WEST REGION Waymo’s Car Tests in California Top 5 Insurance Trends for 2018 Surplus Line Premium up in 2017
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Contents February 19, 2018 • Vol. 96 No. 4 • West
West
National
W1 New Mexico Appeals Court Upholds Ruling in $165M Suit Against FedEx
8 U.S. Judge Rules ‘Gig Economy’ Driver Is Independent Contractor
W2 Fewest Human Interventions for Waymo’s Autonomous Car Tests in California
10 Satisfied Independent Agents Are Growth Engines for P/C Carriers: J.D. Power
W2 Man Suing Bar Near Oregon University over Freak Finger Injury
16 P/C Direct Premium Written Up 4.7 Percent
W4 Oregon City Tightening Demolition Rules over Lead, Asbestos
W2 FEWEST HUMAN INTERVENTIONS
FOR WAYMO’S AUTONOMOUS CAR TESTS IN CALIFORNIA
20 Special Report: Why Agencies Need Creativity in Hiring Now More Than Ever
W8 Surplus Line Premium Increased by 6.4% Nationwide in 2017
26 Spotlight: As Boating Season Kicks Off, Help Insureds Prepare
W8 Regulators Cite 4 Employers in Deadly 2017 Explosion in Colorado
Idea Exchange W6 Insurance Industry Trends for 2018: A Top 5 Countdown
18 Special Report: 2018 Agency Salary Survey
28 Spotlight: What’s Inflating Agribusiness Insurance Costs?
8
U.S. JUDGE RULES ‘GIG ECONOMY’ DRIVER IS INDEPENDENT CONTRACTOR
32 Minding Your Business: Impact of New Tax Law on Agency Profitability 34 Closing Quote: Should Compensation Be Tailor Made?
Departments 11 Declarations
28 WHAT’S INFLATING AGRIBUSINESS
INSURANCE COSTS?
4 | INSURANCE JOURNAL | WEST FEBRUARY 19, 2018
11 Figures 15 Business Moves
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OPENING NOTE
Write the Editor: awells@insurancejournal.com
Under-Reported Sexual Harassment
S
exual harassment in the workplace is under-reported by employees partly because some employees are unaware that their employers have anti-harassment policies or that there are ways to report without bringing harm to themselves, according to a survey of human resource managers and non-manager employees. The Society for Human Resource Management (SHRM) survey found that 11 percent of non-management employees said they had experienced some form of sexual harassment in the past 12 months. Of those, 76 percent said they did not report it for reasons that included fear of retaliation or a belief that nothing would change. This finding is consistent with what the Equal Employment Opportunity Council (EEOC) has previously reported, according to SHRM. “It appears that employees don’t feel that they have the power to bring allegations forward in a way that won’t harm them,” said Evren Esen, SHRM’s director of workforce analytics. Thirty-six percent of HR professionals reported at least one sexual harassment allegation at their organization within the past 12 months. Of these, 36 percent reported an increase in allegations in the past year. A majority of HR professionals (57 percent) believe that unreported incidents occur to a small extent in their organizations. In contrast, 35 percent of non-manager employees believe that. The survey found that verbal harassment, including unwanted sexual advances through words and comments, is the most common form of sexual harassment. “Unspoken cultural norms can allow inappropriate behavior,” said Johnny C. Taylor Jr., CEO of SHRM. “Sometimes the harasser might not realize that what is being said is inappropriate. This is why a culture of respect and training are important.” Although most employers have a policy on sexual harassment, some employees are not aware of it, the survey also found. Ninety-four percent of surveyed HR professionals told SHRM that their organizations have anti-harassment policies. Yet, 22 percent of non-management employees did not know for sure that these policies existed. Esen said companies and HR departments have “more work to do to create environFOR QUESTIONS ments that emphasize respect and minimize REGARDING SUBSCRIPTIONS: Call: 855-814-9547 the fear of retaliation.” Outside the U.S., call 847-400-5951 or you may subscribe or change your address online at: SHRM’s research included two confideninsurancejournal.com/subscribe tial surveys of HR professionals with a total Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Media of 1,078 respondents and a survey of 1,223 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 non-manager employees. The research was per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this pubconducted in January 2018. SHRM has 575 lication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended affiliated chapters in the U.S. and 285,000 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 members globally. Media Group, Inc. All Rights Reserved. Content may not be photo-
‘Unspoken cultural norms can allow inappropriate behavior.’
Publisher Mark Wells mwells@wellsmedia.com
EDITORIAL
SALES
Editor-in-Chief Andrea Wells awells@insurancejournal.com
West Sales Dena Kaplan (800) 897-9965 X115 dkaplan@insurancejournal.com
East Editor Elizabeth Blosfield eblosfield@insurancejournal.com
Romeo Valdez (800) 897-9965 X172 rvaldez@insurancejournal.com
Chief Content Officer Andrew Simpson asimpson@insurancejournal.com
Southeast Editor/MyNewMarkets Amy O’Connor aoconnor@insurancejournal.com South Central Editor/ Midwest Editor Stephanie K. Jones sjones@insurancejournal.com West Editor Don Jergler djergler@insurancejournal.com International Editor L.S. Howard lhoward@insurancejournal.com Columnists Catherine Oak, Bill Schoeffler
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 David Coons, Joe Dunn, Scott W. Kristine Honey (619) 584-1100 X132 Dunn, Angel Mendez, Douglas khoney@insurancejournal.com Powell, Daniel Wiessner, Michael Kasdin Social Media Manager Ly Short (619) 890-7735 IJ ACADEMY OF INSURANCE Lshort@insurancejournal.com Director Patrick Wraight Classifieds, Jobs, pwraight@ijacademy.com Agencies Wanted/For Sale Sr. Sales & Marketing Coordinator Associate Director Kelly De La Mora (800) 897-9965 X125 Barbara Whiffen kdelamora@insurancejournal.com bwhiffen@ijacademy.com
ADMINISTRATION
Chief Financial Officer Mark Wooster mwooster@wellsmedia.com
MARKETING
Marketing Director Derence Walk dwalk@insurancejournal.com Marketing Administrator Gayle Wells gwells@insurancejournal.com
NEW MEDIA
New Media Producer Bobbie Dodge bdodge@insurancejournal.com Videographer/Editor Ashley Waldrop awaldrop@insurancejournal.com
DESIGN/WEB
Chief Technology Officer/ Chief Innovation Officer Joshua Carlson jcarlson@insurancejournal.com V.P. of Design Guy Boccia gboccia@insurancejournal.com Senior Web Developer Chris Thompson cthompson@insurancejournal.com Web Developer Jeff Cardrant jcardrant@insurancejournal.com Web Developer Terrance Woest twoest@wellsmedia.com
CIRCULATION
Circulation Manager Elizabeth Duffy eduffy@wellsmedia.com
copied, reproduced or redistributed without written permission. Insurance Journal is a publication of Wells Media Group, Inc.
Andrea Wells Editor-in-Chief
6 | INSURANCE JOURNAL | NATIONAL FEBRUARY 19, 2018
POSTMASTER: Send change of address form to Insurance Journal, Circulation Department, PO Box 708, Northbrook, IL 60065-9967 ARTICLE REPRINTS: For reprints of articles in this issue, contact: Kelly De La Mora at 1-800-897-9965 ext. 125 or kdelamora@wellsmedia.com Visit insurancejournal.com/reprints/ for more information.
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National
U.S. Judge Rules ‘Gig Economy’ Driver Is Independent Contractor By Daniel Wiessner
A
U.S. judge in San Francisco earlier this month said a former Grubhub Inc. delivery driver was an independent contractor and not the company’s employee in the first case of its kind against a “gig economy” company that went to trial. U.S. Magistrate Judge Jacqueline Scott Corley said Grubhub did not control Raef Lawson’s work, so it was not his employer under California law. The Chicago-based company did not supervise Lawson, tell him when to work, what kind of transportation to use or what routes to take, she said. Grubhub, Uber Technologies Inc., and other gig economy companies have based their business models on treating workers as independent contractors who are not
entitled to minimum wage, overtime payments and other legal protections afforded to employees. The decision could influence a series of lawsuits across the country in which Uber, Lyft and other companies are accused of misclassifying workers as independent contractors and depriving them of millions of dollars in pay and expenses. Noting that independent contractors do not receive any of the legal protections afforded to employees, Corley said California state lawmakers “may want to address this stark dichotomy.” Lawson had worked for the company for four months but was blocked from Grubhub’s smartphone app in 2016 for not making deliveries while he was signed on, according to court documents. Lawson said several factors established that he was an employee, including that
8 | INSURANCE JOURNAL | NATIONAL FEBRUARY 19, 2018
delivery work was critical to Grubhub’s business model. Grubhub also typically paid a minimum hourly rate, rather than a per delivery fee, Lawson said. Grubhub argued it was a software development company, and not a food delivery service, so workers like Lawson were not central to its business. That is a key factor in determining whether a worker is an employee. Grubhub also said it did not have the control over drivers that is required to establish an employment relationship. Corley said some factors weighed in Lawson’s favor, but the company’s complete lack of control over how he performed deliveries meant he was an independent contractor. The case is Lawson v. Grubhub Inc, U.S. District Court for the Northern District of California, No. 3:15cv-05128. Copyright 2018 Reuters. INSURANCEJOURNAL.COM
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NATIONAL | News & Markets
Satisfied Independent Agents Are Growth Engines for P/C Carriers: J.D. Power
D
espite the growth of both technology-based and direct-to-customer sales channels in the property/casualty (P/C) insurance industry, independent agents still control the lion’s share of P/C premiums and represent a significant growth engine for insurers that get the independent agent satisfaction formula right. That’s the key finding of the inaugural J.D. Power 2018 U.S. Independent Insurance Agent Satisfaction Study. The new study, which was developed in alliance with the Independent Insurance Agents and Brokers of America (IIABA), evaluates the independent P/C insurance agent’s business outlook, management strategy and overall satisfaction with personal lines and commercial lines insurers in the United States. “Independent agents have
continually found ways to stay relevant to customers in spite of the push toward digital and direct channel solutions,” said Tom Super, director, Property/ Casualty Insurance Practice at J.D. Power. “Insurers that embrace the critical role independent agents play and work to find ways to partner with them have a significant opportunity to increase overall sales volume through improved customer acquisition and retention.” Following are several findings of the study: • Independent agents face difficulty working with P/C insurers: Independent agents are the largest and most preferred channel for consumers, writing 35.5 percent of all personal P/C premiums and 83 percent of all commercial premiums, according to IIABA. Yet many insurers miss the mark when it comes to delivering for this key
10 | INSURANCE JOURNAL | NATIONAL FEBRUARY 19, 2018
constituency. Among agents, overall satisfaction with insurers is just 696 (on a 1,000-point scale) for personal lines and 686 for commercial lines, which are among the lowest scores for business-to-business relationships in J.D. Power satisfaction studies. • Independent agents looking for P/C insurers with broader risk appetite: When it comes to policy coverage options, agent satisfaction is lowest when an insurer only offers standard options for policies (643 for personal lines and 634 for commercial lines). When insurers offer standard coverage but also accommodate specialty and unusual risks, overall satisfaction jumps to 756 for personal lines and 708 for commercial lines. • Huge cross-sell opportunities exist for insurers that get agency formula right: Agents have an average of eight different carrier relationships for personal lines and 11 relationships for commercial lines and indicate being able to provide bundled policies often to customers just 44 percent of the time for personal lines and 37 percent of the time for commercial lines. That missed bundling opportunity represents an enormous untapped premium opportunity for insurers. • Personal lines insurers with highest commission ratios also have highest satisfaction among independent agents and maintain the most profitable operating ratios: Personal lines insurers that provide the most satisfying experience for agents, in addition to the most competitive compensation, are able to achieve the highest profitability levels. A good relationship between agents and
carriers leads to carriers gaining a relationship with the agent’s most valued customers and potential customers. “The partnership between Trusted Choice independent insurance agents and insurers has never been more important,” said Bob Rusbuldt, IIABA president and CEO. “Competition is keen and growing, and carriers need to work with their agents in new and innovative ways. Agents also recognize the need to ensure they are doing business the way consumers want to do business, now and in the future. Carriers that understand their independent agency distribution force, work with their agents as true partners and provide resources to help address their needs are going to be the winners in the marketplace.”
Study Rankings
Auto-Owners Insurance earned the top score among personal lines, with an overall satisfaction score of 795. Auto-Owners Insurance is followed by Safeco (742) and Travelers (700). Liberty Mutual performed highest among commercial lines, with an overall satisfaction score of 714, followed by The Hartford with 710 and Travelers with 705. The J.D. Power 2018 U.S. Independent Insurance Agent Satisfaction Study surveyed 1,380 P/C insurance independent agents for a total of 1,424 evaluations of personal lines insurers and 1,217 evaluations of commercial lines insurers that they had placed policies with in the prior 12 months. The study was fielded from September through November 2017. INSURANCEJOURNAL.COM
West
New Mexico Appeals Court Upholds Ruling in $165M Suit Against FedEx
T
he New Mexico Court of Appeals has upheld the ruling in a $165 million lawsuit against FedEx filed after a deadly accident involving a contracted FedEx truck. The 2011 crash west of Las Cruces killed three people including the truck driver and left a baby severely injured. INSURANCEJOURNAL.COM
Alfredo Morga filed a personal injury and wrongful death lawsuit against FedEx over the loss of his wife, Marialy Venegas, and his daughter, Ylairam Morga. Venegas’ parents also joined the lawsuit. According to court records, after a Santa Fe jury ruled in a favor of the
family, FedEx filed an appeal arguing that the verdict was “tainted by passion, prejudice, partiality, sympathy, undue influence, or a mistaken measure of damages.” The Appeals Court rejected the company’s argument on Feb. 6. Copyright 2018 Associated Press.
FEBRUARY 19, 2018 INSURANCE JOURNAL | WEST | W1
WEST | News & Markets
Fewest Human Interventions for Waymo’s Autonomous Car Tests in California By Alexandria Sage
W
aymo, the self-driving arm of Alphabet Inc., is out ahead of rivals based on a key measure of autonomous driving performance, according to a report released on in late January by the California Department of Motor Vehicles. California requires automakers, technology companies and startups that test their self-driving vehicles on public roads to provide an annual compilation of miles traveled in autonomous mode and the number of “disengagements.” Disengagements occur when the self-driving system is deactivated with control handed back to humans because of a system failure or a traffic, weather or road situation that required human intervention. The metric is one way to
measure the reliability of any self-driving system, although regulators have not yet determined how safe autonomous vehicles must be before they are introduced in large numbers, a timeframe that could be a decade or more away. The latest disengagement report showed that Waymo vehicles, in tests conducted from December 2016 through November 2017, on average logged 5,596 miles without Waymo’s safety drivers disengaging the system and retaking the wheel. Its next closest contender was Cruise, owned by General Motors Co, at 1,214 miles on average between disengagements. Autonomous vehicles are
Man Suing Bar Near Oregon University over Freak Finger Injury
A
man is suing a popular tavern near the University of Oregon, claiming a freak injury at the bar has left him unable to pursue “a host of attractive, lucrative careers” in music and medicine. Winston Martin says he suffered severe cuts to his left hand when a Max’s Tavern bartender asked him to separate a pint glass from a metal drink shaker and the glass shattered. The suit
says the bartender had served Martin at least six alcoholic drinks before asking him to help loosen the glass from the shaker. Martin says he lost sensation in his left index finger and he only has regained minimal feeling. He is seeking $3.75 million. An attorney representing the tavern’s owners declined to comment on the lawsuit. Copyright 2017 Associated Press.
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still in the research and development stage and are being tested on public roads, especially in California where most companies competing in the space have tech hubs in Silicon Valley. California law requires
that self-driving cars have a person in the driver’s seat who can take over control when needed. Waymo, for example, drove 352,545 miles in the state during the period with only 63 disengagements. Cruise vehicles drove about a third less,
at 127,516 miles, and had 105 disengagements. The third best performance came from Nissan Motor Co , which drove 5,007 miles and had 24 disengagements, meaning that its vehicles had disengagements on average every 208 miles. The numbers fall off sharply after Nissan, with Baidu Inc. at an average rate of every 41 miles, chipmaker Nvidia Corp. at 4.6 miles on average, and Mercedes, with disengagements every 1.3 miles on average. Ford Motor Co., Honda Motor Co., BMW, Volkswagen AG and Tesla Inc. said they conducted no autonomous driving testing on California’s roads during the time period. (Reporting by Sage; Editing by Leslie Adler) Copyright 2018 Reuters.
Oregon Jury Won’t Award Boy Who Contracted Herpes at Birth
A
n Oregon jury has declined to award any money to a 4-year-old boy who suffered profound brain damage after he contracted herpes from his mother at birth. Attorneys for Jonah Johnson had sought $46.5 million, saying obstetrician-gynecologist Dr. Carrie Miles should have recognized that the boy’s mother was infected with the disease when she arrived at the emergency room.
Miles’ attorneys called on experts who said herpes testing for those symptoms isn’t standard or called for in medical literature. Experts for Miles thought the mother likely contracted herpes weeks after Miles examined her. Angela Johnson Musa, the mother, did not tell Miles that she had been a sex worker in the past before she was treated. Copyright 2018 Associated Press. INSURANCEJOURNAL.COM
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WEST | News & Markets
Oregon City Tightening Demolition Rules over Lead, Asbestos
P
ortland, Ore., is aiming to crackdown on toxic emissions by requiring developers to more thoroughly search for lead paint and asbestos before demolishing houses. The city council adopted rules that require those who seek to knock down a house to notify neighbors and to have the city inspect the site at least twice. The new demolition rules apply to all buildings that house one to four families and are at least 200 square feet. The rules will be implemented by city’s Bureau of Development Services. Those seeking a demolition must provide an asbestos survey to the city before they can receive a permit. The cost of the permit will also increase to $180 to fund two new city inspectors. The inspectors will be required to visit the demolition site
before, during and after the house is razed. The inspectors are tasked with ensuring that the demolition sites have a plan to control dust, that exterior paint is removed and that materials that might contain lead or asbestos are wetted down to limit dust. At least 700 demolitions each year are expected to fall under the new rules, said Nancy Thorington, the bureau’s code and policy analyst. Lead and asbestos are health hazards and are often found in homes built before the 1980s. The city’s new rules came about after the state Legislature last year passed a bill giving more power to cities to regulate lead and asbestos in demolitions. The bill was sponsored by Portland law-
makers Sen. Michael Dembrow and Rep. Alissa Keny-Guyer. “I see a real model for the rest of the state,” Dembrow said. “If the city of Portland can do this right, I can certainly see other cities taking this up and taking this on because their residents are equally concerned.” Copyright 2018 Associated Press.
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Idea Exchange
Industry Trends
Insurance Industry Trends for 2018: A Top 5 Countdown
By Michael Kasdin
B
ring up the insurance industry as fodder for cocktail party conversation, and the universal response is oftentimes a collective yawn. But for those in the know, the insurance sector — with a domestic surplus approaching three-quarters of a trillion dollars — is massive, dynamic, ever-changing and the target of significant disruption; a far cry from humdrum, for sure. And with 2018 now upon us, the intrigue continues. Here’s a countdown of the top five trends that, in my view, will have the biggest impact upon the industry this year.
No. 5: Mergers and Acquisitions
Expect even more ramped up activity in the M&A market. There is an enormous amount of
capital (particularly, private equity and venture funding) looking to be invested in the insurance business, and so long as brokerages remain profitable last year’s accelerated rate of purchase and sale transactions likely will continue. Consequently, we will keep seeing large-scale consolidation of a tremendously fractured industry. No doubt, it is a seller’s market and the numbers bear this out: through Q3 2017, there were a total of 457 brokerage M&A deals — a record pace that looks to be matched or exceeded in 2018 given the untapped supply of available acquisition targets and interested buyers flush with cash. At the same time, attention will likely also shift somewhat from brokerages to more esoteric assets such as captive insurers and companies offering back-office services, reinsurance structuring and catastrophe management.
are also susceptible to cybercriminals. Statistics suggest that more than half of small businesses nationwide have experienced multiple data breaches; events that can damage reputations and put customers and employees at risk. In response, the market for cyber insurance is evolving rapidly. And with more and more insurers offering coverage for a business’s liability stemming from data breaches involving sensitive customer information — stolen Social Security, credit card, account and driver’s license numbers — which is typically excluded from general liability policies, the implications of the next big hack will increasingly be borne by those companies underwriting cyber insurance.
No. 4: The Growth of Cyber Insurance
No. 3: Marijuana Coverage, It’s All the Buzz
The data breaches keep on coming. The most recent one of significance involved the giant consumer credit reporting agency Equifax. Hackers infiltrated Equifax in July 2017, putting at risk the private information of upwards of 143 million American consumers. To put the number in perspective, that is nearly half the population of the U.S. Incredibly, the 2013 hack of Yahoo was even bigger, with every one of the web service provider’s three billion accounts compromised, as announced last October by Yahoo’s parent company Verizon. Unfortunately, cybercrime is pervasive, which is why — along with the Equifax and Yahoo data breaches — WannaCry, Not Petya and Russian hacking in the 2016 presidential election made headlines. But the fact is, small businesses
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The numbers are undeniable: 29 states plus the District of Columbia have legalized medical marijuana; eight states (along with D.C.) permit the recreational use of pot; an estimated 230,000 people are employed in the “budding” marijuana industry in the U.S.; 64 percent of adults in this country support decriminalizing cannabis; and annual sales generated by the business approached $7 billion in 2017 (projected by some to balloon to $30 billion by 2021). The upshot is that marijuana is a major industry, one that requires insurance coverage at the commercial and personal lines level. The good news for forward-thinking insurance and reinsurance companies is that insuring cannabis-related risks is in its infancy — in November 2017, California was the first state to admit a carrier to write policies and offer coverINSURANCEJOURNAL.COM
age for marijuana business owners. There are billions of dollars at stake and proactive insurers have the opportunity to invent the market. At the same time, federal law makes any form of pot use illegal, making it a bit problematic for would-be players to jump into the business of providing marijuana coverage. This is particularly true given Attorney General Jeff Sessions’ recent reversal of the policy adopted under the Obama administration that mandated non-interference by the federal government with marijuana-friendly state laws. Now, Sessions has ordered federal prosecutors across the country to decide individually how to prioritize resources to crack down on pot possession, distribution and cultivation of the drug in states where it is legal. Notwithstanding the hiccup resulting from this chilling decision, the momentum toward legalized marijuana is undeniable, and there are likely to be some very interesting developments, insurance-related and otherwise, in 2018.
No. 2: Insurance and Technology – a Match Made in Heaven
The insurtech explosion and resulting marketplace disruption is sure to contin-
ue with a vengeance in 2018. Funding is pouring into the space — nearly $1 billion in Q2 2017 according to Willis Towers Watson and CB Insights — providing good reason to expect ongoing innovation, with perhaps one or two major new companies emerging from the dust with truly revolutionary ideas. The focus now looks to be on customer engagement and a growing demand for greater customization of insurance products driven by the sharing economy, millennials and a desire for single-asset coverage. The opportunities are abundant. Some examples? Airbnb hosts who derive income from their residences have created the need for limited commercial coverage without the necessity of comprehensive commercial policies — an offering ripe for insurtech entrepreneurs. Millennials — those most likely to purchase insurance through an app with a few taps on their smartphones — drive less than previous generations, thus establishing a hot market for lower cost, pay-per-mile automobile insurance. And despite the proclivity of this demographic to shun homeownership (and, with that, the need for homeowners coverage), they do own assets that they want insured. Insurtech is poised to satisfy their coverage cravings. This is exciting stuff. Along with industry disruption and technological advancement comes an ever-expanding smorgasbord of policy options, which will continue to become available to tech savvy, price conscious consumers raised in an era of instant gratification. Can it be long before Amazon’s Alexa starts facilitating policy placement? The possibilities are endless.
With reinsurance rates relatively stagnant for as long as people can remember, this may finally be the impetus for a change. More specifically, for reinsurers, these disasters may provide the necessary cover to hike rates and tighten terms. Hardening of the reinsurance markets, as industry players look to take back some margin after years of oversupply and lean returns, is likely. Of course, it remains to be seen whether primary markets will be able to pass all, or even some, of the projected rate increases on to the insurance-buying public. The “perfect storm” of 2017 has only
No. 1: Reinsurance Rate Escalation
Kasdin is the managing partner of Michelman & Robinson LLP’s Chicago office. The firm also has offices in Los Angeles, Orange County (California), San Francisco and New York City. He can be contacted at 312-706-747 or mkasdin@mrllp.com.
Between Hurricanes Harvey, Irma and Maria and record-setting wildfires in California, 2017 will be remembered as one of the costliest catastrophe years ever. INSURANCEJOURNAL.COM
been exacerbated by recent changes to the tax code. Under the new law, large insurers may suddenly be saddled with a tax on reinsurance premiums ceded to offshore affiliates, which will undoubtedly erode already lean margins, drive up primary rate, and allow alien reinsurers to ride on the rate taken by the U.S.domiciled holding company systems. The result: larger insurance bills. And while no one relishes those, industry experts will probably agree that this shakeup is a good thing. As reinsurance surplus suffers, so does the stability of the global financial system. Indeed, the stability of financial markets depends on the stability of the global reinsurance business. So, as much as it may pain me to say it: “let them take rate.”
FEBRUARY 19, 2018 INSURANCE JOURNAL | WEST | W7
WEST | News & Markets
Surplus Line Premium Increased by 6.4% Nationwide in 2017
A
ll 15 surplus lines service offices across the United States experienced increases in excess and surplus lines insurance premium in 2017, the Surplus Lines Stamping Office of Texas reported. U.S. surplus line premium totaled $28.1 billion, an increase of 6.4 percent over 2016. The $1.69 billion increase over 2016 primarily was the result of two factors: the addition of a newly created North Carolina Service Office and the increased demand for E&S policies. There was a 10 percent increase in policy filings in 2017, compared with 2016. All U.S. service/stamping office saw increases in E&S premium and policy filings, with the most notable being Minnesota, which experienced a 26.6 percent growth in premium. Other states with double digit increases included Utah (19.2 percent), North Carolina (17.1 percent), Oregon (16.8 percent), Arizona (16.4 percent), and Nevada (12.4 percent). Nevada Surplus Lines Association Executive Director Lynn Twaddle commented that in his state the “growth in staffing of mega factories has created a
surge for housing, resulting in a residential construction boom. The legalization of recreational marijuana and its related operations have also attributed to the increase in surplus lines premium.” Sylvia Bruno, executive manager of the Surplus Line Association of Utah, noted that another contributing factor to the increase seen in Utah was the dissolution of the Non-Admitted Insurance Multi-State Association (NIMA), a multistate tax sharing compact that ceased to exist. The Southern Region of the U.S. reported the largest total premium at $11.8 billion. The region includes newcomer North Carolina, whose $733 million premium contributed to the total Southern premium growth of 6.8 percent. Texas reported its best E&S premium year in its 30-year history, with $5.46 billion in premium recorded. California, Florida and New York continued to record large E&S premium numbers. Reported premium for California ($6.55B), Florida ($5.25B), and New York ($4B) broke records in each of those states.
Source: SLTX
W8 | INSURANCE JOURNAL | WEST FEBRUARY 19, 2018
Regulators Cite 4 Employers in Deadly 2017 Explosion in Colorado
F
ederal regulators have cited four employers, including the largest oil and gas producer in Colorado, for exposing employees to health and safety hazards in connection with a May 2017 explosion that killed one employee and burned others. The Denver Post reported that the U.S. Department of Labor’s Occupational Safety and Health Administration has cited Anadarko Petroleum Corp., Energes Services LLC, Dominguez Welding LLC and Unlimited Services LLC. The companies face $70,711 in proposed penalties. Workers were merging two tank batteries into a single battery operated by Anadarko in Mead when the explosion and fire occurred. Thirty-two-year-old Oscar Lopez Velasquez died in the explosion. Anadarko spokeswoman Jennifer Brice said the company takes the findings very seriously. She says Anadarko has been reviewing its procedures since the incident. Copyright 2018 Associated Press.
INSURANCEJOURNAL.COM
Figures
20
The number of fatalities from residential fires in Tennessee during January, according to the Tennessee State Fire Marshal’s Office (SFMO). SFMO said it was the third-deadliest month for fire deaths in the state since 2010 and is largely attributed to the cold weather. Nearly half of all fatal fires occur between November and February, SFMO said, with heating fires believed to be a major contributing factor for the increase.
$500 MILLION
Declarations
9
Proximate Cause
The number of people who died in Baton Rouge home fires in January, prompting Baton Rouge Mayor Sharon Weston Broome to push for the installation of smoke detectors. More than 1,000 free smoke alarms have been installed in area homes by local organizations, the city fire department and the state fire marshal’s office. More are planned.
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— California Insurance Commissioner Dave Jones
issued a formal notice to all property/casualty insurers reminding them of their duty to cover damages from a mudslide if it is determined that the burning of hillsides and vegetation by the Thomas and other fires in December was the “efficient proximate cause” of the mudslides.
Ready for Anything
$5 MILLION
“We’re ready for anything that may come our way. … It’s about not just feeling safe, but making sure people are in fact safe.” — Minneapolis Police Commander Scott Gerlicher,
whose department oversaw security for the 2018 Super Bowl. Minneapolis has a relatively small police department — fewer than 900 officers — so federal and state resources, as well as personnel from other cities, were deployed for the event, which was held Feb. 4 at U.S. Bank Stadium in downtown Minneapolis.
Number One The estimated damage caused by a fire that destroyed the Wilderness Resort dormitory under construction in the Wisconsin Dells. Officials say the fire was intentionally set. The Wisconsin Arson Insurance Council is offering $10,000 for information that would lead to the arrest and conviction of those involved. The dorm was being built to house foreign students enrolled in the J-1 visa program. More than 3,000 such students have worked in the Dells area in recent years.
$437,000 The amount in damages New York City Mayor Bill de Blasio said is being sought in a lawsuit New York City filed in January against eight companies that make or distribute prescription opioids, blaming them for fueling a deadly epidemic afflicting the city. He said the epidemic kills more people in the city annually than homicides and car accidents combined, including more than 1,100 from opioid-induced overdoses in 2016.
“If the evidence shows the Thomas Fire or another peril covered by a homeowners insurance policy was the efficient proximate cause of mudflow damage, I expect insurance companies to step up and cover these financial losses.”
The amount San Diego County supervisors approved in spending to add new cameras and to upgrade the bandwidth of a computer network for a system to be installed on mountain peaks to bolster fire protection.
“Let’s keep the consumer number one in our mind. The same homeowners that I represent as an insurance agent, [lawmakers] represent as a constituent, and we all ought to be working together regardless of the issue.” — Doug Wiles, chairman of FAIA and president of
Herbie Wiles Insurance Agency in St. Augustine, Fla., speaking at a march for assignment of benefit reform at the Florida Capitol on Jan. 24. Agents and consumer advocates organized the march and urged lawmakers to address what is being called an insurance crisis in the state.
Compliance Deadline
“The DFS compliance certification is a critical governance pillar for the cybersecurity program of all DFS regulated entities.” — New York Department of Financial Services (DFS)
Superintendent Maria T. Vullo said regarding the February 15 compliance deadline under DFS’ cybersecurity regulation. Regulated entities and licensed persons were required to file a statement electronically via the DFS cybersecurity portal covering the prior calendar. New York’s first-in-the-nation cybersecurity regulation became effective March 1, 2017.
The Only Option
“If the buyout doesn’t work and more money doesn’t come from insurance, walking away from it might be our only option.” — Jacob Lerma, whose suburban Houston home was
flooded during Hurricane Harvey, faces mounting expenses and hasn’t paid his mortgage in months. His insurance payout wasn’t enough to rebuild his home, and FEMA only offered a small loan. He’s hoping for a buyout from the city of Friendswood.
FEBRUARY 19, 2018 INSURANCE JOURNAL | NATIONAL | 11
NATIONAL | Business Moves
Allianz, Liberty International
Allianz Global Corporate & Specialty (AGCS) is acquiring the renewal portfolio of Liberty Mutual Insurance’s U.S. product recall and special contingency business. The effective date is Jan.30, 2018. The business being acquired was written through Liberty International Underwriters (LIU) U.S., which is exiting the field.
AmWINS, Seacoast Brokers, Trident Claims Management
AmWINS Group Inc. has completed the previously announced acquisition of Seacoast Brokers, LLC, and Trident Claims Management, LLC. Seacoast is a South Carolinabased personal lines specialty MGA that designs, distributes and services surplus lines homeowners’ business throughout the United States. Trident is a licensed third-party claims administrator which manages claims on all Seacoast-issued policies. Seacoast and Trident will become part of AmWINS’
Access division, a nationwide delegated authority business focused on small commercial property and casualty and personal lines. Terms of the transaction were not disclosed.
Kaplansky Insurance, Malcolm Insurance Agency
Kaplansky Insurance has acquired Anthony and Malcolm Insurance Agency in Bradford, Mass. Founded in 1919, Anthony and Malcolm Insurance provides a range of insurance services to both personal and commercial clientele. Founded in 1974 and head quartered in Needham, Mass., Kaplansky Insurance provides a full range of personal and commercial insurance products. The addition of Anthony & Malcolm marks the 28th acquisition for Kaplansky.
Risk Strategies Co., Benefits Network Insurance Agency
Risk Strategies Co., a privately held national insurance brokerage and risk management
14 | INSURANCE JOURNAL | NATIONAL FEBRUARY 19, 2018
firm, has acquired Benefits Network Insurance Agency (BNIA), a specialist brokerage focused on the development of employee benefits plans. Terms of the deal were not disclosed. Headquartered in Cincinnati, Ohio, with additional offices in Dayton, BNIA was founded in 1989 by Phil DiCiero as a wholesale broker providing services to the small group business of Blue Cross Blue Shield’s independent agents. BNIA added its own retail service capability in 1993 and its business today is almost equally balanced between retail group insurance sales and wholesale brokerage. In building out its wholesale business, the company expanded its footprint to represent Anthem Blue Cross Blue Shield, Humana, Medical Mutual of Ohio, United Healthcare, Principal Financial and Aetna. Risk Strategies has offices in more than 45 locations nationwide.
Universal Insurance Agency, Ledbetter Insurance Agency
Universal Insurance Agency, a First United company, has merged with Ledbetter Insurance Agency LLC. Both companies are located in Oklahoma City. According to announcement, the merger creates one of the largest independent insurance agencies in Oklahoma City. Universal Insurance has been a wholly owned subsidiary of First United Bank since 2014, and offers commercial insurance, personal insurance and employee benefits in communities throughout Oklahoma and Texas. Ledbetter was founded in Oklahoma City in 1918.
Seeman Holtz Property & Casualty, Fifth Avenue Healthcare Services
Seeman Holtz Property & Casualty Inc. has acquired Fifth Avenue Healthcare Services, headquartered in Tulsa, Oklahoma. For over 20 years, Fifth Avenue has curated relationships with various networks, health plans, hospitals, surgery centers, state/federal agencies, and medical malpractice insurance carriers to get the lowest rates and best plans to their clients. The acquisition is part of Seeman Holtz's expansion strategy of acquiring specialty commercial and professional liability agencies with specific expertise to enhance their portfolio of companies. Seeman Holtz Property & Casualty is headquartered in Boca Raton, Florida.
Eastern Insurance Group, Southeastern Insurance Agency
Eastern Insurance Group LLC, a Natick, Mass.headquartered, wholly-owned subsidiary of Eastern Bank, has acquired the assets of the Southeastern Insurance Agency Inc., a full-service insurance agency with locations in North Dartmouth and Hyannis, Mass. The transaction was effective January 1, 2018, when all of Southeastern’s staff became Eastern employees. Eastern will rebrand Southeastern’s offices over the next six-to-12 months and has plans for the acquired operation to continue to expand. The deal marks the 41st acquisition for Eastern Insurance. INSURANCEJOURNAL.COM
NATIONAL | News & Markets
P/C Direct Premium Written Up 4.7 Percent
By Douglas A. Powell
D
irect premium written (DPW) for property/ casualty insurance companies continues to increase, albeit gradually. At year-end
2016, approximately $606 billion of DPW was reported, a record high for the industry. For 2016, total DPW for all P/C insurers aggregately increased 4 percent over 2015, an increase of $23.4 billion. Through the third quarter of 2017, the insurance industry’s growth trend has continued, as DPW for all P/C insurers aggregately increased 4.7 percent over 2016. For the nine months ending Sept. 30, 2017, P/C companies comprising the Top 25 insurers in terms of DPW increased their DPW 12.9 percent, or $11.4 billion over the first nine
experienced in the historical hard market cycles may have created unrealistic premium growth expectations. It is more realistic that expectations should relate to gradual, stable growth. There is always a fair amount of uncertainty in making projections based on third quarter data, but if the industry holds to its 10-year historical pattern, growth in 2017 would again result in the highest level of year-end DPW ever reported.
months of 2016. This continues the Top 25 insurers’ impressive display of premium growth and financial stability. The Top 25 accounted for 52 percent of the growth in the P/C insurance industry’s DPW. In contrast, the remainder of the industry reported an increase in DPW of 2.8 percent, or $10.3 billion year over year. Although the market continues to exhibit signs of firming and DPW continues to increase, P/C insurers should not expect a traditional hard market in the near future. More importantly, it is possible that the double-digit premium growth
Powell is a senior financial analyst with Demotech Inc. E-mail: dpowell@ demotech.com.
Top 25 Property/Casualty Companies Based upon dollar amount of direct premium written (DPW) growth Year-to-date results 2017 versus 2016
Company Name
State Farm Mutual Automobile Insurance Co. GEICO General Insurance Co. GEICO Casualty Co. American Family Insurance Co. GEICO County Mutual Insurance Co. GEICO Indemnity Co. USAA General Indemnity Co. USAA Casualty Insurance Co. Allstate Fire and Casualty Insurance Co. Stratford Insurance Co. ACE American Insurance Co. GEICO Advantage Insurance Co. Government Employees Insurance Co. Liberty Insurance Underwriters, Inc. United Services Automobile Association CGB Insurance Co. Allstate Vehicle and Property Insurance Co. Farmers Insurance Exchange Ohio Security Insurance Co. Liberty County Mutual Insurance Co. Progressive County Mutual Insurance Co. American Bankers Insurance Co. of Florida LM General Insurance Co. Auto-Owners Insurance Co. Progressive Direct Insurance Co.
DPW 9/30/2017
$30,243,219,130 $7,194,045,728 $3,259,499,147 $991,295,053 $1,275,939,672 $4,376,436,643 $2,959,514,121 $4,783,511,267 $6,158,917,349 $424,114,944 $3,388,270,432 $1,040,491,691 $4,424,077,546 $2,519,827,625 $5,992,379,044 $924,597,653 $1,709,361,639 $3,324,698,295 $1,457,372,359 $887,058,695 $1,804,011,405 $3,102,521,626 $2,536,774,043 $2,553,030,230 $2,269,818,715
Top 25 P/C Companies by DPW Growth $99,600,784,052 All Other P/C Companies $384,050,851,292 Total $483,651,635,344
DPW 9/30/2016
$27,876,759,296 $6,477,844,099 $2,762,020,806 $535,650,376 $834,392,870 $3,943,839,840 $2,536,947,539 $4,368,590,421 $5,745,424,914 $14,818,242 $2,989,576,722 $662,763,936 $4,061,731,426 $2,160,233,920 $5,646,716,311 $584,956,208 $1,395,769,344 $3,021,088,978 $1,154,558,721 $590,723,360 $1,515,813,019 $2,820,621,002 $2,255,844,549 $2,286,532,233 $2,005,826,038
$88,249,044,170 $373,711,186,071 $461,960,230,241
$ Growth
$2,366,459,834 $716,201,629 $497,478,341 $455,644,677 $441,546,802 $432,596,803 $422,566,582 $414,920,846 $413,492,435 $409,296,702 $398,693,710 $377,727,755 $362,346,120 $359,593,705 $345,662,733 $339,641,445 $313,592,295 $303,609,317 $302,813,638 $296,335,335 $288,198,386 $281,900,624 $280,929,494 $266,497,997 $263,992,677
$11,351,739,882 $10,339,665,221 $21,691,405,103
% Growth
8.49% 11.06% 18.01% 85.06% 52.92% 10.97% 16.66% 9.50% 7.20% 2762.11% 13.34% 56.99% 8.92% 16.65% 6.12% 58.06% 22.47% 10.05% 26.23% 50.16% 19.01% 9.99% 12.45% 11.66% 13.16%
12.86% 2.77% 4.70%
Data Source: The National Association of Insurance Commissioners, Kansas City, Mo., by permission. Information derived from an SNL product. The NAIC and SNL do not endorse any analysis or conclusion based upon the use of its data.
16 | INSURANCE JOURNAL | NATIONAL FEBRUARY 19, 2018
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Make Safeco Specialty’s dedicated underwriting team your agency’s secret weapon. Whether you need a quote in just minutes, have a question about coverage or want tips from the experts, we’re only a phone call away.
© 2018 Liberty Mutual Insurance. The audience for this information includes agents and brokers nationwide, and is therefore general in nature. Every agent and broker is responsible for knowing the guidelines and laws that govern rating, underwriting, and claims handling in their states. *Coverages and features not available in all states; see the Product Guide(s) for details.
NATIONAL | Special Report | Agency Salary Survey
ByAgencies' Andrea WellsAverage
T
P/C Premium Volume
Salaries by Premium 3.5 percent in 2017, compared according Volume to the 2018(Management) That’s Owners/Principals Office Survey,Sales Agency Salary which President/CEO Manager Manager
otal compensation for
insurance agency manUnder $1 million $51,500 $1 million - $5 million $75,259 agement, owners, prin$5 million- $10 million $101,853 cipals and support staff were $10 million - $25 million $155,257 for while total comp up 2017,- $50 $25in million million $181,424 $50 million -declined $100 millionjust slightly $244,095 producers $100the million or more $312,500 over year before.
Accounting Personal to 4.5 percent in 2016.Commercial Manager Lines Mgr. Lines Mgr.
Salaries for agency support revealed that salaries for agency owners, principals$42,000 and man- $31,000 staff went$30,750 up 3.3 percent on $45,179 $43,750 $45,602 agement $45,631 went up 5.3 $53,580 percent in $35,918 average in$36,500 2017, which was $63,917 $92,593 $47,656 $61,198 to a 4.4 percent $50,774 2017, compared higher than the 2.9 percent $77,537 $99,813 $55,303 $60,861 $69,194 jump in 2016. raise they $110,161 got in 2016.$106,908 $89,143 $168,750 $81,875 $95,804 $145,441 $88,889 $77,500 Producers/sales reported Agency $89,808 Salary This year’s $97,031 $229,643 $94,342 $108,750 $142,647 average increases in salary of Survey, based on responses
CSR Salaries and Ho
Agency Compensation Satisfaction Index* 2018 3.70 3.23 3.08
Management/Agency Owner/Agency Principal Producer/Sales Support Staff/CSR/Account Executive
2017 3.61 3.02 2.97
2016 3.63 2.97 2.84
2015 3.62 3.12 2.73
2014 3.68 3.19 2.90
* 5 = Most Satisfied; 1 = Least Satisfied
Average Agency Total Income Change* 2017 6.3% 6.2% 3.9%
Management/Agency Owner/Agency Principal Producer/Sales Support Staff/CSR/Account Executive
2016 5.5% 6.6% 3.1%
2015 5.7% 4.7% 3.0%
2014 6.7% 5.7% 3.5%
2013 7.2% 8.8% 2.8%
*Includes all income changes in year
Average Agency Salary Adjustment Management/Agency Owner/Agency Principal Producer/Sales Support Staff/CSR/Account Executive
2017 5.3% 3.5% 3.3%
from nearly 1,300 respondents nationwide, also revealed bumps in total income, which includes salary plus additional compensation such as profit sharing, bonuses and other income: • Agency owners, principals and management reported a rise in total income for 2017, which revealed an increase of 6.3 percent in total income, compared to a 5.5 percent What Strate increase in total income for in 2017 vs. 2 Marketing 2016. Manager • Producers/sales total income Cut benefits Shift health plan c went down slightly to 6.2 per$55,000 Increase benefits $102,813 cent for 2017, compared to aForce 6.6 reduction of $54,250 percent increase in 2016. Postpone hiring $68,143 • Agency support staff totalPostpone raises $108,810 hiring $85,476 income jumped 3.3 percentIncrease for Increase compens $118,269 2017, compared to 2.9 percent increase in 2016.
2016 4.4% 4.5% 2.9%
2015 3.8% 2.1% 3.5%
2014 3.9% 4.4% 3.4%
2013 4.3% 5.1% 2.5%
Satisfaction over agency Commercial lines CSR compensation Personal appearslines to be CSR steadily improving asstaff well Support average (See Agency Compensation Satisfaction Index chart):
Av
Average CSR Salarie
Comm • Management/agency ownEast $78, ers/agency principals reported Midwest $65, satisfaction a compensation South Central $58, $52, score of 3.70 inSoutheast the 2018 survey, West $66, up from 3.61 in the 2017 survey, based on a scale of 1-to-5 where “5” equaled “most satisfied.” What Strategies Agenc • Producers/sales reported in 2018 vs. Implement satisfaction of 3.23 in the 2018 Cut3.02 benefits survey, up from in the Shift health plan costs to employee 2017 survey. Increase benefits • And supportForce staff/CSR/ reduction of employees Postpone hiring a reported account executives Postpone raises satisfaction score of 3.08 in the Increase hiring
Increase compensation
18 | INSURANCE JOURNAL 2018Experience Average| NATIONAL Agency FEBRUARY Salaries19,By Less than 3 years
Manager/Owners $60,377
Producers $54,308
INSURANCEJOURNAL.COM Staff $41,817
Health Insurance: % Pa
2018 survey, up from 2.97 in the 2017 survey. Overall compensation satisfaction scored higher when agencies offered employee benefits, both hard benefits such has group health, dental coverage and stock options and soft benefits such as car reimbursement, trips and contests. (See Employee Benefit Satisfaction Index). Employee benefit satisfaction ranked highest in the survey when agencies offered added benefits such as a company car (4.03), club memberships (3.94), cash bonuses (3.87), and profit sharing (3.77). However, the survey found that in nearly every employee benefit category, employees showed more satisfaction in regards to overall compensation. The survey revealed that more agency management/owners/principals plan to increase compensation (45.6 percent) in 2018 compared to 2017 where only 41.4 percent said they were going to increase compensation overall. More than half of agency management (52.6 percent) also revealed plans to increase hiring in their agency in 2018, which was slightly down from 55.1 percent the prior year. Nearly one-third of all agency management (65.7 percent) reported giving a yearend bonus in 2017, and more than half of owners (53.5 percent) said those bonuses are distributed to all agency staff.
Insurance Journal’s Agency Salary Survey collected nearly 1,300 responses from independent agencies and brokerages nationwide via an online survey in January 2018. Demotech Inc., Insurance Journal’s official research partner, assisted with survey analysis. For more information, contact: awells@insurancejournal.com. INSURANCEJOURNAL.COM
Employee Benefits Satisfaction Index* Satisfaction Index When Offered
Profit Sharing Pension Plan Education reimbursement Group life/disability 401(k) IRAs Group health insurance Health Savings Account Stock Options ESOP Dental Flexible Savings Account Child care/Day care Trips Contests Education courses Cash bonuses Company car Club memberships None provided
Satisfaction Index When Not Offered
3.77 3.34 3.69 3.55 3.50 3.60 3.49 3.49 3.41 3.51 3.46 3.61 3.59 3.80 3.74 3.80 3.87 4.03 3.94 2.98
3.33 3.42 3.30 3.23 3.24 3.40 3.19 3.37 3.42 3.42 3.35 3.33 3.41 3.40 3.40 3.36 3.32 3.40 3.40 N/A
* 5 = Most Satisfied; 1 = Least Satisfied
What Benefits Agencies Offer Group health insurance Health Savings Account Dental Group life/disability 401(k) Profit Sharing IRAs Pension Plan ESOP Stock Options Flexible Savings Account Education reimbursement Childcare/Daycare No Benefits Provided
2018 78.1% 44.2% 60.6% 59.6% 67.9% 20.7% 10.5% 4.9% 3.9% 6.5% 32.0% 30.3% 5.1% 11.2%
2017 75.4% 36.5% 56.7% 54.4% 61.4% 19.4% 10.5% 5.3% 4.8% 4.9% 26.7% 28.2% 3.2% 12.1%
2016 75.8% 35.8% 55.0% 53.7% 59.4% 18.1% 9.9% 6.4% 3.6% 4.8% 25.2% 32.2% 2.6% 12.8%
2015 75.4% 37.7% 56.3% 55.6% 60.0% 17.5% 11.2% 5.9% 4.8% 5.3% 28.2% 30.5% 3.2% 13.7%
Av FEBRUARY 19, 2018 What Benefits Agencies Offer
Female
INSURANCE JOURNAL | NATIONAL | 19
Male
Men Make
Women occupy
Fem
NATIONAL | Special Report | Agency Salary Survey
Why Agencies Need Creativity in Hiring Now More Than Ever By Andrea Wells
A
s the economy continues to improve, insurance agencies are finding that hiring and retaining qualified employees, which is never easy, has become even more of a challenge. It’s become tougher even though salaries at independent agencies are rising. It’s also become tougher because the jobs are tougher. “There’s so much more demanded of staff people today, so finding people with the right qualifications is
required, whereas in the past, it might not have been to the same extent,” believes Chris Burand, founder and owner of Burand & Associates LLC based in Pueblo, Colo. With fewer people looking for jobs, and the jobs themselves becoming more demanding, agencies looking for people are dusting off old ideas and trying new strategies. Sierra Teger, human resource director, at The Buckner Company, a Salt Lake Citybased independent agency with offices in Utah, Colorado and Idaho, characterizes hiring
Average Management Salaries Salary
President/CEO Agency Owner/Principal Commercial Lines Manager Personal Lines Manager Office Manager Marketing Manager Accounting Manager Technology Officer
$204,094 $167,597 $115,594 $90,577 $67,988 $90,550 $102,000 $68,000
Average Producer Salaries by Line Salary
Commercial Producers Personal Producers
$78,596 $41,151
for independent agencies as a “passive candidate market,” meaning not many experienced agency staff are actively searching for jobs. Teger leads hiring and compensation strategies for The Buckner Co., which employs 170 people in both Salt Lake, Colorado and Idaho offices. Three years ago, Teger found more “active candidates” searching job postings. At that time, she’d easily secure 30 resumes of which a handful were at least somewhat qualified for the job. But over the past three years, there’s been a “total shift” in the recruiting strategies, she said. Nowadays, Teger lists agency job openings on three or more job boards and receives nothing. “It doesn’t matter what the opening is for. I almost get zero resumes, and the ones I’m getting have no qualifications for what we’re looking for.” If she does receive interest, it’s typically an individual aiming to reach their quota to receive unemployment benefits, she said. New employees are very seldom found these days through traditional channels. This complete turnaround from just
Average Producer Salaries by Region East Midwest South Central Southeast West
Commercial Lines Producer
Personal Lines Producers
$83,619 $61,635 $65,500 $81,181 $101,085
$46,613 $42,135 $37,370 $38,243 $41,500
20 | INSURANCE JOURNAL | NATIONAL FEBRUARY 19, 2018
a few years ago has prompted her company and others to get creative with recruiting strategies. One strategy that has helped is monetary awards for employee referrals. “We pay our employees $500, if they refer a candidate who’s hired, after that person’s been with us for 60 days,” she said. Teger said the better the hire, the better the award. “We’ve even gone up to $700, even $2,000 as an employee referral bonus for bringing on somebody great.” The program has been helpful, but it’s costly. Teger has also focused more on recruiting at local colleges. “We have partnered with quite a few of them, building really strong relationships with the career development teams,” she said. The Buckner Co. has also opened its doors to show job candidates what the firm is all about. “We have been hosting open houses on-site at Buckner, where we provide appetizers and drinks, deliver a presentation about our company and (employee) benefits we offer, and other opportunities.” For its headquarters in Utah, company makes sure to invite “plus-ones” to the open house events as well. “Because family is huge, especially in Utah.” Teger said hiring is no longer just posting a job opening. “It is all hands on deck to try to get candidates in the door. You have to get creative.” Knowing the job market is always important but it’s critical today to be competitive. Since 2011, Insurance INSURANCEJOURNAL.COM
34.7% 29.4% 27.6% 18.9% 41.5% 22.2% Agency Salary Survey Journal’s has shown that agency salaries 5.0% and total income (includes all compensation in addition to salary) for management, producers and service staff have increased. (See related story and charts on the 2018 Agency Salary Survey, page 18.) Multiple Strategies, Multiple Generations
Five years ago, the insurance industry worried about the mass exodus of baby boomers as they approached retirement age, but so far that hasn’t happened, or at least not at the rapid pace that was anticipated. More workers continue to work past traditional retirement age. According to U.S. census data, 19 percent of Americans age 65 and older are still working today - the highest rate since 1962. “We’ve known for a long time we were going to have this war on talent, but we thought that it was going to be because all the boomers were going to retire and leave these gaping holes in our sales and service ranks,” said Julia G. Kramer, executive vice president, chief organizational performance officer at BXS Insurance (BXSI) based in Tupelo, Miss. “But what we are finding out is that boomers are staying.” In her view, the war for talent has become an issue not tied to replacing retiring employees but rather hiring for growth. What’s been surprising to Kramer has been the increasing difficulty of hiring employees in client service-oriented positions to maintain that growth. “We are having as much difficulty, and sometimes even INSURANCEJOURNAL.COM
$50 million - $100 million $100 million or more Agency Compensation Satisfaction Index* 2018
2017
2016
2015
3.23 3.08
3.02 2.97
2.97 2.84
3.12 2.73
Changes Plan in3.62 Past Management/Agency Owner/Agency Principal to Health 3.70 Insurance 3.61 3.63 Producer/Sales Support Staff/CSR/Account Executive
Increased employee contribution Increased deductible limits Implement higher co-pays for participants Average Agency Total Income Change* Reduced drug benefit Reduced other benefits
focus on hiring service staff “We want to just make sure more difficulty depending * 5 = Most Satisfied; 1 = Least Satisfied that hasn’t hindered the search that we are focused obviously on what area of the country for producers. “We are always on revenue generation, but not we’re looking in, hiring for to the detriment of the client hiring for producers.” The difexperienced client service professionals,” Kramer said. “It’s a experience and the career expe- ference: Producers get hired as rience of client services profesabout. little harder than even finding 2017 opportunities 2016 come 2015 2014 sionals.” “Every insurance brokerage producers and that is surprisManagement/Agency Owner/Agency Principal 6.3% 5.7% 6.7% 5.5% continued on page 22 ing.” While BXSI increased its Producer/Sales 6.2% 6.6% 4.7% 5.7% Kramer said she knew hirSupport Staff/CSR/Account 3.9% 3.1% 3.0% 3.5% ing qualified and experienced Executive *Includes all income changes in year service staff would continue to get more challenging but didn’t 9.3% 3.5% realize that challenge would 1.4% Every year surpass that of hiring a quali8.3% Every two years fied producer. 2017 2016 2015 2014 Every three years BXSI got creative by elevatManagement/Agency Owner/AgencyNot Principal 4.4% 3.8% 3.9% 77.5% within past three5.3% years ing the client services departProducer/Sales 3.5% 4.5% 2.1% 4.4% ment hiring needs to the same Never reviews Support Staff/CSR/Account Executive 3.3% 2.9% 3.5% 3.4% level of its sales department.
How Often Agencies Review Compensation Structures Average Agency Salary Adjustment
Average Agency Salaries By Experience Less than 3 years 3-5 years 6-10 years 11-20 years 21-30 years More than 30 years
Manager/Owners $60,377 $91,278 $84,406 $136,448 $148,293 $183,604
Producers $54,308 $67,329 $83,722 $88,615 $102,862 $120,703
Staff $41,817 $46,187 $53,561 $66,561 $67,646 $65,717
Producers $70,152 $53,426 $47,976 $58,611 $79,539
Staff $70,122 $59,205 $55,081 $48,225 $63,195
Average Agency Salaries by Region East Midwest South Central Southeast West
Manager/Owners $172,424 $174,682 $127,291 $140,989 $136,983
How Agencies Base Compensation Incentive Plans 2017
2016
Agency profits
36.2%
34.7%
Productivity
28.3%
29.4%
Revenue growth
29.9%
27.6%
Contingent commissions
18.0%
18.9%
Individual performance
41.0%
41.5%
No incentive plan
24.1%
22.2%
Other
5.0%
5.0%
FEBRUARY 19, 2018 INSURANCE JOURNAL | NATIONAL | 21
No Not Sure
CSR Salaries and Hours Average Salary Paid
Commercial lines CSR Personal lines CSR Support staff average
Average Hours Worked
$66,273 $46,015 $59,698
38.94 39.40 39.07
NATIONAL | Special Report | Agency Salary Survey continued from page 21
Average CSR Salaries by Region
firm does opportunistic hiring Kramer said 100 percent of your commission splits all of producers so the larger youCommercial theStaff producers hired in 2017 worked out and your base Lines Personal Lines sala-Support get and the more structured $78,325 ries and your validation came from referrals considered East $48,927 sched- $73,890 Midwest $41,124 you are, you may say we’re $65,706 ules. We do have that kind of $58,820 “opportunistic” in nature, South Central $58,562 $44,553 going to hire ‘X’ producers this hiring, but most of our hiring is $59,444 while client service staff mostly Southeast $41,727 opportunistic.”$44,860 year and have a budget, have $52,272 comes from typical job openWest $66,515 $50,462 $62,442 ings/postings.
What Strategies Agencies Plan to Implement in 2018 vs. 2017
2018 2.1% 6.4% 8.8% 3.5% 14.0% 9.9% 52.6% 45.6%
Cut benefits Shift health plan costs to employees Increase benefits Force reduction of employees Postpone hiring Postpone raises Increase hiring Increase compensation
Know the Market
Knowing what the market pays, and what it pays for every position in the agency, is a hiring professional’s strongest position, according to Kramer. “If you don’t know your market, how do you know what
2017 1.8% 8.8% 10.3% 1.8% 16.7% 7.6% 55.1% 41.4%
Health Insurance: % Paid by Agency for Employee East Midwest South Central Southeast West
61.8% 53.7% 51.6% 55.7% 61.4%
Health Insurance: % Paid by Agency for Employee Under $1 million in premium $1 million - $5 million $5 million- $10 million $10 million - $25 million $25 million - $50 million $50 million - $100 million $100 million or more
38.8% 42.7% 60.9% 72.5% 71.3% 78.2% 62.8%
Changes to Health Insurance Plan in Past Year Increased employee contribution Increased deductible limits Implement higher co-pays for participants Reduced drug benefit Reduced other benefits 22How | INSURANCE | NATIONAL OftenJOURNAL Agencies ReviewFEBRUARY 19, 2018
Compensation Structures
1.4%
9.3% 3.5%
43.0% 63.8% 42.4% 10.9% 10.3%
What Employees Receive Year End Bonus All agency staff Management and sales producers only Management, plus all support staff you should (CSRs) be paying?” she Options unless you’re asked.Other “Typically, N/A
benchmarking against industry data, you are breathing your ownAgencies’ fumes year Plans after year.” to Change If agencies don’t keep up, Payroll Expense in 2018 they run the risk of suddenly Reduce payroll expense needing to hire a less expeIncrease payroll expense rienced person at 20 percent Keep the same Not sure the veteran hire more than being replaced because internal salaries have not kept up with Agency Salary marketplace, she said.Increases in 2017 “You also run into problems with retention then, and it’s Higher than 2016 not necessarily your boomers Lower than 2016 anymore, millennials,” Samebut in 2017 compared to 2016 Kramer added. “If they don’t feel fairly compensated, they won’t stay with you.” Agency Staff Size She advises agency owners in 2017 to know their own labor market and know the area’s compenIncrease sation Decrease norms. “You can decide Stayed the same to lag the market or lead the market, but you’ve got to know what the market is to make Anticipated Agency Staff those pay decisions.” Size in the 2018 market requires Knowing knowing more than salaries, Increase too. Given the tough competiDecrease tion for talent, agencies have Stay the same to get creative not only in how they compensate employees but Producer also in how Commissions they present in that compensation to 2017 their employees, says Mary Increase Newgard, partner and senior Decrease search consultant at Capstone Stayed the same in 2017 Searchcompared Group. to 2016 She calls it “creative compensation” or valuing a total Agencies’package Plans in toaChange way compensation thatCommission makes it competitive in Structure today’s tight employment marChanged in 2017 ket. Will change in 2018 “What agencies are going No changes to have to do is assign a dollar-value to each aspect of the package,” totalProducer compensation Compensation according to Newgard. This and Fees helps to show current and futureProducer employees the%real value receives of fee Producer receives all of fee Producer doesn’t receive fee
INSURANCEJOURNAL.COM
2
12.
35.1
53.0
44.7
46.8
43.9
7
46.
nal Mgr.
0 00 6 61 61 0 50
4 % % %
of their overall compensation. Assigning value is easy to do with base salary because it’s just the number, she said. “It’s easy to do with benefits because you know what your benefits cost (health coverage, etc.) and what you’re willing to pay.” However, things such as flextime, additional personal time off (PTO) and other valued “soft benefits” should be broken out and valued. In today’s agency and brokerage job market flex time is highly valued, according to Newgard. It can be a deal-breaker for more experience staff. Last year Newgard was working with a “fantastic” benefits account executive. “She Commercial Marketing at about six was making right Lines Mgr. Manager figures. And while she wasn’t completely unhappy, she was $43,750 $55,000 definitely interested in the opportunity that$102,813 we presented. $45,602 She got all the way to the offer $61,198 $54,250 stage and her increase was $69,194 $68,143 going to be about a 20 percent $106,908 $108,810 on her salary plus variable $89,808 $85,476 bonus income – a pretty sub$142,647 $118,269 stantial increase. But when the rubber met the road, she was only working four days a week in the office with her current employer, with the fifth day, 2014 every Friday, at home.” Newgard said that as a 3.68 working mother with children 3.19 in daycare, the 20 percent increase just wasn’t enough to 2.90 make up for the Friday workday at home. “At the end of the day, she turned down the 20 percent offer,” she said. “That is a really good example of what you’re hearing from other agencies 2013 about needing to be creative 7.2% with compensation.” 8.8% Another way some agencies
2.8%
INSURANCEJOURNAL.COM
are getting creative is helping employees cover family benefits. “I don’t think it’s unheard of for agencies to pay a very large portion of the employee’s benefits costs, but if you have family and you have dependents on there, that can get pricey,” Newgard said. The more that agencies can do to add to the benefits coverage, the better the compensation proposal. “What happens for candidates is when they get to the offer stage and they see the employee benefits plan and
the costs (of that plan), the first thing they’re going to say is, ‘Well out of my paycheck now, it only costs me ‘X’- this one with you is going to cost me above ‘X,’ so now that raise isn’t going to be that great.” Newgard advises agencies to assign dollar-values to every part of the total compensation package. “They can really make that a huge selling-point,” she said. “That’s where agencies need to get a little bit better on selling whatever compensation they are selling - putting dollar-val-
ues to it and really upselling the notion of how much they are giving.” Tommy McDonald, vice president at Marsh, Berry & Co., Inc. offered similar advice to agency owners: communicate well on compensation value. “Being able to communicate that there is career growth and firm growth outside of monetary gain is important. I believe that employees want to work for an agency that is headed towards something bigger. Selling that vision is import-
continued on page 24
What Strategies Agencies Implemented in 2017 vs. 2016 2017 5.8% 13.9% 12.4% 4.3% 22.0% 15.6% 36.4% 41.9%
Cut benefits Shift health plan costs to employees Increase benefits Force reduction of employees Postpone hiring Postpone raises Increase hiring Increase compensation
2016 2.6% 11.6% 13.3% 4.8% 24.9% 14.2% 33.1% 42.3%
CSR Salaries and Hours Average Salary Paid
Commercial lines CSR Personal lines CSR Support staff average
Average Hours Worked
$66,273 $46,015 $59,698
38.94 39.40 39.07
Average CSR Salaries by Region East Midwest South Central Southeast West
Commercial Lines
Personal Lines
Support Staff
$78,325 $65,706 $58,562 $52,272 $66,515
$48,927 $41,124 $44,553 $44,860 $50,462
$73,890 $58,820 $59,444 $41,727 $62,442
19, 2018 What Strategies Agencies FEBRUARY Plan to Implement in 2018 vs. 2017
INSURANCE JOURNAL | NATIONAL | 23
NATIONAL | Special Report | Agency Salary Survey continued from page 23 ant,” he said. “I think the fact that this industry, historically has been driven by salespeople is something that people are addressing today. Hiring top talent isn’t just a sales issue. More firms are having to address the need to keep top talent inside their firms at all levels.” McDonald says agency owners are more mindful today that employees in service roles want to see a path that allows them to grow in their career. “That may cost them more money or force them to be more creative in how they compensate, what benefits they offer and how they need to evolve their culture,” he said. “A career path for service people is something that hope-
fully organizations are trying to put some math and some thought around,” McDonald said. Growth has been historically and primarily driven by the quality of your sales staff alone. “But now, more firms are realizing that new business production and sustainable growth is an agency challenge, and service quality matters” he said. “Hopefully firms focus more on being creative so that they can hire people, keep them motivated and employed in our industry.”
Asking for More
Agency owners will have to pay more to get the quality they need, according to agency consultant Burand. Employees are well aware of the healthy economy and tight
together in the past 18 months job market and it’s not uncomor so to create a scenario in mon these days for them to which the employees felt presseek to cash-in by asking for sure personally and the opporraises. That’s not a situation Management/Agency many agencies have had to Ownertunity in the industry to ask for Agency money, and they have.” deal with in thePrincipal recent past. more31.5% Burand said that most of the “I do have clients who are 50.9% Producer/Sales time, the requests are reasonfacing, for the very first time, able and in many cases agency strong requests, particularly by Support Staff/CSR/ Executive are catching up. “I owners17.6% staff, forAccount more money,” Burand think most people think it’s a said. “I think the staff feels really good thing.” like the marketplace is such There are of course other that they can go get another scenarios where some staff job just about anywhere, and may not have a good perspectherefore, the time is right to tive on what their pay actually ask for more money.” should be, he said. “They’re That might be the result kind of going overboard in of agencies Malebeing too slow their requests and demands.” after theFemale credit crisis and the However, Burand said in his economic downturn, where 54% 46% view that’s a very small minoriso many agencies froze raises, Share this ty of agency staff. he said. “They were a little article with a colleague. slow to make adjustments and IJMAG.COM/219SS the two forces kind of came
Position
Gender
Agency Salary Survey Demographics Position Management/Agency Owner Agency Principal
31.5%
Producer/Sales Support Staff/CSR/ Account Executive
3.1%
Age
50.9%
17.6%
21 to 30 years old 31 to 40 years old 41 to 50 years old 51 to 60 years old 61 to 70 years old Older than 70 years old
Education
Gender Male Female 54%
46%
Graduated from high school Some college completed Graduated from college Some graduate school completed
7.2% 17.9%
32.9%
18.7%
20.3%
7.9% 3.7% 10.3%
29.8% 47.5%
Completed gradute school
3.1% 24 | INSURANCE JOURNAL | NATIONAL FEBRUARY 19, 2018 7.2%
Age
21 to 30 years old
INSURANCEJOURNAL.COM
Agency Staff Size in 2017
by Agency for Employee 61.8% 53.7% 51.6% Agency Gives Annual 55.7%Cost of Living Increase 61.4% Yes No Not Sure
Increase Decrease Stayed the same
9.3% 35.1% 55.6%
m
Agency Gives Year 38.8% 42.7% End Bonus
60.9% Yes 72.5% No Not Sure 71.3% 78.2% 62.8% What Employees Receive Year End Bonus
ance Plan in Past Year
All agency staff Management and sales producers only Management, plus all support staff (CSRs) Other Options N/A
bution s for participants
43.0% 63.8% 42.4% Agencies’ Plans to Change 10.9% Payroll Expense 10.3% in 2018 Reduce payroll expense Increase payroll expense Keep the same Not sure
Producer Commissions in 2017
3.4% 30.9% 65.7%
53.5% 12.6% 7.1% 3.7%
4.7% 6.7% 53.5%
.3% 3.5%
Higher than 2016 Lower than 2016 Same in 2017 compared to 2016
53.0%
Anticipated Agency Staff Size in 2018
Changed in 2017 Will change in 2018 No changes
Producer Compensation and Fees Producer receives % of fee Producer receives all of fee Producer doesn’t receive fee
37.8% 9.2%
43.9%
44.9%
11.2%
6.0% 14.8% 79.2%
46.1%
51.3%
2.6%
36.1% 63.9%
Yes No
Owners Thinking About Selling 5.0% 7.4% the Agency
Agency Staff Size in 2017 Increase Decrease Stayed the same
3.3%
Producer Bonus for Exceeding Sales Goal
Agency Salary Increases in 2017
77.5%
Increase Decrease Stayed the same in 2017 compared to 2016
49.9%
46.8%
Agencies’ Plans to Change Commission Structure
23.1%
35.1%
9.8%
Anticipated Agency Staff Size in 2018 Increase Decrease Stay the same
d by Agency for Employee
45.5%
44.7%
44.7%
45.5%
9.8%
INSURANCEJOURNAL.COM
Yes No Not applicable
87.6%
FEBRUARY 19, 2018 INSURANCE JOURNAL | NATIONAL | 25
49.9%
NATIONAL | Spotlight | Boats
‘Really engage your customer, understand their needs and see if they have boat.’
On the Water: As Boating Season Kicks Off, Help Insureds Prepare By Andrea Wells
B
oat show season is well under way and this year will ring in as another strong year for new boat sales – that’s good news for insurance professionals writing boats. The close of 2017 marked the sixth consecutive year of growth in new boat sales and recreational boating expenditures, according to the National Marine Manufacturers Association (NMMA). The association, which tracks marine vessel buying trends, expects the growth to continue through 2018, and possibly beyond. Some of the new boat buying will come as a result of damages resulting from the 2017 hurricane season. The Boat Owners Association of The United States (BoatUS), a national advocacy, services and safety group for recreational boaters, estimated that more
than 63,000 recreational boats were damaged or destroyed as a result of both Hurricane Harvey and Hurricane Irma. Hurricane Irma damaged or destroyed 50,000 vessels with approximately $500 million in recreational boat damage, while Hurricane Harvey inflicted a damage toll of $155 million on a toll on about 13,500 boats. These numbers neared that of 2012’s Hurricane Sandy, which remains the single-largest industry loss with more than 65,000 boats damaged and more than $650 million in estimated losses. Todd Shasha, managing director of personal insurance, boat and yacht, at Travelers, expects to see a lot of new boats come into the market to replace the ones that were damaged in 2017. In an environment where insureds are buying more boats, Shasha advises agents to
26 | INSURANCE JOURNAL | NATIONAL FEBRUARY 19, 2018
keep an eye on new opportunities. “Really engage your customer, understand their needs and see if they have boat,” he said. “Try to pull all of your clients’ policies together and package them.” Shasha also recommends being an advisor to insureds to help them avoid damage, too. Based on boat insurance claims Travelers received from 2014 through 2017, collisions are the most common cause of loss, making up one-third of all claims. Wind and mechanical breakdown are the second and third most common causes of loss, respectively. The costliest types of claims are due to fires, boats sinking and lightning strikes. “Perhaps the most reassuring takeaway from this data is that many of the top causes of damage are largely preventable,” Shasha said. Travelers recommends tak-
ing these steps: • Advise insureds to be familiar with a boat’s navigation and safety equipment. • Advise insureds to navigate within marked channels to avoid running aground or hitting submerged objects near the shoreline. • Advise insureds to stay alert when approaching objects such as mooring fields, navigational buoys and marine traps set in the water. Be aware that after a storm, high tides may have carried debris into the water. • And if a storm is approaching, if at all possible, haul out the vessel and remove objects that could become airborne. “No matter how many years of experience you have, it’s always good to brush up on the latest boating rules and technology to help you stay safe,” Share this article he said.
with a colleague. IJMAG.COM/219BO INSURANCEJOURNAL.COM
$7.41 billion
$ $
$ $
$ $
$ $
$ $
$ $
$ $
$ $
$ $
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$ $
$ $
$ $
$ $
$ $
total in-force premium
$810 million total in-force premium growth
562 independent agency members signed
12.3% growth in total in-force premium 400+
new independent agency members signed nine years in a row
2018
1983
6,723 total independent agency members signed national strategic partner companies
4,158 new agencies created strategic master agencies
SIAA is dedicated to the creation, retention, growth and continued success of the independent insurance agency distribution system.
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NATIONAL | Spotlight | Agribusiness
What’s Inflating Agribusiness Insurance Costs? By Joe Dunn, Angel Mendez, and Scott W. Dunn
A
gribusiness clients are acutely aware of the high premiums they pay for workers’ compensation, premises liability, health insurance and the steps they can take to mitigate those costs. On the other hand, automobile liability has historically been a low-cost, low-visibility afterthought. Not anymore. The risk associated with catastrophic vehicle-related losses is on the radar of underwriters who insure agricultural operations. Many have seen loss ratios spike to 90 percent or higher on their auto liability book of business and are alarmed by the skyrocketing frequency and severity trends. In an informal poll, agricultural insurers expressed concerns that the market for auto coverage is seriously underpriced, and some are considering rate increases as high as 30 percent. Said one underwriter, “If you can’t get enough rate, you just have to walk away from some accounts.” Consider the following scenarios: • As he does every day, a California farm labor contractor transports employees to and from job sites. One evening, while driving six workers home, the contractor drifts off the highway. He overcorrects, causing the van to flip several times. All six passengers, including two underage girls, are ejected
•
from the vehicle. Three men are pronounced dead at the scene and one of the underage girls later dies from her injuries. After inspect- ing a field to be harvested, a farm labor contractor employee stops at a bar and consumes five shots of whiskey and two 22-ounce beers in a three-hour period. He sub sequently climbs into his truck and, while texting, rear-ends a car stopped at a red light. A four-year-old boy in the rear-ended car is killed instantly, while his mother and sister are injured.
Catastrophic vehicle losses have a significant impact on the agribusiness industry and create turmoil for both insureds and insurers. The emotional and financial toll in the case of a death or severe disability resulting from a vehicular accident can affect victims and their families forever. Employers dealing with vehicle-related claims involving their employees also face the devastating financial consequences of insured and uninsured costs increasing exponentially. The insured costs most likely to be impacted arise from automobile liability, umbrella/ excess liability, workers’ compensation and employers’ liability policies. Insureds typically have deductibles, or
28 | INSURANCE JOURNAL | NATIONAL FEBRUARY 19, 2018
self-insured retentions and claim costs will need to be paid. In the longer run, a poor motor-vehicle or employee-injury-loss history can result in premium increases, mid-term cancellations, or worse yet — the unwillingness of any carrier to quote the account. Uninsured costs, including the following, are frequently overlooked but can be even more costly: • Lost production time; • Damage to crops/other
products; • Increased overtime for existing employees; • Loss of experienced staff;
continued on page 30
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NATIONAL | Spotlight | Agribusiness continued from page 28 • Need to hire and train new/temporary labor; • Damaged employee morale; • Investigation and legal expenses; • Governmental agency audits/fines; • Loss of management’s time; and • Negative publicity.
The risk associated with catastrophic vehicle-related losses is on the radar of underwriters who insure agricultural operations. According to the National Highway Traffic Safety Administration (NHTSA), 2016 was a deadly year on the roads with 37,461 deaths — a 5.6 percent increase over the number of deaths in 2015. In addition, vehicle crashes are the leading cause of A&M deaths, IJ Self accounting Serve.pdf 1 5/16/16 work-related for 24 percent of all occupational fatalities, according
to the National Safety Council. The silver lining in the NHTSA study is that more than 94 percent of accidents are caused by human error and are thus preventable with proper training. For employers, the best preventative tools are careful driver recruitment and comprehensive driver and fleet safety education. The “gold standard” of driver training is the National Safety Council’s Certified Defensive Driver Courses, which are available in either a classroom setting or online. For employers that are unable to commit their workforce to the time and expense of an intensive certificate program, insurers and broker loss control and claims consultants can tailor short “tailgate talk” training sessions that focus on, amongst other things, the following topics: • Driver-selection tips;
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• Defensive-driving techniques; • Cell-phone usage; • Vehicle inspection and maintenance; • Accident response and investigation procedures; • Post-loss claim-mitigation strategies; • Driver-incentive and discipline programs; and • Mock DOT and OSHA audits. Employers’ negotiating positions on auto liability, umbrella/excess and workers’ compensation program renewals are strengthened when they can demonstrate to underwriters the tangible steps they have taken to become a better-than-average risk. The potential return on investment? Objectively, a well-designed safety program that has achieved meaningful reductions in auto and employee injury claims can yield the following financial benefits: • Increased competition for the account as underwriters vie for quality risks. • The ability to effectively counter upward premium pressures. • The confidence to increase deductibles or retentions, thus lowering premiums. Subjectively, employers will have a safer workplace and more contented workforce. The farm labor contractor from the first scenario did not have a driver’s license and ended up being sued by multiple parties. He filed for bankruptcy and ultimately went out of business. In addition, the U.S. Department of Labor sued the grower that hired him for violating worker safety and transportation laws. The alcohol-impaired driver from the second scenario was sentenced to a mandatory 16-year prison term for gross vehicular homicide. His employer’s auto and umbrella liability coverage ended up paying out a multi-million-dollar settlement. Joe Dunn is the claim services manager, Mendez is a senior loss control consultant, and Scott W. Dunn is vice president/risk advisor specializing in agribusiness, all of Pan American Insurance Services, a Relation company. Relation Insurance Services, formerly Ascension Insurance, is a privately held insurance brokerage based in Walnut Creek, Calif.
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Impact of New Tax Law on Agency Profitability nies that have been taking some, or all, of their operations overseas will likely consider investing more in America and especially in those states with more friendly tax environments. The stock market responded positively in the days after the new tax reform was announced as corporations will likely have more profit and a better outlook for the future. In general, economic growth seems favorable for the near future.
C Corporations
By Catherine Oak &
What does the new tax law mean to agency owners? That depends on the type of entity that the business operates under. For agencies that are a C corporation, all taxable income at the corporate level is now a flat 21 percent. This is compared to the previous range of 15 percent to 39 percent, based on various bracketed income levels. Many owners of C corporations will bonus out money before the end of the year, so there is often not much taxed at
the corporate level. In those cases, the new rate might not change things that much. However, for those selling the assets of the agency and have a C corporation, they are faced with a double tax. In that situation, the 21 percent flat rate most likely would be much lower than the previous rate they would have paid.
Pass-Through Entities
For sole proprietorships, LLCs, partnerships and S corporations that are pass-through entities (not all are), the new tax law creates a 20 percent deduction of income before taxes. If the agency has $500,000 in gross revenue and $400,000 in expenses, the net income is $100,000. The new tax law allows a 20 percent deduction from that income, so the owner/taxpayer can record $80,000 as business income instead of $100,000. The term one will need to learn and understand is Qualified Business Income (QBI), which defines how that net income is actually calculated. There are limitations to that deduction
and Bill Schoeffler
W
ith the passing of the Tax Cuts & Jobs Act of 2017 (TCJA), there is quite a lot of talk about how it will impact businesses, what businesses are doing with any additional monies, as well as what happens to employees.
What Large Corporations May Do
Because of the new tax reform, many companies, such as Marsh & McLennan, FedEx, Travelers, Walmart, BB&T, etc., are giving one-time bonuses of $1,000 or more, increasing hourly rates and/or paying additional contributions to pension and profit sharing or 401(k) plans. There are predictions that companies, such as Apple, will invest more capital expenditures to grow and hire more people. It is also predicted that some compa32 | INSURANCE JOURNAL | NATIONAL FEBRUARY 19, 2018
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for personal service businesses, where the limitation is $157,500 for single taxpayers and $315,000 for couples filing jointly. For employee-driven businesses, the 20 percent deduction is limited to 50 percent of payroll. Agency owners need to get sound tax advice on what their compensation should be in order to maximize the tax benefit.
Personal Income Taxes
The key features of the new tax plan on personal income taxes are: • A lower maximum tax rate; • A major increase in the standard deduction; and • Limits to deductions for state taxes and mortgage interest. These changes will cost those in high state tax areas with expensive homes and benefit those who do not normally have a lot of deductions. In general, the middle class will see a reduction in their taxes, especially because the standard deduction is now $12,000 for an individual taxpayer (up from $6,500) and $24,000 for a couple filing jointly (up from $13,000). Employees are now noticing
their paychecks have additional spending money because of their lower personal tax from these changes.
Tax on Mergers & Acquisitions
The new tax law has a lot of changes that can significantly impact the major players in the agency mergers and acquisitions (M&A) arena, such as the deductibility of interest, calculations and use of net operating losses (NOL). The dust needs to settle before a clear trend can be seen. However, it will either keep things more or less the same, or possibly increase the drive for more acquisitions.
What does the new tax law mean to agency owners? That depends on the type of entity that the business operates under. For those selling their agencies, the federal capital gains tax rates have not changed and remain between 0 percent and 20 percent based on the seller’s income, assuming the asset was held over one year. This is just another good reason for selling at this time, including the extraordinary multiples of EBITDA (earnings before interest, tax, depreciation and amortization) being paid by those national firms that have capital from private equity firms wanting to invest in the insurance industry. Oak & Associates and other consulting firms involved in mergers and acquisitions do not see this trend discontinuing for the next few years.
Estate Taxes
The lifetime exemption from estate and gift taxes will double for 2018 from $5.6 million for an individual and $11.2 million for a couple to $11.2 million for an individual and $22.4 million for a couple. After those limits, the estate tax rate remains at 40 percent. This will potentially benefit many of those who haven’t already adequately protected their estate and who can now take advantage of the higher limits on the lifetime exemptions. INSURANCEJOURNAL.COM
Summary
First, the tax law is certainly not a significant simplification of the law. It helps in some areas and complicates things in other areas. It is recommended that businesses get qualified advice because of the unique changes to business taxes under the new law. Overall, it is certainly favorable to businesses both small and large. The middle-class taxpayer will also see savings. Most experts agree that the new tax plan will benefit the U.S. economy for years to Share this article with a colcome.
league. IJMAG.COM/219RE Oak is the founder of the international consulting firm, Oak & Associates, based in Northern California. Schoeffler is an associate of the firm. The firm specializes in financial and management consulting for independent insurance agencies, including valuations, mergers and acquisitions, and perpetuation planning. Phone: 707-935-6565. E-mail: catoak@gmail.com.
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FEBRUARY 19, 2018 INSURANCE JOURNAL | NATIONAL | 33
Closing Quote Should Compensation Be Tailor-Made?
By David E. Coons
I
n today’s business reality, an organization’s biggest investment is its human capital. In fact, employees are the key to any successful company. Unfortunately, the insurance industry faces an increasingly challenging war for talent. From a mass exodus of tenured, skilled professionals to a shallow talent pool, the recruiting climate within insurance is heating up. In order to compete for top talent amid a tightened labor pool, differentiation will be key. With candidates able to choose between multiple job offers, an organization that provides unique and competitive compensation and benefits will stand out from the crowd. How can companies develop an in-demand compensation package to better compete for talent?
Total Compensation
In today’s labor market, compensation goes beyond just salary. While salary certainly is an important deciding factor
for candidates, there are additional aspects of a well-rounded benefits package that must be addressed. According to the U.S. Bureau of Labor Statistics, benefits can comprise up to 30 percent of one’s total salary and should not be overlooked. Organizations need to focus on the “hidden paycheck” aspect of a total compensation package. This includes retirement plans, vacation time, tuition reimbursement, wellness incentives and more. Companies may be surprised to learn that nearly 90 percent of today’s professionals prefer the addition of these perks and benefits in a compensation package to pay raises from their employers, according to a recent Glassdoor survey. In order to better compete with other industries, insurance organizations must beef up their current offerings. Appealing to the broader sense of the individual employee and providing benefits and perks to match may be a critical differentiator. Providing unique and comprehensive benefits is a simple, but effective way to truly stand out from the competition.
Personalized Accommodations In an increasingly fast-paced and always connected work environment, finding harmony between office and home life is becoming increasingly important. Employees are seeing the line between their work life and home life blur and are searching for a way to balance the
34 | INSURANCE JOURNAL | NATIONAL FEBRUARY 19, 2018
The flexibility to plan work around individual needs is increasingly invaluable to today’s professionals. two. Organizations providing accommodations that increase flexibility and work/life balance are much more likely to attract top talent. Flexible work programs are becoming increasingly important as employees look for work/life balance. For organizations unable to provide competitive salaries, incorporating flexible accommodations into their compensation package may be key to attracting and retaining employees. From flexible scheduling to telecommuting, these accommodations are shown to foster productivity and creativity. The key to a successful flexible accommodation program is to move beyond “one-sizefits-all” strategies and adjust benefits based on individual employee needs. Work/life balance means different things to different demographics. It is important for organizations to understand that not all employees will be looking for the same options. For some employees, flexible scheduling involves adjusting start and
end times to meet daycare and school needs. For others, it may be a compressed work week with four 10-hour days. Perhaps it includes telecommuting on a part-time—or even full-time—basis. Regardless of the format, the flexibility to plan work around individual needs is increasingly invaluable to today’s professionals. Companies may want to look into implementing an a la carte-style program that enables individual employees to select the benefits that work best for them and their flexible lifestyle needs. This is a candidate’s market. Faced with this reality, standing out from the crowd is key to competing for top talent. An all-encompassing compensation package that incorporates flexible work accommodations may be the differentiator. Coons is senior vice president of The Jacobson Group, a provider of talent to the insurance industry. Phone: 800466-1578. Email: dcoons@jacobsononline.com. INSURANCEJOURNAL.COM
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