Insurance Journal West 2017-11-06 by Insurance Journal

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Contents November 6, 2017 • Vol. 95 No. 20 • West

West W1 California Commissioner Adopts $1.94 Workers’ Comp Pure Premium

W1 CALIFORNIA COMMISSIONER ADOPTS

$1.94 WORKERS’ COMP PURE PREMIUM

National 12 Fighting Drivers of Commercial Auto Frequency, Severity 14 P/C Insurance Faces Challenges Ahead: Guy Carpenter

W2 BRONZE Best Agency to Work For - West: Kulchin Ross Insurance

14 AIG Expanding Commercial Casualty Policies to Include Cyber

Services

15 Closer Look: Top 50 Commercial Lines Leaders

Idea Exchange

22 DOES A CPP COVER TREES KNOCKED

OVER BY A HURRICANE?

26 Can Cyber Open the Door to Attracting Talent?

18 Special Report: Cyber Service: How the Market Is Dishing Out Innovation 20 Special Report: 5 Ways the Insurance Industry Can Improve Cybersecurity 22 Closer Look: Does a CPP Cover Trees Knocked Over by a Hurricane?

28 How Courts Are Responding to Social Engineering Fraud 36 The Competitive Advantage: Changes in the Industry

24 SPECIAL REPORT: Small Business and Cyber Insurance Trends

38 Closing Quote: Earthquakes, Floods Highlight Wide Protection Gap

30 2017 Premium Finance Directory

Departments W4 People 13 Declarations

24 SMALL BUSINESS AND CYBER

INSURANCE TRENDS

6 | INSURANCE JOURNAL | WEST NOVEMBER 6, 2017

13 Figures 16 Business Moves INSURANCEJOURNAL.COM

OPENING NOTE

Write the Editor: awells@insurancejournal.com

P/C Insurers See Drop in Net Income

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 Chris Burand

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 Suzanne Barlyn, David Coons, Kristine Honey (619) 584-1100 X132 Christiaan Durdaller, Tim Zawacki khoney@insurancejournal.com IJ ACADEMY OF INSURANCE Director Patrick Wraight pwraight@ijacademy.com Associate Director Barbara Whiffen bwhiffen@ijacademy.com

ADMINISTRATION

Chief Financial Officer Mark Wooster mwooster@wellsmedia.com

MARKETING

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

NEW MEDIA

Social Media Manager Ly Short (619) 890-7735 Lshort@insurancejournal.com Classifieds, Jobs, Agencies Wanted/For Sale Sr. Sales & Marketing Coordinator Kelly De La Mora (800) 897-9965 X125 kdelamora@insurancejournal.com

DESIGN/WEB

Chief Technology Officer/ Chief Innovation Officer Joshua Carlson jcarlson@insurancejournal.com V.P. of Design Guy Boccia gboccia@insurancejournal.com Senior Web Developer Chris Thompson cthompson@insurancejournal.com

New Media Producer Bobbie Dodge bdodge@insurancejournal.com

Web Developer Jeff Cardrant jcardrant@insurancejournal.com

Videographer/Editor Ashley Waldrop awaldrop@insurancejournal.com

Web Developer Terrance Woest twoest@wellsmedia.com

CIRCULATION

Circulation Manager Elizabeth Duffy eduffy@wellsmedia.com

he year has been hard on the nation’s property/casualty insurers but don’t fret — the industry still remains profitable. According to ISO, a Verisk business, and the Property Casualty Insurers Association of America (PCI), the private U.S. property/casualty insurance industry saw its net income after taxes drop to $15.5 billion in first-half 2017 from $21.8 billion in first-half 2016 — a 29.2 percent decline — and its overall profitability as measured by its annualized rate of return on average policyholders’ surplus fall to 4.4 percent from 6.4 percent. The decline in profitability came from some $17.1 billion in direct catastrophe losses — $3.2 billion above the direct catastrophe losses for first-half 2016, the report said. Insurers’ combined ratio deteriorated to 100.7 percent for first- half 2017 from 99.7 percent for first-half 2016. The good news: premiums are trending up. Net written premium growth rang in at 4.1 percent for first-half 2017, the same growth rate as for first-half 2015 and an improvement from 3.1 percent for first-half 2016. Net investment gains increased to $27.1 billion in first-half 2017 from $26.6 billion for first-half 2016. The industry’s surplus reached a new all-time-high value of $717.0 billion as of June 30, 2017, increasing $16.1 billion from $700.8 billion as of Dec. 31, 2016. “Industry financial results for the first six months of 2017 continued to deteriorate in most categories,” said Robert Gordon, PCI’s senior vice president for policy, research and international. While the worsening in the personal auto line seems to have slowed, Gordon said auto losses will sharply increase in the third quarter from hurricane losses. “Property catastrophe losses increased in the first half of 2017 on top of the already significant increases in 2016,” he said in a statement. The industry surplus continued to grow steadily, reaching an all-time high in the first half of 2017. That’s good news, says Beth Fitzgerald, senior vice president, industry FOR QUESTIONS engagement, ISO. “That growth is important, REGARDING SUBSCRIPTIONS: Call: 855-814-9547 as the industry is facing significant losses from Outside the U.S., call 847-400-5951 or you may subscribe or change your address online at: recent catastrophes, including Hurricanes insurancejournal.com/subscribe Harvey, Irma, and Maria.” Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Media ISO serves insurers, reinsurers, agents and 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 brokers, insurance regulators, risk managers, per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this puband other participants in the property/casualty lication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended insurance marketplace. 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 PCI is a trade association representing nearMedia Group, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. ly 1,000 insurance companies. Insurance Journal is a publication of Wells Media Group, Inc.

‘Industry financial results for the first six months of 2017 continued to deteriorate in most categories.’

Andrea Wells Editor-in-Chief

8 | INSURANCE JOURNAL | NATIONAL NOVEMBER 6, 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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Training masters. Claims gurus. Lawyers. Worldwide. Meet your cyber-age insurance team. For nearly 20 years, AIG has built a network of experts and a spectrum of award-winning solutions to help protect clients from cyber risk. With global claims expertise, end-to-end cyber risk management services, and proactive planning and response, weâ&#x20AC;&#x2122;re here to help businesses become more cyber resilient. See how we can tackle the challenges of an ever-evolving cyber world together. To learn more, visit www.AIG.com/cyberedge

Insurance products and services are written or provided by subsidiaries or affiliates of American International Group, Inc. Such products and services may not be available in all jurisdictions, and coverage is subject to actual policy language. For additional information, please visit our website at www.AIG.com.

MOUNT A STRONG DEFENSE AGAINST RANSOMWARE BEFORE YOUR FILES ARE TAKEN HOSTAGE.

HOW VULNERABLE ARE YOU TO RANSOMWARE ATTACKS?

• An average of almost 730,000 attacks per month1

Extortion through ransom notes, although new to the digital arena, is a crime that’s been committed in the U.S. since the late 19th century. The first ransom note in American history was written in 1874, when kidnappers demanded $20,000 to return 4-year-old Charley Ross to his parents. “You wil [sic] have to pay us before you git [sic] him from us, and pay us a big cent to [sic],” the note read. Ransom notes have come a long way since that hand-scribbled message. In our digital world, the form has morphed into malicious software that holds a computer and its data hostage. Victims’ computers are to be set free only after the ransom money demanded is paid — usually in cryptocurrency like bitcoins in lieu of paper money. Personal computers are most commonly attacked, but businesses of all sizes are a growing target. The first case of ransomware dates back to 2005. And the number of attacks has grown exponentially

• Ransoms as high

• Employees click on

as $50,000 are not unheard of

since then. Ransomware attacks in 2014 were up 113 percent over 2013, according to Symantec’s 2015 Internet Security Threat Report, with an average of almost 730,000 attacks per month.1 When the files held hostage are held dear by their owners, victims often pay the ransom that criminals demand. It usually ranges anywhere from $300-$600, though ransoms as high as $50,000 are not unheard of.

HOW DOES RANSOMWARE BREAK INTO YOUR COMPUTER? Ransomware may be triggered in different ways: a phishing email that looks like a legitimate invoice or image; a visit to an infected website; or an ad containing malware that’s been injected into a legitimate webpage. When an unsuspecting victim opens the email or inadvertently falls into a ransomware-laden trap, the virus is silently installed on the victim’s computer.

Prepare. Protect. Prevail.®

phishing emails 20 percent of the time2

• If 10 employees receive the same phishing email, one will likely click on it

HOW DOES RANSOMWARE HOLD YOUR FILES HOSTAGE? There are two types of ransomware attacks: 1. Locking. Lock-screen ransomware displays a window that prevents access to any part of the computer until a sum is paid. 2. Scrambling. File-encrypting ransomware is a more sophisticated adaptation that keeps the computer available but scrambles certain types of files; for instance, databases that hold sensitive or proprietary customer and business information. Then it displays a pop-up screen with detailed instructions on how to buy the private decryption key that will decrypt the scrambled files.

HOW SHOULD YOU RESPOND? Lock-screen ransomware can often be cleared by shutting down one’s computer and starting it back up again. There’s no such simple fix for file-encrypting ransomware. Lack of access to essential data can be crippling for a business, compelling business owners to act quickly to resolve the intrusion.

The right response: Neither negotiate with nor pay the perpetrator. Those who cooperate with the criminals only encourage continued crime. They may also pay a heavy ransom and never get their data back. But the element of time and other practical considerations can sometimes force a business owner’s hand. If your business falls victim to ransomware, take these steps: 1. Report the incident to your local FBI office and file a complaint with the Internet Crime Complaint Center. 2. Restore file backups if you have them. Backups can immunize your business from the effects of an attack. 3. Check your insurance coverage. Cyber insurance policies may cover the cost of the ransom money paid and provide response assistance. Before you act, review policy terms regarding:

• What is and isn’t covered • Requirements for prior consent • Guidelines on how to respond. Does the insurance

company want to interact with the bad guys or do you make the decisions?

• Services and resources to guide you through the

response process, including third parties to coordinate with law enforcement and handle negotiations

• Ransom reimbursement

Payment is generally required in bitcoin, a mysterious and unfamiliar form of currency for most people that has a learning curve associated with it. You’ll need to set up an account at an online exchange and purchase bitcoin in order to release funds to the extortionist. The Hartford offers a unique and comprehensive risk management solution that rewards businesses for boosting their defense against cyber crime. Find out how at thehartford.com/cyber.

HOW CAN YOU PROTECT YOUR BUSINESS FROM CYBER EXTORTION? Businesses should anticipate the real possibility of cyber extortion and take these preventive measures now so they don’t fall victim later:

• Back up sensitive business files regularly and maintain copies off your main network. Backed up files can be quickly restored, averting the effects of an attack.

• Plan your business’s response. Establish safeguards,

including multifactor authentication to protect sensitive data from unauthorized access and use.

• Educate employees on ransomware and how it works. Conduct training sessions on detecting suspicious emails and attachments, and set up a protocol for reporting them to a designated manager.

• Install updates to your company software as soon as

4. Pay the ransom only if all else fails within a timeframe that’s reasonable for your business. According to an October 2015 article in SC Magazine, a security news and information resource, the FBI recommends this option for file-encrypting ransomware, simply because it’s so difficult to crack.3

they’re released. They often contain patches that address security vulnerabilities that help keep your business protected against online threats.

• Purchase cyber liability insurance with the option to

include coverage for cyber extortion loss, which entitles you to assistance in responding to a threat and also reimburses the ransom amount if payment is made.

Visit thehartford.com/cyber today for additional cyber insights and resources.

Business Insurance Employee Benefits 1 www.symantec.com/security_response/publications/threatreport.jsp 2 phishme.com/enterprise-phishing-susceptibility-report/ 3 www.scmagazine.com/cheaper-easier-for-hacked-businesses-to-pay-ransom/article/449489/

CyberChoice First Response is offered on a SURPLUS LINES basis.* For Producers Only – Not for Distribution to the General Public. *Eligibility for surplus insurance coverage is subject to state regulation and requires the use of a licensed surplus lines broker. Surplus lines insurance policies are generally not guaranteed by state guaranty funds. Policies should be examined carefully for suitability and to identify all exclusions, 16-0245 © 2017 The Hartford

limitations, and other terms and conditions. Surplus lines coverage is underwritten by Pacific Ins. Co. Ltd (except in CT and HI) and Hartford Ins. Co. of Illinois in CT and HI. The Hartford has arranged for data risk management services for our policyholders at a discount from some third-party service providers. Such service providers are independent contractors and not agents of The Hartford. The Hartford does not warrant the performance of third-party service providers even if paid for as part of the policy coverage, and disclaims all liability with respect to use of or reliance on such third-party service providers. The Hartford® is The Hartford Financial Services Group, Inc. and its subsidiaries. Its headquarters is in Hartford, CT.

Auto Home

National

Fighting Drivers of Commercial Auto Frequency, Severity By Denise Johnson

itigation financing, distracted driving and unexpected verdicts are just some of the factors impacting commercial auto frequency and severity, according to panelists speaking at the 2017 Risk Management Summit this week in Las Vegas. There has been a focus on commercial auto underwriting losses and the extended period of heightened claims severity that has resulted in increased pricing, according to Brian McCarthy, moderator and CEO of Mass.-based Energi Insurance Services (EIS), a nationwide insurance program provider. That’s led to commercial auto being thought of as “an albatross in the insurance industry,” said McCarthy. Scott Cottingham, a senior broker who manages Aon’s $300 million transportation business across the U.S., said that for every dollar made, the industry is losing $1.02 on commercial auto. One reason for the line’s adverse results is that claims reserves are being set lower

than the final payout, said Randy Stanco, senior managing director at Aon Benfield. Cottingham said that where nuclear verdicts in the past would have been around $5-6 million, it’s not unusual to see $10 million verdicts even in cases with decent facts. This, he said, has led to a common conversation with policyholders who are on the fence about the amount of insurance they should have. They wonder whether they should buy $50 million in coverage or just bury their company in debt, have $1 million in coverage and say, “Here are the keys to the business” — since $1 million is a typical starting point in settlement negotiations. While large verdicts can arise from known pro-plaintiff jurisdictions, litigation financing is also a factor driving severity, said Robert Woods, president of eClaims Management, a part of EIS. There are several firms offering litigation financing options and some plaintiffs have even started online Go Fund Me pages to cover their lawsuit costs. Medical malpractice attorneys have migrated to financed auto cases where

12 | INSURANCE JOURNAL | NATIONAL NOVEMBER 6, 2017

their expertise can be transferred readily, he added. Woods, who previously worked at CNA and OneBeacon, emphasized the need to identify and aggressively defend these types of cases. EIS does so by employing an accident reconstructionist on staff, as well as five litigation consultants who sit in on depositions to assist adjusters and defense counsel in mapping out a defense strategy. Technology is one way to defend against rising severity and frequency, panelists said. According to Ted Chen, co-founder of LifeSaver, which offers a free mobile app that blocks cell phone calls and texts while driving, distracted driving is a main driver of both personal and commercial auto loss frequencies. Telematics is key to bringing down frequency, said Stanco. Typical telematics monitoring includes vehicle and fuel tracking, as well as acceleration, hard braking, cornering and hard stops. “Accountability is a huge deterrent,” said Chen. INSURANCEJOURNAL.COM

Figures

Declarations

$101,403.23

Fire Starter?

The amount that William Stephens, the owner of Tornado King, an Oklahoma storm shelter manufacturing and installation company, must repay to victims who paid full or partial payments for storm shelters that were never installed. He was ordered to serve a five-year deferred sentence in addition to paying restitution.

$70 MILLION

$500 MILLION

“We still don’t know whether the fires caused pole or line damage or the poles caused the fires. They may never sort it out.” — Michael Picker, chairman of the California Public Utilities

Commission, said the state may never determine whether PG&E Corp.’s electrical equipment played a role in igniting the deadly blazes near San Francisco earlier this month. The wildfires destroyed thousands of structures, but may have also burned the evidence necessary to find out what caused them.

Staggering Losses

“The fresh winter vegetables that are on people’s Thanksgiving tables won’t be there this year because of Hurricane Irma. The losses are staggering; in many cases, the tale of those losses will be multiple years … This is more than just damage contained in just one crop year.”

— Florida Agirculture Commissioner Adam Putnam, in an update to the state Senate Agriculture Committee, said Hurricane Irma, which hit the state in September, damaged crops of all kinds with losses topping $2.5 billion.

Abusing No-Fault The amount, and more, that the Joplin, Mo., school district continues to haggle with the Federal Emergency Management Agency over denied costs associated with rebuilding Joplin schools following the deadly tornado that ripped through the city in 2011. The school district has seven appeals pending at FEMA’s regional or national headquarters.

$169,000

The amount a Kentucky crop insurance agent defrauded taxpayers by helping farmers inflate tobacco crop losses and collect insurance money, and then helping them sell their crop at market. The agent, Debra Muse of Fleming County, faces federal charges of one felony count of conspiracy to defraud the United States and 27 felony counts of making false statements on crop insurance statements and reports.

INSURANCEJOURNAL.COM

“No-fault abuses have long threatened to destroy New York’s auto insurance marketplace and costs the state’s auto insurance policyholders hundreds of millions annually.” — PIANY Government Affairs Counsel Bradford J. Lachut said

That’s how much California officials now say repair costs at the nation’s tallest dam will be, which is nearly double the original estimate of $275 million. Department of Water Resources spokeswoman said the project has required significantly more excavation and concrete than expected.

$100,000

A Massachusetts nanny stole more than this amount from her employers and has been sentenced to 15 months in federal prison. Prosecutors say 36-year-old Stacy Fortunato was also sentenced to three years of probation and ordered to pay full restitution. Fortunato pleaded guilty in June.

while discussing PIANY’s support of a new regulation issued by the New York State Department of Financial Services (DFS) that aims to curb costs and abuses of New York’s no-fault insurance law. It also seeks to level the playing field for New York insurers.

The Dicamba Situation

“The whole dicamba situation, it’s something I think about night and day. … We need the technology, with all of the resistant weeds we have out there, but we don’t need the problems that we’ve had this year.” — Tom Gere, assistant director of ag services for South

Dakota’s Agriculture Department, on the problems with the herbicide dicamba. Hundreds of farmers in the Upper Midwest are reporting damage from the product and state officials are considering restrictions for the 2018 growing season that might surpass even new federal rules.

A Flood of Rain

“I looked up towards the balcony and there was this huge flood of rain coming through the roof.” — Oklahoma Gov. Mary Fallin, who was evacuated from

the Riverwind Casino in Norman on Oct. 21, during a Beach Boys concert, as violent storms ravaged parts of the state. Meteorologists later determined that an F1 tornado had torn off part of the building’s roof.

NOVEMBER 6, 2017 INSURANCE JOURNAL | NATIONAL | 13

NATIONAL | News & Markets

Once-Stable P/C Insurance Lines Faces Challenges Ahead: Guy Carpenter

hile the U.S. property/casualty insurance industry is well capitalized and market sentiment is mostly positive, it still faces economic and market-based headwinds that will challenge its profitable growth going forward.

In the 2017 edition of the annual report, Plotting a Path in a Changing Market, reinsurance intermediary Guy Carpenter & Co. describes a dynamic insurance industry facing a changing economy and pressure in once-stable lines. “On the surface, 2016 rep-

resented a record-setting year for the P/C insurance industry, with surplus reaching its highest level in history. Rate reductions continued to moderate, and there was optimism following the 2016 election given the potential for tax cuts and deregulation. Yet red flags remained, and a closer look at the individual metrics contributing to the growth in surplus revealed interesting trends,” said Tim Gardner, president of North America for Guy Carpenter. The report, which is produced through Guy Carpenter’s ongoing Insurance Risk Benchmarks analysis of market data, focuses on risk and performance of U.S. property/ casualty insurers. In 2016, emerging risks, catastrophe frequency and severity and shifting capital needs all contributed to a 0.4 percent industry underwriting loss, its first calendar year underwriting loss since 2012. Reduced margins and adverse development reflect a competitive environment supported by excess capital levels, direct

written premium growth slowed, and higher realized and unrealized capital gains were skewed by the performance of some large companies using underwriting cash flow to fund investments. The average large property/ casualty carrier saw its accident year loss ratio increase by two percent from 2015. The auto segment posted losses due to both frequency and severity shifts. Only 10 and 30 of the top 100 personal auto and commercial auto writers, respectively, made an underwriting profit in 2016. The personal auto losses came to a line normally considered the cornerstone of profitability. The industry’s accident year loss ratio increased from 62 percent in 2013 to 67 percent in 2016, and its 10-year run of favorable prior period development ended. “The personal auto losses forced smaller companies to rethink strategy and mix of business as the large writers continued to engage in the predictive modeling and marketing war,” said Julia Chu, managing director, Guy Carpenter.

AIG Expanding Commercial Casualty Policies to Include Cyber By Suzanne Barlyn

merican International Group Inc. said it would include cyber coverage to its commercial casualty insurance during the first quarter of 2018, a move that would boost rates but make it clearer how customers are covered if they are the victim of a security breach. The change is part of the insurance giant’s effort to shift from issuing policies that do not specify whether cyber

losses are covered, said Tracie Grella, AIG’s Global Head of Cyber Risk Insurance, while on the sidelines of a cyber risk conference in New York. AIG is in the process of reviewing all types of coverage it offers to gauge its exposure to cyber risk, Grella said. Cyber coverage is a mounting concern for companies worldwide as hackers increasingly take aim at their technology systems. In September, Equifax Inc., a provider of consumer credit

14 | INSURANCE JOURNAL | NATIONAL NOVEMBER 6, 2017

scores, disclosed that cyber criminals had breached its systems between mid-May and late July and stolen the sensitive information of 145.5 million people. The hack is among the largest to occur. Many commercial insurers offer stand-alone cyber coverage, but cyber coverage is not yet a standard addition to most other policies. But insurers are also struggling to estimate their potential exposure to cyber-related losses amid mounting cyber risks.

Information from AIG’s review of existing policies will help the insurer better understand the insurer’s overall exposure, Grella told risk managers and insurers at a conference organized by Advisen Ltd., an insurance industry data and technology provider. Adding cyber coverage to other types of policies will mean higher rates, Grella said. “When you buy affirmative cyber coverage, you should be paying for it,” Grella said. Copyright 2017 Reuters. INSURANCEJOURNAL.COM

West

California Commissioner Adopts $1.94 Workers’ Comp Pure Premium

alifornia Insurance Commissioner Dave Jones has adopted an advisory pure premium rate that lowers the benchmark to $1.94 per $100 of payroll for workers’ compensation insurance. The advisory rate is effective Jan. 1, 2018. The rate is 17.1 percent less than the average pure premium rate of $2.34 California insurers filed as of July 1. The decision results in an advisory pure premium rate that is slightly below the $1.96 average rate recommended by the Workers’ Compensation Insurance INSURANCEJOURNAL.COM

Rating Bureau in its filing. Jones issued the advisory pure premium rate three weeks after a public hearing and review of the testimony and evidence submitted. “The continued decreases in costs to insurers should be passed along to employers through lower rates,” Jones said in a statement. “The WCIRB has once again recommended a reduction in the advisory pure premium rate, which will ultimately benefit California’s business economy if insurers lower their pricing.”

The WCIRB’s pure premium advisory rate filing demonstrated continued decreases in costs in California’s workers’ comp insurance market. The pure premium advisory rate reduction is based on insurers’ cost data through June 30 of this year. The WCIRB will evaluate workers’ comp costs again in the summer and fall of next year when it files its pure premium rate benchmark recommendation with the California Department of Insurance.

NOVEMBER 6, 2017 INSURANCE JOURNAL | WEST | W1

Special Report | Best Agency to Work For - BRONZE

West

Kulchin Ross Insurance Services Tarzana, Calif.

Youth Movement Powers Firm’s Growth, Energy By Don Jergler

here are no worries about who will take over at Kulchin Ross Insurance Services LLC when the agency principals decide to hang it up. The agency, which has grown from a handful of employees to more than 30 employees since starting out five years ago, is in the midst of a youth movement. “I really believe our biggest strength is in our youth,” said Derek Ross, president of the agency, who along with his partner, Bill Kulchin, has been actively working to bring young people into the insurance business. “Overall, I think it’s one of the most contagious things to do is to bring in new energy. And I think it’s been very effective.” Energy and being progressive were chief among the observations made by employees who voted the Tarzana, Calif.-based firm as Insurance Journal’s Best

Ross since they provided me with above minimum wage when starting,” the employee wrote. “Our boss is always communicating with us to make sure that everything is going well. Our company has many gatherings outside of work, it is like a family. We do community services events together.” Others liked that the firm is innovative and isn’t afraid to tackle new lines of business. “We have created several programs that specialize in new and exploding industries, such as marijuana insurance, various kinds daycare insurance, micro-needling insurance,” the employee wrote. “We have access to 99 percent of the carriers. We are part of the ISU network so there isn’t anything we can’t insure.” Ross has pushed the youth movement at the firm because he got in to the industry young, when he was age 16 doing back office work. Ross also has been involved with InVEST, a national program that educates high school and community college students on insurance, financial services and risk management topics, and encourages them to pursue careers in insurance. The Kulchin Ross office isn’t just a coop of spring chickens. The firm has an 80-year-old employee, and several employees in their 70s and 60s. “It’s really created a The Rating Cube is a centerpiece at Kulchin Ross Insurance Services beautifully diverse enviLLC. The office has seating and chalkboard walls and houses the agency’s youngest professionals, who are being taught to practice the ronment in our office,” art of rating. Ross said.

Agency to Work For in the West region. The firm took home the Bronze Award. The agency has a pair of 16and 17-year-old interns, and several 18- to 20-year-olds who are coming up in the business. The young staff are doing commission entries, preparing for licensing exams, as well as rating. The firm has its budding raters situated in a Rating Cube, a converted open office with seating and chalkboard walls for flare. Carriers are sending experts to teach the youngsters to rate small business and personal lines. “All the insurance carriers are so supportive of this,” Ross said. The firm, which is part of the ISU network, reports more than $5 million in revenue, and beside general insurance, it also specializes in apparel, cosmetology and insuring personal trainers.

Derek Ross, president of Kulchin Ross Insurance Services LLC, interacts regularly with high school students to talk about the insurance industry as a career opportunity. As a result, the agency has undergone a youth movement and now has several employees aged 20 and under. W2 | INSURANCE JOURNAL | WEST NOVEMBER 6, 2017

While most of the growth has been organic, it acquired Fred Glaser Insurance services in Van Nuys, a firm of roughly a dozen, in September 2015. One employee commented on what it was like to be purchased by Kulchin Ross. “We were bought out by Kulchin Ross,” the employee wrote. “I’ve heard of nightmare mergers and everyone was fired after, but they went the extra mile to show everyone how important each person is and how everyone mattered. Gender and age issues most places face don’t happen here. Before, we’d all just go to work, but because of our social life as an office and community involvement, we feel like we’re all a part of something bigger.” Performance reviews were what prompted praise from another employee. “I rated the performance/salary as excellent since at Kulchin

‘I really believe our biggest strength is in our youth.’

INSURANCEJOURNAL.COM

WEST | PEOPLE

Cameron Kelly

Paul Barry

Jim Holder

Los Angeles, Calif.-based Worldwide Facilities has named Cameron Kelly its chief operating officer. Kelly will be responsible for managing the company’s production offices, compliance, and acquisition integration. He will continue to serve as a member of the executive management teams. Kelly has been with Worldwide Facilities for the past 11 years. He most recently served as chief financial officer before transitioning to the COO role. Prior to Worldwide Facilities, he was a senior financial analyst at O’Melveny & Myers LLP, and before that he was a senior accountant at Luca, Horsfall, Murphy & Pindroh LLP. He was vice president of finance and administration at Brown & Riding Insurance Services Inc. prior to those roles. Worldwide Facilities is a national wholesale insurance broker and managing general agent. Seattle, Wash.-based PEMCO Insurance has named M.J. Vigil to its executive team as the company’s new vice president of people and brand. PEMCO also named Paul Barry to its executive leadership team as vice president of claims. Vigil will be responsible for guiding customer and employee experience for PEMCO. Vigil is joining the organization under a newly created role on the executive team. Vigil has 20 years of human resources, customer service and business leadership experience. She spent 14 years at Starbucks holding various leadership roles, most recently as vice president of human resources. Prior to Starbucks, Vigil led talent acquisition, training, and operations for Northwest hospitality companies, including Schwartz Brothers, Cucina Cucina and Restaurants Unlimited. Barry replaces Steve Miller, who is retiring at the end of the year. Barry will begin transitioning into his new role, working with Miller through the fall. Barry has been the senior systems manager for PEMCO’s digital services team since 2015, and he has more than 30 years of insurance industry and claims experience. He got his start in the industry as a claims adjuster. Barry worked for Safeco Insurance from 1985 to 2006. In 2004, he became the vice president of national operations. PEMCO is a Northwest company providing auto, home and boat insurance. Holmes Murphy has named Jim Holder vice president of employee benefits for the Colorado market. Holder was previously senior vice president for Cigna’s Mountain States Region. He was executive vice president in consulting ser-

W4 | INSURANCE JOURNAL | WEST NOVEMBER 6, 2017

vices for Ascension Insurance Inc. prior to that. Holmes Murphy is an independent brokerage that provides property/casualty insurance, employee benefits, captive insurance, risk management and loss control. San Diego, Calif.-based ICW Group Insurance Cos. has named John Novak chief operating and strategic execution officer. Novak will succeed David Hoppen, who accepted the position of president of VerTerra Insurance Co. (a member company of ICW Group). Novak has more than 24 years of leadership experience in the insurance and reinsurance industry. Prior to joining ICW Group, he was a managing director of Guy Carpenter. ICW Group is a privately held insurance company domiciled in California. Newport Beach, Calif.-based Alliant Insurance Services has named Sal Moranato a senior vice pres-

ident and pharmacy practice lead in its pharmacy consulting practice. Morana has nearly 25 years of pharmacy practice and industry experience. He was a consultant in the pharmacy practice of brokerage firm. He has also held positions across various health system pharmacy divisions. Alliant provides property/casualty, workers’ compensation, employee benefits, surety, and financial products and services.

Los Angeles, Calif.-based Venbrook has named Lee Exton managing director of employee benefits and total rewards. Exton will oversee all aspects of benefits and total rewards programs. Exton has more than 25 years of human resources and benefits consulting expertise in both the public and private sectors. Exton was most recently a principal at Mercer developing employee benefit solutions. Prior to Mercer, he served was vice president at Keenan and Associates, a healthcare practice leader at Segal, and a consultant for Willis Towers Watson. Venbrook is an independent insurance brokerage and services firm. Founders Professional has named Raffi Kodikian to the role of lawyers professional liability practice leader, marking the brokerage’s first West Coast hire. Kodikian will focus on the placement of lawyer’s professional liability risks for all size law firms and

continued on page W6

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work out of the newly opened San Francisco, Calif., office. Kodikian was previously a professional liability broker for Cooper & McCloskey Inc. for more than 13 years. Founders Professional is a national wholesale insurance brokerage focused on the placement of management liability and professional liability insurance risks.

Dan Berry

Woodruff-Sawyer & Co. has named Dan Berry leader of the firm’s private equity and venture capital group. Berry is a senior vice president and partner in Woodruff-Sawyer. Woodruff-Sawyer also named Andy Blasher an account executive in the firm’s Southern California office, and John Greenfield a producer in the property/casualty practices of the firm’s San Francisco and Denver offices. Berry joined the firm in 2011 and has specialized in the risk management and insurance needs of private equity and venture capital firms and their

Andy Blasher

portfolio companies since. Blasher has more than 20 years of experience on both the brokerage and insurance carrier sides of the business. His coverage expertise is in primary and excess casualty lines, including environmental liability. He was previously an assistant vice president at American International Group. Before that, he spent more than 15 years at Marsh & McLennan as a client executive and placement specialist/team leader. Greenfield will be responsible for business development and the design and management of P/C insurance and risk management programs for midsized to large U.S.-based companies. He has more than 20 years of experience in the insurance industry. Prior to joining WoodruffSawyer, he was with Edgewood Partners Insurance Center. He began his insurance carrier career at ABD Insurance and Financial Services (now Wells Fargo Insurance Services). San Francisco-based Woodruff-Sawyer has offices throughout California, and in Oregon, Washington, Colorado, Hawaii and New England.

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NATIONAL | Closer Look | Top Commercial Lines Agencies

Commercial Lines Leaders

Top 50 Commercial Lines Agencies

About the Commercial Lines Leaders: The 2017 Commercial Lines Leaders in this special feature are taken from Insurance Journal’s Top 100 Property/Casualty Independent Agencies as reported in August. This list utilizes only the 2016 commercial lines property/ casualty revenue numbers of the independent agencies and brokerages that submitted data to the Top 100 agencies report. For more information on Insurance Journal’s Top 100 Property/Casualty Independent Agencies list, contact awells@insurancejournal.com.

Ranked by Total 2016 Commercial Lines P/C Revenue 2017 2016 Rank Rank Agency Name

2016 Commercial Lines P/C Revenue

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

$985,325,000 $850,792,000 $644,628,686 $500,527,551 $461,228,131 $392,694,342 $272,711,000 $176,164,000 $150,996,294 $132,183,982 $129,100,000 $119,581,000 $118,250,458 $115,014,176 $96,397,000 $87,800,000 $86,333,600 $86,289,626 $86,000,000 $85,000,000 $75,200,000 $65,101,621 $63,144,913 $61,406,882 $58,828,000 $50,200,000 $49,592,549 $45,634,771 $42,500,000 $42,046,000 $41,342,000 $40,100,000 $40,018,847 $38,403,463 $36,028,310 $33,834,307 $33,339,000 $32,997,000 $31,927,954 $31,812,000 $30,529,475 $30,143,539 $29,441,034 $29,186,382 $28,410,000 $28,233,000 $27,334,000 $27,000,000 $26,609,000 $26,489,843

1 2 3 4 5 6 8 7 15 10 14 13 9 11 16 20 19 24 18 new 21 23 25 27 28 30 38 29 new 26 31 33 34 32 39 35 new 37 41 new 40 42 45 43 47 48 new 46 50 new

Lockton Cos. Hub International Alliant Insurance Services Inc. USI Insurance Services AssuredPartners Acrisure LLC BroadStreet Partners Inc. Integro Group Holdings LP NFP Insurance Office of America Inc. Risk Strategies Co. Crystal & Co. The IMA Financial Group Inc. Leavitt Group Wortham Woodruff-Sawyer & Co. Heffernan Insurance Brokers Higginbotham Hays Companies LassiterWare Cross Financial Corp., dba Cross Insurance Hylant Group Inc. INSURICA Inc. PayneWest Insurance Inc. Assurance Propel Insurance The Hilb Group LLC The Graham Co. Poms & Associates Prime Risk Partners Frenkel & Co. SterlingRisk Houchens Insurance Group Inc. Marshall & Sterling Enterprises Inc. TrueNorth Bowen, Miclette & Britt Insurance Agency LLC Ascension Insurance Inc. Parker Smith & Feek Inc. The Horton Group Inc. Robertson Ryan & Associates Inc The Mahoney Group LMC Insurance & Risk Management Inc. Starkweather & Shepley Insurance Brokerage Inc. Lawley Insurance Moreton & Co. James G. Parker Insurance Associates Eastern Insurance Group LLC ** Professional Insurance Associates Inc. Charles L. Crane Agency Fisher Brown Bottrell Insurance Agency **

2016 Total P/C Revenue

2016 Other than P/C Revenue

2016 Total P/C Premium Written

$1,000,411,000 $425,840,000 $7,428,780,000 $1,107,702,000 $380,364,000 $8,191,839,000 $656,293,229 $245,476,528 $5,252,492,321 $574,963,909 $455,160,360 $4,984,602,611 $546,904,035 $294,208,901 $7,825,556,098 $478,614,530 $121,418,378 $5,064,469,075 $338,700,000 $51,600,000 $2,750,000,000 $188,637,000 $88,824,000 $1,850,000,000 $214,013,378 $755,586,224 $1,250,000,000 $147,588,675 $18,764,016 $1,538,414,369 $153,300,000 $46,745,000 $1,459,000,000 $143,928,000 $20,822,000 $1,236,000,000 $125,039,862 $29,596,533 $1,310,076,472 $145,976,185 $62,568,997 $1,327,056,225 $105,498,000 $21,896,000 $927,509,000 $89,000,000 $30,100,000 $810,300,000 $91,947,700 $28,009,100 $673,150,000 $96,439,097 $58,612,966 $671,871,000 $91,700,000 $101,700,000 $1,030,000,000 $85,500,000 $156,500,000 $175,000,000 $107,100,000 $23,000,000 $851,300,000 $69,408,218 $39,005,337 $674,000,000 $63,144,913 $15,821,796 $526,713,096 $78,255,327 $21,466,741 $607,983,240 $59,654,000 $32,364,000 $515,079,504 $54,365,000 $16,832,000 $470,000,000 $60,478,719 $24,511,684 $491,029,596 $46,054,985 $5,185,842 $274,751,240 $43,900,000 $5,600,000 $269,700,000 $62,465,000 $15,265,000 $551,069,543 $46,977,000 $25,041,000 $561,490,000 $51,456,000 $11,109,000 $361,329,000 $43,471,785 $15,665,334 $324,149,952 $51,737,448 $15,084,504 $667,118,173 $36,028,310 $15,319,541 $338,901,422 $37,106,129 $9,216,075 $292,575,418 $38,088,000 $48,722,000 $331,200,000 $35,670,000 $9,793,000 $291,825,000 $36,691,877 $25,032,669 $344,927,000 $31,812,000 $3,515,000 $270,000,000 $32,470,981 $5,411,820 $224,142,017 $33,502,744 $12,429,324 $296,117,712 $40,184,002 $3,779,478 $298,239,884 $38,511,685 $17,746,852 $313,701,750 $30,061,000 $13,757,000 $372,000,000 $29,467,000 $5,075,000 $297,333,000 $51,028,000 $24,365,000 $348,000,000 $42,000,000 $0 $320,000,000 $30,649,000 $4,439,000 $217,000,000 $36,767,223 $8,330,663 $325,074,935

No. of Main Employees Office 6,500 11,554 2,806 4,353 4,239 2,798 2,400 1,064 3,600 1,064 905 469 654 1,692 526 429 409 871 750 95 760 635 529 675 454 331 503 174 200 475 160 225 279 427 301 218 467 203 356 225 174 280 230 344 194 205 370 52 270 175

Kansas City, Mo. Chicago, Ill. Newport Beach, Calif. Valhalla, N.Y. Lake Mary, Fla. Caledonia, Mich. Columbus, Ohio New York, N.Y. New York, N.Y. Longwood, Fla. Boston, Mass. New York, N.Y. Denver, Colo. Cedar City, Utah Houston, Texas San Francisco, Calif. Walnut Creek, Calif. Fort Worth, Texas Minneapolis, Minn. Leesburg, Fla. Bangor, Maine Toledo, Ohio Oklahoma City, Okla. Missoula, Mont. Schaumburg, Ill. Tacoma, Wash. Richmond, Va. Philadelphia, Pa. Los Angeles, Calif. Alpharetta, Ga. New York, N.Y. Woodbury, N.Y. Bowling Green, Ky. Poughkeepsie, N.Y. Cedar Rapids, Iowa Houston, Texas Walnut Creek, Calif. Bellevue, Wash. Orland Park, Ill. Milwaukee, Wisc. Mesa, Ariz. West Des Moines, Iowa East Providence, R.I. Buffalo, N.Y. Salt Lake City, Utah Fresno, Calif. Natick, Mass. San Carlos, Calif. Saint Louis, Mo. Jackson, Miss.

Website www.lockton.com www.hubinternational.com www.alliant.com www.usi.com www.assuredpartners.com www.acrisure.com www.broadstreetcorp.com www.integrogroup.com www.nfp.com www.ioausa.com www.risk-strategies.com www.crystalco.com www.imafg.com www.leavitt.com www.worthaminsurance.com www.wsandco.com www.heffins.com www.higginbotham.net www.hayscompanies.com www.lassiterware.com www.crossagency.com www.hylant.com www.insurica.com www.paynewest.com www.assuranceagency.com www.propelinsurance.com www.hilbgroup.com www.grahamco.com www.pomsassoc.com www.primeriskpartners.com www.frenkel.com www.sterlingrisk.com www.houchensins.com www.marshallsterling.com www.truenorthcompanies.com www.bmbinc.com www.ascensionins.com www.psfinc.com www.thehortongroup.com www.robertsonryan.com www.mahoneygroup.com www.lmcinsurance.com www.starshep.com www.lawleyinsurance.com www.moreton.com www.jgparker.com www.easterninsurance.com www.piainc.com www.craneagency.com www.fbbins.com

Editor’s Note: ** = Bank Owned Agency

INSURANCEJOURNAL.COM

NOVEMBER 6, 2017 INSURANCE JOURNAL | NATIONAL | 15

NATIONAL | Business Moves ing affordable, effective coverage for organizations of all sizes throughout Wisconsin. Jeatran Associates will join Alera Group through local firm JA Counter. Alera Group has now announced nine acquisitions this year, opening new locations in six states. Based in Deerfield, Ill., Alera Group was created by merging 24 entrepreneurial firms across the U.S.

Hub International, Banyan Consulting Group, Marwil & Associates

Sutton James Aviation Insurance Brokers, Optisure Risk Partners

Sutton James Aviation Insurance Brokers, a Hartford, Conn.-based resource for aviation-related coverages throughout North and South America, has joined Optisure Risk Partners to lead the development of Optisure’s Aviation Practice Group. Jon Doolittle, president of Sutton James, and the entire Sutton James team have joined the organization and will have responsibility for providing insurance offerings to Optisure’s aviation client base. Doolittle has an aviation career spanning more than 30 years. Optisure is a Manchester, N.H.-based provider of risk management and insurance solutions.

Alera Group

Alera Group, a national employee benefits, property and casualty, risk management and wealth management firm, has completed the acquisition of Simpson McCrady Benefits

LLC, effective Oct. 1. Terms of the transaction were not disclosed. Simpson McCrady Benefits, headquartered in Pittsburgh, Penn., specializes in the employee benefits industry. Simpson McCrady Benefits will join Alera Group through the local firm Coury Health Services. Alera Group also acquired Axis Benefit Consultants in Westmont, Ill., and Jeatran Associates in Menomonie, Wisc. Terms of the transactions were not disclosed. Axis Benefit Consultants specializes in benefits administration, broker and advisory services, COBRA administration and state continuation, along with support to provide clients with tailored plans that meet their specific needs. Axis Benefit Consultants will join Alera Group through local firm GCG Financial. Jeatran Associates offers employee benefits, individual insurance and HR consulting services to each of its clients. This firm focuses on provid-

16 | INSURANCE JOURNAL | NATIONAL NOVEMBER 6, 2017

Hub International Limited has acquired the assets of Banyan Consulting Group Inc. Terms of the deal were not disclosed. With offices in Greensboro, Raleigh and Charlotte, N.C., Banyan specializes in employee benefits. Alan Overbey, CEO of Banyan, will join HUB Carolinas. With the Banyan acquisition, HUB Carolinas will be serving clients in North and South Carolina with a total of 12 regional offices. In a separate deal, Hub also acquired the assets of Marwil & Associates LLC in Farmington Hills, Mich. Terms of the acquisition were not disclosed. Marwil & Associates specializes in employee benefits. Bruce Marwil, president, will join HUB Midwest East and report to Caroly Hofstee, president of HUB Midwest East. Headquartered in Chicago, Ill., Hub International Limited is a global insurance brokerage.

The Hilb Group, CNC Insurance Associates

The Hilb Group LLC (THG), a property and casualty insurance and employee benefits broker, has acquired CNC Insurance Associates Inc.

(CNC). The transaction became effective October 1, 2017. CNC is THG’s 38th acquisition since it was founded in 2009. Founded in 1978, CNC provides property and casualty insurance solutions for businesses in Delaware, Maryland, Pennsylvania, New Jersey and Virginia. With its office location in Dover, Del., CNC is the first acquisition in the state for THG. Kevin Nemith, CNC’s managing director, will continue to lead the agency’s associates out of its existing location. The addition of CNC also continues THG’s national expansion and is expected to further strengthen the company’s presence in the MidAtlantic region, added THG CEO Ricky Spiro in the release. The Hilb Group is a middle market insurance agency headquartered in Richmond, Va. It is a portfolio company of Bostonbased private equity firm, Abry Partners.

Millhiser Smith Agency, The Accel Group

Millhiser Smith Agency, an independent insurance agency in Cedar Rapids, Iowa, specializing in risk management, has entered a definitive merger agreement with The Accel Group, a Cedar Valley, Iowa-based insurance agency with offices in Cedar Falls and Waverly. Effective Jan. 1, 2018, the combined entity will do business as The Accel Group, making it one of the largest Iowadomiciled insurance agencies in the state. The new entity will continue to be run by the same experienced management INSURANCEJOURNAL.COM

groups that are in place at each respective company and will retain its offices in Cedar Falls, Waverly and Cedar Rapids. Tim Gassman, president of Millhiser Smith, will serve as the CEO of the new entity, while Mike Byl, president of The Accel Group, will continue to serve in that capacity.

Brown & Brown of Louisiana, Lapeyre, Staples & Robichaux

Brown & Brown of Louisiana LLC, a subsidiary of Floridabased Brown & Brown Inc., has acquired substantially all of the assets of Lapeyre, Staples & Robichaux, the companies announced. Lapeyre, Staples and Robichaux, based in Houma, La., specializes in employee

benefits insurance products and services. Partners Chris Lapeyre, Ken Staples and Eldridge Robichaux have annual net revenues of approximately $2 million. They will continue to operate from their Houma location under the direction of Tommy Huval, regional president of Brown & Brown.

Ryan Specialty Group, Oxford Insurance Services

Chicago-based Ryan Specialty Group LLC has reached a definitive agreement to acquire Oxford Insurance Services LLC (Oxford), a wholesale insurance brokerage headquartered in Houston, Texas. Oxford will become part of R-T Specialty LLC (RT

Specialty), the wholesale brokerage unit of Ryan Specialty Group (RSG), and will enhance RT Specialty’s Houston office. Oxford specializes in energy, construction, environmental and other complementary markets. Joining RT Specialty is Matt Galtney, president and CEO of Oxford, who will become the president of RT Houston and will lead RT Specialty’s Energy Practice Group. Terms of the transaction were not disclosed.

Specialty Program Group, Capitol Special Risks

Specialty Program Group LLC, a holding company for specialty brokerage, contract binding and insurance under-

writing facilities, has acquired the assets of Capitol Special Risks Inc. Terms of the acquisition were not disclosed. Established in 1991 and based in Atlanta, Ga., CSR is a niche wholesaler and managing general underwriter specializing in professional and management liability coverages. CSR, an all-female specialty brokerage, was purchased by CEO Lynn Levinson and President Dorothea Westin in 1998, and they have been sole owners ever since. Westin and Levinson will continue to run the company post-acquisition. Headquartered in Summit, N.J., Specialty Program Group focuses on expanding program underwriting, contract binding and specialty businesses.

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NATIONAL | Special Report | Cyber & Security

Cyber Service: How the Market Is Dishing Out Innovation By Andrea Wells

o one knows what the future of cyber risk holds. But more market choices and value-added services are now part of this fast-growing market. “We don’t know,” said Blake Wiedman, partner at Nashvillebased The Crichton Group. “We just don’t know what this risk is going to look like tomorrow. Until WannaCry, we’d never heard of that (exposure) before it happened.” The reality of insuring cyber risk is that the risks will continue to evolve, cyber experts say. And the insurance market must continually evolve with those risks as well, according to Wiedman. “It is always going to be changing,” he said. To insure cyber risks, the industry, business owners, agents and brokers have to stay at the forefront of the changing risks as much as possible, he said. “It will take a strategic and coordinated approach between everyone” to properly cover cyber exposures. Yet, despite what may seem to be an insurmountable number of emerging cyber dangers, the insurance market for cyber coverage has never been better for buyers and underwriters. “Now, there are probably 80 different markets out there

that have cyber products,” said David Lewison, senior vice president, professional lines national practice leader for AmWINS Group. “As soon as one steps away or tries to raise rate, another one jumps in.” Pricing for cyber coverage overall has trended down every year for the past few years, according to Lewison, who doesn’t see premiums going up anytime soon. Overall, cyber insurance is a profitable line for the insurance industry, too. Property/casualty insurers reported $1.35 billion in direct written premium for cyber insurance in 2016, a 35 percent jump from 2015. That’s according to Fitch Ratings and A.M. Best, which reported earlier this year that the direct loss ratio decreased from 51.4 percent in 2015 to 46.9 percent in 2016. A.M. Best attributed the decline to the majority of reported cyber attacks being related to ransomware heists, on which losses were well below the deductibles and a simple backup recovery worked to prevent negative long-term effects. “I’ve never heard cyber insurers say the line is remotely unprofitable,” Lewison noted. Part of that has to do with the cost of notification and credit monitoring declining over the

18 | INSURANCE JOURNAL | NATIONAL NOVEMBER 6, 2017

years. “It’s dollars and cents per record now so it doesn’t cost a lot.” Coverage terms and conditions have also broadened, which makes selling cyber easier than it was a few years ago, according to Wiedman. “The evolution of the product has been incredible over the last three or four years,” he said. “The markets have been absolutely broadening what they’re able to provide insureds.” In particular, there is an evolution around what’s considered to be first party coverages, or the costs that an organization assumes when hit with a breach, Wiedman said. “That’s things like notification and credit monitoring, hiring a data forensics firm, going out and hiring a great public relations firm to control some of that reputational harm, setting up call center support, legal expenses, extortion attempts, those types of things,” he said. Wiedman added: “I do feel like the insurance industry has done a fairly good job in this space of expanding coverages, making them more affordable, understanding the risk, and trying to plug into — not just the insurance purchasing and risk transfer side — but how they are going to help a client post-breach.” Wiedman is quick to point out the cyber product evolution to those clients who are still on the fence about buying coverage. “That’s one of the first things I talk about,” he said. “The majority of our clients are middle-market companies that don’t have 10 people sitting in a room protecting data, coming up with strategic

plans to respond to breaches. In the middle-market, you’re leaner. You rely on third parties more often.” That’s where insurance carriers and their agents can win in cyber, he says. “For me, when I’m communicating the benefit of the policies, this is something I say in every meeting is — if you’re not concerned about the severity of the breach, having the peace of mind of a company like Chubb, for example, that’s handled thousands of these cases is worth it. They have attorneys specific to data breach, they have breach coaches that

can help coordinate with vendors for notification/credit monitoring, they may have pre-negotiated pricing with those vendors. All that’s taken care of for you.” The presence of cyber-related services accompanying policies is a recent realization in the marketplace, according to Matt Prevost, senior vice president, cyber at Chubb. “A lot of clients are starting to focus much more on the

services accompanying the risk transfer policies and as coverage evolves, I think so do the services,” Prevost said. “As clients procure technology services from a third-party, a big part of that planning, in my opinion, is integrating insurance and some of the resources that the insurance companies and brokers provide as a part of that process.” Prevost said that insurers and brokers are a small part of a business’s overall risk management strategy when it

comes to cybersecurity but it all needs to be integrated and work together. Prevost cited one example in which carrier services can be integrated with cybersecurity tactics. “Most of our incidents are caused by poor passwords and employees making mistakes, so we’ve focused our services that accompany the policy on exactly those two things,” Prevost said. “It’s also recognizing this happens across all other lines.” Prevost added that is where cyber creativity is coming into play from competitors. “I do think that’s where a lot of the innovation is coming from, not just from Chubb, but in the cyber marketplace, from a service perspective.”

Services for cyber policies are improving, without question, Prevost added. They must in today’s competitive market. “The reality is that cyber is becoming more of a core product,” Prevost said. “How complicated and sophisticated is this as a product line itself remains to be seen. But you’re starting to see some of the coverage demands and some of the claims interacting with other lines, which only encourages this being more of a core competency of a broker.” Lewison agrees. “It will become a standard product,” he said. Lewison admits he doesn’t like to say that coming from a wholesale specialty brokerage viewpoint, but it is a fear. “A few years ago, people could build a personal brand around cyber,” he said. “Now, we’re talking about different perils, first-party services, not just liability limits.” Lewison has seen the admitted portion of his cyber book rise to where it’s nearly 50/50. "Five, six years ago, everybody was on surplus lines paper, except maybe AIG, maybe Chubb, maybe CNA,” he said. Today, a lot of the companies have admitted offerings. “That makes it easier for retailers who are appointed with them to place it, but do they understand the differences in the forms? Maybe not, and that’s where wholesalers can differentiate.” Lewison, however, doesn’t worry too much. “There’s always going to be a place for us, like everything, there are going to be those misunderstood risks that need our help.” Share this arti-

cle with a colleague. IJMAG. COM/1106SE

NATIONAL | Special Report | Cyber & Security

Former U.S. Security Expert: 5 Ways the Insurance Industry Can Improve Cybersecurity By Amy O’Connor

he insurance industry has a great record of solving problems where government regulation didn’t because the government either didn’t know how to regulate, or the government wouldn’t regulate,” Richard A. Clarke, former National Coordinator for Security, Infrastructure Protection and CounterTerrorism for the United States, told attendees at a recent cybersecurity insurance forum

in Santa Clara, Calif. Clarke, now CEO of Good Harbor LLC, a security risk management firm that advises companies and governments on cybersecurity and best practices, was the keynote speaker at the recent National Association of Insurance Commissioners (NAIC) and Stanford Cyber Initiative: Cyber Insurance and Its Evolving Role in Helping to Mitigate Cyber Risks. The first joint forum between the NAIC and Palo Alto, Calif-

20 | INSURANCE JOURNAL | NATIONAL NOVEMBER 6, 2017

based Stanford University held last month sought to explore how insurers and cybersecurity experts can better work together to solve cybersecurity challenges facing the nation’s technology infrastructure. Clarke’s experience in the cybersecurity world has spanned decades, including a 30-year career with the U.S. Government. He served under three presidents as a Senior White House Advisor, Special Advisor to the President for Cyber Security, and on the United States National Security Council. “I think the cyber insurance industry has enormous potential to positively shape the cybersecurity ecosystem in this country, as it has so many other things in this country – as it has

with fire prevention, as it has with automobile safety,” Clarke said at the NAIC/Stanford forum. Clarke offered several ideas on where he thinks the insurance industry can use its power to improve cybersecurity for companies and organizations alike, as well as grow and improve the overall cybersecurity insurance market.

Know Your Insureds’ IT Budgets

Clarke said what differentiates the security of a company’s technology infrastructure is what they spend on their IT budget. “If you look at the percentage of their IT budget that they spend on security … that will INSURANCEJOURNAL.COM

tell you a lot,” he told the audience of insurance professionals and regulators. The reason for that, Clarke said, is every company has “definitional issues” about how they look at security and how they allocate their budget to those different areas. Clarke said for companies to truly be effective at combating cybersecurity intrusions they need to employing resources at many different levels, and that costs money. “At the gross level, if the company is spending 3 percent, 4 percent, or even 5 percent, of its IT budget on security, it’s not spending enough,” he said. “Getting this right is hard. Getting this right is expensive.” Clarke said good companies that are highly secure are spending at least 8 to 12 percent of their IT budget on security. “If people are unwilling to spend money on IT security, they will get hacked,” he said.

Cybersecurity Defense is About People

Clarke said even if a company is employing all the right hardware and software that it can to fend off technology intrusions, the real difference maker to keeping a company or institution safe is still its people. “If you don’t have training [for] IT security people, all that hardware and software is not going to do you any good. You’re not going to know how to integrate it and you’re not going to know what to do at large,” he said. He said there are currently 200,000 vacant IT security jobs across the U.S., and that numINSURANCEJOURNAL.COM

ber doesn’t include the people in IT security jobs who aren’t trained or qualified for them. “You would never a let a doctor operate on you who wasn’t board-certified in that capacity; you’d never let someone do your income taxes who hadn’t recently gone through a tax certification program … yet we have [people] in companies throughout the United States who do not have the qualifications to do their job,” he said. Clarke said part of the reason for that is there isn’t a good certification program for people to train in cybersecurity, something he said he is working on. And he thinks insurers should do more to provide adequate training as well.

Know How Secure Your Insureds Are

Clarke said insurers shouldn’t just be examining a policyholder’s security system when they are filling out the insurance application, but “every moment of the day.” In other words, he said, insurers should continuously monitor the cybersecurity procedures of their insureds, much the way auto insurers do with driving telematic devices. And, he said, the technology exists for insurance companies to gather this information and keep a “security score” on their policyholders. “If I was an insurance company and I was underwriting a company, I would not underwrite them unless I knew every day how secure they were,” he said.

Don’t Give Up

Clarke said in the wake of

many high-profile cybersecurity breaches such as Target, Sony, Yahoo, and most recently Equifax, it would be easy to reach the conclusion that all company technology networks cannot be secured. “You can get really depressed by that and give up,” he said. But he urged people not feel that way, saying there are many companies that are successful at keeping hackers away and keeping people’s personal information safe, they just don’t publicize it. “The companies that are successful don’t like to attract attention. There are companies that have not been hacked; or when they have had the network penetrated, it has not resulted in the loss of data, it has not resulted in the shutting down of operations,” he said. “Don’t look at all the horror stories … They’re not all going to be hacked. Some of them are going to get it right. We need to learn from the ones that aren’t being hacked.”

Create a Cybersecurity Insurance Institute

Clarke said the insurance industry should develop a place where the phenomenon of cyber incidents and the potential interaction with insurance could be studied. That place could create the data needed for better underwriting, and think of ways of reducing the risks. He said the institute could also certify people working in cybersecurity. “A cybersecurity insurance institute joining with other organizations could create a multilevel set of certifications and could help run that pro-

Richard Clarke

‘I think the cyber insurance industry has enormous potential to positively shape the cybersecurity ecosystem in this country, as it has so many other things in this country – as it has with fire prevention, as it has with automobile safety.’ gram, run the curriculum, run the testing, and run the continuing education,” he said. He added such an institute would put the insurance industry on the cutting-edge of the cybersecurity world, and help ensure that insurers are not putting themselves at too great a liability. “You don’t have to wait for new technology. You don’t have to wait for new breakthroughs, and you don’t have to wait for someone to pass the ball because they never will,” he said. Share this article

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NOVEMBER 6, 2017 INSURANCE JOURNAL | NATIONAL | 21

NATIONAL | Closer Look | Commercial Property of Loss – Special Form). So, what does that tell us about Windstorm and Hail as a covered Cause of Loss?

Covered Causes of Loss: When Special is shown in the Declarations, Covered Causes of Loss means Risks Of Direct Physical Loss unless the loss is: 1 . Excluded in Section B., Exclusions; or 2. Limited in Section C., Limitations; that follow.

Does a CPP Cover Trees Knocked Over by a Hurricane? By Patrick Wraight

hen a hurricane blows through, it isn’t just the trees on a homeowner’s property that could be damaged. There could be trees on a business’ property that are damaged as well. Does the commercial property policy provide coverage there? For this discussion, we’ll be using an ISO CP 00 10 10 12 Building and Personal Property Coverage form with CP 10 30 06 07 Causes of Loss – Special Form attached to it. Your carriers might be using a different edition date, a coverage form that they wrote, or other carrier specific endorsements. Make sure that you’re checking the specific policy forms that you’re using. It’s worth noting

here that I didn’t use the word policy right here. I intentionally avoided that word because we’re only dealing with two specific forms that make up the policy, not the whole policy. One is a coverage form and the other is a causes of loss form. Alone, they can’t form a whole policy. Commercial policies are fun like that. We have to address the attached causes of loss form because our coverage form will have us refer back to it. The coverage form itself doesn’t tell us what causes of loss are included. Here’s the first statement that it makes about causes of loss on the first page of the form.

Coverage: We will pay for direct physical loss of or damage to

22 | INSURANCE JOURNAL | NATIONAL NOVEMBER 6, 2017

Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss. That seems simple, right? Let’s look at one more place on the coverage form to find out why it isn’t as simple as we want it to be.

Covered Causes of Loss: See applicable Causes of Loss form as shown in the Declarations. That forces us to leave this form alone to validate whether we’re dealing with a covered cause of loss. Remember that we were talking about trees felled by windstorm. Of course, you still remember which causes of loss form we are working with (it’s the CP 10 30 Causes

Without going through and quoting the entire form, we have to review it and find that there are no exclusions or limitations that apply to the cause of loss that we’re concerned about, which is windstorm or hail. It’s worth noting quickly that it is possible that another endorsement is attached which may exclude or limit windstorm or hail. Make sure that you’re watching for that. Let’s go back to our coverage form and see what we can find that might apply to our trees. Reading through A.1. Covered Property, we won’t find anything that specifically speaks to the trees on the property unless the business has trees as “stock,” which may impact coverage. For today, let’s say that the business is not in the business of selling trees. They are not “stock.” Since we’ve cruised through that part of the form, the next section is A.2. Property Not Covered. Maybe there’s something here that we need to consider.

A.2.q. The following property while outside of buildings: (2) Fences, radio or television antennas (including satellite dishes) and their lead-in wiring, masts INSURANCEJOURNAL.COM

or towers, trees, shrubs, or plants (other than trees, shrubs or plants which are “stock” or are part of a vegetated roof), all except as provided in the Coverage Extensions. Here comes a potential issue. The property not covered includes the trees, shrubs or plants that we are really interested in. If this is the only place we find trees, we conclude that there is no coverage for this type of property. If that were the end of the coverage form, we’d be right, except that there’s a lot more of the form left to look into, especially since this ends with an exception. Now, we have to find the coverage extensions to find out if there is a coverage extension that applies. The coverage extension portion of the policy is quite interesting because it is not emphatic. Let me show you what I mean.

If a Coinsurance percentage of 80% or more, or a Value Reporting period symbol, is shown in the Declarations, you may extend the insurance provided by this Coverage Part as follows: The coverage extensions are conditional coverages. They are not guaranteed coverages. I get that you’re not likely to have a coinsurance percentage below 80 percent, and it would seem less likely that an insured is not going to want coverage according to the coverage extensions, but it is worth noting that the policy reads that “you may extend…” not “we shall extend…” or “the following insurance is provided…” It uses the conditional statement. That means that there isn’t a guarINSURANCEJOURNAL.COM

antee of coverage. It is under the insured’s control. That’s enough of that diversion, let’s see if there is a coverage extension that applies.

e. Outdoor Property You may extend the insurance provided by this Coverage Form to apply to your outdoor fences, radio and television antennas (including satellite dishes), trees, shrubs and plants (other than trees, shrubs or plants which are “stock” or are part of a vegetated roof), including debris removal expense, caused by or resulting from any of the following causes of loss if they are Covered Causes of Loss: 1. Fire; 2. Lightning; 3. Explosion; 4. Riot or Civil Commotion; or 5. Aircraft. We found the property that we’re looking for. Trees are outdoor property, and they are specifically listed as such. What’s the problem now? Under this coverage extension, we have severely limited the covered causes of loss. You remember that our discussion was specific to trees felled by windstorm. Windstorm isn’t listed here. That means that we still haven’t found coverage. What about debris removal? Didn’t we find some coverage under debris removal on the HO-3? Let’s take a look at the debris removal additional coverage here and see if we might pick up some coverage on this form. Turning to A.4. Additional Coverages; a. Debris

Removal, we find that it is a detailed part of the policy, which may give us hope to find some coverage here.

Debris Removal 1. Subject to Paragraphs (2), (3) and (4), we will pay your expense to remove debris of Covered Property and other debris that is on the described premises, when such debris is caused by or results from a Covered Cause of Loss that occurs during the policy period…. 2. Debris Removal does not apply to costs to: (skipping subparagraphs a & b) Remove any property that is Property Not Covered, including property addressed under the Outdoor Property Coverage Extension;

be understood based on their own coverages, exclusions, limitations, and endorsements. We can’t make any assumptions when we’re trying to understand policy language so that our customers can make Share informed decisions.

this article with a colleague. IJMAG.COM/1106CO Wraight is the director of Insurance Journal’s Academy of Insurance. Email: pwraight@wellsmedia.com. Website: www.ijacademy.com

You can’t say that we didn’t try, but it doesn’t look like there’s any coverage here for the question that we started with. Actually, we find that coverage is specifically excluded here. Now, if it wasn’t wind that knocked the tree over, but fire, lightning, or a 747, it looks like we can find some coverage on the commercial policy. Is there a point to all of this? Sure, there is. Some of us get the blessing of specializing in personal or commercial lines. There are others that just don’t have that blessing. It is important to remember that all insurance policies must NOVEMBER 6, 2017 INSURANCE JOURNAL | NATIONAL | 23

NATIONAL | Special Report | Cyber and Security

Small Business and Cyber Insurance Trends 30, 2017, and the findings of this analysis shed some light on cyber liability trends in the small business market.

Despite the high volume of breaches occurring, there is an unusually competitive environment right now. By Christiaan Durdaller

yber insurance is now a hot topic and is increasingly being purchased by businesses of all sizes. Gone are the days when company executives could claim ignorance of cyber threats. On the flip side, agents can no longer avoid having a conversation with their insureds about cyber threats either. Unless, of course, their agency E&O policy has high limits. Still, the adoption rate for cyber liability insurance among small businesses, which we define here as those with $25 million or less in revenue, has been historically low. Numerous studies conducted over the last couple of years offer varying figures on the percentage of small businesses that have purchased cyber coverage, but we think the number of small businesses that purchase the coverage is around 15 percent to 20 percent. The good news is that we have experienced a tremendous uptick in the buying of cyber insurance by small companies. Though some agents are becoming more adept at discussing cyber coverage, they face limited resources such as the availability of benchmarking data. Additionally, carriers are not sharing this information. We have analyzed nearly 3,200 policies containing cyber coverage sold to small businesses over a two-year period, with effective dates from July 1, 2015, to June

Even though there seems to be a continuous flow of bad news about data breaches, ransomware attacks and cyber vulnerabilities, rates from the first 12 months (July 1, 2015 to June 30, 2016) to the second 12 months (July 1, 2016 to June 30, 2017) of the period studied dropped by 4 percent. Even high-risk industries holding large quantities of sensitive and confidential data have gotten in on the trend. Healthcare and social services companies saw one of the largest decreases in average rates, down 21 percent. Finance and insurance companies’ rates also markedly declined, down 15 percent. Retailers, which have the additional risk of Payment Card Industry (PCI) fines and penalties, were down 5 percent. While this might seem counter intuitive, these statistics validate what’s been observed daily: the cyber market is intensely soft as many carriers are fighting for market share. Thus, despite the high volume of breaches occurring, there is an unusually competitive environment right now. There were some exceptions in the data, however. For instance, information companies (media outlets, data processors, software publishers, etc.) saw rates jump 21 percent, and for the arts, entertainment and recreation sector, rates increased 14 percent. When examining specific types of technology-related companies, those described as “ERP (enterprise resource planning), CRM (customer relationship management),

24 | INSURANCE JOURNAL | NATIONAL NOVEMBER 6, 2017

supply chain or similar software and related services” had a 16 percent spike, and “IT systems analysis/design/integration/ data migration and related consulting services” had a 14 percent increase. Looking at limits, it was not surprising to find that the two industry sectors with the highest were information (media outlets, data processors, software publishers, etc.), with an average limit per policy of $2.11 million, and “professional, scientific, and technical services,” at $2.04 million. At the lower end of average limits, transportation and warehousing companies came in at $1.28 million, while accommodation and food services were at $1.12 million. Among subsets of tech-related companies, higher limits were purchased by data processing service firms and data mining firms, at $2.52 million and $2.51 million, respectively.

Why Buy Cyber?

As an insurance professional, you should encourage all your clients to buy cyber coverage. There is no shortage of compelling reasons to do so. First, small companies do fall prey to attacks. A whopping 42 percent of businesses reported being a victim of a cyber INSURANCEJOURNAL.COM

attack in 2015, according to the National Small Business Association (NSBA). This is partially because they have fewer resources to put toward IT personnel and IT security systems than their larger counterparts, so they are relatively easy targets. Small firms also generally fail to make cyber security a significant part of company culture. Only 15 percent offer employees cyber training, according to a 2016 Better Business Bureau report. Because a sizeable number of claims result from C human error, educating employees across M the organization should be a key risk manY agement goal. Smaller businesses have less ability to CM weather the financial storm in the after- MY math of a cyber event. The NSBA study CY found that for small companies that had CMY their banking accounts hacked, the average loss was $32,021. K There are many other sources of potential financial damage, such as costs for lawsuits from damaged customers, forensics experts to clean and repair an infected network, notification costs, and PCI and/ or government fines and penalties, just to name a few. There is virtually no business that is immune to cyber risk. For example, even a manufacturer that handles little data

still has sensitive information on its network regarding employees, such as Social Security numbers, addresses, dates of birth, etc. Let’s assume there is a small business with no valuable or sensitive data just for argument's sake. This is a bad assumption, but even if it was true, the firm still has the risk of an incident resulting from “island hopping.” Most small businesses are connected digitally to their vendor partners, which are often larger entities. The bad guys exploit this arrangement, penetrating the network of the smaller companies that are easier prey, and then jumping via vendor connections into the systems of the larger, more valuable companies. Island hopping caused the infamous Target breach in 2013, for example. Selling cyber coverage to a small firm is easier than ever, but can still present challenges. However, with the extensive A&M IJ Self Serve.pdf 1 5/16/16 benchmarking data available today, for-

with a colleague. IJMAG.COM/1106DS

Durdaller is executive vice president/cyber & tech teamPM lead at INSUREtrust. Email: cdurdaller@in2:29 suretrust.com. Phone: 770-200-8000 ext. 116.

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ward-thinking agents can present a client with an accurate picture of what other small businesses in that client’s sector and revenue range are buying. Data risk modeling using real-life claims to demonstrate what costs a client would likely incur from a cyber incident can also help encourage clients to buy needed coverage. Now is an opportune time to purchase cyber: the potential loss can be substantial for a small business, the coverage is overly broad, rates are remarkably low for state-of-the-art coverage and the market is expected to remain extremely soft for at least the next year. This presents a winwin opportunity for both insurance agents and their insureds. Share this article

10/18/17 2:23 PM

NOVEMBER 6, 2017 INSURANCE JOURNAL | NATIONAL | 25

Idea Exchange

Human Resources

Can Cyber Open the Door to Attracting Talent? “behind the times,” insurance remains an unpopular career choice among today’s young professionals. Further compounding this challenge is the reality that less than one in 10 young professionals are interested in working in the industry. What can insurers do to address these growing talent challenges? Perhaps the answers lie in the rapid emergence of cyber.

Cyber on the Rise By David E. Coons

o longer a long-range concern on the distant horizon, the talent crunch within the insurance industry is here. Despite years of warnings and research, insurance organizations face a perfect storm of labor market challenges, including an aging workforce, an impending wave of retirements and an increasingly shallow talent pool. Insurance, as an industry, is more aged than the rest of the economy. According to the U.S. Bureau of Labor Statistics (BLS), nearly 50 percent of the insurance industry workforce is older than 45 years old. There are approximately 693,000 insurance workers aged 55 and older — an increase of 74 percent within the past 10 years. This rapidly aging workforce is driving an unprecedented wave of retirements. Within 15 years, nearly 50 percent of current insurance professionals will be retiring. With the BLS reporting that less than 27 percent of industry employees fall under the age of 35, the current bench of less-tenured employees within insurance is not large enough to match the departure of retiring professionals. It is estimated the industry needs to add 400,000 open positions to its bench by 2020 in order to remain fully staffed. Unfortunately, today’s risk and insurance graduates only meet 10 percent to 15 percent of this growing talent need. Historically viewed as “boring” and

Cyber is everywhere. Recent well-publicized cyber attacks and data breaches at Equifax, Verizon, Deloitte and Target have brought cyber security to the forefront. While the total number of data breaches and record exposures fluctuate annually, organizations continue to see an upward trend. Cyber security and the losses associated with cyber crimes are now a massive concern within the business world. According to the Identity Theft Resource Center, the number of U.S. data breaches tracked in 2016 hit a record high since the center began tracking in 2005. The 1,091

26 | INSURANCE JOURNAL | NATIONAL NOVEMBER 6, 2017

breaches reported in 2016 represents an increase of 39.9 percent and of 39.3 percent from 2015 and 2014 respectively. By 2021, cyber crime damage is expected to cost businesses $6 trillion annually. Cyber risk has moved into the top three global business risks, according to the Allianz Risk Barometer Survey. This is a significant jump from its fifteenth-place ranking in 2013 and places it just one point behind the number two risk — market developments. Cyber crime has become a key concern among today’s businesses. Already, the BLS is reporting more than 200,000 open cybersecurity positions. During the next 10 years, cyber is predicted to see job growth of 37 percent. In response to this growing demand, colleges and universities are adding cyber programs at a rapid pace. Often designed as a multi-departmental degree or specialization, these programs reflect the ubiquitous nature of today’s cyber threats and allow students to develop skills across potential industry sectors. These individuals will be key to combatting the growing cyber threat and

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are an important talent segment for potential insurance recruitment.

to shaping insurance into an industry that everyone wants to be a part of. Share

Recruiting for Cyber

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Cyber risk is evolving at a rapid pace. Today’s insurance organizations are working hard to evolve with it. Already, focus is on the latest round of emerging risks, including the growing use of cloud services, the use of personal devices for business, the emergence of social media and the resulting potential for online slander. While this breakneck pace of change and the rapid evolution of cyber crime is a cause for concern within the industry, it also provides a unique opportunity for insurers. Embracing the innovative technologies being introduced in response to an ever-evolving range of risks allows organizations to combat the misconceived view of insurance as “backward” and “behindthe-times.” Today’s young professionals want to work for organizations on the forefront of new and provocative advancements. The expanding selection of cyber risk coverage options — including liability, crisis management, cyber extortion and business interruption — fulfill this desire. Insurance organizations should embrace and publicize their work with cyber risk and cyber crime. Highlight what has already been done, what projects are currently underway and what the future may hold in terms of innovation. Focus on how young professionals can play a role in this exciting and fast-changing future. Make sure to promote your organization’s innovative work on your website and social media to establish your company as forward-thinking and cutting-edge. Develop a digital presence that highlights your use of new technologies and helps to build a reputation as innovative. This public persona will go a long way toward increasing interest among today’s top talent. While cyber crime and cyber risk are certainly concerns for the industry, they also provide insurance organizations with a unique recruiting perspective. In addition, embracing the innovative opportunities being driven by cyber may be key

IN THE WEEDS? WSIA members take the guessing out of the game. Choose a WSIA member to help you deliver cost-effective, innovative solutions for specialty and nonstandard insurance risks. So cost-effective, in fact, that a recent Conning analysis of distribution costs concludes that wholesale distribution does not increase the cost of the transaction to the insured. Count on WSIA members to create expertly tailored insurance solutions. Find a WSIA member at wsia.org

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Coons is senior vice president of The Jacobson Group, a provider of talent to the insurance industry. Phone: 800-466-1578. Email: dcoons@jacobsononline.com.

10/24/17 8/14/17 7:42 3:36 PM

NOVEMBER 6, 2017 INSURANCE JOURNAL | NATIONAL | 27

Idea Exchange

Fraud

Crime Does Pay For The Modern Fraudster Circuit Courts to Clarify Coverage for Social Engineering Fraud

By Jonathan Schwartz and

Colin Willmott

he Second and Sixth Circuit Courts of Appeals are poised in 2018 to clarify a thorny issue for policyholders and insurers alike: the availability of insurance coverage under commercial crime policies for social engineering fraud (SEF). SEF is an umbrella term for a series of conduct that is simply an extension of the age-old confidence trick. The term refers to a fraudster’s ability to manipulate the psychology of the intended victim, playing upon that person’s desire to trust, be responsive, and help a superior or client. SEF encompasses the following schemes: impersonation/pretexting, phishing, CEO/fake president fraud, business email compromise, whaling, and spoofing. A common example is a fraudster sending an email requesting payment from an address that closely mimics the email of a business

executive or an important vendor. In the age of ubiquitous email, SEF is a major concern for business: 100,000 such attacks occur every day, causing hundreds of millions of dollars in losses annually. Insurance coverage for victims of SEF may be particularly tricky due to the nature of the attack, as the attack typically relies on voluntary acts by the victims to execute a transfer in funds. This leads to disputes under computer fraud or the funds transfer fraud parts of commercial crime policies since they often require that the loss results directly from the acts of the criminal and/or exclude coverage for voluntary acts. The majority of courts addressing coverage under a commercial crime policy to date for SEF losses have found an absence of coverage for three main reasons. First, they are reluctant to determine that losses involving email necessarily result directly from the use of a computer. Second, they are hard-pressed to find that a transfer of funds requested by an authorized person can be a fraudulent transfer. Third, they find compelling exclusions for “voluntary payments” even when the loss was the product of deception. The challenges facing policyholders seeking coverage under a commercial crime policy for SEF losses is best seen through American Tooling Center Inc. v. Travelers Casualty & Surety Co. of America, No. 16-12108, 2017 WL 3263356 (E.D. Mich. Aug. 1, 2017). The coverage dispute arose when American Tooling Center Inc. (ATC) authorized $800,000 in payments to a bank account it believed to belong to one of its vendors. A fraudster using an email address virtually identical to the vendor’s address had instructed ATC to wire the funds to the fraudster’s account. ATC sought coverage under its computer crime policy. Its insurer denied

28 | INSURANCE JOURNAL | NATIONAL NOVEMBER 6, 2017

the claim, insisting the loss was not a “direct loss” caused by the “use of a computer.” ATC then initiated litigation. Upon cross-motions for summary judgment, the district court ruled in favor of the insurer. The court held the loss was not directly caused by the use of a computer because the real cause was ATC’s failure to verify the bank account with the vendor. Thus, due to the intervening events between the receipt of the fraudulent emails and the authorized transfer of funds, it could not be said that the loss was directly caused by a computer. This was in contrast to a funds transfer caused by an infiltration or hacking of ATC’s computer systems. Importantly, ATC has appealed this decision to the Sixth Circuit Court of Appeals. In contrast to ATC, a New York federal court in Medidata Solutions Inc. v. Federal Insurance Co., No. 15-cv-907, 2017 WL 3268529 (S.D.N.Y. July 21, 2017), concluded a fraudulent transfer was a covered loss. Medidata Solutions Inc., a provider of cloud-based services to scientists, used an email platform offered by Google’s Gmail. Although the address of Medidata’s employees used a domain name specific INSURANCEJOURNAL.COM

to the company, emails were still routed through Google’s system. Medidata’s finance department had been informed that an acquisition might occur. Its employees were instructed to be prepared to assist with significant transactions. An employee in accounts payable then received an email purportedly from Medidata’s president notifying her that an attorney would soon be contacting her regarding an acquisition. The employee later received a phone call from the “attorney” who demanded a wire transfer. She responded that she needed approval from

the vice president and the director of revenue. The employee then received an email purportedly from the president approving the payment. Thereafter, she made a payment of nearly $5 million. The “attorney” subsequently made a second demand for payment. That led to the discovery of the fraud. Medidata sought coverage for the loss under its commercial crime policy, which contained computer fraud and funds transfer fraud parts. The insurer denied coverage, which led to Medidata’s commencement of suit. On cross-motions for summary judgment, the district court analyzed the computer fraud coverage and determined a covered fraud was perpetrated. The court found it compelling that the fraudsters “spoofed” the email of the president by embedding computer code. It rejected the argument that the fraudsters had to hack into Medidata’s system and execute the transfer themselves in order to trigger coverage. The court found no requirement of a direct nexus between the sending of the email and the wire transfer. Instead, the court found persuasive that the Medidata employees only initiated the wire transfers based on the instructions in the spoofed emails. Likewise, with respect to the funds transfer fraud coverage, the district court found it sufficient that the transaction was the product of a trick or deception. It was insignificant that the transfer was performed knowingly and by an authorized person. The insurer has appealed this case to the Second Circuit Court of Appeals.

Coverage for SEF claims under commercial crime policies is generally insurer-friendly, but only a handful of jurisdictions have analyzed the issue. Nevertheless, rulings in 2018 from the Second and Sixth Circuits (as well as the Ninth and Eleventh Circuits) should hopefully harmonize the case law and eliminate any schism between the courts. Alternatively, policyholders may believe they can turn to their cyberinsurance for coverage, but those policies do not apply to SEF. Instead, they respond to the consequences of lost data or network system access, or the hacking of systems to cause the unauthorized transfer of funds. Thus, there is a very real and substantial coverage gap with respect to SEF losses. Certain commercial crime insurers are now offering specific coverage for SEF, albeit with limits inadequate to respond to many SEF losses. These SEF endorsements or coverages are untested in courts. Due to the increasing danger of SEF and the uncertain, insufficient coverage currently provided, policyholders should review their policies and consult with their brokers to identify strategies to protect against the economic consequences of SEF. While insurance protects against economic loss resulting from SEF, it does not stop Share this article SEF from happening.

with a colleague. IJMAG.COM/1106SE

Schwartz is a partner and Willmott is an associate in the global insurance services practice group of Goldberg Segalla. They are based in the Chicago office.

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elcome to Insurance Journal’s 2017 Premium Finance Directory, a comprehensive listing of premium finance companies able to assist agents and brokers with their clients’ financing needs. All company information listed in this directory was directly submitted to Insurance Journal. To be listed in future editions of Insurance Journal’s Premium Finance Directory, or any other directory, contact Kristine Honey at: khoney@insurancejournal.com. We hope you find this directory to be a valuable resource when searching for financing options for your clients. Feel free to send us comments and suggestions on how we might improve this directory, or for additional help, e-mail: editorial@insurancejournal.com.

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14 Wall St., Ste. 8a-19, New York, NY 10005 Phone: (212) 401-4491, Toll-free: (800) 288-6901 Email: promptservice@afco.com www.afco.com

80 Skyline Dr., Ste. 100, Plainview, NY 11803 Phone: (516) 605-2835, Fax: (516) 605-2841 Email: info@allislandcredit.com www.allislandcredit.com

· AFCO provides premium financing to support growing agencies, brokerages and their insureds, in tandem with personal lines financing expertise provided by sister company Prime Rate PFC · Unparalleled underwriting, legal and support resources complement proven reliability, strong capacity, flexible terms and the ability to support insureds with non-standard needs · Unsurpassed technology advantages with EPF Plus for paperless financing, Intelligent Mail Tracking for reducing unnecessary cancellations, and AFCO’s user-friendly QIV system for online quoting and execution of finance agreements

A d i vi s i on of Met a B a n k ®

AFS/IBEX Financial Services, Inc. 750 N. St. Paul, Ste. 1500, Dallas, TX 75201 Phone: (800) 299-5626, Fax: (214) 954-0537 Email: service@afsibex.com www.afsibex.com · Proven Stability – We’ve been operating for 30 years under the same proven leadership, where premium finance is our only focus. · Evolving with the times – As a division of MetaBank, our financial strength and stability offer our partners piece of mind that we will be here today, tomorrow, and in the future. · Partnering for the future – As a good corporate partner, our programs evolve and enhance the benefits you can offer your insureds, increasing your retention.

N30 | INSURANCE JOURNAL-NATIONAL REGION November 6, 2017

· Outstanding Customer Service · Competitive Rates · 24/7 Online Access

Aviation Premium Finance, LLC 621 NE Rushbrook Dr., Lee’s Summit, MO 64064 Phone: (816) 260-0889, Fax: (816) 353-1048 Email: am@aviationpremiumfinance.com www.aviationpremiumfinance.com · APF provides aviation insurance buyers with payment options for their annual insurance premiums. · Customers traditionally put 20% down and then make 9 monthly payments. · Our goal is to make aviation affordable for everyone!

www.insurancejournal.com www.insurancejournal.com

Premium Finance Directory Bulldog Premium Finance

ClassicPlan Insurance Premium Financing

Express Premium Finance Company, LLC

6971 W. Sunrise Blvd., Ste. 206, Plantation, FL 33313 Phone: (877) 537-8454, Fax: (877) 537-8455 Email: customerservice@financebulldog.com www.financebulldog.com

13750 Pipeline Ave., Chino, CA 91710 Phone: (800) 347-6481, Fax: (909) 628-5490 Email: info@classicplan.com www.classicplan.com

21 E. Main St., Ste. 103, Oklahoma City, OK 73104 Phone: (800) 728-2902, Fax: (888) 413-8898 Email: quote@expresspremium.com www. expresspremium.com

· Unmatched Premier Personal Customer Service! · Highly Competitive Rates · Ability to Finance Contracts With Any MGA

· Commercial & Personal Lines Premium Financing · Internet based point of sale and inquiry system with electronic loan submission · Superior service and technology for our producers

· Premium Service · Premium Solutions · Premium People

CAC Acceptance Corporation 3673 Westcenter Dr., Houston, TX 77042 Phone: (888) 422-7755, Fax: (800) 486-1049 Email: info@cacacceptancecorp.com www.cacacceptancecorp.com · We are a Family Company with no obligations to Wall Street or “Big Banking” · More customer service centric to your insured’s & you, the agent, than a wholesaler’s finance company · More liberal payment terms than many insurer plans

COST Financial Group, Inc. 807 W. Highway 50, Ste. 4, O’Fallon, IL 62269 Phone: (800) 844-2678, Fax: (618) 206-3223 Email: daveg@costfinancial.com www.costfinancial.com · COST makes it easy for YOU TO OWN your own Premium Finance Company · COST does the set-up, COST runs the back room, YOU EARN ALL THE PROFIT · Let COST’s 28 years experience put the PROFIT from YOUR premium financing IN YOUR POCKET!

Capital Premium Financing 12235 S. 800 E, Draper, UT 84020 Phone: (800) 767-0705, Fax: (800) 700-3170 Email: info@capitalpremium.net www.capitalpremium.net · Industry leading Agency Revenue Programs · Highest level of Agent/Client service available in the industry · Local presence, multiple payment options, and online access

Elite Premium Finance 395 Alhambra Cir., Coral Gables, FL 33134 Phone: (305) 442 7227, Fax: (305) 461 -0131 Email: info@elitepremium.com www.elitepremium.com · Financing Commercial & Personal Lines since 1990 - Latin Agent Premium Finance of Choice · Low and High Premiums at Convenient APR Rates · Web Based Software - Excellence in Customer Service

ETI Premium Finance

Capitol Payment Plan 52 Corporate Circle, Albany, NY 12203 Phone: (866) 639-1333, Fax: (518) 862-7522 Email: sternj@cappay.com www.cappay.com · Committed to helping insurance agents maintain their competitive edge through premium financing solutions since 1979 · Leading local experts to address the unique needs of the personal lines business · State-of-the-art products and programs that maximize efficiency in quoting, leaving more time to focus on your customers

www.insurancejournal.com

1551 Sawgrass Corporate Pkwy, Ste. 130 Sunrise, FL 33323 Phone: (800) 995-7001, Fax: (954) 510-8042 Email: info@etifinance.com www.etifinance.com

FIRST Insurance Funding Corp. 450 Skokie Blvd, Ste. 1000, Northbrook, IL 60062 Phone: (800) 837-3707, Fax: (800) 837-3709 Email: marketing@firstinsurancefunding.com www.firstinsurancefunding.com · Best turnaround time and most complete payment options in the industry, including credit cards for down payments · Online quoting and account management with paperless options, mobile app and chat for insureds · Agency lending, Life Insurance financing, 401K management, Treasury Management, and Capital Leasing programs

Focus Finance, LLC P.O. Box 451899, Sunrise, FL 33345-1899 Phone: (800) 432-3072 Ext. 4825 Email: info@focusfinance.net www.focusfinance.net · Save time and money by letting us do the work for you; ready to sign Premium Finance Agreements sent via email or fax. · Our payment email reminders and direct customer calls help save over 50% of policies from cancellation. · Payments can be made by phone or online using check or credit card.

GBC Premium Finance, Inc.

· All contracts Called Prior to Cancellation · Electronic Signature and Credit Card down payment options available · Auto Pay – Automatic Monthly Payments from Customer’s Checking Account

110 E. 9th St., Ste. A-1126, Los Angeles, CA 91214 Phone: (213) 244-9535, Fax: (213) 236-0759 Email: info@gbcpf.com www. gbcpf.com · We specialize in Trucking Insurance Premium Finance, but Finance all Commercial and Personal Lines. · 24/7 Online Access, we are partnered with one of the top software companies in Premium Finance. · We are currently Licensed in CA, TX, NV, AZ, IN, VA, NJ and NY and expending fast.

November 6, 2017 INSURANCE JOURNAL-NATIONAL REGION | N31

Premium Finance Directory General Agents Acceptance Corporation

Insurance Finance Company, LLC

Liberty Premium Finance, Inc.

23441 S. Pointe Dr., Ste. 220, Laguna Hills, CA 92653 Phone: (800) 470-9647, Fax: (800) 568-5462 Email: james@mygaac.com www.mygaac.com

P.O. Box 315, Des Moines, IA 50306-1315 Phone: (800) 247-4190, Fax: (515) 223-0226 Email: Brian@ifcorp.biz www.ifcorp.biz

4 Centerpointe Dr., Ste. 300, La Palma, CA 90623 Phone: (800) 229-8793, Fax: (562) 356-0131 Email: sporter@libertypf.com www.libertypf.com

· We increase retention by calling the customer before cancelling & giving more time to pay. · Agents can also make more money with our premium finance program. · Ask us about rates & see what you are missing.

· IFC is independently owned with no ties to insurance companies, agencies or other financial institutions. That gives us flexibility! · Ask us about IFC Direct and OneClick Universal Integration. · Fanatical Service – Flexible rewards and agency incentives.

· Flexible monthly payment options for commercial insurance policies · Quote, bind and archive your contracts with our easy-to-use online quoting center · Pay by mail, phone, online or in person with credit card, check or check by fax

gotoPremiumFinance.com 6200 Canoga Ave., Ste. 400, Woodland Hills, CA 91367 Phone: (888) 875-4000 Ext. 2135, Fax: (818) 610-2066 Email: sales@gotopremiumfinance.com www.gotopremiumfinance.com

· A unique one of a kind paperless premium finance billing option that is also designed to help agents grow their insurance business and increase their income. · Nationwide premium finance provider for agents, MGAs & insurance companies. · Online quoting, online payment options, real time account status, online cancellation holds, customized notice delivery & more.

Imperial PFS 1055 Broadway, 11th Fl, Kansas City, MO 64105 Phone: (800) 838-2350, Fax: (816) 627-0502 Email: marketing@ipfs.com www.ipfs.com · The size and independence of Imperial PFS® provides the financial strength and flexibility to handle a wide range of accounts from large, complex deals to those that are smaller and more streamlined. · As a nationally-recognized premium financing leader, Imperial PFS® is committed to developing technology resources and services to best meeting the needs of Agencies and their Insureds. · Nationwide strength, local service – Imperial PFS® is powered by a network of 23 local offices strategically located across the United States and in Puerto Rico.

Insurance Financing, Inc. P.O. Box 968, Edmonds, WA 98020 Phone: (425) 670-3999, Fax: (425) 771-9165 Email: sandy@insurancefinancing.com www.insurancefinancing.com

Mountain West Premium Finance

· We keep your insured’s insured · Legendary service · Flexible plans & web-based management

2535 Kettner Blvd., Ste. 3-A2, San Diego, CA 92101 Phone: (888) 280-0235, Fax: (619) 697-0326 Email: mike@financepremium.com www.financepremium.com

Insurance Payment Company

· 0% down and 0% APR program available! · We look for ways to say “yes” to financing ANY commercial account. · Form your own Premium Finance Captive – TRIPLE YOUR ROI. · Proactive Cancellation Prevention Program with ALL forms of payment accepted. · Premium Finance Licensing and Third Party Administration available.

3025 Windward Plaza, Ste. 400, Alpharetta, GA 30005 Phone: 678-578-6600, Fax: 866-922-0691 Email: newbiz@inspayco.com www.inspayco.com

· State of the art technology allowing ease of doing business for both agent and insured · Personalized customer service –supported by knowledgeable staff with extensive experience in insurance industry as well as premium finance · Flexible payment options most national companies can’t/won’t offer

Johnson & Johnson Preferred Financing, Inc. 200 Wingo Way, Ste. 200, Mt. Pleasant, SC 27464 Phone: (800) 868-5573, Fax: (843) 724-7085 Email: finance@jjpf.com www.jjpf.com · Finance most lines of coverage both Commercial and Personal lines · Online software for 24/7 access to quoting, account management and reporting · Multiple funding options for Money in & Money out!

N32 | INSURANCE JOURNAL-NATIONAL REGION November 6, 2017

NCMIC Finance Corporation 14001 University Ave., Clive, IA 50325 Phone: 1-(800) 600-9250, Fax: 1-(800) 630-9250 Email: LLogan@ncmic.com www.nfcfinance.com · Nearly 25 years of building lasting customer relationships; we excel at this! · Flexible loans, low down payments & great repayment plans for ALL of your insureds · Income opportunity for your agency, where permitted

www.insurancejournal.com

Premium Finance Directory

P1 Finance 280 Technology Pkwy, Ste. 200, Norcross, GA 30092 Phone: 1 (844) 217-5674, Fax: 1-678-226-7942 Email: customerservice@P1Finance.com www.P1Finance.com.com · PARTNERSHIP: Committed to building long term relationships with Insurance Companies, MGAs and their Retail Agent networks · TECHNOLOGY: Best in class, web-based digital technology with 24/7 access to quoting and customer accounts · VALUE: Customizable and flexible payment options and pricing terms to maximize the profitability of your business

PREMCO Financial Corporation 2453 Union Blvd., Ste. 20B, Islip, NY 11751 Phone: (516) 668-1234, Fax: (269) 375-6913 Email: dhofmann@go-premco.com www.go-premco.com · We finance all Commercial & Personal lines with same day funding · Rate Share, Profit Sharing, Stock Dividends & Referral Fees · FREE Online payments and the option to pay with Credit/Debit cards

Premium Assignment Corporation

Prime Rate Premium Finance Corporation

P.O. Box 8800, Tallahassee, FL 32314-8800 Phone: (800) 342-0991, Fax: (800) 286-8999 Email: marketing@premiumassignment.com www.premiumassignment.com

2141 Enterprise Dr., Florence, SC 29501 Phone: (866) 669-0937, Fax: (800) 677-9850 Email: info@primeratepfc.com www.primeratepfc.com

· Exceptional Service · Online Quoting – Ease of Use · Competitive Rates – Flexible Terms

· Financing personal lines and commercial accounts nationwide · Pre-approved loans up to $100,000 with no minimum premium · User-friendly 24/7 Web-based access and multiple payment options for insureds

Premium Finance Associates 7603 First Place Dr., B-12 Cleveland, OH 44146 Phone: (866) 374-3630, Fax: (866) 839-3090 Email: info@PremiumFinance.net www.PremiumFinance.net

Royal Premium

· Licensed in all 50 states · Insurance Agency Acquisition, Perpetuation and Capitalization loans · Short term loans for Insureds with cash flow issues

Premium Finance Brokerage, LLC P.O. Box 623, Jarrettsville, MD 21084 Phone: (866) 381-6501, Fax: (866) 381-6502 Email: tlarsen@premiumfinancebrokerage.com www.premiumfinancebrokerage.com · Guaranteed Lowest Interest Rates · Access to several national premium finance companies through one point of contact · Flexible payment options, cutting edge technology and a service pledge that’s put in writing

1407 Avenue M, Brooklyn, NY 11230 Phone: (800) 599-3279, Fax: (718) 376-8330 Email: info@preminsco.com www.preminsco.com · Commercial and personal financing for over 50 years · Batched once-a-week cancellations · Get answers and quotes quickly with our fast and effective customer service on the phone and on our customized website

www.insurancejournal.com

· Online Payments & Account Status – make payments or review insureds’ accounts, including payment history, 24/7. · Same-day turnaround on finance quote requests and quote revisions. · Online Quotes system gives agents the option of producing finance quotes and finance contracts anytime.

SIUPREM, Inc. P.O. Box 105611, Atlanta, GA 30348 Phone: (678) 498-4730, Fax: (678) 498-4747 Email: info@siuprem.com www.siuprem.com

Premium Finance Corporation

Premins Company

30833 Northwestern Hwy, Ste. 220 Farmington Hills, MI 48334 Phone: (800) 477-7889, Fax: (248) 932-9043 Email: financing@royalpremium.com www.royalpremium.com

P.O. Box 1827, Eau Claire, WI 54702-1827 Phone: (800) 843-7788, Fax: (715) 836-9196 Email: info@pfcins.com www.pfcins.com · Experienced premium financing with friendly, quality service · Minimal paperwork, agent online access in real time · Flexible payment plans and payment options for insureds

· Independently owned, full service online premium finance company servicing independent agents since 1969. · Industry leading technologies providing real-time data for online policy service by the insured or the agent. · SIUPREM CARES. Each time a commercial policy is financed with SIUPREM in 2018, $5 of the proceeds will be committed toward the new goal of $70,000 for Breast Cancer Awareness and Research.

November 6, 2017 INSURANCE JOURNAL-NATIONAL REGION | N33

Premium Finance Directory Skipjack Premium Finance Company

Thrifty Financial Services, Inc.

10150 York Rd, 5th Fl, Hunt Valley, MD 21030 Phone: (800) 611-0955, Fax: (410) 630-1132 Email: info@skipjackpfc.com www.skipjackpfc.com

1691 Main St., Springfield, MA 01103 Phone: (800) 919-0015, Fax: (800) 736-5177 Marketing Rep: Mari Roy – (508) 450-0534 Email: thriftyfin@aol.com www.thriftyfinancial.com

· TECHNOLOGY: Our full service online platform allows your agency to easily manage accounts, create quotes, process Credit Card Down Payments & more! · PRICING/RATES: Competitive rates & terms that can be specifically designed to fit your agency’s book of business. · SERVICE: We deliver the service you deserve! Our dedicated customer service staff goes the extra mile to insure your experience is “smooth sailing”.

South Bay Acceptance Corp. 10151 Deerwood Park Blvd., Bldg 100, Ste. 330 Jacksonville, FL 32256 Phone: (800) 393-2012, Fax: (888) 328-6747 Email: contact@sbac-finance.com www.sbac-finance.com · Flexible premium financing programs with multiple benefits for your agency and their insured’s! · 24/7 Online Quoting access, account status verification, activate your own quotes immediately! · Creative Producer compensation options ready to provide you additional income!

Specialty Risk Premium Finance 7600 Fern Ave., Bldg. 600, Shreveport, LA 71105 Phone: (318) 683-6206 or (318) 683-6222 Email: flee@sramga.com or afulco@sramga.com www.sramga.com · In house financing for policies written through Specialty Risk Associates · 24-hour web access to accounts for you and your clients · Payment methods like check by phone, Echeck and AUTO PAY are available

Standard Premium Finance 13590 SW 134th Ave., Ste. 214, Miami, FL 33186 Phone: (800) 592-7753 or (305) 232-2752 Email: Robert@standardpremium.com www.standardpremium.com · Personal and commercial lines. · No minimum, no maximum premiums. · Our personal service and attention to detail make the difference. · ACH, EFT and credit card payments and down payments. · Revenue-Sharing and traditional commission programs. · Simple one-page online quoting. · E-Sign documents. · The best loyalty rewards program in the business! · If you’re not 100% satisfied, we won’t accept your business.

Superior Payment Plan, LLC 6450 Transit Rd., Depew, NY 14043 Phone: 1 (866) 856-1112, Fax: (716) 206-8237 Email: info@superiorpayment.com www.superiorpayment.com · Fully functional website that allows Brokers and Insureds to easily manage accounts - quoting, inquiry, payments, and reporting. · Best in class customer service team that will personally assist you, as well as an automated response phone system to meet all your customer service needs. · Competitive rates and flexible options for down payments, installments and funding - JUST ASK.

Tepco Premium Finance 1405 S. Rustle Rd., Spokane, WA 99224 Phone: (800) 571-0843, Fax: (509) 622-4702 Email: info@tepcofinance.com www.tepcofinance.com

· The premium finance solution for Massachusetts insurance agents for 25 years. · State of the Art online technology. · Customer service that’s the best in the business and a full time local marketing manager.

Top Premium Finance Company

A Division of Premier America Credit Union 19867 Prairie St., Chatsworth, CA 91311 Phone: (800) 458-2228, Fax: (818) 721-3840 Email: TopMarketing@toppremiumfinance.com www.TopPremiumFinance.com · State-of-the-art technology to optimize broker efficiency · 24/7 quoting and account access with our online database · Ability to Finance Broker Fees · Competitive and flexible rates to assist brokers in a multitude of policies · 0-4% Producer Fee capability, adjustable to any policy

US Premium Finance 280 Technology Pkwy, Ste. 200, Norcross, GA 30092 Phone: 1 (866) 246-9691, Fax: 1 (866) 246-9692 Email: customerservice@uspremiumfinance.com www.USPremiumFinance.com · SERVICE: Knowledgeable network of experts delivering the best customer experience in the industry · TECHNOLOGY: User-friendly software with 24/7 access to quoting and your customer database · VALUE: Flexible terms and competitive rates to maximize the profitability of your business

· Easy to use online system for quoting & account management · Free online payments · Licensed in 9 western states plus CO, FL, IL, GA, MI & TX N34 | INSURANCE JOURNAL-NATIONAL REGION November 6, 2017

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Idea Exchange

The Competitive Advantage

How the Insurance Industry Is Changing, Strangely

By Chris Burand

ith complete and all due respect to David Bowie’s song, “Changes,” it is time, if the reader wants to thrive in the future, to accept the wisdom of his lyric, “Ch-ch-ch-chchanges. Turn and face the strange.” The insurance world is changing, changing quickly, and changing strangely. A few strange, but undeniable changes:

Upfront Underwriting R.I.P.

It has been obvious for several years that most national carriers are not interested in upfront underwriting on personal lines and main street commercial business. More and more regionals, probably most by net written premium, are not nearly as interested as they used to be, although they are in a bind because they cannot openly discuss this reality. They are in a strange bind because personal agency relationships remain valuable to them, and key to those relationships is the importance they place on agents' underwriting risks upfront. For them to tell agents how much they are really using predictive modeling rather than agents for underwriting would drive a stake through agents’ hearts and relationships. Actions do speak louder than words, and if agents in denial will remove their veils and see the light, they will see reality for what it is. Carrier analytics are better

at upfront underwriting than most agents’ abilities. Being old school and maybe in a bit of denial myself, I still believe the best agents can outperform algorithms in upfront underwriting, but few agents are the best agents. Another nail was driven into the coffin of agency upfront underwriting with a J.D. Powers study reported in the June 19, 2017 Insurance Journal. The study, specific to private passenger auto (PPA), shows a strong correlation between advertising and underwriting profitability. Several companies that spend the most on advertising, and do not have agents, have the best underwriting profits. Furthermore, they have some of the highest growth rates. If then, underwriting profit is high, and growth is higher, with more advertising and less agents, at least in PPA, why should companies focus on agents? What is upfront agency underwriting delivering to companies that is more valuable than what automated systems foregoing agents are delivering? Big data is more powerful than agency upfront underwriting according to this study, at least in this line, and this is one of the largest lines by net premiums written. It accounts for 35 percent to 40 percent of all NWP. Big data then is negating the value of agents in the upfront underwriting process. This development is absolutely one of the biggest and maybe strangest changes in at least 100 years.

esting how established companies cannot figure out how to distribute 20 percent of revenue to dividends while remaining competitive and building surplus, but these new players can. This 20 percent is a lot. The average expense ratio is 27 percent of net written premiums, therefore, 20 percent plus 27 percent is a 47 percent expense ratio. Add in loss adjustment expense (LAE) of 12 percent, and the maximum loss ratio is 41 percent. Industry average loss ratio is 59 percent over the last five years. The idea of using more surplus notes, insureds insuring each other (thereby negating the need to add surplus and enabling a 20 percent upfront dividend) without insureds maybe truly understanding they’re insuring other people and are

New Method?

Have certain companies discovered a method, using different data, to hoodwink regulators, agencies, consumers and rating companies? I wonder, because when companies pay themselves 20 percent of premiums written as a management fee off the top, which is a de facto dividend and a model more common to running an investment fund than an insurance company, building surplus is much more difficult. It is inter-

36 | INSURANCE JOURNAL | NATIONAL NOVEMBER 6, 2017

INSURANCEJOURNAL.COM

themselves the reinsurance policy, circular reinsurance programs and the reality that in some markets, some carriers are just not capitalized adequately by most any traditional measure (a widely but quietly discussed issue in many circles), are important examples - but not the only ones - of how maybe the playing field is no longer level when measuring companies’ claims paying stability. Maybe one factor definitely alluded to by at least one carrier is that they have algorithms so good they do not need to charge as much, and therefore don’t need as much surplus, because they know who will and who won’t have losses. Talk about a strange change. Another factor is that maybe agents and consumers just do not care any longer. Evidence of this in the real, day-to-day sales world is abundant. Insurance is now about risk management and loss control rather than upfront

underwriting and insurance. This is true for companies and agencies. Whether this means: • Boiler temperature monitoring; • Dining/eating style; • Security assessments; • Pipe leak monitoring; • Immediate mileage accounting; • Wellness; • Lifestyle assessment and social media monitoring; • Roadside services; • Workers’ compensation safety; • Health data assessment; • Driving cameras; or • Many others. The insurance industry is about the bigger picture, not just the small picture of insurance. If all that is involved is insurance, adverse selection will be a problem because those risks will be the only risks not working proactively to become safer.

The ‘Experience’ of Insurance

The idea that a consumer could have a good, or even a great, experience buying insurance and that anyone would even discuss the consumer “experience” is possibly the strangest change. But this is a really important progression. One example is a carrier giving back X-percent of profits to charity. Buyers, especially younger ones, like this idea even if the company never gives any material money to charity because they don’t make a profit. The buying experience of the consumer thinking that if I buy insurance from this entity, I’m simultaneously doing good for the world, is a better experience than giving money to a money grubbing insurance company. David Bowie’s lyrics to “Changes” also dealt with generational change, and some of this is indeed generational. I find some veterans cannot relate to any of these points while less experienced people get them, especially the last one, completely. They are in fact drawn to this last point like iron filings to a magnet. They are trying to change the world, and they may win because their careers have a INSURANCEJOURNAL.COM

longer life span than the veterans. They also just may have a point that it is time to change and focus on what the consumer wants rather than what we want to sell. These strange changes, each quite different, common only in their strangeness and importance, will remodel this industry dramatically. You have the choice of working with the changes or being buried in the process. Which will it be? Share this

article with a colleague. IJMAG.COM/1106BU Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719-485-3868. E-mail: chris@burand-associates.com.

Advertisers Index

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

Abram Interstate www.abraminterstate.com W6 AIG www.aig.com/business 9 Amerisafe www.amerisafe.com SC8, S4 Anderson & Murison .andersonmurison.com 25 Applied Underwriters www.auw.com 4, 5, 40 California Earthquake Authority mvp.earthquakeauthority.com 7 Cybersure Pro www.cybersurepro.com 29 InsureTrust www.insuretrust.com 17 Lighthouse Holdings, LLC www.lighthousepropertyins.com SC9, S5 Louisiana Commerce & Trade Assoc. www.lctacomp.com SC10 M.J. Hall & Company www.mjhallandcompany.com W8 Midlands Management Corporation www.midlandsmgmt.com SC7 Monarch E&S Insurance Services www.monarchexcess.com W5 Nautilus Insurance Company www.nautilusinsgroup.com 7, W7 Omaha National Underwriters www.omahanational.com 1 PersonalUmbrella.Com www.personalumbrella.com 39 Philadelphia Insurance Companies www.phly.com 2 PSIC- Pacific Specialty Insurance Company www.wwfi.com W3 Quirk & Company www.quirkco.com SC6 State Compensation Insurance Fund www.statefundca.com 3(W) Tejas American General Agency www.taga1.com 3 (SC & S) Texas Mutual www.texasmutual.com SC5 Texas Surplus Lines Association www.tsla.org SC3 The Hartford Insurance Group www.thehartford.com 10, 11 WSIA - Wholesale & Specialty Insurance Association www.wsia.org 27

NOVEMBER 6, 2017 INSURANCE JOURNAL | NATIONAL | 37

Closing Quote Earthquakes, Floods Highlight Wide Protection Gap

By Tim Zawacki

ecent natural catastrophes in and around North America have shined new light on two natural perils not covered by traditional U.S. homeowners insurance policies: floods and earthquakes. Catastrophe modeling firms have estimated that the amount of economic losses associated with Hurricane Harvey, which led to widespread flooding along the Texas Gulf Coast, would greatly exceed the magnitude of insured losses. A similar phenomenon — in that there would be a wide gap, similar to the Harvey floods, between insured and economic losses — would likely emerge should an earthquake of a magnitude equal to or greater than that of the Sept. 19 Mexico City tremor strike the United States. Relatively low levels of consumer purchases of residential flood and earthquake coverage contribute to a growing underinsurance problem that serves as a global challenge, even

within developed countries like the United States, for governments and their populations. The resulting protection gap creates potential societal and macroeconomic hurdles that may be difficult for individual counties to overcome, particularly in the event of a severe catastrophe. Insurance industry participants have speculated that a range of factors might be keeping homeowners from buying flood and earthquake coverage, including the following reasons: A lack of knowledge about what their insurance coverage includes and excludes; an expectation of state or federal government support in the event of a disaster; or simply the notion that “it’s not going to happen to me.” The cost of the coverage is also a factor, particularly given a perception of the necessity of coverage for earthquakes or floods. Whether the root cause is wishful thinking or blissful ignorance, recent events should lead consumers to review the scope of their existing coverage and explore the additional coverage options that may be available. The insurance industry has also sought to broaden the use of public/private partnerships to address certain instances of underinsurance, but those can be a tough sell from a political perspective. Technological solutions might also offer a helping hand in this regard. Executives at Swiss Re, for instance, have expressed hope that “digital

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advisors” can better inform consumers about their financial needs, in general. The evolution of that technology will take time, however, and as the recent earthquakes in Mexico demonstrated, “the big one” could hit tomorrow. Data compiled by the California Department of Insurance in July finds that only 10.8 percent of the residential property insurance policies in force in the state during 2016 also had earthquake coverage. California accounted for 57 percent of the total earthquake insurance premiums written by U.S. insurance companies in 2016, so the penetration rates are undoubtedly much lower in other states. In Oklahoma, which ranked second only to Alaska in recent years in the number of earthquakes recorded annually, earthquake premium writings more than doubled between 2012 and 2016. But during the same five-year stretch, the quantity of earthquakes of

magnitude 3.0 or higher surged by 1,680 percent. National Flood Insurance Program penetration rates varied widely in the parts of Texas most impacted by Harvey, which dumped torrents of rain after essentially stalling over the state. Four out of every 10 Galveston County housing units had National Flood Insurance Program policies, but just over one in 10 did so in Harris County where Houston is located. Although personal auto policies provide comprehensive coverage for flooded vehicles, it may offer little solace to those Texas residents who are also facing devastating water damage to their homes. As natural disasters are seemingly becoming more powerful and occurring more frequently, the protection gap will continue to widen as total losses may outpace insurance coverage in the United States. Zawacki is a senior research analyst at S&P Global Market Intelligence. INSURANCEJOURNAL.COM

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