encourage HAVs developers to share safety data with the Department of Transportation and the public. The House of Representatives has passed H.R. 3388, with bi-partisan support, to expand a FMVSS exemption mechanism in the current law to allow sales of HAVs in advance of promulgated FMVSSs.

2017 NHTSA Guidance

On Sept.12, NHTSA issued a guidance document on the safety regulation of HAVs titled “Automated Driving Systems: A Vision for Safety 2.0.” As the “2.0” in the title suggests, the 2017 guidance updates the guidelines issued by the previous administration in September 2016.

continued on page W12 INSURANCEJOURNAL.COM

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WEST | Idea Exchange continued from page W10

The current guidance document focuses on automated vehicle testing rather than deployment. The 2017 guidance is voluntary and encourages developers to disclose to the public Voluntary Safety Self Assessments on 12 key safety elements: system safety; operational design domain; object and event detection and response; fallback (minimal risk condition); validation methods; human machine interface; vehicle cybersecurity; crashworthiness; post-crash automated driving system behavior; data recording; consumer education and training; and federal, state and local laws. The 2017 guidance devotes significant attention to the role of state legislatures and highway safety officials in the testing of automated vehicles. It includes a mild warning against states establishing automated vehicle safety standards independent of NHTSA, but continues to leave the decision whether to allow testing on public roads to the states. It is unclear whether the voluntary and public record data reporting under the 2017 guidance will provide a useful basis for NHTSA to develop formal safety stan-

‘With rapidly evolving technology, it is likely that any standards for HAVs issued in the next few years would quickly be rendered irrelevant and could be counterproductive to the development of this technology in the U.S.’ dards for HAVs. However, the guidance will probably facilitate public understanding of how developers seek to make HAVs safer than human operated vehicles.

The SELF DRIVE Act

The automated vehicle bill passed by the House of Representative on Sept. 6 expressly preempts states from enacting any laws or regulations regarding the design, construction or performance of HAVs that deviate from federal standards and offers a mechanism to move beyond testing to the deployment of HAVs. Similar legislation is being introduced in the U.S. Senate. Under existing law, NHTSA has the authority to allow exemptions from FMVSS if the exemption would facilitate the development or field evaluation of a new motor vehicle safety feature providing a safety level at least equal to the

Federal Automated Vehicle Legislation

H.R. 3388

Short Title: SELF DRIVE Act Status: Passed Number of highly automated cars authorized for sale: 25,000 in the first year, 50,000 in

the second year, and 100,000 in the third and fourth years. Preemption: Preempts states and local government from establishing design or performance criteria for highly automated vehicles (HAVs) different from federal requirements. Use of Crash Data: Requires manufacturers to provide its HAV data privacy policy to consumers, but does not expressly address use of recorded crash data.

S. 1885

Short Title: AV START Act Status: Voted out of Senate Commerce, Science & Technology Committee Number of highly automated cars authorized for sale: 50,000 in the first year, 75,000

in the second year, and 100,000 in each year until NHTSA promulgates safety standards for HAVs. Preemption: Same as H.R. 1185 Use of Crash Data: Requires manufacturers to comply with the event data recorder provisions of the 2015 FAST Act (Public Law 114-94), which does not allow insurers access to crash data without the permission of the vehicle’s owner or lessee. W12 | INSURANCE JOURNAL | WEST OCTOBER 16, 2017

safety level of the relevant FMVSS standard. In effect, the exemptions allow beta testing of safety innovations in the real world. Manufacturers with exemptions must report information about crashes for which they have knowledge to NHTSA. Under current law, each manufacturer’s exemption is limited to 2,500 vehicles sold in the U.S. each year. H.R. 3388 increases the exemption for HAVs to 25,000 in the first year, 50,000 vehicles in the second year and 100,000 vehicles in the third and fourth years. The highly automated vehicle exemptions under H.R. 3388 terminate after four years.

Pros and Cons

The annual caps built into H.R. 3388 provide potential advantages and downsides. By capping the number of HAVs a given manufacturer can sell each year, the bill will mute “first mover” advantage to the developer with the first, best or best hyped HAV. This may allow the emergence of a less concentrated market for HAVs. The flip side disadvantage is that consumers may be denied access to the best (or, at least, the preferred) HAVs for a number of years. The approach in H.R. 3388 may also buy time for NHTSA to develop FMVSS for HAVs that do not backfire or for Congress to devise another solution to regulating an emerging technology. Ironically, the incremental approach in H.R. 3388 may facilitate the development of breakthrough automotive technology better than a more radical form of regulation that could force a new technology into less than optimal paths. Rowen is a partner in the San Francisco office of Sedgwick LLP. Her practice focuses on insurance regulatory issues. She can be reached at Phone: (415) 627-3519. Email: hilary.rowen@sedgwicklaw.com. INSURANCEJOURNAL.COM

WEST | News & Markets

The Drone World Expo in early October in San Jose, Calif. drew people from myriad industries to talk and learn about drones, including the insurance industry.

Get Very Used to Drone Usage in the Insurance Industry By Don Jergler

ne major insurance carrier already has a program underway to train claims adjusters to visit accident sites and fly drones to gather data. American Family Insurance started working on developing a drone program around 2013, and the company now has a “batch” of adjusters training to fly unmanned aerial vehicles at the sites where clients have reported property damage or other losses, according to Taylor Horsager, UAV chief pilot and instructor for American Family. Horsager was speaking on drones in the insurance industry in early October at the Drone World Expo in San Jose, Calif. “We see drones as an opportunity to service people faster and more effectively,” Horsager said. American Family is currently working

on a research and development project to develop hardware and software for drones, which will eventually be directly integrated it into the carrier’s claims system, he said. He said the plan right now is to keep the process straightforward, as in teaching an adjuster to go to a site and operate a drone via a cellphone. “We’re looking at the technology on the market and trying to do things as simply as possible,” he added. The company is currently conducting “proof of concept” testing, and creating a check list for adjusters who are going out to a site that includes basic check boxes on a list like: Is it safe to fly? Do I have permission from the property owner? It’s a start, but it appears the company is already beefing up to be a big user of drones. Asked how many American Family

W14 | INSURANCE JOURNAL | WEST OCTOBER 16, 2017

adjusters have been trained on drones, he only offered “a small batch” in response. “We are in proof of technology mode,” he said, adding that there are issues to be overcome and “the technology is not there yet.” One challenge is the visual line of site rule implemented by the Federal Aviation Administration, which requires an operator to be able to see the drone with the naked eye at all times. That makes it hard to gather data for large sites. However, Horsager said the sky may literally be the limit for what drones can do in the insurance industry. “We definitely have a potential of scaling, and definitely have a potential of having third-party needs,” he said. The moderator on the panel was Kathleen Swain, senior director of UAS programs for the Aircraft Owners and Pilots Association. INSURANCEJOURNAL.COM

She believes that if more drones were already deployed by the industry, money could have been saved by getting adjusters out to disaster sites to gather information to pay claims earlier. “After hurricanes Harvey and Maria, we really see how important it is to get that technology up and running,” she said. Beverly Adams, head of catastrophe planning and response with Guy Carpenter, views drones and their advanced data collection capabilities as an opportunity to get the insurance industry “a seat at the table” before disasters happen instead of primailly responding to them. She noted that many national disaster plans don’t even mention insurance, but that the industry should be invited to partake in such planning. “We’ve almost got to earn our stripes,” Adams said. In fact, she said she envisions the need for drones to grow to the point where many insurers will need to seek out third-party providers to fill demand. “We know right now that we’re not going to be charging vast amounts of money to do this,” she added, addressing her comments to those potential providers in the audience who may entertain working with her company. “These are risk surveys.” Jessica Magill, who works with Swain as an account executive at AOPA, said she’s seen a “drastic change in the market” in just the last 18 months, when she fielded a call from a drone pilot who wanted to make a change on his policy. That got her to learn about drone insurance and she’s been embedded in it ever since. At that time she got the call, AOPA could only offer customers two choices for policies: a $1 million liability policy, or a $500,000 liability policy. And they had only one carrier to work with back then. Now they’re working with five carriers, “and we’ve got more coming on board,” she added. The firm can also now offer liability for damage caused by a drone, but also coverage for the drone itself, and underwriters are starting to open up to covering a broadINSURANCEJOURNAL.COM

er range of drone operations, she said. “It’s really changed and it’s really kind of cool to see how our carriers have changed and how they are viewing the risk,” she said. Swain put in that as more carriers have entered the drone insurance world, they’re coming in with a lot more to offer insureds. “A lot of times we’re seeing open peril, no exclusion policies come to market,” Swain said. “Carriers are stepping up to the plate and offering policies with no exclusions.”

Drone VCs

A surefire way to figure out how bright the future is for the drone business is to follow the money. That’s just what one group of experts discussed on a panel titled, “Follow the Money: Exploring the Drone Investment Climate.” “The last few years there’s been a noticeable venture uptick in investing in drones,” said panel moderator Jonathan Evans, co-president of Skyward, a venture-backed software company based Portland, Ore., which was recently acquired by Verizon. The other panelists were: Yoshi Iwakami, a partner in World Innovation Lab; Ashley Carroll, a partner in Social Capital; Bilal Zuberi, a partner in Lux Capital; Jake Kaldenbaugh, a technology M&A banker at Growthpoint Technology Partners; and Tammi Smorynski, a director with Intel Capital. Zuberi agreed with the assessment that investments in drones have picked up in recent times, but he believes that over the past year or more that more venture capitalists are wanting to see more revenue being produced by what is so far a small number of successful drone companies before putting more money into the industry. “I think all the major VCs at this point have an investment in drones,” he said. He added that some of the smaller drone companies may be struggling to find capital, while “there’s a lot of money for

later-stage companies.” For now, much of the backing for the industry is waiting for more success stories, he said. “I think there’s a lot of companies sitting in valuation between $40 and $100 million and they’re still trying to figure things out,” he said. Still, he said there’s a bright horizon for drones. “But if you take the long-term perspective, drones are going to be around for a long time and they’re going to be an important part of the economy,” he said.

Hurricanes Harvey and Irma

Drone response to hurricanes Harvey and Irma seemed to play an important enough role to demand a panel on it at the conference. “When Harvey first happened, it became apparent pretty quickly that drones were going to be part of the story,” said Christopher Korody, principal with DroneBusiness.center, an information website focused on drones. Korody was a moderator for the panel to discuss the response to these disasters. Others on the panel were Justin Adams, director of business development for Kovar and Associates; Tony Eggimann, captain of the Menlo Park Fire Protection District; Dyan Gibbens, CEO and founder of Trumbull Unmanned; Bradley Koeckeritz, chief of the UAS division for the of the U.S. Department of the Interior; and Art Pregler, UAS program director of AT&T. Adams was an early responder to both Harvey and Irma. “The biggest challenge I know we had was controlling airspace,” he said. “We tried to control airspace very quickly.” He said he and his team during Harvey had to go to the FAA to get flight level authorizations and to restrict drone flights from other operators to prevent interference. One of their big tasks following the disaster was separating fact from fiction.

‘When Harvey first happened, it became apparent pretty quickly that drones were going to be part of the story.’

continued on page W16

OCTOBER 16, 2017 INSURANCE JOURNAL | WEST | W15

WEST | News & Markets continued from page W15

The drone team often flew over areas to confirm or deny that rumored flooding had occurred there. “It was more rumor control,” he said. When all was said and done, he and his team provided 2.8 terabytes of data to Fort Bend County, Texas, where they were surveying. Koeckeritz said the Department of the Interior deployed 12 pilots and their drones to Harvey. Flight missions included data processing, flood inundation mapping and damage assessment. One of the biggest benefits of the drone missions was cost avoidance, he said, adding that they saved “thousands of dollars” from having to use boats to go in and

assess flooded areas. Saving costs and time spent deploying boats to areas that may or may not have been flooded was also a major takeaway for Eggimann. He and his team of drone operators were OK’d to head to Wharton, Texas, to conduct search and rescue reconnaissance. While responding to Harvey, they deployed a drone to map out a plan on how to deploy boats. “As the guys were getting the boats up and running, the drone came back and we were able to download images and devise a plan,” Koeckeritz said. He said that using drones is something his department plans to do more often.

The department now has five trained pilots and Koeckeritz thinks there is a need to train as many as a dozen more. Pregler said AT&T deployed drones for both Harvey and Irma. The drones provided valuable information to assess the damage to communications systems in both areas and report back. However, in one case a drone proved a bit more useful than as a mere information conduit, when the drone team came across an area without power that was disconnected from fiber optic cable across the river. “We pulled the fiber optic cable across the river to establish connectivity,” he said.

Worker Safety, Regulation Overload Among Highlights of Drone Expo in California By Don Jergler

rones may already be impacting the world of workers’ compensation. Fewer workers on communications towers are falling to their deaths, according to Todd Schlekeway, executive director of the National Association of Tower Erectors. Schlekeway, who was speaking at a panel in October at the Drone World Expo in San Jose, Calif., was citing an OSHA study of 135 deaths on communications towers recorded since 2003. He was moderating a panel on how drones, or unmanned aerial systems, are transforming the communications industry, along with Thomas Camp, in business and product development with Verizon’s innovation program, Christopher Moccia, executive vice president of telecommunications for Measure, and Art Pregler, UAS program director for AT&T. The OSHA study shows that after a spike in deaths in 2013 and 2014, when a massive amount of communication tower building took place to keep up with an explosion in cellular demand, the number of deaths have been falling. There were four deaths in 2015, seven deaths in 2016 and two deaths so far this year, although there were some recent

deaths that have yet to be reported, according to Schlekeway. He noted that there are more than 308,000 cell sites and towers in the U.S. With demand for more towers, and maintenance required of all of those towers, Schlekeway and his fellow panelists said drones are increasingly important in helping to keep workers safer. Drones are being used often to check out towers for natural Todd Schlekeway (left), with the National Association of Tower hazards like bee hives and raptor Erectors, moderated a panel to talk about how drones are transforming the communications industry, along with Art Pregler, nests, to look for infrastructure with AT&T, Christopher Moccia, with Measure, and Thomas defects that could injure or kill Camp, with Verizon. someone ascending a tower, and to determine what tools will be needed “It kind of seems like insurance is on the when workers get to their destination high backburner for some of these guys,” Ellish in the air to save trips up, the panelists said. said. She said that while several attendees Drone Insurance who stopped at the booth felt insurance The lone insurance presence with was the last of their worries, they were able a booth at the expo was BWI Aviation to give dozens of quotes for basic liability Insurance, a Corona, Calif.-based broker policies to offer drone operators coverage. specializing in drone and other aerospace Quotes were given to a mix of operators, coverage. ranging from startup companies to com Wesley Ellish, who was working the panies that were already considered midbooth with a few fellow brokers, said they sized with growing fleets of drones, but by decided to take a spot at the expo in hopes far the class of business that showed the of selling polices and educating drone users biggest interest in buying drone insurance on the need for insurance. were instructors, she said.

W16 | INSURANCE JOURNAL | WEST OCTOBER 16, 2017

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News & Markets | NATIONAL

Driver Concerns Over the Future of Autonomous Vehicles: AIG Study

• • •

afety of the vehicles, including the risk of hacking, are key concerns when it comes to autonomous vehicles, according to a study by American International Group Inc. on the whether or not Americans accept or reject driverless cars on the road. The study revealed the positives of autonomous vehicles — ease of driving and lower insurance premiums are seen as compelling benefits. Forty-one percent of survey respondents say they are uncomfortable with the idea of sharing the road with driverless vehicles, while 42 percent are generally OK with it. A major stumbling block to acceptance is the perceived security of the vehicles, with 75 percent of respondents expressing concern that fully driverless vehicles, and even autos with autonomous features (emergency braking, lane departure avoidance, etc.), are susceptible to hackers.

Potential Risk Shifts

INSURANCEJOURNAL.COM

Sixty-seven percent worry that a cyber breach could expose personal data the vehicle may acquire, such as credit card information, when and where drivers travel, and Internet connections made from the vehicle. Other concerns expressed by respondents include: information such as whom the driver had in the vehicle and the potential for private conversations to be recorded. Some 39 percent of the survey respondents believe driverless vehicles will operate more safely than the average human driver, but more than a quarter (27 percent) felt they would not. When respondents were asked whether fully autonomous vehicles would operate more safely than they drive, 31 percent said no. On the positive side, respondents were asked to select up to three perceived benefits of driverless vehicles. The most appealing benefits include:

Easier/less stressful transportation (44 percent); Increased road safety (42 percent); and Lower insurance costs (39 percent).

Overall, as more partially or fully autonomous vehicles hit the road, respondents see responsibility for accidents shifting away from individual drivers and more toward the auto manufacturers and software developers that enable the autonomous technology. “As we move from autonomous features to fully driverless vehicles, risk does not disappear — it shifts from humans to machines,” said Lex Baugh, president, liability and financial lines at AIG. “Understanding consumer perceptions of where risk with new technology ultimately resides today will help industry and insurers understand where liability may lie tomorrow.” In one scenario where a fully driverless vehicle strikes a pedestrian, respondents felt the automaker (50 percent) and software provider (37 percent) would be most liable. Nearly a quarter (23 percent)

of respondents still see the vehicle’s occupant as having some form of liability, while 19 percent see the same for the vehicle’s owner. The majority (81 percent) of respondents think individuals who purchase or ride in fully driverless vehicles should still be required to have auto insurance. For a similar accident involving a vehicle with automated assisted driving technology, the driver is seen as most liable (54 percent), according to the survey. However, the automaker and software provider are still seen as substantially liable among respondents, at 33 percent and 27 percent, respectively. Along with this shifting sense of risk toward the commercial components of the car, a plurality of respondents (35 percent) felt automated assistance systems or driverless vehicles should result in lower insurance premiums for the vehicle owner. “The need for personal auto insurance will not go away as driverless cars emerge. Though without doubt, we will see shifting of liability in certain scenarios,” said Gaurav D. Garg, CEO personal insurance, AIG. “There are many ways for the driverless vehicle story to unfold over the next several years. It is critical for insurers to carefully watch the trend to help prepare clients — both consumers and businesses.” This is the fifth in a series of studies by AIG on innovative technology, including the Internet of Things and the sharing economy, and how risks are shifting as a result. This study was conducted August 17-24, 2017.

OCTOBER 16, 2017 INSURANCE JOURNAL | NATIONAL | 15

NATIONAL | News & Markets

Workers’ Compensation Costs and Benefits Decline as a Share of Payroll: Study costs for workers’ compensation — including insurance premiums, reimbursement payments, and administrative costs — increased by 20.1 percent, exceeding total benefits paid in 2015 by $32.9 billion. The growth rate in aggregate employer costs, which had been increasing faster than total benefits paid in recent years, slowed down in 2015, increasing 2.3 percent from the previous year to $94.8 billion. In 2015, total wages covered by workers’ compensation exceeded $7 trillion for the first time, increasing by nearly 19 percent between 2011 and 2015. Overall, in 2015, workers’ com-

decline in benefits and costs as a share of payroll is that workplaces are getting safer,” said Marjorie Baldwin, professor at Arizona State University and co-author of the report. “Both the incidence and severity of work-related injuries have declined steadily since 1990. In fact, according to the Department of Labor, the proportion of workers who experienced injuries that resulted in days away from work reached a 25-year low in 2015.” Meanwhile, employer costs ticked down in 2015 to $1.32 per $100 of payroll — the 4th lowest level since 1980. Between 2011 and 2015, however, total employer

pensation coverage extended to an estimated 86.3 percent of all jobs in the employed work-

‘The relative decline in medical benefits paid between 2013 and 2015 can be partially explained by some states changing their workers’ compensation medical care delivery systems.’ force, comprising more than 135 million workers.

continued on page 18

Figure 1 Workers’ Compensation Benefits and Costs Per $100 of Covered Wages, 1980-2015 $2.50

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orkers’ compensation employer costs as a share of payroll declined in 2015, reversing a four-year trend. Meanwhile, benefits as a share of payroll fell for the fourth straight year, according to a new report from the National Academy of Social Insurance (the Academy). As the economic recovery has spurred growth in employment and a corresponding increase in employees covered by workers’ compensation, benefits per $100 of payroll fell from $0.91 in 2014 to $0.86 in 2015 — the lowest level since 1980. In aggregate, workers’ compensation insurers paid $61.9 billion in benefits in 2015, a 1.3 percent decline from 2014. Between 2011 and 2015, benefits as a share of payroll fell in all but three states, continuing a national trend of declining benefits relative to payroll that began in the 1990s, according to the report, “Workers’ Compensation: Benefits, Coverage, and Costs.” “Part of the story behind the

Notes: Benefits are calendar-year payments to injured workers and to providers of their medical care. Costs for employers who purchase workers' compensation insurance include calendar-year insurance premiums paid plus benefits paid by the employer to meet the annual deducible, if any. Costs for self-insuring employers are calendar-year benefits paid plus the administrative costs associated with providing those benefits. Source: National Academy of Social Insurance estimates.

survived constitutional challenges were passed in 1911 by New Jersey and Wisconsin.2 Of the contiguous 48 states, the last to pass a workers’ compensation law was Mississippi in 1948. Today,

work-related injury was to file a tort suit claiming 3 Employers INSURANCEJOURNAL.COM negligence on the part of their employer. could use three common law defenses to avoid liability: assumption of risk (showing the injury resulted

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NATIONAL | News & Markets continued from page 16 Medical Costs

“Some of the changes involve, for example, implementing fee schedules that set maximum reimbursement rates for medical care or adopting treatment guidelines,” he said. Many states have also enacted new disability rating procedures and compensability requirements that impact cash benefits paid. “All of these factors influence the share of medical benefits, as well as total benefits and costs.”

In large part because of growing medical costs over the past 30 years, medical benefits now account for an increasing share of total workers’ compensation benefits, rising from 29 percent in 1980 to more than 50 percent in 2015. However, from 2013 to 2015, medical benefits paid declined faster than cash benefits paid — nonfederal medical benefits paid fell 2.3 percent to $29.9 billion in 2015 and non-federal cash benefits fell 0.7 percent to $28.3 billion. “The relative decline in medical benefits paid between 2013 and 2015 can be partially explained by some states changing their workers’ compensation medical care delivery systems,” said Christopher McLaren, senior researcher at the National Academy of Social Insurance and lead author of the report.

Highlights

The Academy report highlights state-by-state changes in coverage, benefits and employer costs during the past five years. The state-level results show that between 2011 and 2015: • The number of covered workers increased in every state except West Virginia, with 11 states experiencing double-digit growth in covered employment;

• The amount of covered wages increased in every state, and by more than 20 percent in 16 states; • Benefits per $100 of payroll decreased in all but three states, with the biggest declines in Illinois (-$0.33), Oklahoma (-$0.41) and West Virginia (-$0.52) — three states that implemented significant changes in their workers’ compensation systems during this period; • Employer costs per $100 of covered payroll increased in 24 states and decreased in 27 states. West Virginia, Montana and Oklahoma experienced the largest reductions, with costs dropping more than $0.30 per $100 of covered payroll. Employer costs increased by more than $0.20 in Wyoming,

Figure 2 Workers’ Compensation Medical and Cash Benefits Per $100 of Covered Wages, 1980-2015 $1.20

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the injury, regardless of any fault of the employer). 18 | INSURANCE JOURNAL | NATIONAL 16, 2017 Given the available defenses, it was OCTOBER not surprising that employers often prevailed in court. Employers were, however, at risk for substantial and unpre-

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Delaware and California. The is the 20th annual “Workers’ Compensation: Benefits, Coverage, and Costs” report published by the National Academy of Social Insurance. The report provides the only comprehensive data on workers’ compensation benefits, coverage and employer costs for the nation, state, District of Columbia and federal programs. Workers’ compensation, the nation’s first social insurance program, pays medical benefits to the providers of health care for injured workers, and cash benefits to workers whose injuries prevent them from working. Share this article with

a colleague. IJMAG.COM/116FI

to recovery of damages (Burton and Mitchell, 2003).5 Ultimately, both employers and employees favored workers’ compensation legislation to ensure that workers who sustained occupational injuries or

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ty of risk management information/advice y with deductible options plan options ss to accept new agencies

Agencies That Specialize in Particular Markets

NATIONAL | Special Report | Agency E&O Survey

57.5%

42.5%

Yes No

Agencies with Risk Management Plan to Mitigate E&O During Natural Disasters Yes, we have a specific risk management plan for natural disasterss We have some steps in place for natural disasters We are planning to write a plan for natural disasters No, we do not have an E&O disaster riskk management plan

By Andrea Wells

or independent agents, errors and omissions (E&O) allegations can surface any day or week but the risk is heightened in the days following natural catastrophes. “After the storm passes over and the claims start to come in, the risk for the insurance agent rises,” according Insurance Journal’s Academy of Insurance Director Patrick Wraight. After the winds die down and rains subside, the claims questions and denials begin and agents can find themselves thrust into uncomfortable situations between their customers and their carriers. “That’s when the agent’s errors and omissions insurance kicks in,” Wraight said recently in an Academy webinar on agency E&O exposures following Hurricanes Harvey and Irma. 20 | INSURANCE JOURNAL | NATIONAL OCTOBER 16, 2017

17.1% 54.0%

25.9% 3.1%

Importance of E&O Risk Management Plan for Business Related to Natural Disasters Yes, a specific disaster plan for E&O is important Maybe, but it depends on where your agency is and what type of business you write No, it's not necessary; the same E&O risk management procedures should be followed whether it's a natural disaster or not

19.4% 36.2%

44.4%

INSURANCEJOURNAL.COM

The leading cause of agency E&O claims for years has been an agency’s failure to procure coverage. E&O insurers fully expect to see an uptick in such claims given this year’s highly active hurricane season. “In 2017, given the number of hurricanes, some errors and omissions carriers will see a spike in this issue, especially around flood and windstorm coverage,” Mark R. Angelucci, resident senior vice president and E&O segment leader for Utica National Insurance Group, told Insurance Journal. “We do expect to see an increase in claims against agents after hurricanes Harvey and Irma,” agrees Robin LaFollette, head of financial and professional claims in North America for Swiss Re Corporate Solutions. “Even before a natural disaster is over, clients contact their agents to begin the process of filing a claim and to ask questions about what their policies will and will not cover.” E&O is not the main agency concern during a disaster, of course. But having a proper disaster plan helps assure that there are procedures in place to properly serve clients and minimize mistakes during a stressful time for everyone.

17.1% 54.0%

25.9% 3.1%

LaFollette notes that agents must have uments in electronic form backed up on a a plan for mitigating the impact of natural remote server or in the cloud so that they disasters on their own operations and procan be accessed after a flood.” viding services to their clients in a post-catastrophe environment. Disaster Risk Management “Just like their clients, agents are at risk According to Insurance Journal’s 2017 of sustaining todisaster their operations in E&O Agency Yes, adamage specific plan for is E&O survey, 36.2 percent of a natural disaster,” she said. For instance, respondents believe it’s important to have important after Katrina many agents lost all paper an errors and omissions risk management Maybe, but it depends on where plan yourspecific to handling business related files and computers to flooding. “Agents 19.4% isthey andhave what typedocof business should agency make sure critical to natural disasters but only 17.1 percent 36.2% reported actually having such a risk manyou write agement plan in place. No, it's not necessary; the same E&O Swiss Re’s LaFollette says that every risk management procedures should 44.4% agency should have a contingency plan for be followed whether it's a naturalhow it will provide critical services if its office is without power or, worse yet, candisaster or not not be accessed at all. 12.7% “It’s wise for agents to consider ahead of time whether they should purchase 21.8% a generator to provide power,” she said. They should also have a contingency plan 21.8% for temporary office space and temporary employees to help with the high volume 9.5% of claims that their clients will report after large natural disasters such as Hurricanes 8.7% Harvey and Irma. Agents should also check their E&O policies to see if they have catastrophe extra 7.1% expense coverage that will reimburse them for some of these expenses, LaFollette 17.9% said. 10% 15% 20% 25% 30% “Agencies must have their own disas-

Importance of E&O Risk Management Plan for Business Related to Natural Disasters

Annual Cost of Agency E&O Coverage 0.4%

$1,000 or less $1,001 to $2,500 $2,501 to $5,000 $5,001 to $10,000 $10,001 to $15,000 $15,001 to $25,000 $25,001 to $50,000 More than $50,000

continued on page 22 INSURANCEJOURNAL.COM

OCTOBER 16, 2017 INSURANCE JOURNAL | NATIONAL | 21

Agency E&O Premium Change in 2016 Compared to 2015 Increased NATIONAL | Special Report | Agency E&O Survey Decreased Stayed the same

No. 1 Reason Agencies Carrry E&O Coverage

0.4% 10.4%

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

Agency E&O Premium Change in 2016 Compared to 2015

89.2%

37.2%

Increased Decreased Stayed the same

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

47.4%

15.4%

22.1% 15.8%

62.1%

Prediction on E&O Premium m Change at Next Renewal 48.2% Increase Decrease Remain the same

Satisfaction with Agency E&O Terms, Conditions and Limits

47.4%

4.4%

73.0%

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

15.4%

83.8%

22 | INSURANCE JOURNAL | NATIONAL OCTOBER 16, 2017

E&O Claims History of Respondents

14.2%

15.4%

Annual Cost of Agency E&O

terAgency recoveryE&O plans Premium because they are in the unique position of needing to operate Utica’s 22.1% Change in thetheir Pastbusinesses Three post-catastrophe,” Angelucci told Insurance Journal. is exactly0.4% the time that $1,000“That or less Years many of their customers need them the15.8% most.” 62.1% Increased recommends that every agency address at least Angelucci 12.7% $1,001 to $2,500 Decreased three areas. Stayed the same First, a plan should include a complete list of customers and $2,501 to $5,000 carriers’ claim-reporting phone numbers as well as backup locations if their offices are unable to be used, Angelucci said. (Utica Prediction ondeveloped E&O$5,001 Premium m to $10,000 National recently a tool to assist agents in developing this list.) at Next Renewal Change The second piece involves documentation of the pre-ca$10,001 to $15,000 9.5% 48.2% 47.4% tastrophe binding restrictions of the agency’s carriers. This, Increase Decrease he said, includes “knowing and documenting the submission $15,001 to $25,000 8.7% the same statusRemain of risks needing coverage that were submitted pre-ca4.4% tastrophe so that there is no confusion about whether coverage $25,001 to $50,000 was in-force or not.” This can include payment requirements7.1% and knowledge of coverage afforded by wind pools or by the Satisfaction withMore Agency than $50,000 National Flood Insurance Program. For example, some states’ wind only provide building, not contents E&Opools Terms, Conditions 19.8% coverage. 0% 5% 15% and The third piece involves documentation of customer proce- 10% Limits 7.1% dures. “If you are writing risks in hurricane-prone areas, each Yes 73.0%thereof – risk should be advised about the availability – or lack No of flood coverage, the flood limits, and the deductible if the covSomewhat satisfied erage is written,” he said. “For homeowners policies, if a carrier offers different hurricane deductibles or limits roof coverage, this must be explained to the insured, and his or her decision Increased Agency E&O about deductibles, limits, etc., must be back to Premium By Comparison ofmemorialized Changes in E&O the insured via a letter or email.” These coverage15.4% areas seem to Limit at Last Policy Region drive the most frequent post-catastrophe E&O claims, according Renewal to Angelucci. Region Decreased Increased Sam 83.8%

No Yes Offers Coverage

Midwest 17.0% 32.0% East 20.0% 46.0% According to LaFollette, post-hurricane Southmany Central 9.0% E&O claims 67.0% Southeast 16.0% 57.0% West 11.0% 48.0%

52.0% 33.0% 24.0% 27.0% 41.0%

14.2%

42.7% Why Change in E&O Carriers

7.1%

Yes No Somewhat satisfied

47.4%

continued from page 21

E&O Claims History of Respondents

19.8%

37.2%

13.8% Never had a claim Had a claim in the past 5 years 29.3% Had a claim 6 to 10 Lower years agoprice Had a claim more than 10 years ago due to claims Nonrenewed

2 2 1 7 9 1

Nonrenewed due to change in underwriting criteria Carrier withdrew from agency E&O market Needed broader coverage 1.0% Number of Agency E&O 4.7% Other reasons

Carriers in Past Five Years One carrier Two carriers Three carriers More than three carriers

39.8%

New E&O

54.7% Risk Management Steps Implemented Steps in t in Past Three Years

Attended an E&O class Agency staff has achieved additional designations INSURANCEJOURNAL.COM More actively utilized an exposure analysis checklist Hired a third-party to perform an agency audit

Yes No

7 4 4 7

10 years ago 37.2%

cy E&O 15.4% ve Years

$10,001 to $15,000

47.4%

1.0% 4.7%

involve nonexistent or inadequate flood or 39.8% wind coverage, a lack of contingent business 54.7% interruption coverage, or off-site power failure coverage. 22.1% “Agents can reduce their exposure to these claims by offering their clients policies that 15.8% 62.1% cover the kinds of damage we see after a hurricane,” she said. “It is very important that the agent document his file with evidence that he offered the policy together with the client’s response, especially if the offer was rejected. This is the most powerful defense to an E&O claim.” Angelucci agrees that it is important for agencies to effectively communicate the outcome of discussions on coverages offered, limits available and47.4% coverages declined. 48.2% “Email and work-processing systems make this process as easy as it has ever been,” Angelucci said. “It is also the most effective way to do4.4% business. Policyholders need to understand what they are buying does for them, and conversely, what it doesn’t.”

Quality E&O Product

9.5%

$15,001 to $25,000

8.7%

$25,001 to $50,000

7.1%

New E&O Risk Management More than $50,000 Steps in the Past Year 0%

17.9% 28.6% 15% 10%

20%

71.4%

Yes No

Comparison of Changes in E&O Premium By Region Region

Decreased

Increased

Same

Midwest East South Central Southeast West

17.0% 20.0% 9.0% 16.0% 11.0%

32.0% 46.0% 67.0% 57.0% 48.0%

52.0% 33.0% 24.0% 27.0% 41.0%

Whether before or after a storm, agency own-

19.8% ers never expect to have an E&O claim.

“We don’t want to have them, we don’t

7.1% expect to have them, but we have them,” said

Angela Schroder, president of U.S. E&O Brokers, 73.0% a retail insurance brokerage based in Houston that exclusively markets E&O policies nationwide for insurance agents and brokers. Insurance agents E&O protects agencies, the owners, their families and their employees from financial harm. “It is their lifeline for what they do every day,” said Schroder. “You15.4% could have a catastrophe at any time in the United States, not just a hurricane,” she said. “It could be something else and that’s why coverage is important every day, not once a year.” 83.8% Agents get it. According to Insurance Journal’s 2017 Agency E&O Survey, the vast majority of agency owners (89.2 percent) purchase E&O coverage. That was up from 83.5 percent in IJ’s 2016 survey. Agency owners, too, need to understand the E&O coverage they buy and understand that 14.2% right after a disaster may not be the best time to shop around for a new policy. 13.8% Right now, 42.7%the agency E&O market is stable and competitive, with good availability of mar-

29.3% INSURANCEJOURNAL.COM

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

28.0% 2.8% 1.2% 7.2% 9.2% 10.4%

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

76.1% 43.8% 40.6% 7.8% 63.6% 45.6%

continued on page 24 OCTOBER 16, 2017 INSURANCE JOURNAL | NATIONAL | 23

Yes No

Agency Requires

NATIONAL | Special Report | Agency E&O Survey 15.9% Continuing Education continued from page 23

84.1%

Yes No

Purchased E&O from Agent Tradee Association Agencies That Specialize in Particular Markets Yes No

54.4%

57.5%

45.6%

42.5%

Yes No

Agency Requires Continuing Education

15.9%

84.1%

Yes No

Agencies That Specialize in Particular Markets 57.5%

42.5%

Yes No

Agencies with Risk Management Plan to Mitigate E&O During Natural Disasters Yes, we have a specific risk

E&O Limitsplan Purchased management for natural disasterss We have some steps in place for $2 natural milliondisasters or less per claim We are planning to write a plan for $3 million per claim natural disasters $4No, million claim we doper not have an E&O disaster riskk $5 management million perplan claim

17.1% 54.0%

25.9% 3.1%

$6 million to $10 million per claim $11 million-plus per claim

49.4% 9.5% 3.6% 14.6% 12.7% 5.1%

Importance of E&O Risk Management Plan Most Important Issues WhenDisasters Selecting E&O for Business Related to Natural a specific disasterexperience plan for E&O is 1. Yes, Claims handling important 2.Maybe, Longevity the E&O carrier in providing this coverage but it of depends on where your 19.4% 3.agency Extended period (tail) options is andreporting what type of business 36.2% writeaccess to underwriting and claims personnel 4.you Direct No, it's not necessary; the same E&O 5.risk Availability of risk management information/advice management procedures should 44.4% 6.be Flexibility with deductible followed whether it's a natural options or not 7. disaster Payment plan options Agencies with Risk Management Plan to 8. Willingness to accept new agencies

Mitigate E&O During Natural Disasters

with a colleague. IJMAG.COM/116EO Yes No

84.1%

Insurance Journal’s Agency E&O Survey collected more than 300 responses from agency owners nationwide via an online survey in September 2017. Demotech Inc., Insurance Journal’s official research partner, assisted Agencies That Specialize in with analysis of this year’s survey results. For more information, contact Particular Markets Andrea Wells at: awells@insurancejournal.com. 57.5%

Yes, we have a specific risk 24 | INSURANCE JOURNAL | NATIONAL OCTOBER 16, 2017 management plan for natural disasterss We have some steps in place for

kets for quality accounts, according to Schroder. This scenario drives some agents to shop around, which Schroder says is not always a good idea in a post-catastrophe environment. Schroder said she has seen agents shopping their E&O in storm-hit locations. “They should just be happy with the policy they have. If they’re not happy with the policy they have, they shouldn’t have bought it last year!” She worries about agents in Texas, Louisiana and Florida. “If your E&O comes up in the next two or three months, I’m not sure you really should be changing carriers. You just had a hurricane,” she said. Schroder admits that even agency owners don’t always read their policies and what’s covered. “They’re not reading the endorsements. They’re not reading what lines of business are covered or not covered. Or that there’s no punitive damage coverage or that certain perils are excluded,” she said. In some cases, agencies may be purchasing lower cost E&O coverage that doesn’t even meet the financial responsibility of the state they’re licensed in, according to Schroder. “If you have a corporation and that’s how you are doing business, that corporation needs to be the named insured,” she said. “There are quite a few policies that will only list the agent and not their entity, and that may not meet the financial responsibility requirements.” What’s most important is buying an E&O product that covers the agency’s exposures, she said. “Are they buying a quality product? Or are they just buying a product that, at the end of the year, they might save $500 or $600 or $1,000? Or did they actually buy an E&O product that will cover them in the event that they have a lawsuit against them Purchased or a suit against their company?” E&O from Agent Tradee Policy forms vary, according to Schroder. “These policy Association forms do matter,” she said. “You have to read what’s covered. A lot of times, we’ll say, ‘You got a quote and 54.4% it’s $500 less.’ 45.6% Great. ‘But did you read the policy? Did you read the excluYes sions?’” she No said. While many agencies are lucky enough to avoid E&O claims, many others will find themselves facing an E&O allegation at some point. According to Insurance Journal’s 2017 Agency E&O survey, nearly half of the survey respondents (43.1 perAgency Requires cent) have had an E&O claim in the past 10 years. Another 14.3 15.9% Continuing Education percent had an E&O more than 10 years ago, while 42.7 percent reported never having an E&O claim. Share this article

17.1%

Yes No

42.5%

INSURANCEJOURNAL.COM

How to Help Clients with Disaster Claims

n an online discussion on agency errors and omissions (E&O) exposures following Hurricanes Harvey and Irma, Florida Association of Insurance Agents’ (FAIA) David Thompson, insurance educator for more than 20 years, and Dan Britto, professional liability attorney with the law offices of William W. Price, P.A. of West Palm Beach, Fla., offered tips on what not to do following a catastrophe. Below are excerpts from the hour-long discussion. The full discussion, moderated by Insurance Journal’s Academy Director Patrick Wraight, can be accessed at

https://ijmag.com/1010AS.

Patrick Wraight: What coverages, if left unaddressed, can create some of the bigger E&O exposures for an agent? David Thompson: The top three things

that we most commonly see are business income and extra expense, especially relating to utility failure, which is always our top E&O driver, and screened enclosures over pools, or what we would call a pool cage in Florida. … Those three categories probably make up 30-40 percent at least of our typical E&O claims.

Wraight: How should coverage conversations be handled with an agent and insured following a catastrophe? Dan Britto: After the storm, I tell agents to

keep their conversations about what’s covered to an absolute minimum. I see a lot of agents post-storm basically make a coverage opinion in writing whether it be in an email to the customer or they’re arguing with an adjuster thinking the adjuster is wrong. If it turns out the insurance carrier is right and something is not covered, the agent’s email, where he’s trying to help out his customer, basically is an admission that he or she did not know what the coverages were in the policy that he was selling. The time to have that conversation with your customer is obviously INSURANCEJOURNAL.COM

before the storm hits. Afterwards you’re going to have a lot of phone calls saying, “Is this covered? Is it not covered?” My advice to agents is report the claim. Let the insurance adjuster do their job. Do not put on an adjusting hat and try to play adjuster because it can only end bad.

Wraight: When it comes to business income (BI) and extra expense (EE) coverage related to off-premises utility loss of power, a lot of times that cause of loss is not going to be covered, right? Thompson: Correct. There are three endorsements to fix that. One is the direct, one is the time element and one is for spoilage. … A lot of folks, anything dealing with food, flowers, pet shops, those are critical endorsements that need to be on a policy.

Wraight: What advice do you have for an agency that can’t locate the off-premises BI and EE? Britto: If they feel like it’s an important coverage, and I would say it is, have that discussion ahead of time. My caution would be to say, “My agency can’t get this particular type of coverage for you. But we think it’s an important coverage and you may want to consider.”… That might steer someone to get a quote from one of your competitors. But the case law in Florida is if you tell a customer that a particular type of coverage is not available, and it turns

out it is, even if it’s on a surplus lines market and the premium is pretty high, you’re still on the hook for giving bad advice and you could have an E&O claim. … Be very careful using definite (language) like, “This coverage is simply not available.” What you’re representing is it’s not available anywhere in the insurance universe. A sophisticated plaintiff lawyer will find it somewhere, even at a ridiculous price and I can assure you in the plaintiff’s deposition they’ll say, “I absolutely would have bought it if I wasn’t told it didn’t exist.”

Wraight: Should all losses be reported to the carrier no matter what? Britto: From the E&O ivory tower, the

answer is yes. I know the reality, especially with agencies that do a lot of residential work, it’s a volume practice and you don’t want to lose a bunch of clients because they get canceled because they had a claim and they never got the first dollar for that claim. The attorney answer is yes. If I take off my attorney hat and say, “From a practical matter, what do you do in that situation?” You educate your customer and say, “This is your deductible. If you have a contractor that says this is a minor fix, then the decision is yours whether to report it or not. Here we recommend that you report all claims.” You have to advise your customer to report it. If they choose not to report it and you have that documented in an email or in your agency activity notes, I can run with that… but you better make sure that the customer understands that you’re recommending all claims be reported. Thompson: Not picking on our industry, but sometimes we do it to ourselves. The policy says, “practically report all losses.” We do that. We do what we are supposed to do and then we get nonrenewed. That’s the problem. I don’t have the solution and it’s a horrible position to be in.

OCTOBER 16, 2017 INSURANCE JOURNAL | NATIONAL | 25

NATIONAL | Business Moves benefits practice of SEFCU Insurance Agency, maintain all existing staff and remaining dedicated to the clients and communities SEFCU Insurance Agency has served for many years. As the transition of commercial clients is completed, SEFCU Insurance Agency will remain dedicated to providing and enhancing its delivery of personal insurance products and services. The transfer of clients and employees is expected to be completed by November 1.

Alera Group, West Park Insurance and Risk Management

Alera Group, a national employee benefits, property and casualty, risk management and wealth management firm, has acquired West Park Insurance and Risk Management of Allentown, Penn. Formed in 2002, West Park Insurance and Risk Management provides clients with business, medical malpractice, senior healthcare and environmental liability insurance. West Park Insurance will join Alera Group through its local firm HMK Insurance, an Alera Group company in Bethlehem, Penn. Clients will not experience any disruption in service as the West Park Insurance team continues in their roles with the added resources of Alera Group, according to a press release issued by Alera Group. The West Park Insurance acquisition comes on the heels of Alera Group’s acquisition of Lebanon, Penn.-based Zinn Insurance earlier this month.

This transaction is expected to further Alera Group’s goal to continue growing organically and through acquisitions since its formation in December 2016, the release stated.

SEFCU Insurance Agency, Rose & Kiernan Inc.

SEFCU Insurance Agency, a wholly owned subsidiary of SEFCU with offices in Schenectady, Cobleskill, Cooperstown, and Schoharie, N.Y., will transfer its commercial property and casualty and benefits practices to Rose & Kiernan Inc., an insurance brokerage firm headquartered in East Greenbush, N.Y. As its commercial insurance practice demands increasing financial and human resources, SEFCU has decided that the best way to serve its members and communities is to divest a non-core service while focusing on the development of its banking and investment competencies and expanding its personal insurance business, according to a company press release. Rose & Kiernan Inc. will purchase the commercial and

26 | INSURANCE JOURNAL | NATIONAL OCTOBER 16, 2017

USI Insurance Services, David M. Banet & Associates Inc.

USI Insurance Services (USI) has acquired David M. Banet & Associates Inc. (Banet), an Exton, Penn.-based leader in benefits consulting and administration, human capital management and insurance brokerage and consulting services. Banet will combine with Emerson Reid, USI’s employee benefits wholesale brokerage division. This acquisition further strengthens Emerson Reid’s position as the largest wholesale employee benefits general agent in the northeast region. Employees will continue to work out of Banet’s Exton, Penn., and Wilmington, Del., office locations. Terms of the transaction were not disclosed. Formed in 1995, Banet offers advanced technology and innovative services to support brokers in delivering consultative, employee benefits solutions to their clients. The firm is the developer and exclusive provider of the Beny System, a comprehensive, human resources and benefits consulting program that enhances

benefit administration. Arthur W. Hall, USI senior vice president and employee benefits practice leader, said in a company press release that the company’s primary goal is to grow and protect clients’ businesses by becoming an extension of their employee benefits programs through tools, knowledge and support. With this acquisition, it aims to be able to combine Banet’s advanced technology, innovative benefits and brokerage services with Emerson Reid’s suite of client services, specialty products, carrier expertise and vendor partnerships, he added. USI is a local and national insurance brokerage and consulting firm, delivering property and casualty, employee benefits, personal risk and retirement solutions throughout the United States and headquartered in Valhalla, N.Y.

Seeman Holtz Property & Casualty, RateGenius Insurance Agency

Seeman Holtz Property & Casualty Inc., based in Boca Raton, Fla., has acquired RateGenius Insurance Agency Inc., an affiliate of RateGenius, headquartered in Austin, Texas. Serving all of Texas for almost 10 years, RateGenius Insurance provides auto, home, boat and life insurance products from a network of 20-plus lenders and insurance providers. The Seeman Holtz family of companies provides comprehensive financial and insurance advice to clients across the country. The company said it will continue targeting high-quality independent agencies for geoINSURANCEJOURNAL.COM

graphic expansion and continued growth throughout the United States.

Higginbotham, Kilpatrick Insurance

Higginbotham and Kilpatrick Insurance, both independent insurance brokers based in Fort Worth, Texas, have merged. Kilpatrick Insurance will relocate from 2410 Montgomery Street three miles east to Higginbotham’s two downtown offices and take Higginbotham’s name. This is Higginbotham’s sixth merger this year and its second in Fort Worth, home to the firm since opening in 1948. Higginbotham is growing its operation by partnering with brokers across Texas that enable it to reach more customers with its single source insurance solution. Kilpatrick Insurance adds 15 professionals to Higginbotham’s commercial and personal property/casualty division. Headed by President Kim KilpatrickTerrell, Kilpatrick Insurance is slated to move in December 2017. Kilpatrick Insurance offers personal and commercial coverage, and provides additional protections in the areas of loss control and human resources. The agency has been led by three generations of Kilpatricks. MJ Kilpatrick opened the agency in 1944 with Jimmy Kilpatrick assuming leadership a few years later until Kim Kilpatrick took the reins in 1989.

& Casualty’s foothold in South Florida, according to the company. Brett Williams, vice president, added SPHC will be able to provide service from its existing Boca Raton office. • David/Greg Insurance Consultants Inc., headquartered in Longwood, Fla., which has served all of Florida for over 24 years through local and national carriers. The company said the move will strengthen Seeman Holtz Property & Casualty’s foothold in throughout the state of Florida. • Insurance Solutions Group, headquartered in Miami, Fla., with over 50 years of combined experience, offering comprehensive insurance coverage through local and national carriers. The company said the move will strengthen Seeman Holtz Property & Casualty’s foothold throughout Miami Dade County and the state of Florida. Williams added that Insurance Solutions will be consolidated into its existing Miami operations.

INSURANCEJOURNAL.COM

Hub, Rural Alaska Insurance Agency

Hub International Ltd. has acquired the shares of Rural Alaska Insurance Agency Inc. Terms of the deal were not disclosed. John Kohler, Jr., president of Rural Alaska, will join Hub Northwest and report to Steve Wagner, executive vice president of Hub Northwest Fairbanks, Alaska-based Rural Alaska specializes in property/casualty insurance. Chicago, Ill.-based Hub provides property/casualty, life and health, employee benefits, investment and risk management products and services.

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

Seeman Holtz, Mark Ellis, David/Greg, Insurance Solutions

Seeman Holtz Property & Casualty Inc. has acquired three different agencies in Florida as part of its geographic expansion and continued growth throughout the United States. The three Florida agencies most recently acquired include: • Mark Ellis Insurance, headquartered in Tamarac, Fla. Serving all of Florida for over 15 years now, Mark Ellis and his team have been offering insurance products throughout South Florida through local and national carriers. The plan for this acquisition is to fold it into Primera Capital, a Seeman Holtz Property & Casualty company run by Anthony Davis. The move will strengthen Seeman Holtz Property

The Seeman Holtz family of companies provides comprehensive financial and insurance advice to clients across the country. SHP&C currently offers homeowners, automobile, renters’ policies, private client, umbrella coverage, commercial and employee coverage, and personal liability coverage.

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.

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

FRENKL16571.indd 1

www.frenkel.com

5/11/16 1:15 PM

OCTOBER 16, 2017 INSURANCE JOURNAL | NATIONAL | 27

NATIONAL | Spotlight | Habitational/Dwellings writers in the coastal risk/ cat‑prone regions. Will that change now in light of the recent hurricane season? Morrello: Prior to this (season),

Catastrophes and the Property Market

he catastrophe exposed property and habitational markets could be in for some changes following this year’s active hurricane season. Joe Morrello, head of excess and surplus (E&S) property for specialty insurer Beazley spoke to Insurance Journal at the recent Wholesale & Specialty Insurance annual meeting in San Diego about current market conditions and what to expect in a post-2017 hurricane season environment. Below are excerpts from that interview.

IJ: What is the biggest challenge in the E&S property market right now?

Joe Morrello: Right now, the

greatest challenge is probably the amount of capital that is in the marketplace. That dilutes the rate, so rate right now is pretty hard to come by. A lot of the lines are underfunded.

IJ: Will this hurricane season change anything? Morrello: It’s early to tell right

now, but for a number of years, we’ve had a relatively benign cat season, and quite a few carriers … just about every carrier out there has been borrowing from Peter to pay Paul. That is basically saying where we would fund our cat losses, we are now pulling from that fund-

On the Web

To watch a video of joe Morrello at the recent Wholesale & Specialty Insurance annual conference visit: http://www.insurancejournal.tv/videos/15616 28 | INSURANCE JOURNAL | NATIONAL OCTOBER 16, 2017

ing to fund our attritional losses because we are simply not seeing the rates. I would say we would have to see some change … but the realization is going to be there after the losses roll in.

IJ: The habitational market has been an area of growth. How would you describe this market? Morello: We’re seeing our share

of habitational (growth). But again, the problem with habitational right now is (rates) are so diluted that you can’t pay the attritional losses. We’re seeing a lot of risks out there that are grouping together for habitational, whereas you’re not seeing the one-offs. A lot of management companies are grouping (habitational risks) together, and by grouping together, of course, that’ll give a larger premium base. When you group a bunch of risk together that gives it a little bit of a dilution in the rating as well. … People want to be where it’s nice to live, so you’re seeing (habitational growth) in coastal properties, and you’re seeing it down south.

IJ: There’s a lot of competition in property in terms of under-

we started to see a slowdown — not a firming of the market, but a slowdown in pricing. Everybody’s starting to come to the realization, in particular with habitational, that there simply isn’t enough rate to pay attritional and cat losses. That one cat event is going to bring everybody to this conclusion, regardless. The industry as a whole recognized this prior to (the recent season); but now it’s probably going to give them that extra push to get back on track.

IJ: What concerns do underwriters have when rebuilding dwellings after a catastrophe like Hurricanes Harvey or Irma? Labor shortages and inferior building materials come to mind. Morrello: It’s all of the above,

because not only do you have scarcity of materials, you have a scarcity of qualified contractors. There’s always somebody out there who wants to make a quick buck, who’s going to scam. Even the established contractors who actually do a good job — they’re running thin. … You’re always worried about that. You’re always worried about the influx of materials that are inferior. By and large, the building segment really has addressed looking at what comes in, especially after the debacle with Chinese drywall. The products are there. They’re going to be good. … It’s just the scale is enormous. It far exceeds what the normal (building) requirement is for that segment. INSURANCEJOURNAL.COM

News & Markets | NATIONAL

New Association for Insurance Agency Networks Forming By Andrea Wells

n insurance industry lender is among those touting a new association for insurance agency networks. The lender, Live Oak Bancshares Inc., says it will not have ownership in the new group, Insurance Networks Alliance (INA), but will be an ongoing sponsor. Live Oak said the association is meant to represent and strengthen insurance agency networks as part of the independent agency distribution channel. Exact membership criteria and other rules are still being worked out. Kelly Drouillard, general manager of Live Oak’s insurance lending business, told Insurance Journal that the idea for INA came about after she and Michael Strakhov, executive director of Live Oak’s insurance lending, wondered what existing industry groups were meeting the needs of agency networks, aggregators and clusters. “We did a couple surveys, one to carriers and another to networks, to identify places where there may be gaps in INSURANCEJOURNAL.COM

understanding of the business model and opportunities to improve,” Drouillard said. Then in January 2017, Live Oak sponsored a meeting with 11 networks and as many carriers to determine what type of support Live Oak Bank could provide this industry segment. “The feedback was very clear: some type of forum to represent the specific needs of this growing segment of distribution in the industry was needed,” Strakhov said. Not every agency network is convinced that INA is the right place for them. “As of yet, I do not see the need, at least for ISU,” said T.J. Ryan, III, chief executive of the ISU Group, based in San Francisco, Calif., “We are established and a leader in the space and have few to no barriers to accessing carriers or others." ISU Group has 200 agency members in its agency network with $401.5 million in total P/C revenue for 2017, and is ranked the second largest agency partnership in the country, according to Insurance Journal’s 2017 Top 100 Agencies and Top 20 Agency Partnership lists, which ranks networks, aggregators and franchise groups.

Bruce Cochrane, president/ CEO of Renaissance Alliance based in Wellesley, Mass., number 7 in Insurance Journal’s agency partnership rankings, sees potential value in an alliance of networks but is also uncertain that INA is the right fit for his organization. “Renaissance Alliance was asked to participate in the formative stages of this alliance,” Cochrane said. “We declined because we don’t believe this is an organization representative of independent agency networks.” Cochrane agrees there might be a need for networks to come together in an association environment especially as the number of networks increases. But he also believes regional differences and varied operational models among networks make that a challenge. “The problem is you have such a spectrum of entities and business models among this greater conceptual umbrella of aggregators that makes it very difficult to compare us to them," he said. Cochrane also questions INA’s relationship with carriers. “If you are talking about groups of independent agencies, why do you include the companies in the group – that is counter-intuitive,” he said. According to Cochrane,

association members should be able to sit down and talk about issues related to carriers. “It doesn’t make for a fruitful dialogue when the big elephant is in the room and you can’t talk about it,” he said. Drouillard said that INA hasn’t formally decided on what kind of entity would be a member going forward. “As far as potential members, the INA has a broad framework, but we are still very open-minded; there’s no real specific rule (on who should be a member).” Jane Koppenheffer, president of The Insurance Alliance of Central Pennsylvania (ranked 19th by Insurance Journal) sees value in an association for networks. “I do believe that an alliance group such as this is needed for agency networks and partnerships because of the unique role these organizations play in the insurance industry,” she said. “While there is a great deal of diversity in the structure, ownership, services and size of these networks, we have a number of common objectives, as well.” She said that “commonality of objectives makes it natural to consider the creation of a group like INA.” The newly formed INA is planning a January 2018 meeting in Tempe, Ariz., to further develop its plans.

OCTOBER 16, 2017 INSURANCE JOURNAL | NATIONAL | 29

Idea Exchange

Emerging Markets

The Growing Cannabis Industry and Captive Insurance

By Matthew Queen

cross America, the tides are turning in favor of the cannabis industry. While the federal government continues its policy of prohibition, most U.S. states have legalized cannabis to some extent. This rapid shift has created an explosion of revenue in the cannabis sector. Publicly released tax revenue data from the states of Colorado, Washington, and Oregon demonstrate that the industry is growing exponentially. This growth will reignite in 2018 when California’s recreational law takes effect. The limited data shows that just one sector of the industry is a multibillion dollar opportunity, and retail sales do not include growers, processors, transporters or laboratories. By 2021, the total economic impact of cannabis is estimated to exceed $20 billion nationwide.

Insurance Fails Industry

Due to federal prohibition, the insurance market continues to fail the cannabis industry. By far, the biggest insurance challenge facing cannabis companies is securing insurance that

insures cannabis operations. Carriers frequently challenge coverage for claims arising out of cannabis-related losses, and courts often side with carriers. This holds true regardless of whether the cannabis company is operating legally within the state’s cannabis laws or not. A large and growing body of case law supports the position that because the object of the insurance contract is illegal, a carrier may deny coverage for a cannabis business. This justification has been used to deny coverage for landlords who lease their premises to cannabis companies. Presumably, this justification would be a strong weapon in denying coverage to doctors who file malpractice claims for damages related to prescribing medical cannabis. At least one court in Arizona held that because cannabis is illegal at the federal level, all contracts executed by a cannabis company are null and void. This sweeping holding applies to purchase sale agreements, employment contracts, and, of course, insurance contracts. Judges are generally split as to whether insurance contracts for cannabis coverage are valid. Tracy v. USAA generally held that although a homeowner was legally growing marijuana in his home pursuant to state law, coverage was properly denied because the contract was contrary to public policy. On the other hand, Green Earth Wellness Center, LLC v. Atain Specialty Insurance arrived at the exact opposite result and upheld coverage based on the ambiguity

30 | INSURANCE JOURNAL | NATIONAL OCTOBER 16, 2017

of cannabis law between state and federal court. While Green Earth has had a handful of cases following its reasoning, a schism remains in federal court and is unlikely to be resolved by Congress or the Supreme Court in the foreseeable future. Consequently, a multibillion dollar market lacks any meaningful risk management. This problem is best resolved through captive insurance.

Captive Market

Captive insurance is formalized self-insurance. The concept has been around for decades and generally involves a situation where an insured determines that it can selffund its risk management more efficiently than market solutions. Almost every Fortune 500 company has a captive insurance company, and the concept is rapidly spreading through the middle market. Agents and brokers should be aware of how captive insurance can be used to provide a profitable solution to the cannabis industry’s risk management problem. Cannabis insurance raises several legal considerations. Chief among them is whether cannabis insurance

is legal. The answer is yes. The McCarran-Ferguson Act, passed in 1945, enshrined the precept that insurance is the business of the states. The licensing, regulation and execution of insurance laws is a plenary power of the states. With the notable exception of healthcare, this doctrine has been undisturbed for decades. In addition, the Tenth Amendment precludes the federal government from forcing states to criminalize activities. While the federal government may encourage and cajole states to take certain actions, states have the right to pass, or decline to pass, their own legislation. The Controlled Substances Act (CSA) prohibits the possession, production or use of cannabis. So, is there an issue with a state issuing an insurance license to a cannabis captive? The answer is no. The CSA specifically provides that states are free to pass their own laws regarding cannabis, so long as states’ laws do not create a “positive conflict” with federal law. The term “positive conflict” has been narrowly interpreted by the U.S. Supreme Court. In fact, the Supreme Court’s narrow treatment of this phrase is the chief reason why the Department of Justice declines to prosecute state

INSURANCEJOURNAL.COM

decriminalization laws — the DOJ would lose. While the legal field is complex, the issues can be narrowed. States possess the power to issue insurance licenses regardless of the federal government’s opinion of the insured. The CSA prohibits marijuana, but permits states to regulate the field so long as states’ laws do not create a conflict with the goals of Congress. The mere issuance of a cannabis captive insurance license does not impair Congress’ goal of preventing the cultivation, use or possession of cannabis. Consequently, the states may license a cannabis captive. However, the power to regulate insurance rests with the states. This means that states may either license or decline to license cannabis captives. Most state insurance departments decline because many insurance commissioners prefer not to invite controversy to their department. Others simply do not want cannabis affiliated with their states. Only a handful of domiciles are available for cannabis captives. Two of the largest cannabis markets, Washington and California, do not have captive insurance laws. Captive insurance companies may only be licensed in states with captive insurance legislation permitting their existence. As a result, many prospects for cannabis captives may have to incorporate their cannabis captives in foreign domiciles. This results in the captive being treated as a nonadmitted insured in the state in which the risks are located. This raises the issue of procurement taxes (also called direct procurement or direct placement, depending on the INSURANCEJOURNAL.COM

jurisdiction). The rules regulating procurement taxes 2,500,000,000 vary by state. Washington, tak2,000,000,000 ing a potentially unconstitutional 1,500,000,000 position, maintains that no 1,000,000,000 individual may purchase insur500,000,000 ance from an unauthorized, unlicensed 2014 Total 2015 Total 2016 Total 2017 Est. insurer. These Retail Sales Growth 40,651,437 357,575,385 1,760,531,078 1,972,956,362 procurement issues are generally resolved by paying the the more capital necessary to eral raid. Landlords renting to state the procurement tax fee. fund the reserves. cannabis companies may want However, Washington’s prohi Additionally, captive insurto consider self-insuring their bition requires any cannabis ance companies should ideally property risks through a capcaptive insuring Washington insure multiple entities. The tive because carriers have an residents to use a fronting IRS would prefer large numbers enviable track of wins against company. This adds additional of insured entities to secure insureds on those grounds. costs to operating the captive. proper risk distribution. While Finally, doctors prescribing These hurdles are common captive professionals differ on medical marijuana should legal issues encountered by the precise number of insured consider captives to cover gaps qualified captive managers entities necessary to form a in their malpractice coverage. every day. Thus, the real issue captive, the model is better Many malpractice carriers are for brokers and agents is not suited for middle-market comlikely to deny coverage in the whether cannabis captives are panies with large operations. If event of a loss related to the legal, but whether they make a captive is not a good fit for an prescription of cannabis. sense for the insured. individual operation, then sev The cannabis industry is eral cannabis companies can ready for captive insurance. When Is a Captive Ideal? pool their resources to form a Agents and brokers need to In general, captive insurance group captive. A full analysis know that the traditional caris ideal in situations where of risk distribution and the riers are generally failing the the market fails the insureds. ways to structure a captive are cannabis industry, which is a Where insurance is too expenbeyond the scope of this article, good time to consider captive sive, fails to cover proper risks, but competent captive managinsurance. Proper structure of or is simply unavailable, insurers have multiple solutions to captive insurance companies ance professionals should be bring to the analysis. can be complex, so insurance aware of the potential value Agents and brokers should professionals should consider of captive insurance. Ideal be wary of the risks placed into speaking to a captive manager candidates include cannabis the captive. The most common when identifying a potential companies with positive cash risks should include general lia- cannabis captive opportunity. flow, relatively few claims bility and property insurance. Share this article. IJMAG. and strong risk management However, there is case law indi- COM/116CA practices. Companies require cating that a cannabis captive capital to establish their own may insure against criminal Queen is general counsel and chief captives, and the more risk liability, which is a potential compliance officer at Venture Captive assumed by the captive, then lifesaver in the event of a fedManagement LLC.

Marijuana Retail Sales Growth

OCTOBER 16, 2017 INSURANCE JOURNAL | NATIONAL | 31

Idea Exchange

Minding Your Business

9 Ways to Change & Positively Influence Employees ment through nine rules. When agency owners and managers apply these rules to the daily handling of employees, employees will be positively affected and will want to help make the firm a better place to work. A lack of respect is often the No. 1 reason great employees quit. Even great employees make mistakes from time to time, and a manager’s approach is crucial.

criticizing the other person. When someone hears what you have done, even if it’s not the same situation but similar, it will make the person feel better. They will understand that no one is perfect, and it displays empathy.

4. Ask questions instead of giving

direct orders. No one likes being told what

are creatures of emotion, not logic. Accusing someone of being wrong will only cause them to be defensive. Instead of chastising someone for their mistakes,

first, begin with praise and honest appreciation.

to do. Asking those affected questions will get people to open up and give you answers on what might work to improve the operation. They sit in the desks and there are things they see that management often doesn’t. It will help your people “buy-in” to changes, if they feel they have a voice in it.

2. Call attention to people’s mistakes

5. Let the other person save face. It

have done something wrong. You can bring it up indirectly and they will know what you are referring to. Embarrassing them in front of others will cause resentment, not better behavior.

6. Praise the slightest improvement

1. The first rule is to realize that humans By Catherine Oak &

3. Talk about your own mistakes before

indirectly. Most people know when they

does no good kicking a person when they are already down. People’s dignity, honor, feelings and egos should be left intact, especially in front of others.

William Schoeffler

iring quality people for an insurance agency has always been tricky. With a good economy, it becomes even more difficult. Employees favor meaningful work, trust and respect from the employer, and a sense of community over compensation and longterm employment. The intangibles are what attract and retain good employees. Employers need to make sure their interpersonal relationship skills are top notch to be effective as managers and owners. One of the best books written on effective interpersonal relationship skills was written 80 years ago. In Dale Carnegie’s, “How to Win Friends and Influence People,” Dale teaches how to influence others without arousing suspicion or resent32 | INSURANCE JOURNAL | NATIONAL OCTOBER 16, 2017

INSURANCEJOURNAL.COM

and praise every improvement. People

need encouragement, especially if they are learning or have made mistakes. Be the example of how they should be and give them tools and ideas.

IJMAG.COM/116PO Oak is the founder of the international consulting firm, Oak & Associates, based in Northern California. Schoeffler is a financial analyst at Oak & Associates. The firm specializes in financial and management

consulting for independent insurance agencies, including valuations, mergers, acquisitions, clusters, sales and marketing planning as well as perpetuation planning. Phone: 707-936-6565. Email: catoak@ gmail.com.

7. Give the other person a fine repu-

tation to live up to. A good reputation is

important, especially because we all have egos and they need to be fed. When you tell people “I know you have this in you and you can do it,” it gives them confidence and something to strive toward.

8. Use encouragement and make the fault easy to correct. Don’t let people

drown; at least throw them a life preserver. Let them know you see them easily overcoming any setbacks.

9. Make the other person feel happy

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

consistent Recognized by

for eleven straight years

about doing the thing you suggest. This

is accomplished by sharing the benefits of what good will come in implementing your suggestions. Giving someone ample praise when they have made a change or exhibited good behavior will make them happy to complete tasks that are requested of them. If there is a way for employees to think your suggestions are theirs, they are even more happy to implement the changes.

financially stable

Each year Ward Group analyzes the financial performance of nearly 2,900 property-casualty insurance companies

Summary

to identify the top performers in each segment.

More than 30 million copies of Dale Carnegie’s original book “How to Win Friends and Influence People” have been sold and translated in many languages. The ideas and concepts are time tested and based on the fundamentals of human nature. It is a must-read classic. A new version was also released in 2011. The best way to be effective in today’s fast-paced world is to go “old school” in techniques and approach. If you and your managers start doing even some of these things, it will make the agency a better and happier place in which to work. This will guarantee good people will want to join and stay, which in turn means that the firm will grow and become more valuable. Share this article with a col-

In the past eleven years, four healthcare professional liability insurance companies have received the award at least once. Only ProAssurance has made the Ward’s Top 50® list for eleven years in a row.

Healthcare Professional Liability Insurance & Risk Resource Services

800.282.6242

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OCTOBER 16, 2017 INSURANCE JOURNAL | NATIONAL | 33

NATIONAL | MyNewMarkets manufacturers; distributors; wholesalers; dealers; inventory/property of others; home defense/concealed carry; and personal collection. Available limits: As needed Carrier: Unable to disclose, admitted States: All states Contact: Customer service at 888-280-8710

Business and Management Insurance Trucking - Motor Truck Cargo Market Detail: Encore Special

Risks LLC (www.encorerisks. com) has launched a new MGA operation in Richardson, Texas that can produce new accounts for your agency immediately. Encore was established to provide retail agency partners with exclusive, reinsured programs. These custom programs are designed to equip its retail partners with a uniqueness in the marketplace providing value added products to their insureds. The first program being offered in the transportation arena offers motor truck cargo & physical damage on a local, intermediate and long haul basis. This program is written and 100 percent reinsured by an A+ A.M. Best rated carrier. Program highlights include: broad coverage form; limits up to $250,000; refrigeration breakdown coverage available; $2,500 unearned freight included; debris removal endorsement available; competitive rates; new ventures; flatbeds; containers; intermodal; and a 20 unit maximum. Available limits: Minimum $100,000, maximum $250,000

Carrier: Clear Blue Specialty

Insurance Co. States: Calif., Texas Contact: Tammy Summers at 214-612-7890 or e-mail: tammy. summers@encorerisks.com

Commercial Insurance Market Detail: 1st Quality

Insurance Group (www.1qig. com) has direct contracts with some of the largest commercial insurance carriers in the nation. Licensed commercial specialists can review commercial insurance needs, with options from monoline to commercial package. Available limits: As needed Carrier: Travelers States: All states Contact: Bill Wilson at 800362-3363 or e-mail: bill.wilson@ vgm.com

Restaurant Package Program Market Detail: UCA General

Insurance Services Inc.’s (www. ucageneral.com) EZ-Eatery is a new restaurant package program for tea & coffee shops, juice bar, frozen yogurt, ice cream or non-alcoholic drink shops with minimal or no cooking. Premium starting at $750; rated by square feet cus-

34 | INSURANCE JOURNAL | NATIONAL OCTOBER 16, 2017

tomer area. Online applications available. Coverages including umbrella, EPLI, cyber liability and workers’ compensation also available. Available limits: As needed Carrier: Century-National Insurance Co. States: Ariz., Calif., Idaho, Ill., Nev., Ore., Utah, Wash., Wisc. Contact: Barry Colburn at 800222-5582 or e-mail: bcolburn@ ucageneral.com

Underground Fuel Tank Pollution Liability Market Detail: Apex Insurance

Services (www.apexinsurance. com) has a program with an A+XV admitted carrier to place underground and above ground storage tank liability. Quote, bind, issue capability with state COI provided where required. Available limits: Minimum $500,000, maximum $5 million Carrier: Unable to disclose States: All states Contact: Robert Hughes at 210812-5658 or e-mail: hughes@ apexinsurance.com

Firearm Insurance Market Detail: IT Risk

Managers Inc. (www.itriskmanagers.com) offers coverage for

Market Detail: IPA Risk

Management, LLC, (www.ipariskmanagement.com) offers employment practices liability, directors & officers, fiduciary liability, crime coverage, privacy protection (HIPAA), errors & omissions are all available on a package or standalone basis. Online quoting capabilities also available. Hiring & firing practices helpline and sexual harassment classes available online to clients with active policy all at no additional cost. Available limits: Minimum $500,000 Carrier: Scottsdale/National Casualty Co. States: All states Contact: Greg Heitmann at 201-797-1215 or e-mail: g.heitmann@ipariskmanagement. com

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

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Idea Exchange

The Wedge

A Simple Concept that Changed How We Sell Meaning, I would try hard to put enough bows and ribbons on my “not so different” value proposition to impress a prospect. I would ask traditional probing questions. Those traditional questions rewarded me with traditional answers and in many cases made me appear manipulative and uninspired.

Selling

By Randy Schwantz

ike you, I’ve been to dozens of sales training classes. I’ve read several hundred sales books. Most of them provide something of value, but occasionally there will be one nugget that will change everything. Here’s the nugget… pure gold. It has made millions of dollars, and it will make you a lot of money, too, plus provide massive confidence as a salesperson. Previous to reading about this “one” thing, I was a traditional sales guy.

We all have the same basic goal — build a relationship, find (pain) problems, offer solutions and close the business. The one thing this nugget offered me was a change in where I looked for problems. Historically, I was asking questions of what we might call their conscious mind, meaning, asking questions for which they are consciously aware that they might have a problem. Doctors do it as a standard practice. It’s a diagnostic type of question. Doctor: How do you feel? Patient: My throat hurts. Doctor: How long has it been hurting? Patient: A couple of days. Doctor: Is it getting better, worse or

36 | INSURANCE JOURNAL | NATIONAL OCTOBER 16, 2017

about the same? Patient: A little worse, it seems. Doctor: OK, open your mouth, stick out your tongue, and let me take a look. (Looks red and swollen.) Here’s what I want you to do… gargle three times a day with salt water and take these pills. You should start to feel better in three to five days. Patient: Thank you, Doctor. Diagnostic questions are great at diagnosing a known problem. But, what about the unknown problems? Or said differently, what about the problems that one has, but they don’t know it. Or, they had a problem, pursued a solution and it never got better, so they learned to accept it as the way it is. We could label that as a “condition” or “acceptance.” Acceptance: Willingness to tolerate a difficult or unpleasant situation. “A mood of resigned acceptance.” Condition: A particular state of existence. “A condition of misery.”

The Traditional Shower Rod

The curtain rod was invented in 1892, and was quickly adapted to be used as a

INSURANCEJOURNAL.COM

shower rod. It was straight. Imagine that you were a big guy, getting into one of those hotel bathtub showers with a straight shower rod. Not too comfy in there… you can barely move as the tile wall is on one side and the shower curtain on the other. We all put up with that for almost 100 years. A straight shower rod: No elbow room. Having no elbow room was a condition something we’d learned to accept. Then, someone created a curved shower rod. Once we saw it, we all bought it. And many of us were saying: “Why didn’t I think of that?” But, up until then, we were conditioned to put up with a straight shower rod and very little room. Staying with the concept of “condition” or “acceptance,” there are many things insurance buyers have learned to tolerate or accept (their straight shower rod).

Quick Exercise

In one of our workshops, we do an exercise that might be useful to you to flush some of these things out. Before you do the exercise, do you agree that most buyers hate insurance? Why do they hate it? Because they don’t understand it and can’t control it. Key words: They don’t understand it. The many things they don’t understand have become conditions; things they have learned to accept/tolerate. So, put on your buyer’s hat and make a list of those things they hate because they don’t understand them and can’t control them. After you’ve made that list, then put your seller’s hat back on and develop a process that would make that understandable for your prospect. The point I’m trying to make is this… Instead of asking the traditional “diagnostic” type questions: How’s your service? Any coverage concerns? I took a different angle. I imagined what it is like being a buyer of insurance… and just started listing all the things they don’t understand and don’t feel they can control. Then we started creating processes (proINSURANCEJOURNAL.COM

active services) that solve those problems.

9,511 Choices – Why These?

Let’s suppose we have a financial advisor that just proposed a group of eight mutual funds for us to invest in. Considering that there are 9,511 to choose from, how did he reduce it down to these eight?

Diagnostic questions are great at diagnosing a known problem. But, what about the unknown problems? If we brought the financial advisor in the room and pressed him to defend why he chose those eight, could he justify those eight mutual funds with clarity? In most cases, he couldn’t do it. He would say: “We have a guy in Boston that helps us do that.” OK, do you know how the guy in Boston gets down to those eight? “Yes, he has an algorithm to help with selection.” Do you understand his algorithm? “No, not exactly.” And yet, many of us give our money to the advisor hoping things will turn out OK. But, would you want to know why your money is where it is…. If they could make it more understandable? I would… but they make it so complicated, for most of us it’s a “condition,” so we tolerate “not knowing” and suffer from a sense of “loss of control.” A financial advisor could… build education and worksheets to help us understand the “sorting” process: “How we get from 9,511 down to eight.” How many of their prospects are suffering from this problem, not knowing why they are investing in the funds they are? If they did that work, they could go after almost every investor out there, converting a condition into a known solution. Instead of asking: “How are your investments performing?” A traditional diagnostic question that few would answer honestly, because it would make them

feel stupid…they could go after conditions (not knowing why they are in their current investments) and convert ignorance into control.

Converting Ignorance into Control

That’s not a very sexy subtitle, but it could make you a lot of money simply because you are serving your client at a level that meets one of their most important psychological needs: “A feeling of control.” Give it a shot and send me your feedback. Share this article with a col-

league. IJMAG.COM/116VK Schwantz is founder of The Wedge Group. Phone: 214-446-3209. Website: www.thewedge.net. Email: randy@thewedge.net.

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OCTOBER 16, 2017 INSURANCE JOURNAL | NATIONAL | 37

Closing Quote Build a Personal Brand

By Robbie Thompson

here is a talent gap looming ahead for the insurance industry. It’s possible that more than half of the professionals in today’s industry are 50 years old or more. It’s expected a large portion of those professionals will retire in the next few years. The insurance industry needs new talent, but young people are generally not looking at insurance as a field they want to work in. A 2015 survey by the Hartford found that 4 percent of millennials want to work in insurance, instead focusing on arts and entertainment (40 percent) and technology (30 percent). This lack of candidates could explain, at least to some degree, the growth in insuretech financing. In July, Willis Towers Watson’s “Quarterly InsureTech Briefing Q2 2017” found that insuretech funding was around $1 billion — an almost 150 percent increase from Q2 the previous year. Many organizations in the industry, including PLUS,

have programs geared to assist young professionals in gaining necessary skills while increasing the depth of the insurance talent pool. Insurance and risk management programs at colleges and universities continue to grow, but they still only supply enough talent to fill a small percentage of the need. What a tremendous opportunity this flow of retirements could be for young professionals that do choose the insurance industry. For those bright, ambitious, forward-looking young professionals, the insurance world could be an amazing opportunity. Sheer numbers alone are on their side, and young professionals’ entrepreneurial spirit and preference for innovation could make them incredibly valuable as the industry changes. But to enhance these opportunities, they will still need to do one thing that many in the insurance industry have been doing for years — build their personal brands. This industry is so much about who you know, what you know and how much others trust you. In a business with such an emphasis on relationships, personal brand building is going to continue to be extremely important, and even more so in the future. New technologies provide more ways to build your brand than ever before. Twitter, LinkedIn and other social sites provide vehicles to both learn and share expertise with others. They also provide oppor-

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tunities to connect with people from far distances. That’s why, as part of the PLUS 30th Annual Conference in Atlanta, attendees will have access to social media professionals who will help them improve their profiles, find more ways to connect online and even take professional profile photos. Yet simply being seen and heard in the “social sphere” is not enough for young professionals to build their personal brand. They must acquire knowledge and find ways to pass it on. Many professional associations, like PLUS, provide training and designations programs. Many employers also have robust training and educational materials available that supplement the on-the job experience. Young professionals can share their knowledge and expertise through speaking at industry functions; writing for industry blogs and publications; or being presenters on webinars or blogs. In the professional liability

industry, few have built a better brand than Kevin LaCroix, RPLU. He is a frequent speaker and author for PLUS, and a past PLUS president. His D&O Diary may be the most read blog in the industry. LaCroix's advice for young professionals looking to build their personal brands is to: “Simply go out and make friends with people in the industry. Just be seen and get to know people. Through those relationships, you can build trust and credibility, and display expertise.” That’s certainly sound and simple advice for those who can see the tremendous opportunities the insurance industry can provide for young professionals. Thompson is the executive director of the Professional Liability Underwriting Society (PLUS), an association representing more than 7,000 individuals and 1,000 companies active in the many fields of professional liability. Website: www.plusweb.org. INSURANCEJOURNAL.COM

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