Insurance Journal West 2018-09-17 by Insurance Journal

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Contents September 17, 2018 • Vol. 96 No. 18 • West

West

National

W1 California Cites Garment Contractors $570K, Some Lacked Workers’ Comp

8 How U.S. P/C Commercial Insurers Will Fare Through 2019: Moody’s

W2 New Workers’ Comp Program for California’s Cannabis Industry

10 ILS Market Could Bear 20% of Recent Hurricane Losses: A.M. Best

W2 Tesla Driver in California Blames Autopilot for Firetruck Crash, Arrested for DUI

10 AIG CEO Expects More Trading of Insurance-Linked Assets

W8 Report on California’s Independent Medical Review Shows Continued Progress

W10 REPORT SHOWS CALIFORNIA

WILDFIRES, CLIMATE CHANGE ALTERING INSURANCE LANDSCAPE

W10 Report Shows California Wildfires, Climate Change Altering Insurance Landscape

24 Agencies Focus on Growing Larger Accounts: Channel Harvest 30 Special Report: Lloyd’s Modernization Plans Move Full-Steam Ahead

52 What Is an NRRA Exempt Commercial Purchaser?

56 High Customer Expectations Leads to New Challenges for Insurers

14 Spotlight: San Francisco Eyes Screening Insurers for Fossil Fuels Investments 16 Vindati Platform Looks to ‘Delight’ Brokers Seeking Specialty Markets

Idea Exchange 54 Tech Talk: Best Ways for Agents to Get the ‘Message’ Out

12 Reinsurance Industry Will Continue Consolidation Trend: Fitch

36 Spotlight: Cannabis: Striking a Balance Between Federal and State Laws

36 CANNABIS: STRIKING A BALANCE BETWEEN

FEDERAL AND STATE LAWS

58 The Wedge: How to Write Great Headlines When Marketing

40 Special Report: Partner Re Celebrates Its First 25 Years 46 Special Report: More Super Regional P/C Carriers Ready to Dive Into Specialty Lines 48 Special Report: How New Business Is Creating a New Wholesaler-Retailer Relationship

64 Attracting Gen Z: The Post-Millennial Talent Wave

50 Special Report: Managing the Retail Agent’s Risk in Surplus Lines

66 Minding Your Business: How to Maximize Agency Productivity

Departments

70 Closing Quote: Congress Should Amend Definition of Private Flood

W4 People 11 Declarations 11 Figures

66 HOW TO MAXIMIZE AGENCY PRODUCTIVITY 4 | INSURANCE JOURNAL | WEST SEPTEMBER 17, 2018

20 Business Moves 26 MyNewMarkets INSURANCEJOURNAL.COM

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OPENING NOTE

Write the Editor: awells@insurancejournal.com

Harassment in the Workplace

While gender and seniority are key factors in workplace harassment, they’re not the only ones.

Publisher Mark Wells mwells@wellsmedia.com

EDITORIAL

SALES

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

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

East Editor Elizabeth Blosfield eblosfield@insurancejournal.com

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

Chief Content Officer Andrew Simpson asimpson@insurancejournal.com

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

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

South Central Sales Mindy Trammell (800) 897-9965 X149 mtrammell@insurancejournal.com Southeast and East Sales (except for NY, PA and CT) Howard Simkin (800) 897-9965 X162 hsimkin@insurancejournal.com Midwest Sales Lisa Whalen (800) 897-9965 X180 lwhalen@insurancejournal.com East Sales (NY, PA and CT only) Dave Molchan (800) 897-9965 X145 dmolchan@insurancejournal.com Advertising Coordinator Erin Burns (619) 584-1100 X120 eburns@insurancejournal.com

Insurance Markets Manager Kristine Honey (619) 584-1100 X132 Tony Cañas, Richard A. Brown, khoney@insurancejournal.com Jeffrey M. Klein, Robert Lajdziak, Joyce M. Rosenberg, Jacqueline Social Media Manager Schaendorf Ly Short (619) 890-7735 Lshort@insurancejournal.com IJ ACADEMY OF INSURANCE Director Classifieds, Jobs, Patrick Wraight Agencies Wanted/For Sale pwraight@ijacademy.com Sr. Sales & Marketing Coordinator Kelly De La Mora (800) 897-9965 X125 Associate Director kdelamora@insurancejournal.com Nathan Granitz ngranitz@ijacademy.com DESIGN/WEB Chief Technology Officer/ ADMINISTRATION Chief Innovation Officer Chief Financial Officer Joshua Carlson Mark Wooster jcarlson@insurancejournal.com mwooster@wellsmedia.com V.P. of Design MARKETING Guy Boccia Marketing Director gboccia@insurancejournal.com Derence Walk dwalk@insurancejournal.com Senior Web Developer Chris Thompson Marketing Administrator cthompson@insurancejournal.com Gayle Wells gwells@insurancejournal.com Ad Ops Specialist Jeff Cardrant NEW MEDIA jcardrant@insurancejournal.com New Media Producer Bobbie Dodge Web Developer bdodge@insurancejournal.com Terrance Woest twoest@wellsmedia.com Videographer/Editor Ashley Waldrop awaldrop@insurancejournal.com Contributing Writers

CIRCULATION

Circulation Manager Elizabeth Duffy eduffy@wellsmedia.com

ore than one-third (35 percent) of employees in the U.S. feel they’ve experienced workplace harassment, and half of them believe it was due to their gender. That’s according to a study released by specialty insurer Hiscox, which also found that 78 percent of those who were harassed said it was perpetrated by a male, and 73 percent said their harasser was in a senior position. The 2018 Hiscox Workplace Harassment Study surveyed 500 U.S. adults (250 men and 250 women) employed full-time. Among women, 41 percent reported that feel they’ve experienced workplace harassment. While gender and seniority are key factors in workplace harassment, they’re not the only ones. The data also showed that some harassment was committed by women against men, by members of the same sex and by non-company employees, such as customers or vendors. All of these scenarios represent incidents in which a company could be subject to liability and financial loss if it fails to appropriately protect their employees. Despite more than one in three employees saying they felt harassed, 40 percent of those respondents said they never reported the harassment to company management or the police. The top reason cited for the failure to report was the fear the allegations would create a hostile work environment (53 percent). Of those who were harassed and did report it, 37 percent did not believe the incident was handled properly by their employer, and for women who reported harassment, this figure climbed to 49 percent. It’s not just victims who don’t report harassment. Forty-five percent of all respondents said they have witnessed harassment in the workplace, 42 percent of whom did not report it. Companies of all sizes are subject to harassment claims. In fact, the percentage of respondents who indicated they had been harassed was the same (32 percent) at companies with fewer than 200 employees as it was at those with more than 1,000 employFOR QUESTIONS ees. REGARDING SUBSCRIPTIONS: Call: 855-814-9547 According to the U.S. Equal Opportunity Outside the U.S., call 847-400-5951 or you may subscribe or change your address online at: Employment Commission (EEOC), from 2010 insurancejournal.com/subscribe to 2017, employers paid out nearly $1 billion to Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Media settle harassment charges that have been filed 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 with the EEOC. In cases of sexual harassment per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this pubalone, employers paid $46.3 million to settle lication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended charges received by the EEOC in 2017, which 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 represented 30 percent of the total charges. Media Group, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. Even worse, those totals do not include Insurance Journal is a publication of Wells Media Group, Inc. POSTMASTER: Send change of address form to Insurance Journal, any payments Circulation Department, PO Box 708, Northbrook, IL 60065-9967 received by plainARTICLE REPRINTS: For reprints of articles in this issue, contact: Kelly De La Mora at 1-800-897-9965 ext. 125 or Editor-in-Chief tiffs as a result of kdelamora@wellsmedia.com Visit insurancejournal.com/reprints/ for more information. litigation.

Andrea Wells

6 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 17, 2018

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National

How U.S. P/C Commercial Insurers Will Fare Through 2019: Moody’s Investors Service

he outlook for the U.S. property/ casualty commercial insurance sector for the next 12 to 18 months remains stable given healthy core earnings and sound balance sheets in the view of analysts at Moody’s Investors Service. “Commercial insurers held up well despite the large catastrophes of 2017 and will generate good core earnings in 2018-19,” says Bruce Ballentine, vice president and senior credit officer at Moody’s. “Insurers will benefit from higher rates in property lines and stable-to-rising investment yields, tempered by slightly worse combined ratios in casualty lines.” Th analysts describe a positive picture. Commercial lines pricing is more favorable

than in recent years. Property rates are higher following the 2017 catastrophes, although the rating agency expects renewed downward pressure by 2019 absent further catastrophes. Casualty rates are trending slightly upward in aggregate, with high-single-digit increases in commercial auto and modest declines in workers’ compensation. As a backdrop for the sector outlook, Moody’s forecasts that U.S. real GDP growth will peak at 2.9 percent in 2018, declining to 2.3 percent in 2019 and hovering around 2 percent for the next couple of years. Nevertheless, Moody’s says the expanding U.S. and global economies will drive

8 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 17, 2018

growth in insured exposures and related commercial lines premiums. Moody’s expects insurers to curb their investment risk appetite as portfolio yields improve with rising market interest rates. Insurers’ loss reserves are deficient in commercial auto, moderately redundant in workers’ compensation and other lines, and adequate overall, with little cushion relative to Moody’s loss estimates. Moody’s also expects that insurers will continue to invest in data and analytics, robotic automation, mobile solutions and other technologies and that they will harness technology to better engage with customers, develop new products, operate more efficiently and manage risks. INSURANCEJOURNAL.COM

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NATIONAL | News & Markets

ILS Market Could Bear 20% of Hurricanes Harvey, Irma, Marie Loss: A.M. Best

he insurance-linked securities (ILS) market potentially could bear up 20 percent of the insured losses generated by Hurricanes Harvey, Irma and Marie, according to an A.M. Best report. These three hurricanes during a two-month period in 2017 now serve as a “major test” for how the ILS market will react following a series of catastrophic events, according to Best’s report, “Global Reinsurance: Optimism Fizzles, It’s Back to the ‘New Normal.’” In terms of insured losses, economic losses, and number of deaths, they represented the top three global catastrophe loss events in 2017. Losses from these events will be covered by primary insurers, traditional reinsurers and various sectors of the ILS market.

A.M. Best believes that based on current loss estimates, the ILS segment potentially could bear between $14 billion to $18 billion of the insured Harvey, Irma and Marie losses. Based on ILS market-estimated capacity of roughly $89 billion as of year-end 2017, this implies a reduction in capacity of between 15 percent and 20 percent. However, the report notes, the decrease in capacity already has been replenished as more ILS funds have increased their assets under management and continue to participate in all facets of the ILS market. “Losses associated with HIM [Harvey, Irma and Marie] will continue to develop and the ultimate loss likely will not be realized for two to three years,” said Asha Attoh-Okine, associate director. “Therefore the ILS market’s portion of that total

loss also will not be known for some time. The ILS market has provided an answer to how it will react after a catastrophic event. The reaction of the market has been to provide additional capacity, thus moderating prices, which generally rise after a force majeure event in the property/casualty insurance sector.” Best’s report says that this continued inflow of additional capacity has challenged the ability of traditional reinsurers to secure rate increases, which

has typically occurred in the past following significant hurricane events or seasons. A.M. Best said it anticipates that the bulk of the Harvey, Irma and Marie losses for the ILS market will be borne by the collateralized reinsurance market, which has been the fastest ILS growth sector of the past few years. This growth has been driven by the desire of ILS funds to provide tailored coverage to ceding companies that take on risks not covered by other ILS instruments, A.M. Best said.

AIG CEO Expects More Trading of Insurance-Linked Assets

merican International Group Inc. Chief Executive Brian Duperreault said he sees “huge potential” within the insurer’s portfolio for use of a market in which investors trade assets tied to insurance liabilities. The insurance linked securities (ILS) market, which developed over the past couple of decades as a way for insurers to pass on to investors some of their risks, mainly those associated with natural disasters, is a “good tool,” Duperreault said.

He was speaking at an insurance conference sponsored by investment bank KBW, a unit of Stifel Financial Corp. “I think you’re going to see more of it, not less of it” within AIG, Duperreault said. Insurance companies that participate in the market typically issue catastrophe bonds, or CAT bonds. If no catastrophe hits, the bonds pay out a percentage of the premiums by

10 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 17, 2018

way of coupons. But if a disaster does occur, the insurance company can use the funds to pay claims to its policy holders. AIG’s acquisition of Bermuda-based Validus Holdings Ltd., which was

finalized in July, included Validus’ AlphaCat unit, an investment adviser that manages capital for investors and AIG through insurance-linked securities and other investments. The insurance-linked securities market gives insurers another way for their underwriters to match risks they take on with sources of capital to cover potential claims, Duperreault said.

West

California Cites Garment Contractors $570K, Some Lacked Workers’ Comp

he California Labor Commissioner’s Office has cited six Los Angeles area garment contractors $573,704 for labor law violations after uncovering a scheme where the contractors illegally operated under one license to avoid compliance. Four of the contractors did not have valid workers’ compensation coverage for their employees. “Shared use of a garment manufacturing registration is illegal, and it gave these contractors an unjust economic advantage over law-abiding garment businesses,” Labor Commissioner Julie A. Su said in a statement. The Labor Commissioner’s office discovered that most of the 57 employees at the contractors’ building downtown on South Broadway worked up to 65 hours a week for less than minimum wage. Two INSURANCEJOURNAL.COM

workers, ages 15 and 16, were operating industrial sewing machines in violation of California’s child labor laws. Investigators visited the worksite, operating under the name Pure Cotton Inc. Owner Kyung Ho Choi told investigators he collected rent but was not involved in the making of garments. His brother-in-law, Kuong Chan Kim, claimed that all of the workers were employed by his company, Union Supply Inc., which was registered as a garment manufacturer. Further investigation revealed four other garment manufacturing contractors were operating in the building without garment licenses or workers’ comp. Kim charged each contractor a fee for the use of his license and insurance coverage, which allegedly concealed the actual number of workers.

The Labor Commissioner’s office issued stop work orders to the four contractors operating under the Union Supply Inc. license, their inventory was confiscated and they were cited for violating wage statement and garment registration provisions, and failure to cover employees with workers’ comp. • Cindy Soon Yun, 20 employees, was cited $118,600. She was also cited for violating child labor laws • Sun Park, 10 employees, $158,855 • Pil Chang, eight employees, $37,450 • Francisco Tecum Son, four employees, $18,000 • Union Supply Inc., 15 employees, $240,300 • Pure Cotton, Inc., no employees, $500 The Labor Commissioner’s office is pursuing wage theft investigations of the contractors.

SEPTEMBER 17, 2018 INSURANCE JOURNAL | WEST | W1

WEST | News & Markets

New Workers’ Comp Program for California’s Cannabis Industry

alifornia Insurance Commissioner Dave Jones in early September announced a new workers’ compensation insurance program for California’s cannabis industry. The program was created by Atlas General Insurance Services to serve businesses and workers in the cannabis industry. This program is designed to accommodate workers’ comp risks involved in all aspects of the cannabis industry — including growers, extractors, analytical labs, medicine manufacturers, food and beverage products manufacturing, packaging, warehousing and distribution, transportation and dispensaries. Atlas provides all of the distribution and underwriting

as well as the carrier backroom functions on behalf of Accredited Surety & Casualty. The program will be rolled out to over 1,700 Atlas appointed agents in California and another 4,000 agents in the other states with legal cannabis operations. “Atlas has been studying the cannabis industry well before it became legalized in California,” Bill Trzos, CEO of Atlas, said in a statement. “Through our research we recognized the opportunity to be proactive in entering the cannabis market and are excited to be one of a few work comp platforms in the state.” Jones launched an initiative last year to encourage admitted commercial insurance companies to write insurance to fill coverage gaps for the cannabis industry.

California’s first filing and approval of an admitted commercial insurer offering insurance for the cannabis industry was announced in November 2017, the first surety bond program for the industry was announced in February 2018, the first coverage for commercial landlords for the industry was announced in May 2018, and earlier this month three more insurance

carriers were approved to offer surety bond coverage for the cannabis industry in California. “This new program from Atlas is a crucial step in the right direction for this evolving industry,” Jones said in a statement. “I encourage more insurance companies to offer cannabis business insurance products with the department to meet the needs of this emerging market.”

New Mexico Couple Wins $74M for Baby’s Brain Damage in Delivery

Tesla Driver in California Blames Autopilot for Firetruck Crash, Arrested for DUI

jury has awarded a New Mexico couple $74 million in a medical malpractice lawsuit involving a son left with brain damage. The jury in late August ruled that a women’s health clinic in Hobbs, New Mexico, didn’t properly follow Lorenza Botello’s pregnancy and a doctor injured her baby during delivery.

uthorities say a Tesla driver, who said he thought his car was in Autopilot mode, crashed into the back of a firetruck in San Jose. The California Highway Patrol says the Tesla rear-ended a fire engine that was stopped with its emergency lights activated along US-101 around 1 a.m. in late August. The 37-year-old driver, Michael Tran, told officers, “I think I had auto-pilot on.” Tran was later arrested on suspicion of drunken driving. It wasn’t immediately clear if he

According to the lawsuit, medical professionals from the Franklin, Tennessee-based Community Health Systems failed to monitor the baby’s growth, who weighed 111/2 pounds at birth. Botello’s attorney, Kent Buckingham says a doctor forced a vaginal birth despite the mother’s plea for a cesarean section in 2012. Buckingham says, the baby, Jonathon, suffered nerve and brain damage. An attorney for Community Health Systems declined to comment. Copyright 2018 Associated Press. All rights reserved.

W2 | INSURANCE JOURNAL | WEST SEPTEMBER 17, 2018

had an attorney. The two firefighters in the firetruck were not injured. Tran and a female passenger in the Tesla were taken to San Jose Regional Medical Center with minor injuries. Tesla’s semi-autonomous Autopilot mode has come under scrutiny following other recent crashes. The carmaker says the function is not designed to avoid a collision and warns drivers not to rely on it entirely. Copyright 2018 Associated Press. All rights reserved. INSURANCEJOURNAL.COM

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Paula Downey

Tate McCoy

Jen Scales

Paul Wilson

Connie Hill

Paula Downey, president and CEO of CSAA Insurance Group in California since 2010, will retire

development and application of all strategic IT initiatives. Wilson joins Farmers from Westfield Insurance, where he was group IT leader and chief information officer. Prior to Westfield, Wilson was with Progressive Casualty Insurance for nearly 28 years. Farmers Insurance and Farmers are tradenames for a group of affiliated insurers providing insurance for automobiles, homes and small businesses.

Lockton has named Tate McCoy CEO of its Mountain West operations. McCoy will lead more than 400 Lockton associates who serve clients from offices in Denver, Phoenix, Las Vegas and Seattle. McCoy succeeds Chuck McDaniel who served as CEO for Lockton’s Mountain West business for more than 20 years. McDaniel will continue in his business development and client advisory role as an executive vice president. McCoy was previously an executive vice president with Lockton. Lockton also named Connie Hill to its signature client group in its Mountain West area. Hill is located in Lockton’s Las Vegas, Nev., office and will provide leadership on providing advice and counsel to successful individuals and families. Hill has more than 20 years of high net worth insurance experience. She was most recently managing director and West zone leader for Marsh’s private client services division. Kansas City, Mo.-based Lockton is a global professional services firm. San Francisco, Calif.-based Woodruff Sawyer has named Jen Scales vice president and account executive in its employee benefits practice. Scales has more than 15 years of experience in the insurance industry, having spent time in business development and risk consulting roles at both ABD and Sequoia Consulting Group before her return to Woodruff Sawyer. She was a senior account executive in the firm’s management liability practice during her previous stint with Woodruff Sawyer. Woodruff Sawyer is an active partner of Assurex Global and International Benefits Network.

NFP has named Michael Ongkiko vice president for HR services. Ongkiko will be responsible for overseeing HR services in the West region and driving integrated selling by delivering HR consulting for both current and prospective clients. Ongkiko has more than 20 years of human resource experience in the public and private sector. Prior to NFP, he was director of human resources for Salt Lake County. NFP provides employee benefits, property/casualty, retirement and individual private client solutions.

following a search for her successor. Downey recently led the AAA insurer through a six-year infrastructure transformation. She was in the insurance business for 45 years. CSAA Insurance Group, a AAA insurer, offers automobile, homeowners and other personal lines of insurance.

Woodland Hills, Calif.-based Farmers Insurance has named Paul Wilson the new chief information officer. Wilson will serve as a member of the insurer group’s senior leadership team and oversee the W4 | INSURANCE JOURNAL | WEST SEPTEMBER 17, 2018

Reno, Nev.-based LP Insurance Services Inc. has added Barbara Galgiani. Galgiani, who has been in marine insurance for more than 20 years, will continue to focus on both recreational and commercial marine risk and coverage. Galgiani moust recently led a subsidiary of Capax Management and Insurance Services Inc. LP Insurance is a risk management and commercial insurance brokerage firm. AP Intego Insurance Group has named Pamela Victor director of West Coast operations. The company announced its plan to open a West Coast sales, service and business development office in the San Francisco Bay Area with Victor leading the new office. Victor has 25 years of insurance brokerage operations, management and new business development experience. Most recently she was vice president at E-COMP. She was previously a corporate officer at Lincoln Funding Group, senior account executive at Granite Insurance Brokers and assistant vice president at Silicon Valley Bank. AP Intego is a full service insurance agency providing all lines of property/casualty insurance to small businesses in all 50 states.

continued on page W6 INSURANCEJOURNAL.COM

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WEST | PEOPLE continued from page W4 CyberCube has added Matthias Weber to its board

of directors. Weber was previously group chief underwriting officer and member of the group executive committee at Swiss Re. San Francisco, Calif.-based CyberCube is a provider of cyber risk analytics for the insurance industry.

Barbara Galgiani

Mountain View, Calif.-based At-Bay announced that Brett Sadoff will join the company as head of insurance. Sadoff will be responsible for design and deployment of At-Bay’s insurance program, field operations, and underwriting. Sadoff comes from Hiscox, USA, where he was head of field and a HISCOX partner. Sadoff was previously senior vice president and Western zone manager at AIG. At-Bay is a cyber insurance managing general underwriter backed by HSB Specialty Insurance to provide cyber insurance policies of up to $10 million in coverage.

Pat Piccinonno, Sr Underwriter

Patrick Flores, Asst. VP/ Broker

Washington Insurance Commissioner Mike Kreidler has named AnnaLisa Gellermann chief

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Rick Wong, based in San Francisco, Calif., has been named regional executive for Hiscox’ Northwest area. Wong is one of Hiscox three recent appointments to the Hiscox U.S. field and underwriting management teams, which are dedicated to providing commercial insurance solutions to a wide range of industries and professionals. Wong, who joined Hiscox in 2008, has held a number of leadership roles, including recently serving as head of U.S. broker relations. Meghan Hannes was named cyber product head and is based in Chicago. Tyler Peterson was appointed to miscellaneous professional liability product head and is based in New York. Hiscox is a global specialist insurer headquartered in Bermuda and listed on the London Stock Exchange.

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deputy commissioner. Gellerman is currently the deputy commissioner for the policy and legislative affairs division. She joined the insurance commissioner’s ofice in 2013 as the deputy commissioner for legal affairs. She previously served as an executive manager of insurance services at the Washington state Department of Labor and Industries beginning in 2007. Gellermann began state service in 1999 as an assistant attorney general in the Washingotn Attorney General’s office.

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WEST | News & Markets

Report on California’s Independent Medical Review Shows Continued Progress

n annual progress report from the California Department of Workers’ Compensation’s Independent Medical Review program shows it’s working as intended. IMR is a medical dispute resolution process that uses medical expertise to obtain consistent, evidence-based decisions and is a component of Senate Bill 863, the 2012 workers’ comp reform law. David Lanier, secretary of the California Labor and Workforce Development Agency, said in early September that $1.3 billion in annual savings have been realized since the reforms went into effect and he credited the IMR process in part for those savings. Highlights of the report include:

• The monthly average length of time to issue an IMR determination after the receipt of all medical records ranged from 10 days to 14 days compared with a high of 24 days in 2016. • An average of 14,350 IMR decisions were issued each month in 2017. • The number of eligible applications increased for the fifth consecutive year. Case decisions continue to be similar when comparing several demographic categories, including the injured workers’ date of injury, their representation status, and the geographic region of their residence. Similar to prior years, over 40 percent

of treatment requests sent for IMR are for pharmaceuticals, with three of every 10 pharmaceutical requests for opioids. Guidelines contained in the Medical Treatment Utilization Schedule continue to be the primary resource for the determination of medical necessity.

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WEST | News & Markets

Report Shows California Wildfires, Climate Change Altering Insurance Landscape By Don Jergler

nsurers may be non-renewing more in wildfire-prone areas of California, sending an increasing number of people to the residual market or to surplus lines insurers. A report released earlier this month shows that market shares of the FAIR Plan, the state’s residual insurance market, and the surplus lines market, are on the rise, as people look for coverage, and look for more affordable coverage. A new report from the Rand Corp. is part of California’s Fourth Climate Change Assessment, an amalgam of thirty-something state-sponsored reports. The report from the Santa Monica, Calif.-based think tank looks at two study areas: the foothills of the Sierra Nevada mountains in Northern California and western San Bernardino County in Southern California.

Focusing on two areas as opposed to the entire state allowed authors of the report to conduct a more detailed analysis. The Sierra Foothills study area covers 1.9 million acres of land between Sacramento and Lake Tahoe and spans parts of three counties — Nevada, Placer and El Dorado. The San Bernardino study area covers 0.86 million acres of land in the western, more populated portion of San Bernardino County. The report shows the insurer-initiated policy nonrenewal rate is on the rise in the wildfire-prone ZIP codes in these areas in the state. The insurer-initiated non-renewal rate was 1.3 percent in the low risk portions of the Sierra Foothills area compared with 2.9 percent in high risk areas. The rates went from 1.6 percent to 1.7 percent in the San Bernardino area. Adding in other factors and the overall increase from low to high risk areas was just under

W10 | INSURANCE JOURNAL | WEST SEPTEMBER 17, 2018

a cumulative 1 percent. While that’s not that big of a difference, it does indicate a trend, according Lloyd Dixon, one of the authors of the study. “It’s statistically significant in that the data we have says there is a difference,” he said. “I wouldn’t call that a point of concern. So far things seem to be working OK, although there are signs, there are things you should pay attention to that could signal trouble in the future.” There is one big signal to take note of, especially for homeowners and agents working to find insurance for homeowners. “Admitted insurers are less interested in those high risk areas,” Dixon said. The report also shows that homeowners in high risk areas are purchasing less coverage relative to structure value and selecting higher deductibles than homeowners in low risk ZIP codes. “It drops by 10 percentage

points in the high risk areas,” Dixon said. That may be because premiums in the higher risk areas are higher and have been growing more rapidly in recent years than those in lower risk areas, the report shows. Premiums were on average roughly $1 higher per $1,000 in the high risk zones. The rate per $1,000 of coverage in the admitted market was $2.60 in the lower risk areas for both the Sierra Foothills area and $2.94 in the San Bernardino area. The report shows that in the ZIP codes that currently face the highest fire risk, the market share of the admitted insurers is expected to drop by 5 percentage points on average by 2055, and the rate per $1,000 of coverage in the admitted market is projected to rise by 18 percent. The coverage-to-value ratio is expected to fall by 6.5 percentage points and the deductible to increase by $121. The report ties the trends to climate change. The report notes that worsening drought, higher temperatures and lower humidity have made for more severe wildfire seasons throughout the state. The report offers as an example 2017, a particularly bad year for wildfires. “Over 1.4 million acres burned in the state, and 10,800 residential and commercial structures were destroyed — the largest number of structures destroyed since recordkeeping started in 1989,” the report states. “Climate change and population growth are expected to make matters worse, unless current behaviors and practices change.” INSURANCEJOURNAL.COM

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Figures

Declarations

137

Solar Game-changer

“Swiss Re is guaranteeing the volume That’s game-changing.”

— Richard Matsui, KWh’s CEO, has high hopes for an insurance-like policy that will guarantee the production from solar projects that GCL New Energy Holdings Ltd. is building in Oregon. KWh Analytics, a San Francisco-based risk-management software company, structured the coverage for the 50-megawatt solar portfolio, and Swiss Re AG is backing the insurance.

The number of workers who died on the job in Indiana in 2016. Federal statistics show the state hit an all-time low in 2016 of 3.5 injuries for every 100 fulltime workers. That’s an 8 percent drop from the previous year — and a nearly 70 percent drop from decades past.

$2 MILLION

Now’s the Time

“The time to prepare for hurricanes and other disasters is now.”

— Virginia Insurance Commissioner Scott A. White is reminding Virginians to act now to protect their property from loss during this Atlantic hurricane season, which began on June 1 and runs through Nov. 30.

A Most Significant Event

“It was one of the most significant events that we’ve experienced in my history here ….”

— Manhattan, Kan., city manager Ron Fehr described flooding that inundated the town during Labor Day weekend, causing more than 300 people to be evacuated. Nearly 9 inches of rain fell from Sunday night into Monday.

Katrina Homes Lawsuit

“Essentially, Make It Right, was making a lot of promises to come back and fix the homes that they initially sold these people and have failed to do so.” — Attorney Ron Austin said he plans to sue actor Brad Pitt’s

The number of people killed in boating accidents in North Carolina so far in 2018, making it the deadliest year for boaters in 20 years, according to the state’s wildlife commission. Victims weren’t wearing life jackets in 23 of the deaths, and alcohol was a factor in six.

$30 MILLION The amount in cyber insurance coverage approved for purchase by the Houston City Council, the Surplus Lines Stamping Office of Texas (SLTX) reported. The city would pay $471,000 in premium for first-party coverage for the city’s operations, third-party coverage for the city’s liability to others, and coverage for data breach response. The policy would consist of a primary layer plus two excess layers, SLTX said. INSURANCEJOURNAL.COM

How much officials in Honolulu, Hawaii, have agreed to pay in a settlement with a woman who was hit by a car while crossing a street in 2014. The city approved the payment to Mariah Tinay, who claimed that poorly maintained street conditions in Pearl City were major contributing factors in the crash.

$50,000+

The amount relatives of a Waterbury, Conn., man who died in a car crash that also killed the wife of longtime ESPN broadcaster Chris Berman are seeking in damages in a lawsuit they filed against a Connecticut restaurant. The Hartford Courant reported that the family of 87-yearold Edward Bertulis alleges that Market Place Kitchen & Bar served alcohol to Katherine Berman while she was intoxicated on May 9, 2017. Her vehicle struck the rear of an SUV driven by Bertulis. A lawyer for the restaurant declined to comment on the lawsuit.

Make It Right foundation over the degradation of homes it built in New Orleans’ Lower Ninth Ward following Hurricane Katrina. Residents have reported sicknesses, headaches and infrastructural issues associated with their Make It Right homes. Sagging porches, mildewing wood and leaky roofs are among the problems reported.

Arena Name Change

“This decision symbolizes our pledge to making a difference in communities, building our brand locally and nationally, and ultimately growing State Farm.”

— State Farm Chairman and CEO Michael Tipsord on the carrier’s decision to acquire the naming rights to the stadium of the Atlanta Hawks hockey team. The Associated Press reported State Farm allegedly paid about $200 million for the name change.

InsuranceJournal.com

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35.43% 24.41% 22.05% 11.02% 7.09%

Total Votes: 127

SEPTEMBER 17, 2018 INSURANCE JOURNAL | NATIONAL | 11

NATIONAL | News & Markets

Reinsurance Industry Will Continue Consolidation: Fitch

s global reinsurance executives gathered in Monte Carlo for their annual Reinsurance Rendezvous, Fitch Ratings said it expects consolidation of the industry will continue. The firm said intense market competition and capital levels will continue to drive merger and acquisition (M&A) activity in the reinsurance sector while smaller players lacking scale and diversification will see further pressure on growth and profitability. Marginalized companies are increasingly incentivized to explore M&A, as they face the challenges of operating in a difficult market environment, according to Fitch. These factors, coupled with the impact of the U.S. tax reforms and the record 2017 catastrophe losses, should support M&A activity for the sector into 2019, the firm’s analysts said. According to Fitch, the potential benefits of consolidation for reinsurers include

revenue diversification, economies of scale, improved return on capital and an enhanced competitive position. However, acquirers in a competitive bid situation run the increased risk of dilutive rather than accretive acquisitions, particularly when assessing the reserve adequacy of a target company and the potential complications in execution and efficient integration. Reinsurers are focusing on cost efficiencies and expanding penetration in developing markets. Recent reinsurance acquisition multiples ranged from 1.1x – 1.6x book value, with revenue multiples ranging from 0.7x – 1.9x. Acquisitions providing alternative capital platforms to diversify revenue streams have grown tremendously in recent years. Aon Securities estimates that alternative capital deployment has increased by 10 percent from end-2017 to $98 billion at end of the first half of this year, nearly double the $50 billion

12 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 17, 2018

at end-2013. Fitch analysts said Markel’s acquisition of Nephila allows it to further expand into the more fee-based insurance-linked securities (ILS) sector, solidifying it as the leading manager of ILS funds. It follows Markel’s December 2015 purchase of CatCo, a retrocession and reinsurance investment specialist, demonstrating the further convergence of traditional reinsurance and alternative capital market reinsurance. Larger deals, while more difficult to justify on a cost-saving basis, highlight the trend of gaining scale and diversification to stay relevant in a competitive marketplace, Fitch said. AXA’s acquisition of XL Group for $15.2 billion (1.5x book value) is expected to close by year-end. XL will become part of a strong, larger multiline organization in combining with AXA, the largest insurer in Europe by gross premiums written. This acquisition follows AIG’s July 2018 purchase of Bermuda-based Validus for

$5.4 billion (1.6x book value), providing AIG with a profitable reinsurance and Lloyd’s market platform. Furthermore, both deals provide access to established alternative capital platforms that neither company has currently, Fitch noted. Fitch said the acquisition of smaller, capital-constrained businesses is reflected in lower acquisition multiples. Apollo Funds’ $2.6 billion acquisition of Aspen Insurance (1.1x book value) reflects the distressed nature of its reinsurance business, and its outsized catastrophe losses in 2017. Maiden Re was also being marginalized, which forced its break-up and sale to run-off specialist Enstar Group Limited for $308 million, with the renewal rights on this reinsurance business being sold to Transatlantic Re. Fitch said this effectively puts Maiden Re out of business, as it will only serve as a captive reinsurer for AmTrust, which has been dealing with financial difficulties of its own. INSURANCEJOURNAL.COM

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NATIONAL | Spotlight | Energy

San Francisco May Screen Insurers for Their Fossil Fuels Investments By Don Jergler

he San Francisco Board of Supervisors has become what is believed to be the first U.S. municipal body to try to force insurance companies to stop insuring and investing in fossil fuels. In July, the board voted unanimously in favor of a resolution to urge the city to screen insurers for their investments in coal and tar sands — and other U.S. cities could join San Francisco if backers of the resolution have their way. The resolution, titled “Urging Divestment by Insurance Companies From Coal and Tar Sands Industries,” was introduced by Supervisor Aaron Peskin. The resolution comes as the city prepares to host climate leaders from around the world at the Global Climate Action Summit in September. It’s unclear which, if any, carri-

ers doing business with the city will be affected by the board’s vote.

Similar Declarations

The Paris City Council this year passed a similar declaration, and other cities have made efforts to stem climate change. In New York there’s the proposed Climate and Community Protection Act, which would commit the city to being powered by 100 percent renewable energy by 2050. The act, which has passed through the state Assembly, would mandate that at least 40 percent of state energy funds are invested into vulnerable communities, as well as create labor protections for workers in the renewable energy industry. Passage of the San Francisco resolution has garnered relatively scant news coverage, instead being eclipsed by the board’s vote to block stores,

14 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 17, 2018

restaurants and bars in the city from selling plastic straws. The Sunrise Project, a supporter of the insurer screening resolution, plans to take similar proposals to other city councils around the nation. “We’re really going be looking, particularly at cities in California, but we’ll be looking nationally,” said Ross Hammond, senior advisor with the Sunrise Project. “We definitely have a plan to roll this out all over the United States over the next few months.” Telling insurers how to invest doesn’t make a lot of sense, said Mark Sektnan, vice president of the Property Casualty Insurers Association of America. “This is another example of a political agenda that disregards the fundamentals of risk management,” Sektnan said. “Policymakers should focus on insurers’ solvency and consumer protection. Insurers review investments regularly and constantly analyze the risk and quality of their portfolios to manage solvency. This analysis includes all risks, including those that may be related to climate change.”

Pressure On

Pressure to get insurers to stop doing business with fossil fuel concerns has mounted n the past few years from advocacy groups, as well as regulators. California Insurance Commissioner Dave Jones has often voiced his wish that insurers divest from coal, including establishing the Climate Risk Carbon Initiative. The initiative includes information on the amount of oil, gas, coal and utilities investments held by insurance companies,

whether the insurers have divested from thermal coal, the amount of thermal coal divested and any future commitments to divest. A number large insurers, mostly in Europe, have already begun to take actions to divest. The Sunrise Project says 17 large insurers have divested roughly $30 billion from coal companies since 2015. Five large international insurers — Allianz, AXA, SCOR, Swiss Re and Zurich — have stopped or limited underwriting coal projects. AXA and Swiss Re have stopped or limited underwriting tar sands projects. Swiss Re announced this summer it no longer is providing reinsurance to businesses with more than 30 percent exposure to thermal coal. The policy applies to existing and new thermal coal mines and power plants, and is implemented across all lines of business and Swiss Re’s global scope of operations. Allianz says it’s integrating ecological and social responsibility into its business, and has been making investments of more than 5.6 billion Euros ($691 billion) in renewable energy, with a portfolio that includes 81 wind farms and seven solar farms. Supporters of getting the insurance industry out of fossil fuels say insurers make “dirty energy” infrastructure projects possible by insuring and investing in these projects. “It makes no sense for them to be investing in and underwriting the very industries which are causing accelerated climate change, which is increasing in the insurance claims that have to be paid out,” Hammond said. INSURANCEJOURNAL.COM

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NATIONAL | News & Markets

Vindati Platform Looks to ‘Delight’ Brokers Seeking Specialty Markets for Small-Medium Businesses By Andrew Simpson

here will soon be a new specialty insurance site that promises to quicken and simplify transactions for U.S. insurance brokers who are serving small and medium sized businesses. Vindati, a New York-based managing general agency (MGA), will be offering brokers across the country a way to access specialty products and market analytics through either traditional or digital channels. “Vindati is focused on delighting the broker as the customer like never before,” said Hugh Burgess, CEO of Vindati, and a former executive with Allianz. The platform is backed by Innovisk Capital Partners in which Willis Towers Watson is a majority investor.

The vindati.com website is not yet running but is expected to be soon. Vindati’s first products will be contractors equipment, builder’s risk and farm/ranchowners packages. It is planning to later add commercial auto, motor truck cargo and warehouse legal. The founders say the platform will be “open to any broker in the U.S. – traditional or digital – that is looking for a better way to transact business.” Brokers can bypass old technology and data to quote an entire portfolio of insurance clients instantaneously. “This is a really important shift,” Burgess told Insurance Journal. “Servicing large businesses is increasingly complex, which requires a personal touch, but for small business, the trend is simple, tech-driven

16 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 17, 2018

automation – which is exactly what we set out to create.” Brokers may choose how to connect and place business with Vindati — either through emailed ACORD forms, digital broker channels such as Ask Kodiak, or directly on the Vindati shopping platform. Whichever way a broker connects, Vindati promises instant customizable and bindable quotes as well as proposals and policies on demand. Burgess says that Vindati is bringing together the “best combination of insurance and technology expertise,” along with distribution channel and data and analytical experts, to “uncomplicate processes and deliver outstanding user experiences.” The backer, London-based Innovisk, was launched in June as a limited liability partnership with a plan to seed a number of start-up underwriters in personal and specialty commercial lines business. David Thomas is CEO of Innovisk. He is a former executive with Willis and was CEO of London-based Acapalla, a venture with Pembroke. Innovisk already has sev-

eral underwriting partners including New York-based program manager Freberg Environmental and Floridabased Vertus in the U.S. and PFLA and Aqueous in the UK. “Technology and data are fundamentally reshaping the value chain in insurance and bringing risk closer to capital,” said Thomas. “Historically the industry has often been costly, and inflexible data flows tend to be poor. New solutions and new thinking are required.” Willis Towers Watson is a majority investor in Innovisk. Carl Hess, head of Investment, Risk and Reinsurance, Willis Towers Watson, said his firm sees “tremendous change in the industry value chain driven by technology and data” and views Innovisk as an opportunity to take on a role in that shift as an “arms-length investor.” The Vindati company name is derived from the Italian words Vincente (winning) and Dati (data). As defined in Hindi, Vindati also means “to find.” Finding winning data: that’s what Vindati says it does for its broker customers. INSURANCEJOURNAL.COM

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NATIONAL | Business Moves

Hub International, Kilbride & Harris Insurance Services

Hub International Ltd., a global insurance brokerage, has acquired the assets of Kilbride & Harris Insurance Services LLC. Terms of the acquisition were not disclosed. Located in South Portland, Maine, Kilbride & Harris provides multiline insurance solutions, including medical malpractice, commercial lines and employee benefits products for its clients. Now part of Hub New England and further strengthening Hub’s Healthcare practice, the Kilbride & Harris leadership team including Joe Kilbride, Chip Harris, Kim Johnson and Aaron McMorrow will remain intact and continue to work with their clients while providing access to the regional and national resources of Hub. Headquartered in Chicago, Hub is a full-service global insurance broker providing property and casualty, life and health, employee benefits, investment and risk management products and services.

Affinion Insurance Solutions, Mill Point Capital

Affinion Group LLC, a subsidiary of Affinion Group Holdings Inc., has closed its sale of its insurance division, Affinion Insurance Solutions, to an affiliate of Mill Point Capital. As a result of the sale, Affinion Group will operate as a company that uses technology and data-driven analytics to design, administer and fulfill loyalty and engagement programs that strengthen and enhance relationships for its clients around the globe. Mill Point Capital is a New York-based middle-market private equity firm focused on control-oriented investments in the business services and industrial sectors. Affinion Group is a Stamford, Conn.-based loyalty and customer engagement company.

Seeman Holtz Property & Casualty, Merchants Preferred Insurance Services

Seeman Holtz Property & Casualty Inc. has continued its expansion into Pennsylvania

20 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 17, 2018

with its acquisition of Merchants Preferred Insurance Services, headquartered in Erie, Pa. This acquisition will strengthen Seeman Holtz Property & Casualty’s foothold in the Northeast, according to the company. Merchants Preferred Insurance Services has been serving the Pennsylvania, Ohio and West Virginia areas for more than 25 years. Family owned and operated, Merchants offers commercial, personal and auto insurance products and services. The Seeman Holtz family of companies provides comprehensive financial and insurance advice to clients across the country. Seeman Holtz Property & Casualty Inc. targets independent agencies for geographic expansion and further growth throughout the U.S.

North Risk Partners, Benefit Solutions

Benefit Solutions Inc. located in Hiawatha, Iowa, has been acquired by Minnesota-based independent insurance agency, North Risk Partners. Greg Dunn, BSI co-founder, will head the Hiawatha office, and BSI advisors and staff will remain unchanged. BSI will continue to represent its same insurance providers and products, including Wellmark BlueCross BlueShield, Principal, United Health Care, Delta Dental, VSP, and others, in addition to gaining access to additional providers as a result of the acquisition. The acquisition also gives BSI business clients access to North Risk’s support services in the areas of human resources,

safety, workplace wellness and more. BSI has joined North Risk as its 24th location across three states, including Minnesota, Iowa and Nebraska. The firm will be co-branded with the North Risk Partners name and logo. Eventually, BSI will adopt the North Risk Partners brand exclusively.

Higginbotham, Colt Risk Management

Fort Worth, Texas-based Higginbotham has acquired Colt Risk Management Services. CRMS is an independent commercial insurance broker specializing in aviation risk. The CRMS team has moved to Higginbotham’s Friendswood office, giving that location a combined staff of nearly 40 insurance and employee benefits professionals serving businesses and individuals. The firm will operate under the Higginbotham name with Higginbotham’s Ryan Moss as managing partner and CRMS President John Springrose as vice president. Colt Risk Management Services is an independent commercial property/casualty insurance broker serving the aviation industry. It opened in 2010 with representatives in Houston and Atlanta. CRMS serves more than 400 aviation companies globally. Higginbotham operates 29 offices in Texas and Oklahoma City.

Alera, BIAFS

Alera Group, a national employee benefits, property and casualty, risk management

continued on page 23

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Business Moves | NATIONAL continued from page 20 and wealth management firm, has acquired Barnes Insurance & Financial Services of Florida. BIAFS is a benefits agency with two locations in northwest Florida. Founded in 2005, this independent agency is one of the largest insurance agencies in the panhandle. BIAFS brings to Alera Group more than 100 years of experience. Its principal lines of business include health, dental, life disability, supplemental policies and financial services. Alera Group was formed in early 2017 and is a nationwide independent insurance agency and privately held employee benefits firm headquartered in Deerfield, Ill. Alera Group offers employee benefits, property and casualty, risk management and wealth management.

DARAG, SOBC, Peachtree Casualty

International insurance and reinsurance company DARAG, and U.S.-based acquisition specialist SOBC have formed a joint venture with SOBC DARAG in Delaware to support DARAG’s expansion into the United States and Bermuda/ Caribbean run-off markets. According to the companies, the joint venture combines the experience and strong capital access of DARAG with the local expertise and reputation of SOBC. SOBC DARAG’s first acquisition will be Peachtree Casualty Insurance Co., a Florida domiciled nonstandard auto insurer in run-off. The acquisition of Peachtree is subject to regulatory approval and is expected to close in the third quarter of 2018. The joint venture and acquiINSURANCEJOURNAL.COM

sition follow the appointment of Tom Booth as CEO and the completion of a $300 million capital raise by DARAG. Peachtree will eventually be owned by the newly formed DARAG Guernsey, owned by DARAG Group Investors. SOBC DARAG Holdings, a direct subsidiary of DARAG Guernsey, will be the principal vehicle for future U.S. and other non-European Union based acquisitions. DARAG is an international insurance and reinsurance company specializing in the assumption of discontinued business and the provision of capital relief solutions. Since 2009, DARAG has completed 23 run-off transactions in 15 countries with a value of in excess of €740 million. SOBC is a U.S.-based company specializing in the acquisition of entities with legacy insurance liabilities, including insurance companies, captives and risk retention groups.

The Liberty Co., Mitchell & Mitchell

The Liberty Company Insurance Brokers has acquired majority ownership in Mitchell & Mitchell Insurance Agency of Novato, Calif. Liberty will become a majority owner joining with several former shareholders of Mitchell & Mitchell, including Gary Mitchell, who will continue as president. Terms of the deal were not disclosed. Mitchell & Mitchell specializes in professional liability for lawyers, dentists and certified public accountants. Liberty is based in Woodland Hills, Calif., and has offices throughout California.

Markel, Nephila

Specialty insurer Markel Corp. has agreed to acquire all of the outstanding shares of Nephila Holdings, a standalone insurance-linked securities manager. Nephila has more than $12 billion of assets under management for more than 300 investors. Its revenue is primarily from management and incentive fees. Upon completion of the deal, the combined assets under management between Nephila and Markel will stand at approximately $19 billion, representing approximately 20 percent of the insurance-linked securities sector, according to the company. The transaction is not subject to any financing conditions. Markel said it plans to finance the transaction using its cash balances on hand. Further details were not disclosed. Nephila will continue to operate as a separate business unit. The management team, led by Greg Hagood and Frank Majors will remain in place and will continue to be based

in Bermuda, San Francisco, Nashville and London. Nephila offers investment products focusing on instruments including insurance-linked securities, catastrophe bonds, insurance swaps and weather derivatives. Nephila has been managing institutional assets in this space since it was founded in 1998. The firm has 180 employees. The transaction, which is subject to regulatory approvals, is expected to close in the fourth quarter of 2018.

Kaplansky Insurance, LitFlynn Insurance Agency

Kaplansky Insurance, an independent, locally owned agency in the Northeast, has acquired Lit-Flynn Insurance Agency in Randolph, Mass. Lit-Flynn offers individual and personal insurance. This will be Kaplansky Insurance’s 30th acquisition. Based in Needham, Mass., Kaplansky Insurance operates 13 locations throughout Massachetts and provides personal and commercial insurance products.

SEPTEMBER 17, 2018 INSURANCE JOURNAL | NATIONAL | 23

NATIONAL | News & Markets

Agencies Focus on Growing Larger Accounts: Channel Harvest Survey

ndependent agents and brokers are focusing on growing the average size of their commercial lines accounts, according to “Agent Voices 2018,” a report based on a survey conducted earlier this year and cosponsored by Channel Harvest Research and Insurance Journal. Account size is important to agents, as the survey reveals a future preference toward larger accounts. More than half of agents said they market to small accounts today, but three-fourths want to be pursuing middle-market and large accounts in five years. Fewer than one-in-five see themselves specializing in small accounts in the future. Other selected findings from the Channel Harvest study, include:

Customer Surveys

•

Surveys are a popular way to determine whether customers are getting what they want and identify areas for improvement, yet two-thirds of agencies say they do not regularly conduct

satisfaction surveys. Of those that do, two-thirds do it themselves and 14 percent use an external provider.

The Channel Harvest survey of independent agents and brokers was conducted between January 4 and March 16. Some 7,000 respondents including principals, producers and customer service representatives answered 140 questions about personal lines and commercial lines carriers.

The survey was designed with input from an advisory panel of carriers including regionals, super-regionals and nationals. Besides weighing in on the most important traits in a carrier, they also offered opinions on agency aggregators, growth and technology. For more information and to purchase the report as well as the raw data, contact Ellen Wallace, director of industry relations at Channel Harvest Research, at ellen@channelharvest.com.

Quoting

• Personal lines agents are evenly divided over how many carriers they quote, with 37 percent typically quoting one to three carriers, 32 percent quoting more than three, and 30 percent quoting all carriers with which they place business. • Commercial lines agents who responded to the survey tend to focus on fewer carriers, with two-thirds saying they quote one-to three carriers, 28 percent quoting more than three and only 6 percent quoting all appointed carriers. 24 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 17, 2018

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Market Detail: International Transportation & Marine Agency (www.itmagency.com) offers coverage for ocean transportation exposures: ships or hulls; goods or cargo; earnings (freight, passage money, commissions or profit); and liability (protection and indemnity). Insurance may be purchased by the vessel owner or any party interested in or responsible for insurable property by reason of maritime perils. Available limits: As needed Carrier: Unable to disclose States: All states Contact: Horrace Geene at 480-556-0200 or email: info@ itmagency.com

Hunt Clubs

Market Detail: Glencar Underwriting Managers (www. glencarum.com) works with a variety of programs with a primary focus on small to midsized niche programs. These programs include value-added

26 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 17, 2018

components such as specialized knowledge of business segment or customized coverages, a specialized method of distribution, or an element of underwriting leverage. Property and casualty program products for several lines of business, are available including: commercial property; commercial and personal inland marine; general liability; miscellaneous professional; excess liability/umbrella, workers compensation; and commercial auto written primarily in support of other lines of business. Available limits: As needed Carrier: Unable to disclose, admitted and nonadmitted available States: All states Contact: Patty Oâ&#x20AC;&#x2122;Connell at 630-875-0723 or email: poconnell@glencarum.com

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Market Detail: Execustaff HR (www.execustaffhr.com) specializes in startups, providing cost-effective workers comp, HR services and large company benefits. With Execustaff HR, all the human resource, payroll, and benefit responsibilities are simplified and streamlined.

Market Detail: Surety One Inc. (www.SuretyOne.com) offers broad forms for domestic and international operations, following S.F.A.A. formats, to include: employee theft; depositors forgery or alteration; theft, disappearance and destruction of money and securities; robbery and safe burglary; computer crime (theft, funds transfer fraud, etc.); and counterfeit currency/ money orders. Basic coverage forms can be expanded by negotiated endorsement. Non-standard fidelity risks are OK, as are special fidelity bond manuscripted for particular clients. Business services bonds are available for small enterprises like janitorial services, pet sitters, housekeepers, valets, tow truck operations, home health care providers and security guards. Available limits: Minimum $5,000, maximum $40 million Carrier: Unable to disclose, admitted States: All states Contact: 1-800-373-2804 This section brought to you by Insurance Journalâ&#x20AC;&#x2122;s sister website: www.mynewmarkets.com

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NATIONAL | Special Report | Surplus Lines

Lloyd’s Modernization Plans Move Full-Steam Ahead From Electronic Placing to Artificial Intelligence: Lloyd’s America CEO By L.S. Howard

arlier this year, this reporter was walking on Lime Street, the home of Lloyd’s of London, dodging raindrops. She observed a broker, carrying a large blue binder containing documents for an underwriting risk, had lost control of the binder and papers were rolling down the street in the wind and the rain. She thought: “Hasn’t this

antiquated system changed yet?” Well, things have changed and are changing. It’s this type of inefficiency that the Lloyd’s and London company markets are trying to put in the past with various modernization programs, including the London Market Target Operating Model (TOM). TOM is a program that aims to modernize the market and make it easier to do business in and with the London market. A big part of the program is the Placing Platform Ltd. (PPL), which aims by 2019 to have 100

30 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 17, 2018

percent of risks entering the market placed electronically through the platform. A big impetus to the modernization program happened in March when Lloyd’s CEO Inga Beale decided to mandate PPL’s implementation earlier this year. It’s made all the difference to the momentum, affirmed Hank Watkins, president of Lloyd’s North America. “Absent a mandate, we would never get everybody on board. But it was mandated and those market participants who ultimately don’t comply with it will be fined,” he said. “No one wants to be named and shamed in the press for not being part of a team effort to modernize the market, especially now, because there’s just

no patience anymore.” Watkins said younger people coming into the industry are not going to have patience for stacks of paper and processes that take months to get things done. TOM was initiated a couple of years ago to eliminate triple, quadruple keying of information. Watkins cited the hypothetical example of a retail agent in California, who keys in a submission, sends it to a wholesale broker, who in turn keys it in, and then sends it to a London broker, who keys it in and sends it to an underwriter. “That’s two or three different opportunities for mistakes to be made and just from a plain

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NATIONAL | Special Report | Surplus Lines continued from page 30 efficiency standpoint it makes no sense.” These modernization efforts are designed to reduce the Lloyd’s market’s 40 percent expense ratio, which is generated by commissions paid to brokers and by its costly administrative processes. Watkins said Lloyd’s expense ratio is about 10 points higher than many of Lloyd’s excess and surplus lines competitors in the United States, which is unsustainable. PPL will enable the entire Lloyd’s market to be on one system, which aggregates information the same way, allows underwriters to see it the same way and cuts down on the time it takes to actually look at data, said Watkins.

“We believe that over time it’s going to take a number of points off our expense ratio,” he added. “It just makes sense — the quicker you can look at a risk and understand it, the quicker you can move onto the next one.”

Exceeding Targets

In August, Lloyd’s revealed that across the entire market, syndicates accepted 16.3 percent of PPL-related risks through electronic placement, and 56 percent of syndicates met or exceeded the target to have placed 10 percent of so-called “in-scope risks.” Shirine Khoury-Haq, Lloyd’s chief operating officer and sponsor of the London Market TOM program, commented at

Hank Watkins, President, Lloyd's North America the time: “We are encouraged by the support and effort we have received so far which has resulted in the market exceeding the target set earlier in the year. Further adoption will help the market increase efficiency,

reduce back office costs and, most importantly, improve client service.” But PPL is just the start of the Lloyd’s and London market’s modernization plans. Another major moderniza-

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NATIONAL | Special Report | Surplus Lines continued from page 32 tion effort involves artificial intelligence — a real 21st century move for Lloyd’s and the London market. The program is called DA SATS, or Delegated Authority Submission Access Transformation Solution, and is due to be rolled out in September. Watkins said DA SATS is an artificial intelligence (AI) driven platform, which will allow Lloyd’s and London company market underwriters to accept delegated authority data from all over the world in any format. “Data typically is entered by coverholders and wholesale brokers who have different ways of entering the same information, often on different pages in the document.” “You can imagine just the headache that it is to gather all the information you want,” he said. “The DA SATS artificial intelligence platform will convert any kind of data submission into a standardized format, which will enable underwriters to transact business more quickly and efficiently.”

Improving the Customer Experience

Lloyd’s is particularly keen to improve the customer experience — to make the process easier, more efficient, with fewer errors. “TOM will affect the wholesale brokers and the coverholders who do business with Lloyd’s because it will make the way they transmit information to the underwriters in London a more efficient process,” Watkins said. “We’re not looking to displace London brokers. We’re aiming to free up their time to do less mundane tasks and take a lot out of the transaction itself and allow people to be more consultative,” he noted. Further, more efficient transmission of information allows a quicker turnaround of quotes, making it easier for brokers and underwriters to deliver policy wordings, endorsements and mid-term transactions, he explained. “In this complex world, brokers will have more time to be helpful to their clients and find

34 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 17, 2018

new solutions, which makes a lot of sense.” Reduction of its expense ratio is particularly important for Lloyd’s in the United States, in order for it to remain competitive.

Largest E&S Player

Lloyd’s is the largest E&S player with about 24 percent of the market, with premium in 2017 of $12 billion. Nevertheless, Watkins emphasized that Lloyd’s is not resting on its laurels, which is a reason it conducts regular “Meet the Markets” sessions in the United States, Canada and other cities across the globe — something it’s been doing for nearly five years. In October, Lloyd’s will be running Meet the Market events in Orange County, Calif., Houston, Boston and Montreal. Rather than hoping and waiting for U.S. brokers and risk managers to come to London, London brokers and underwriters visit them during these events, providing educational sessions on various topics. “After the educational piece is over, we will have the actual

Meet the Market session where underwriters sit or stand at desks similar to their underwriting ‘boxes’ in London,” he said. “Those are set up by syndicate name and by broker name in a hall and the attendees at the conference go from box to box and talk with the underwriters specifically about the kind of business they’re doing.” Why should a U.S. client do business with Lloyd’s and not a U.S. E&S carrier? Watkins cited several reasons. The first is the fact that Lloyd’s underwriters have a global view of risk, which provides a wide perspective of all the potential ramifications of exposures. “Also we operate a subscription market which helps provide capacity for the more complex risks. You’ll have several underwriters taking part in the placement, not just one.” He explained that the subscription market enables several underwriters to understand an insured’s needs. As a result, when an underwriter’s appetite changes, deciding to exit a line of business, then other underwriters on the risk can provide additional capacity. Perhaps the most important reason to do business with the Lloyd’s market is the fact that, unlike the admitted market, the E&S market segment in the U.S. is not protected by state guarantee funds should a company become insolvent, he affirmed. Lloyd’s policyholders are protected by its Central Fund, which is $4 billion in reserves for claims if a syndicate should become insolvent. With a 330-year history, the Lloyd’s market has staying power, said Watkins. INSURANCEJOURNAL.COM

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NATIONAL | Spotlight | Emerging Risks

Cannabis: Striking a Balance Between Federal and State Laws By Patrick Wraight

urrently, 30 states and the District of Columbia have legalized the use of cannabis in some form. Some states restrict use to medically necessary uses, while other states have legalized recreational use. Still other states have formally (or informally) de-criminalized its use. The beauty of the American system of government is that the federal government can pass laws, but so can the several states. This can also create problems, because marijuana is still listed as a Schedule 1 drug according to the Federal Controlled Substances Act (21 U.S.C. Sections 801 through 812). This puts federal law in conflict with the laws of over half of the states. Of course, before the ink was dry in every state that has legalized the use of cannabis, the seeds of new businesses were already planted. It didn’t take long for a new industry to sprout up in California, Colorado, and the other states that have taken to legalize cannabis. What about their insurance? Certainly, this business has exposures that many insurance policies, including the small business-focused business owners’ policy (BOP), simply don’t anticipate. On June 1, 2018, the

American Association of Insurance Services (AAIS), an insurance advisory organization, received approval for its CannaBOP policy in California. This new policy was designed for the legal cannabis businesses that have started growing in California.

36 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 17, 2018

We recently received a copy of this policy and analyzed how AAIS chose to handle this exposure.

What is a BOP?

A BOP is a kind of package policy that is designed for certain small businesses with rel-

atively simple exposures, not very many employees, smaller buildings, etc. It’s a package policy because the basic property and liability coverages that a small business will need are offered on one policy. BOPs can be customized to meet the needs of specific businesses, but they are usually limited in how they can be customized. This particular BOP is customized in many ways to account for the exposure created by the cannabis business in California. The policy language has been written so that it fits specifically in this niche. How does this policy walks the line of helping the cannabis industry in California, while having to deal with the federal laws that still make it an illegal industry? Property insurance policies and liability insurance policies have definitions. One of those definitions tells the consumer where coverage applies. That is the term “coverage territory.” For this new BOP, the authors had to be very clear that certain exposures were limited by location. On the property part of the policy, it uses the term “basic territory.” Here’s the definition: “Basic territory” means the United States of America, its territories and possessions, Canada and Puerto Rico. With respect to losses to “cannabis” or “cannabis accessories,” and losses arising out of or in any way related to “cannabis activities,” the “basic territory:”

continued on page 38

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NATIONAL | Spotlight | Emerging Risks continued from page 36 a. Is limited to the state of California; and b. Does not include land or property owned by the United States government. That’s the definition for the property coverage. Here’s part of the definition for the liability section: “Coverage territory”: a. With respect to “bodily injury,” “property damage,” or “personal and advertising injury” arising out of “cannabis,” “cannabis accessories,” or “cannabis activities,” the “coverage territory” is limited to the “basic territory.” The policy carefully carves out coverage for this specific part of the insured’s exposures by limiting the exposures related to cannabis to California, except for any land or property owned by the United States government. Why is that? Remember that there is a conflict between the state law and federal law. This means that there is coverage for the insured’s cannabis exposures anywhere in the state of California that they might do business, except for any federal land. That might not be a big deal on the surface, but consider that there are large areas of California that are under federal control. That’s why some other policy provisions provide some more clarity (and restriction). A common property policy additional coverage is often called property removed. On this policy, it is referred to as removal. This additional coverage shows:

Removal a. “We” pay for direct physical loss to covered property while it is moved or being moved from the “described premises” to prevent a loss caused by a peril insured against. This additional coverage does not increase the “limit” for the covered property. b. Time Limitation – This additional coverage applies for up to 30 days after the property is first moved, but does not extend past the date on which this policy expired. c. Restriction – This additional coverage does not apply to “cannabis” or “cannabis accessories” that are moved or being moved: 1. Outside the state of California; or 2. To, over, or through any land or property owned by the United States government. So, if a covered loss may happen (i.e. the location may be in the path of a wildfire), insureds

38 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 17, 2018

have the duty and ability to protect their property, and the policy honors that by providing true all-risk coverage for property that is removed to protect it. And, we have to deal with the tension between the state and the federal government.

Federal Problems

Of course, entering federal lands puts the insured in federal jurisdiction and potentially outside of any legal protections that may exist for the industry in California. Crossing state lines also puts the insured under federal jurisdiction, because transporting a product across state lines could be interpreted as interstate commerce. It is also against federal law to transport illegal items across state lines. It could be considered trafficking an illegal substance. What the policy is doing here is protecting the insureds by reminding them that what they are doing is legal where they are, but not legal in all areas. It is a tension that the business owner will have to navigate

the entire time that they are in business.

The policy carefully carves out coverage for this specific part of the insured’s exposures by limiting the exposures related to cannabis to California, except for any land or property owned by the United States government. What does all of this mean? It means that member companies and agents that use this form for their insureds will need to make sure that they explain how coverage will apply. Of course, this is only part of the analysis. There is much more to this policy than just where coverage applies. Wraight is the director of Insurance Journal’s Academy of Insurance. Phone: 1-800-897-9965 ext. 130. Email: pwraight@ijacademy.com. INSURANCEJOURNAL.COM

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NATIONAL | Special Report | Reinsurance

Partner Re Celebrates Its First 25 Years—

When Everything and Nothing Has Changed By L.S. Howard

uring PartnerRe’s first 25 years as a reinsurer, everything has changed and nothing has changed. From its roots as a pure catastrophe player, PartnerRe has dramatically evolved—or diversified. PartnerRe was one of the new breed of catastrophe reinsurers that set up in Bermuda after Hurricane Andrew in 1993. Today, its property-catastrophe business represents up to 5 percent of net premium, while life and health reinsurance is close to 25 percent of premium, affirmed Emmanuel Clarke, president and CEO of PartnerRe Ltd. and CEO Specialty. In the early days of PartnerRe’s existence, property-cat premiums provided profitable returns in the double digits, Clarke recalled. But with the influx of traditional and alternative capital, and a large number of competitors, the margins have been compressed and profits are lower, he said. While cat reinsurance used to be one of the biggest contributors to earnings for the reinsurance industry, now it's a commodity, one class out of

many, Clarke said. PartnerRe’s major profit contributors are and will continue to be generated from classes where there are more barriers to entry, where it's more difficult to jump into the market, particularly for alternative capital players. Clarke described markets with higher barriers to entry as areas where tremendous expertise is needed, where there is product complexity, both in terms of structures and duration, and, as a result, there are fewer players. In such markets, PartnerRe’s “expertise gets paid for its value proposition, and "that’s where we like to play,” he said. He pointed to property or motor excess-of-loss treaty business in Europe or AsiaPacific as a market where 70 to 100 companies are writing business. “If you do some longevity business in the U.K., if you write some cyber business in the U.S. or if you do some agricultural business in other parts of the world, then you’re down to a handful or a dozen players. That makes a huge difference,” he said. Today’s customers look for support for their growth with customized solutions, he

40 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 17, 2018

said. “They're not looking for standard, one-size-fits-all solutions.” Clarke said its life, specialty and property/casualty teams are “quite decentralized and there’s a lot of empowerment of the teams to actually identify opportunities within each unit.” Within its specialty team, there are four units: agriculture; aviation; financial risk; and property, marine and energy. “Each one of these four units are constantly on the lookout for new forms of risk, emerging risk or risk that has seen some dislocation, and where it is a good time to enter,” he said. “We entered the U.S. mortgage space in 2013. At that time, we were one of four companies sharing the

business, and the returns were pretty high. I think today there are 40 reinsurers competing for the business.” “Being the first one, among the first ones, definitely gets rewarded. To be the first one, you need to have teams of experts who are empowered, and you need to have a very agile and nimble way of working so that you can make these decisions to go big in some classes fairly quickly,” he said. Clarke said PartnerRe is growing faster in life than in non-life reinsurance “because we are seeing opportunities. We have a good platform we can leverage.” Last year, PartnerRe acquired a Canadian life reinsurance company called Aurigen

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Capital, which is helping PartnerRe penetrate the North American market. “Because we’re a small player in life, there’s an enormous amount of potential growth for us stemming from that business,” Clarke said. In June, the company acquired Claim Analytics, a Canada-based provider of predictive modeling solutions to the life insurance industry in North America. In September 2017, PartnerRe announced a strategic cooperation agreement with RemitRadar, a London-based money transfer specialist, to capitalize on RemitRadar’s money transfer ecosystem, web presence and social media channels, including artificial intelligence and deep learning technologies, to develop digital insurance solutions for PartnerRe’s clients in new and existing markets. With this arrangement, PartnerRe is providing its insurance clients access to a new distribution channel, Clarke explained. Another partnership was formed in February 2018 with Farmers Edge, which provides “precision farming,” or realtime field data for farmers and their insurers. “It makes the insurance product to farmers much more attractive, much more interesting, by combining the data and the technology to insurance and reinsurance products,” Clarke explained. “It’s enabling us to leverage technology, bring it to our insurer clients and get people who were not insured before to buy insurance going forward— thereby helping to close the protection gap.”

PartnerRe’s ability to be nimble in a competitive market has been enhanced by its 2016 acquisition by EXOR, the Italian investment company and owner of Fiat Chrysler. “Reinsurance is a volatile business. We take away volatility from our clients, and we put it on our balance sheet. That model lends itself well to private ownership, where you actually focus more on longterm value creation than you do on accounting mechanics over the next quarter,” he said. A private ownership model “can nurture and support client relationships over long periods of time,” Clarke said. “Our clients know that we are backed by [an] owner who will be around for many years to come [that] has the appetite for reinsurance as a volatility-transfer business.” Another benefit: “A private company can operate with a simpler model — it’s lighter, leaner, quicker, with more efficient governance, compliance and reporting than a public company. It helps us be nimbler than some larger public company peers.”

Pure-Play Reinsurer

Although PartnerRe wrote a limited amount of professional indemnity insurance between 2013 and 2016, it decided to

Private Ownership

Clarke strongly believes that 42 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 17, 2018

exit that business in 2016 when it was purchased by EXOR, returning to its roots as a pureplay reinsurer. “We don’t do direct insurance. So as a company that only writes reinsurance, we can focus 100 percent on creating reinsurance solutions for our clients that will help them to manage their volatility, optimize their capital or innovate for growth,” Clarke said. “Our view is that you can’t be both a partner and a competitor. Our focus on reinsurance business gives us the ability to serve our clients unreservedly, without competing with them.” Clarke added: “We’ve seen a number of our competitors actually moving away from reinsurance to get into insurance as a form of diversification of distribution channels. We don’t think this is a good recipe for success.” He said there’s a great future for professional reinsurers because demand and opportunities are going to rise, despite the competition and abundant capacity. “The reinsurance winners will be those that help their clients to succeed through reinsurance solutions that both leverage their capital and expertise, while harnessing new forms of capital and technology.”

In an increasingly complex and interconnected world, expanding risks such as pandemic risk, driven by globalization, and emerging risks such as cyber, driven by the rapid pace of technological advancements, mean that reinsurers are better placed as the ultimate holders of risk, he said. “It will be increasingly important to have strong reinsurers at the end of the risk chain. The key to success for PartnerRe — and its customers — is to respond quickly to the evolving risk landscape,” Clarke said. “The winning reinsurance model is one that is dedicated to helping insurance companies succeed. For that, you need to embrace and harness data and technology,” Clarke added. PartnerRe’s new Claim Analytics helps life insurers study, model and detect fraud in disability claims. Clarke said his biggest challenge as CEO is keeping on top of the constant evolution within the business — about how “you make your company better and better every day.” “This means keeping in mind that what has worked in the past may not work in the future, and then constantly steering the company to where its value proposition is rewarded. Reinsurers need to constantly adapt and anticipate our clients’ needs,” he said. Without customer centricity, “you can lose touch with the benefits your products provide,” he said. That’s why a big part of his role is meeting clients. “I really enjoy doing this, and I always take a lot away from our client meetings in terms of what's on their minds,

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what their concerns are ... and what strategies they are pursuing. This helps us understand that what we provide is in sync with their agenda.”

Culture of Innovation

It’s also the CEO’s job to foster a culture of initiative and innovation, Clarke said. “If you have a culture of initiative, you will have innovation. I don't believe in ivory tower research and development (R&D) teams who sit in a corner, unconnected to the business owners. Innovation has to come from people who lead the business.”

“The responsibility of leadership is to set the conditions, so that people will feel safe and encouraged to actually take some measured risk,” he said. The reason for such innovations, and for partnerships like Remit and Farmers Edge, is to grow where new opportunities exist, and to pull back when competition gets too intense. Clarke is pleased with the progress the company has made growing its specialty book and contracting its cat book, “which proved to be the right call and explains our

outperformance in 2017.” “In 2017, a year of big catastrophes around the world and probably the costliest year on record when it comes to cat losses, we had one of the best results out of all the reinsurance companies, with a combined ratio of 103 percent,” he said. “It was a significant achievement.” PartnerRe has done a lot “to establish its vision, conjure a strategy, bring in new talent and improve efficiencies. There’s been more change during the past two years inside PartnerRe than there’s been during the past

10.” PartnerRe began as an answer to a need, as a pure cat reinsurer in 1993, when ceding companies were clamoring for capacity. Today’s clients still need cat capacity to smooth volatility, but Clarke said they also want long-term reinsurance partners These partners would help provide customized solutions and help customers grow their business by developing products in new and old markets. With such customer focus, PartnerRe will be celebrating its 50th anniversary in another 25 years, he said.

A CEO Needs to Be Authentic, Optimistic and Resilient: PartnerRe’s Clarke By L.S. Howard

hen PartnerRe acquired SAFR in 1997, it expanded its scope of business, moving quickly from being a monoline catastrophe reinsurer to a multiline company. Along with that purchase came PartnerRe's future CEO, Emmanuel Clarke, who began his career at SAFR in 1995 as a credit and surety underwriter and worked his way up. When reflecting on his career, Clarke said his best decision was to stay with the company for the past 23 years. “It’s a great company, probably one of the best reinsurance companies, if not the best one, with a tremendous amount of potential still to go. And it’s been a good run for me as well,” he said. “So my whole career has

been on the underwriting side, in business production and risk taking.” He has underwritten most non-life, specialty classes, first based in Paris and then in Zurich, where he has been for the past 14 years. In addition to being CEO, he also has responsibility for the reinsurer’s specialty lines business segment. Since PartnerRe was purchased in 2016 by investment company EXOR, it has focused on getting its business priorities right — finding new business opportunities in markets and classes of business where capacity and specialist expertise is needed and pulling out of areas that are either not strategic or are structurally and economically too challenged. “I’m very proud of my teams for what we’ve achieved over the past few years, both financially and organizationally,” Clarke said, referring to PartnerRe’s 103 combined ratio

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in 2017, despite a very costly year for catastrophe claims. “At the end of the day, our business is a combination of financial capital and intellectual capital. Where the true competitive differentiation happens is on the intellectual capital side—that’s where you can outperform or underperform, if you have the right teams or the wrong teams,” he said. Clarke admitted that decisions around people are often the most challenging ones — making sure you have the right people. On the other hand, it is tough to have to let go of good people “who’ve been working with you, who’ve been sharing your history…” Discussing succession planning and people development,

Clarke said that PartnerRe has all the usual internal emerging leadership programs and external leadership development programs. It sends people to great schools to get executive MBAs. “While these are all very good programs, the most powerful tool is actually feedback,” Clarke said. PartnerRe launched an initiative this year to enhance and increase the intensity and quality of feedback. “We’ve also launched a customized way of assessing leaders through a 360-degree survey, which also forms part of providing feedback.”

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NATIONAL | Special Report | Surplus Lines

More Super Regional P/C Carriers Ready to Dive Into Specialty Lines There’s Opportunity in Unusual and Emerging Risks, Sullivan Tells Carriers By Andrew Simpson

he current economic and business wave presents property/casualty insurance carriers with opportunities to expand or differentiate themselves by getting into the specialty lines business. There is no shortage of unusual and emerging risks that specialty, or surplus lines, can accommodate, according to Gerald Sullivan, a long-time surplus lines industry leader. Speaking before executives at the Property Casualty Insurers’ Super Regional Conference in Wisconsin, Sullivan urged standard carriers to consider getting into the surplus lines business if they are not already and, if they are already writing some surplus lines accounts, to consider writing more. “It’s a competitive world out there, and it’s going to stay a competitive world. So you’ve got to do something a little bit different if you’re going to get ahead of the next guy. And that’s what a lot of these new things are all about,” he told the executives. “This is where there is opportunity, but it’s going to require some change,” he stressed. The Super Regional Conference was sponsored by

Wells Media Group, publisher of Insurance Journal, Carrier Management and Claims Journal, and Ohio-based actuarial consulting firm Demotech. Sullivan is a surplus lines veteran, having started the Los Angeles-based Sullivan Group in 1981 and growing the firm into a major presence in the surplus lines industry. It is one of the affiliates of Gerald J. Sullivan & Associates that was bought in April by Worldwide Facilities.

Nonuniform Risks

While standard carriers are good at writing uniform risks, Sullivan stressed that not all risks are uniform — even when they appear to be, and not all risks are equal in the information known about them. He gave the example of three manufacturing plants that look the same. They’re all located in the Midwest. They all manufacture the same product. They all have about the same number of employees, and they all

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have about the same amount of revenue. They look very much like uniform risks. But, Sullivan added, a specialist or surplus lines underwriter looking at individual risks would discover the following: Factory one gets its parts from the next state. Factory two gets its parts from Thailand, which several years ago suffered a massive flood. And the third risk has a terrible loss record. “The fact is, they are not uniform risks. If you were using the standard rate given for what they’re manufacturing and their size, and so forth and so on, you would have problems with at least a couple of those risks, because they are nonuniform and this is really the heart of specialty lines,” Sullivan said.

Sullivan noted that beyond serving nonuniform risks that may appear at first to be uniform, the specialty lines industry can also supply coverages for a myriad of new and emerging risks including mandatory evacuations, the Internet of Things, supply chains, 3D printing, workplace violence, tax audits and more — risks that the admitted market can’t handle but specialty, or surplus, lines carriers can because of their extra freedom to determine policy forms and rates.

Heart of Surplus

“The heart of effective nonuniform risk underwriting or specialty lines is the freedom of rate and form,” Sullivan said. “If you have a risk that’s displaying something unusual or something different, and

very frequently if your client is starting a new enterprise, the traditional carriers don’t like that because there’s no track record, there’s no background, they often will end up in the surplus line side of things.” Like a therapist, he told the insurance managers, that in order to succeed in a new venture they have to want to change. “[I]n order to succeed with either of these new products that I’ve been talking about for specialty lines, you’ve got to realize that changes are going to be required. You need to recognize the opportunity, embrace these changes, and do what is good for your customers, and that’s good for your bottom line ultimately,” he said. He said that the concept of “doing what is good for the customer” is often overlooked but it is the best place for a carrier to begin its journey into specialty lines. A carrier should ask if its customers would be

better served if it wrote surplus lines. To answer that question requires getting past several common excuses Sullivan said he has heard for not doing something new. The first is the contention that a carrier can’t force customers to pay more premium. “The fact is you don’t have to force your customers to do anything. You simply show them a new product, a new idea, a new concept, and let them make the decision. So that’s really not a valid excuse,” he said. The second excuse is that the carrier will have to make state regulatory filings. “You have to make filings every day, you have ways of doing that, otherwise you wouldn’t be in the business that you’re in. So that’s really not a valid excuse. But you’d be amazed how often it gets put up,” he said. The third excuse is that a carrier’s agents don’t want to sell new coverages. “I hear that all the time, and you know what? They’re right,” he said, adding that probably 70 percent of agents are doing well and not interested in doing something new or extra. “But that’s 70 percent. What you need to focus on is the 30 percent. These are the hungry ones, and they’re the ones that are out there to run with it.” Last but not least is the excuse that a change like this requires the IT department to be onboard and that’s too complex and lengthy of a process. “Well, so be it. All the products that you’re putting out, if you’ve got IT heavily involved and you really should, you already go through this all

continued on page 63

SEPTEMBER 17, 2018 INSURANCE JOURNAL | NATIONAL | 47

NATIONAL | Special Report | Surplus Lines

How New Business Is Creating a New Wholesaler-Retailer Relationship By Andrea Wells

n influx of new business is presenting surplus lines wholesalers and their retail partners with new opportunities to work together even as other forces are changing how they work together. The surplus lines insurance market continues to grow, not because rates are rising, but because there is new business from the booming economy. The surplus lines market is also benefitting from other carriers’ “in-the-box” underwriting that closes out risks that the

surplus lines market is happy to accept. In 2017, the surplus lines market grew by 5.8 percent (to $44.9 billion) on a year-overyear basis, compared with less than 3 percent growth in 2016 and 2015, according A.M. Best. “In 2017, surplus lines and specialty market insurers continued to demonstrate the resilience that has been among their defining characteristics,” says David Blade, senior industry analyst - Industry Research & Analytics, for A.M. Best, and co-author of the 2018 A.M. Best Surplus Lines Segment annual

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review. Despite weather related losses, the composite of surplus lines insurers A.M. Best follows was still able to generate both pretax and net profits and maintain strong overall balance sheet strength, Blades said. A.M. Best has a “stable” outlook for the surplus lines market and believes that it should remain financially sound for the foreseeable future. “The report continues to provide A.M. Best’s perspective on the state of the market and the relative positions of carriers

in the market, and its analysis of the surplus lines sector’s financial condition and market trends, which are all strong,” said Brady Kelley, executive director of the Wholesale & Specialty Insurance Association. “It is rewarding to see our market hit another record level this year.” That outlook remains stable even though, as market particINSURANCEJOURNAL.COM

ipants note, rates are not going up. “The market hasn’t changed much from last year at this time; the market is flat as far as rates go,” said Alan Jay Kaufman, chairman, president and CEO, H.W. Kaufman Financial Group/Burns & Wilcox. “There’s only a few areas where rates have changed a little bit, like transportation for instance.” But there is plenty of new business to make up for the fact that rates on existing business are flat. Some of the business is coming from admitted carriers and some is coming from the improved economy. “The business opportunities have expanded because of the U.S. economy in particular,” Kaufman said. “With the stronger economy there’s been a real opportunity for us to grow, and to expand.” Kaufman said he hasn’t seen massive pullbacks from standard companies writing business – the “normal” trend seen when the specialty market grows. “It’s because there’s more business to write because the economy’s stronger.” But others see business moving from the standard market into the surplus lines market as a key part of the growth. “The market’s moving, it’s migrating, there’s new business coming into the channel at a higher rate than it is leaving the channel,” believes Timothy Turner, chairman and CEO of INSURANCEJOURNAL.COM

Jim Keane, vice president, SIAA MarketFinder R-T Specialty. Turner admits that it’s hard to measure how much of the new business is coming directly from the standard market. “That number is always an estimate and very hard to gauge when it’s going up or down. But the non-admitted P/C market is very accurately predictable in terms of when it’s moving up or down – and it’s moving up. It’s billions of dollars of business moving into the channel,” Turner said. Turner noted A.M. Best, which tracks the 50 states’ surplus lines tax filings, found that the percentage of non-admitted business in the surplus lines channel has been around 10.3 percent for eight or nine years, and just moved to 11.1 percent in the second quarter. “That’s a lot of movement,” Turner said. He thinks the movement is indicative of what’s called “dumping” — which is where standard companies nudge their non-renewals into the surplus lines market. Turner sees carriers currently doing this with unprofitable real estate business, in particular, especially habitational risks. “There’s probably, a little bit

of London non-renewals contributing to the trend as well,” he added. Once the “dumping” trend begins, the surplus lines market can count on it continuing in his experience. “It is not something that just goes up one month and then stops. It usually starts moving and it continues to move,” Turner said. He also sees growth in the construction industry as a big contributor to surplus lines. “There are massive amounts of infrastructure construction coming into the channel,” Turner said. “That includes high rises, bridges, tunnels, dams, airports, all that is on the increase in a big way, and measurable.”

Auditioning for Business

In addition to bringing new business for surplus lines brokers, the strong U.S. economy has also contributed to changing how some brokers do business. “It has provided us with greater opportunities to write more business, and to be more selective on what business we’re writing,” said Kaufman. “Selective not only in the sense of experience from underwriting, but also the fact that we can be selective on what business with better margins we can spend more time attracting to our company.” With rates flat and the cost of doing business rising, brokers are becoming more efficient at selling products with better profit margins. “I think some of the best people in our business are doing that, and we have to continue our top line sales because our bottom line is not going up correspondingly. …

Alan Jay Kaufman, chairman/ president/CEO, Burns & Wilcox So, everybody has to be more productive, more selective, throughout the whole food chain,” he said. Brokers must continue to be selective because rates aren’t going up anytime soon. Kaufman says insurers are fighting “tooth and nail” to keep lowering rates. “They’re commoditizing insurance at all levels. They’re writing at losses,” he said. “That will change someday, but it hasn’t, and with the great capacity in the insurance world today, we’re going to see a prolonged period of very low rates.”

‘In 2017, the surplus lines market grew by 5.8 percent (to $44.9 billion) on a year-over-year basis, compared with less than 3 percent growth in 2016 and 2015’ Turner notes that in addition to dealing with a market that won’t hike rates, surplus brokers are dealing with retail

continued on page 50

SEPTEMBER 17, 2018 INSURANCE JOURNAL | NATIONAL | 49

NATIONAL | Special Report | Surplus Lines continued from page 49 agencies that are altering how they buy surplus lines. “The retailers themselves, not just the big ones, but all the top 100 retailers are buying from wholesalers differently. It’s a lot more sophisticated. It’s a lot more [request-for-proposal]-oriented. It’s a lot more specialty driven,” Turner explained. He said the process has become like an “audition” for the business. “Wholesalers have to ‘win’ the business at a macro level. It’s no longer just, ‘He’s my buddy and we’re going to do business together.’ And the winners are companies with practice groups, verticals, that can elevate and increase the execu-

Timothy Turner, chairman and CEO of R-T Specialty tion of the transaction repeatedly,” Turner said. If how retail agents approach surplus lines brokers is changing, it is partly because the role they see surplus lines playing is itself changing.

Managing the Retail Agent’s Risk in Surplus Lines

hile it is common for retail agents to turn to E&S wholesalers for help, there are several reasons they should carefully consider which wholesalerto call upon and how they submit business, according to Bobbie Duke, mentor for INSURICA University. “Generally speaking, surplus lines markets can present additional E&O risk for agents,” Duke said. “The most common E&O risk is that most surplus lines carriers are not covered by a ‘guaranty fund,’ therefore, if one of these markets becomes insolvent, there is no safety net, which clearly creates E&O exposure for the retail agent.” A lack of consistency between surplus lines product

forms and traditional standard market or ISO forms requires agents to be diligent when sending accounts into surplus lines. “This means that we need to thoroughly peruse the forms for coverage gaps and limitations,” Duke said. “Invariably, this becomes a less-than-adequate process, due to time demands and even if standard ISO forms are used, and you know the content of those forms, there may be unique and/or onerous endorsements – margin clause on property, exclusion for the roof, or an EIFS form that significantly restricts coverage.” Carriers offering E&O for agencies steer away from those with large books of surplus lines business. “In fact, there

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may be a maximum percentage of business that is allowed, in order to even qualify for a proposal for agency E&O from that carrier,” Young said. James Keane, vice president of SIAA MarketFinder, offers a few questions for an agency to ask when considering a wholesaler or surplus lines carrier: What carriers do they have access to? How many carriers can they get to? Does the wholesaler match up appetites to what the agency does? “For example, if you’re an agent who writes heavy transportation, does that wholesaler have heavy transportation markets, or do they only have one market? So, if it doesn’t fit there, it doesn’t fit anywhere. Make sure they have what you need.”

Also, does the wholesaler or surplus line carrier have a minimum rating requirement? Do they have to be an A-rated carrier with A.M. Best, or are they just writing with anybody? Keane also says agents should take note of what specialists are available to the agency. “If you’re writing an aviation risk, most agencies are not an aviation risk specialist, but maybe they might have a high net worth client who owns an airplane. Do they have a specialist you can talk to who specializes in aviation to make sure that your client is getting the appropriate insurance? Then, are there multiple offices that are available? If something goes wrong in an office, whether it be relationship-driven or maybe the office

INSURANCEJOURNAL.COM

‘As we’re seeing some standard line companies become more ‘in-the-box’ with the underwriting, we’re seeing wholesalers and the E&S market pick up those lines.’

While excess and surplus lines markets are often viewed as “a market of last resort,” that traditional view is changing as they are also often the best and only markets available for emerging exposures and/or extremely challenging risks.

‘With the stronger economy there’s been a real opportunity for us to grow, and to expand.’

Ralph Blust, president of Insureon Solutions

That’s according to Bobbie Duke, mentor for INSURICA University. Duke said that the surplus lines market, in particular with property insurance, has grown into a helpful provider

of coverage as many standard markets tighten their belts in recent years. “As standard markets escalated their deductibles for wind/hail due to losses, the surplus lines markets offered better terms and lower deductibles,” she said.

is closed, are there various places that the agency can get access to?” R-T Specialty’s Tim Turner also believes conflicts of interest are important to consider. “I would say that not having conflicts in your distribution model is a big deal,” Turner said. “Retailers don’t like it if you’re owned by one of their competitors. So, if wholesalers are owned by big retailers … that’s a big problem for them. Ten years ago, all wholesalers were owned by retailers but today it’s a very small percentage of them because of the conflict.” According to Burns & Wilcox’s Alan Jay Kaufman, retailers want wholesaler partners with size, expertise and financial strength. “They want

INSURANCEJOURNAL.COM

more national coverage in many cases, or global coverage. And they want to know about solvency and the strength of the organization. … Whether it’s the insurance companies’ ratings, all the way down to the wholesalers, people want to do business with organizations of strength. It doesn’t necessarily mean that they have to be huge, but they want them to be financially solid.” Strong relationships are key to protecting agents from E&O exposure due to offering coverage in the non-admitted market, says Ralph Blust, president of Insureon Solutions. “When you go into the non-admitted market, you’re dealing with more customized coverage forms. Therefore, if an agent is not accustomed to

James Keane, vice president of SIAA MarketFinder, agrees. “As we’re seeing some standard line companies become more ‘in the box with the underwriting, we’re seeing wholesalers and the E&S market pick up those lines of business.” According to Keane, that’s leading to better relationships between retailers and their wholesaler partners.

the coverage requirements of that individual risk, they might find something to offer in a non-admitted market, but it is not providing adequate coverage,” he said. That’s why trust is important when using wholesalers in E&S business, he said “Any time that a non-admitted market offering is made, the agent has to trust who they’re working with to guide them through the coverages and, more importantly, the exclusions or excluded coverage components in the E&S product.” An agency’s procedures for working with surplus lines accounts are critical. “Every agency has a process that they follow when they write a new account. That process checklist, so to

Keane also agrees that many agents have moved beyond the “market of last resort” mentality when discussing the E&S market. “Obviously, it happens. Every agency has something that’s declined or gets non-renewed, so they definitely rely on the market for those accounts,” he said. “We’re seeing more instances where business is getting driven to E&S because of one characteristic of one risk,” according to Keane. That might include an everyday restaurant account, where the entire risk fits into a standard line market, except the liquor sales. “So, just the liquor component is going out to E&S,” he added.

speak, for admitted business and non-admitted business is different,” Blust said. “It would behoove any agency to have a dedicated process road map for non-admitted business to ensure that they minimize any exposures that could arise due to the fact that they’re insuring something in the E&S space.” Training is part of developing the process, he added. A trusted wholesaler broker can help agencies develop the process as well. “We have our own processes that are different for E&S versus admitted, and we share that in every transaction with our agents. We help them understand our processes and procedures to educate them not only about why it’s different but also to understand best practices.”

SEPTEMBER 17, 2018 INSURANCE JOURNAL | NATIONAL | 51

Idea Exchange

Surplus Lines

What Is an NRRA Exempt Commercial Purchaser? By Richard A. Brown and Jeffrey M. Klein

ome larger commercial insurance brokers appear to be uncertain about how the Exempt Commercial Purchaser (ECP) feature of the Nonadmitted and Reinsurance Reform Act of 2010 (NRRA), part of the Dodd Frank Act, effective July 21, 2011, works. For sales of insurance products to a ECP, the broker is exempt from due diligence requirements. The first issue is whether the ECP applies on a per placement basis rather than apply only per insurance buyer. The second issue revolves around the length of qualification: once a commercial insurance buyer confirms to the producer that it is an ECP, how long does that status last? Only for a year or for a longer period? An ECP is defined in the NRRA as a commercial insurance purchaser that: • Employs or retains a “qualified risk manager” to negotiate procurement of the coverage. The risk manager may be an internal employee of the policy holder/insured or be a third-party broker or consultant. • The insured must have paid aggregate countrywide property/casualty premiums in excess of $100,000 in the preceding 12 months. • The insured must meet one of the following criteria: (A) a net worth in excess of $20 million (now

$22,040,000 as adjusted for the CPI); (B) generate annual revenue in excess of $50 million (now $55,100,000, as adjusted for CPI); (C). employ more than 500 full-time (or equivalent) employees per insured or be a member of an affiliated insurance group employing more than 1,000; (D) is a municipality with a population within its limits of more than 50,000; (E.) be a nonprofit organization or public entity with annual budgetary expenditures of at least $30 million (now $33,060,000, as adjusted for CPI). It seems clear that the ECP designation applies per insurance buyer not per placement. The NRRA defines an exempt commercial purchaser as a “policyholder.” The ECP designation would be meaningless, not to mention an administrative nightmare, if it applied to coverages procured versus the insurance buyer. It also seems clear that the ECP desig-

nation should be good for at least five years so long as the client confirms that it continues to qualify as an ECP. “Effective on the fifth January 1 occurring after the date of the enactment of this subtitle and each fifth January … occurring thereafter, [the ECP criteria] shall be adjusted to reflect the percentage change for such 5-year period in in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics of the Department of Labor. Pub. L. 111-203, section 527(5). The client is responsible for representing to the producer that the client meets the criteria for ECP status. Not difficult. Most major brokerage firms require that the client confirm annually, usually

via a brief questionnaire, that it is eligible for ECP status. All the producer needs to do is to update its ECP questionnaire annually and have the client confirm its ECP status to avoid possible regulatory compliance issues. The producer, of course, is entitled to rely on the client’s advice. The ECP overrides state law to the contrary. But many states also have industrial insured exemptions, not all of which exempt the industrial insured from due diligence requirements, but which may provide lower thresholds for avoiding due diligence requirements in some states. State industrial insured exemptions apply to insureds that are sited in the state where the exemption applies. This is an emerging area of insurance regulation that is of import to brokers and insurance risk managers due to states’ interest in due diligence and related requirements This article does not provide sufficient space to list all of the state industrial insured exemptions, but the list is available from the authors upon request. Brown is an insurance regulatory attorney who regularly represents surplus lines brokers and other surplus lines industry participants in a variety of regulatory and other insurance industry matters. Email: RAB@ InsuRegulatory.com. Klein is of counsel to the Washington,

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Idea Exchange

Tech Talk

Best Tech Ways for Agents to Get the ‘Message’ Out without being available at the same time. Messaging is also contextual, so the next time a policyholder or prospect has a question, the agent would know exactly what that previous interaction looked like because they will see them in real-time. Messaging is also a cost-saver. According to a McKinsey & Co. study, a single chat interaction costs between $3 to $5 per interaction while a messaging communication is typically less than a dollar.

By Tom Wetzel

018 has turned out to be the year of the text message. For agents, that reality presents a challenge that is both substantial and immediate. Today, there are dozens of vendors that offer chat capabilities. Web messaging has emerged as a game-changing alternative and Apple has launched its Business Chat, which allows companies and brands to communicate with customers over iMessage. The terminology, however, and dizzying array of options and features, may cause some to run. What follows is a basic analysis to cut through the hype. In the 2018 Insurance Digital Transformation Survey, only 7 percent of agencies offered any form of live chat, which underscores a disconnect between how agents use digital tools at work and how they use them as individuals. If you use Facebook Messenger or text on your smartphone to keep in touch with family and friends, why would you not use tex-

ting in some form to keep in touch with clients? Jay Byrnes, president of the Connecticutbased Byrnes Insurance Agency and ACT Committee Chair of the Agents Council

For Technology says it best: “We no longer control our communications.” Businesses and individuals alike have become more tech savvy and are engaging through various digital platforms, including web forms, email, social media, and messaging. The question is, what methods work best for agents? The chat versus messaging debate is the best place to start because they are not the same. Live chat interactions are synchronous, which means the parties need to be actively available at the same time. Utilizing a chatbot after business hours mitigates but does not eliminate this weakness. Live chats are also session-based — so once ended — the entire conversation thread may be lost. Some systems may save the conversation for 24 hours or so and may permit a cut-and-paste process to an agency management system. The problem, of course, is that these extra steps take time. Chats also lack context, so if a policyholder recontacts the agency for follow up they will likely end up having to repeat part of the previous conversations. Again, more time lost. Lastly, if a policyholder needs to share a screenshot to add detail, that usually requires a separate email. Messaging is asynchronous, which means the two parties can communicate

54 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 17, 2018

Messaging can strengthen relationships between agents and carriers in addition to agency customer relationships. Enterprise messaging systems offer maximum security (banks and some insurers already use them). Plus, automatic, permanent archiving is another big time-saver. Messaging favors relationship building over one-time transactions because of its contextual ability. This suggests messaging can strengthen relationships between agents and carriers in addition to agency customer relationships. This column doesn't endorse one vendor over another and limited space precludes deeper treatment. But, three conclusions are clear: Insurance can’t be sold like a loaf of bread; speed and convenience are indispensable for every agency, regardless of size, location and specialty; and addressing the connectivity issues outlined here cannot be put off. Wetzel heads his own insurance marketing firm that specializes in website design, messaging and social media programs for agents through its Social Media Content Roadmap. The firm maintains a partnership with LivePerson Inc. Website: www.wetzelandassociates.com. Email: twetzel@wetzelandassociates.com INSURANCEJOURNAL.COM

TechTalk Sponsor

Idea Exchange

Customer Experience

High Customer Expectations Leads to New Challenges for Insurance Satisfaction

By Robert M. Lajdziak

ecord high customer satisfaction among auto insurance customers is clearly good news for customers, especially at a time when their overall customer experience is being tested by the rising cost of auto insurance. For insurers, on the other hand, record satisfaction is creating new challenges, as customers’ expectations create the need for new stan-

dards for service by insurers. Among these challenges is meeting ever-evolving expectations for digital channels and services that provide easy online processes comparable to those offered by Amazon and Uber. An additional challenge is generating premium growth in a market where there are fewer shoppers as a result of customers’ high satisfaction with their present carrier and a stagnant level of new shoppers purchasing auto insurance for the first time. The J.D. Power 2018 U.S. Auto Insurance Study examines the drivers of record-high satisfaction with auto insurers and how customer expectations for servicing are changing to help insurers with the challenges ahead. One of the primary drivers of higher satisfaction has been greater online access to self-service tools through insurer websites and/or mobile apps. However, while greater access to information and self-service options have been a primary driver of satisfaction, the industry is still searching for its version of mobile check deposits, which has transformed the way customers digitally interact with their banks. The J.D. Power 2018 Insurance

Digital Experience Study finds even the leading insurance companies are dramatically behind digital leaders Amazon, Starbucks and Uber, among others, in meeting customers’ expectations for a streamlined digital experience.

Record High Satisfaction Leading to Record Low Shopping

Record high satisfaction may seem counterintuitive, given that the industry has been challenged by rising costs and customers have experienced multiple years of rate increases. The U.S. Auto Insurance Study measures customer experiences across multiple factors. While price is a major component of the overall customer experience, billing and payment, policy offerings, and online and offline service interactions combined account for a majority (67 percent) of the experience, all of which improve with digital interaction. As customers’ satisfaction with their auto insurer increases, there is a corresponding decline in the intent to shop for a different insurer. There is also a measurable relationship between customer satisfaction and actual shopping rates for the

INSURANCEJOURNAL.COM

have low awareness among offline-only customers, e.g., setting up billing alerts. Further, in the event a customer has a claim, those who had already set up an account online were twice as likely to submit incident photos through the app; receive digital updates without having to call their insurer; and three times more likely to report first notice of loss online (web or app), according to the J.D. Power 2017 Auto Claims Study.

Satisfaction with Digital Has Improved, But Expect More

following year, which is measured in the J.D. Power Insurance Shopping Study. With just 2 percent of new customers entering the personal lines auto insurance market in 2018, most insurers face a zerosum proposition in which the growth of their company requires taking share from competitors, which is exponentially more difficult and costly when customer satisfaction and retention are high. As insurers struggle to grow with fewer shoppers and new customers entering in the marketplace, developing a retention strategy based on demonstrating value C through customer interactions, outside ofM price alone, will help their bottom line and Y potentially lead to an increase in referrals. CM

Greater Access to Information Leading to High Satisfaction

The U.S. Auto Insurance Study also measures and tracks Key Performance CMY Indicators (KPIs) that have the greatest K relationship with customer satisfaction. Providing online access to policy information is the single KPI with the greatest and most consistent improvement during the past seven years. (Figure 3) Online access itself is associated with higher customer satisfaction, however, it also indirectly influences customer satisfaction across a variety of factors, from billing and payment to claims. Customers

who are highly engaged online are signifiA&Mlikely IJ Self Serve.pdf 5/16/16 cantly more to be aware of 1other best practices their insurer offers but which

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Customers increasingly prefer digital self-service channels for a variety of interactions with their auto insurer. The strongest digital preferences are for low-value transactional activities such as making a payment or ordering proof of insurance cards. Customers, even those 2:29 PM Y (born 1977-1994), prefer live conin Gen

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Idea Exchange

The Wedge

How to Write Great Headlines, So Prospects Don’t Forget You that file cabinet and generally pull out the first three folders. If you are positioned as one of those first three, then when they have a problem, they’ll call you. If not, you have been forgotten. That is called positioning … and you want to be positioned as the No. 1 alternative for insurance if you aren’t their current agent.

Masterminds

By Randty Schwantz

enewal dates only come around once a year, but insurance problems can creep up on your prospect at any point. That’s why you need to become a marketer to support your prospecting activities and be there when they have a problem, not just when they are renewing. Ries and Trout wrote a book called Positioning: The Battle for Your Mind.

Make your emails simple and compelling, so you can get your prospects to do what you really want: to click on the link in your email and either watch your video or download your PDF. They explained it like this: Every prospect has a file cabinet in their head. When they are looking for something, they go to

For me, it started in a more serious way about six years ago. I was in a mastermind group with some of the best marketers on the planet. As I heard them talk about their “shock-n-awe” packages, direct mail campaigns, email funnels and more, I started paying attention. More importantly, when I saw their growth numbers I had to try and figure out what they were doing. You see, for the longest time, I hated marketing. And, every time I tried to hire a consultant to help me market, they wanted to start with re-doing my website, updating brochures, touching up my logo, refreshing my business cards, etc. All I could see was money pouring out the door and no new prospects. However, the people in this mastermind group were “direct response” marketers. That was a new term for me, even though it’s a very old science. Direct response is different from branding or image marketing, in that it has a call to action. Its intent is to get a prospect to engage with you and take an action. But, before you can get them to engage with you, you need to get their attention, hence the first focus of this article, get them to open your email.

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Open the Email

Here is something you can do right now: Open up your browser and type in National Enquirer, then click the images tab. You’ll see some of the world’s best headlines supported with an image: • • • • •

Inside Tom’s House of Horrors! Hillary Framed Trump! Stevie Wonder Can See Again! Megyn Kelly, What She’s Hiding! Ted Cruz Dad Tied to JFK Murder Plot!

Or walk into a book store at the airport and the first thing you’ll see is this: “Get Six-Pack Abs in 30 Days”. I know what you’re thinking; all of that is corny, hokey, not professional. And, you may be right. But, it gets stuff opened and, if people don’t open your email, or your letters, they never hear your message.

Great Headlines

How do you write great headlines? Here’s what I do. I got on the email list of a bunch of great marketers and every time I get an email from them, I save it to a folder labeled “Results.” When it’s time for me to write marketing emails, I just go through them one by one and start to edit them. Here are a few examples, I will label them as O for original, the R for my rewrite.

O: Ready for two days that will transform your company? R: Ready for two ideas that will drop your x-mod? R: Ready for two ideas that will drop your claims cost? INSURANCEJOURNAL.COM

And, since we never know when they are ready to hear it, you’ve got to be consistent throughout the year with your powerful messaging. For a worksheet with 46 headlines ready for use and a webinar to show you

how to use them, visit: http://thewedge. net/ij-writing-headlines. Schwantz is founder of The Wedge Group. Email: randy@thewedge.net. Phone: 214-446-3209. Website: www.thewedge.net.

O: How We Productize our services — The full process. R: How we control your mod — The full process. O: Online training that people actually like. R: Safety training that people actually like. You get the point, just take their head-

line, change a few of the words and now you improve your chances that someone will open your email. Here are three tips to try the next time you write an email: 1. Use very short simple sentences. 2. Use third grade language. 3. Promise three steps to solve a problem. Your email should be very, very simple. If you write long emails, you’ll lose them. Make your emails simple and compelling, so you can get your prospects to do what you really want: to click on the link in your email and either watch your video or download your PDF. That is their call to action. If you have the right system set up, you can see who is engaging with your content, your videos and PDF. Those are your hottest prospects. You want your prospects to engage. One of the best ways to get them to engage is to give them something of great value. As mentioned, it could be a downloadable PDF, maybe an infographic, a check list, or it could be an educational video you loaded up on YouTube.

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The Bottom Line

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Idea Exchange

Customer Experience

continued from page 57 versations with a professional when it comes to discussing policy coverage or premium changes. While there is still a long way for insurers to go to catch up to customer expectations set by other industries and leading digital companies, there has been significant improvement in digital insurance channels since 2012 that has outpaced the agent and phone channels. (Figure 4) Despite insurers’ progress in digital channel experiences, the demand for robust digital self-service options is a high bar to reach. The J.D. Power 2018 U.S. Insurance Digital Experience Study finds even the leading insurance companies are dramatically behind digital leaders Amazon, Starbucks and Uber, among others. The digital study finds insurers have done a good job of creating an attractive user interface but lack insurance-specific capabilities that create additional ease of doing business for customers. Insurers that perform highest in personalization do so by aligning insurance offerings and customer needs; offering benefits tailored to certain risks; and delivering timely guidance. They also tend to have the highest digital satisfaction scores in the Insurance Digital Experience Study. An example of personalization is Bank of America using artificial intelligence (AI) to personalize their mobile experience with “Erica” — a virtual assistant — within

the app to offer tailored financial advice to customers. Erica quickly surpassed one million users within one month of launching the service. While insurance is much more low touch than retail banking, there may be an opportunity to leverage the same technology to inject empathy into the digital claims process — a key pain point among customers submitting digital claims today, as noted in the 2018 U.S. Auto Claims Study.

Future Expectations

With respect to meeting future customer expectations, the winners and losers will

be determined by those insurers that take a quantum leap regarding the customer experience to look at the leaders in specific areas of the customer experience (such as billing and payments, digital and problem resolution) to identify best practices that could translate across industries. Analyzing those industry leaders, which are often outside the insurance industry due to the low-touch nature of the business, may uncover insights that lead to a competitive advantage within the insurance industry. Insurers can even adapt the best practices that utility companies have developed to use in the event of a power outage for insurance-specific issues such as claims. Insurance customers rarely compare their experience with their insurer to another insurer, but rather compare it to the dozens of other companies they do business with. Despite record-high auto insurance customer satisfaction, insurers have an incredible opportunity to raise the bar above current industry leaders by taking an outside-in approach to reinventing customer interactions that simplify the process of doing business. Lajdziak is a business consultant, insurance practice, at J.D. Power.

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Surplus Lines | Special Report | NATIONAL continued from page 47 the time,” he said. “It may take a little bit of time to get into the queue and get the thing moving forward, but that’s no excuse to not get the process started.” Each nonadmitted risk must be underwritten individually. Thus, carriers need people who are trained and geared to do that. Responding to a comment from an attendee in the audience, Sullivan acknowledged finding and training new talent is a challenge. “There are programs out there that help newbies coming into the business. And your point about, we need to develop new talent is absolutely correct. Unfortunately, we have too many people of my age in this business. What we need to do is to be bringing new people in,” the Californian said. Sullivan shared his experience with several programs developed to bring young people into the insurance business. “The thing that I find most interesting is that the thing that seems to turn off a lot of them is they kind of view it as, ‘Oh well, it’s just more homeowners, it’s just more automobile, or it’s just more life insurance.’ That strikes them as really dull and boring,” he said “But when you start talking to them about

some of these new products, some of the specialty lines, some of the more interesting, difficult problems that we deal with, that really does get the youngsters attention, and they say, ‘I want to know more about that, I want to be more involved.’ That’s where the training has got to come from.” While still small compared to overall commercial P/C business, the surplus lines segment has been growing year after year and now accounts for about 14 percent of P/C commercial lines business. By 2016, the surplus lines segment reported about $41 billion in premium, according to A.M. Best composite figures. Twothirds of that was written by U.S. domestic surplus lines writers, with a Lloyd’s being the next biggest market. For the first half of 2018, surplus lines insurance premium recorded by the 15 managing service offices increased 9.4 percent, the Surplus Lines Stamping Office of Texas (SLTX) reported. Total premium reached $15.7 billion, approximately $1.4 billion more than was recorded in 2017, according to the mid-year analysis by SLTX. These same 15 surplus lines service offices

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reported $28.1 billion in premium for all of 2017, an increase of 6.4 percent over 2016. Due to its nature as a safety valve for the risks a changing admitted market won’t handle, there is some volatility in results. But thanks in great measure to the freedom of rates and forms they enjoy, surplus lines carriers’ loss ratios are generally better than the admitted markets’ and the segment’s solvency record is good. Sullivan shared his list of emerging risks that specialty lines can address that included IoT, sharing economy, supply chain, mandatory evacuation, cyber, climate risk, tax audit risk, event cancellation, work-

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place violence, autonomous vehicles, marijuana, medical catastrophe, epidemic outbreak, 3D printing and parametric coverages. “We as an industry, despite what some people will say, have both the ability and the opportunity to deal with a whole lot of these new risks,” Sullivan said. The Surplus Line Association of California in July honored Sullivan for his long career in insurance with its distinguished Lifetime Leadership award. “It’s very infrequently given and only when there’s a remarkable reason to give it,” Ben McKay, executive director of the SLACal, said of the award.

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Idea Exchange

Human Resources

Attracting Gen Z: The Post-Millennial Talent Wave

By Tony Cañas

oday’s insurance labor market is colored by the rapid graying of the workforce. The industry’s growing retirement rate and burgeoning skills and knowledge gap are creating a candidate-driven market. As many positions held by long-tenured professionals continue to go unfilled, insurance firms have increasingly turned to Millenials as a workforce game-changer. However, the youngest Millenials are now 24 and have already joined the workforce. While retaining them will continue to be a challenge, we need to turn our focus towards attracting the succeeding generation. Poised to be the next group of highly desired talent, Generation Z (born after 1995) is graduating college and gradually entering the labor market. These emerging professionals make up more than a quarter of the U.S. population and contribute $44 billion to the national economy,

according to Mashable. It is a mistake to treat Gen Zers the same way we treat Millenials. While Gen Zers do share many similarities with Millenials, they have distinctly different motivators and ambitions. The industry was late to the game when it came to attracting Millenials. We cannot afford to waste any time in recruiting this new source of fresh talent. How can organizations effectively appeal to the newest generation now entering the workforce?

Understand Generation Z

Most Gen Zers were raised by skeptical Gen X parents and came of age during the recession, seeing their parents lose their jobs and sometimes their homes. This loss of stability fostered their survival instincts and shaped their demands. These young professionals, like Millenials, continue to look for

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social value in their work, but are more practical and concerned with their own personal well-being. Career stability and benefits are more important to them than corporate citizenship and social contributions. This doesn’t mean the industry should cease being good corporate citizens, but we do need to deliver a different message to Generation Z. Traditional marketing strategies simply don’t work on this generation. Corporate recruiting promotions typically rely on professional models and stock photography to portray an idealized workplace. But Gen Zers cannot be fooled. Years of being the target of various multi-media campaigns and hours spent watching YouTube have fine-tuned their reality gauge. This generation commands authenticity from potential employers. Gen Zers are more interested

in learning what they can do in the company. These young professionals dream of running their own businesses, seeing entrepreneurship as a route to coveted financial security. Having witnessed their older millennial siblings’ struggles during their first decade in the workforce, Gen Zers understand they are not entitled. They prioritize pursuing a well-paid, stable career, rather than the mission-driven one Millenials demand. Insurance industry careers meet this generation’s wish list. We provide a stable, financially rewarding work environment for our employees – we are essentially recession-proof. Remember, though, they didn’t grow up wanting to work in insurance! Delivering our message authentically is key to attracting Gen Zers to our industry. We must encourage our current employees to tell their own stories using their own uncensored voices. Additionally, unlike our message for Millenials, diversity should not be a promotional point. Gen Z’s classrooms have been multicultural and multiracial since they were in kindergarten. They do not notice the existence of diversity – unless it is missing. Gen Zers take diversity for granted and accept nothing but a diverse and inclusive workforce. Overall workforce diversity is not enough. If diversity is not reflected in your leadership, this group will not INSURANCEJOURNAL.COM

feel comfortable. The time for change is now.

are also essential in engaging these young professionals. Gen Zers likely took online classes at one point in their college careers and were used to getting their work done when and where they wanted.

complete routine work.

Create Stand-out Benefits

Creative and appealing ben This emerging generation efits will set your organization is very Millennial-like when apart from others. Casual dress it comes to technology. Both codes and fluid work environments are simply not enough. Millenials and Gen Zers had access to smartphones and Millenials and Gen Zers are compelling employers to think other cutting-edge technology beyond the obvious perks to since their teenage or even more unusual and creative pre-teen years and are more benefits. attached to them than their For one, insurance organiolder counterparts. They are zations can start assisting Gen less inclined to tolerate outdated equipment and software. Zers with the tens of thousands Whether or not an organization of dollars in student loans they has modern digital platforms acquired getting their degrees. Although many companies and equipment is important for Gen Zers as they consider offer tuition reimbursement potential job offers. for employees pursuing a master’s degree or a certification Insurance firms must program, paying off undergradstart off by ensuring their They expect the same from uate degrees is a much more technology meets Gen Zers’ their workplaces, demanding immediate concern for most expectations. Moving beyond more flexible work hours and young professionals. legacy systems and closer to work-from-home options. Offering pet insurance or end-to-end modernization is Some have already embraced promoting a pet-friendly work key. While outdated systems environment helps attract are a deterrent for any potential this trend, but we need to make fluid work conditions pet-loving candidates, while employees, this is amplified a permanent, industry-wide paying for volunteer hours for Gen Zers, who are accustomed to modern devices and standard. Though Gen Zers complements these young platforms. Insurers must keep will be fine with coming into professionals’ desire to do investing in upgrades to stay the office for training and team good. Reserving boxes at local technologically competitive meetings, they will look for sporting arenas or distributing and to attract new generations more accommodating induscorporate passes beyond the tries if we force them to come into their organizations. highest levels of the company 060-ARGO-COLONYB-8756_2018 Insurance Journal Construction Print Ad _V3_7.25x2.25.pdf 1 9/4/18 into the office every day just to Flexible work arrangements are other fun benefits you can

Prepare to Accommodate

Gen Zers are more interested in learning what they can do in the company. These young professionals dream of running their own businesses, seeing entrepreneurship as a route to coveted financial security.

offer to employees. The most important change, however, should be transitioning to a buffet-style benefits program, where employees can personalize their own benefits. With a workforce spanning five generations, employees have a wide range of preferences. Allowing employees to choose their own benefit packages can certainly attract younger generations, while improving retention rates and employee satisfaction levels across the board. In today’s corporate landscape, it is important that organizations keep an open mind and give employees as much choice as possible. Aligning with Gen Zers’ preferences will not only help tackle persistent industry-wide challenges, but will also earn them employer-ofchoice recognition, allowing them to prosper for years to come. Cañas is a property/casualty client advisor with The Jacobson Group, a provider of talent to the insurance industry. He is also the co-founder and chief motivational officer at Insurance Nerds and co-author of the book Insuring Tomorrow. Phone: 800-466-1578. 4:05 PM Email: tcanas@jacobsononline.com.

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Idea Exchange

Minding Your Business

How to Maximize Agency Productivity This does not mean to give up and be satisfied with the status quo. It means that owners and managers need to get into action and do what it takes to find that proper mix of ingredients that will work for the agency.

The Basics

By Catherine Oak

aximizing employee productivity has a direct impact on the bottom line. Managing workloads is something most managers or supervisors try to do. But it doesn’t really work to just shift accounts from one account manager to another. Perhaps there might be some changes to the work flow. However, in the end, dust is kicked up for a few weeks only to settle back down in a new location! The biggest single agency expense is agency personnel, typically costing 52 percent to 73 percent of revenue. In general, owner and producer compensation ranges between 25 percent and 35 percent of revenue, office staff compensation ranges from 20 percent to 28 percent of revenue and benefits and taxes costs 7 percent to 10 percent of revenue. This means if a firm can get more work done with fewer employees then the savings drop to the bottom line. For example, if a firm can increase revenues by 10 percent without increasing staff then that 10 percent is mostly profit.

The place to start is with the people doing the work. Management needs to hire the right people. Those that do not work effectively with others and efficiently, should be “let go” as soon as possible. One bad employee can spoil the whole work environment. Productive people notice. It causes real morale problems, when the problem employee is not addressed. Manage by walking around and asking questions. Employees know what works and what does not work.

Management’s role is to determine which ideas are the most cost-effective solutions, if any. Management should ask the employees the following: “What three things can be done to make your job more efficient? Or make you more productive?” Bring the staff together to discuss the suggestions. Brainstorm on the issues. Delegate some of the problem solving to the staff and have follow-up meetings. The best suggestion should win a monetary reward, depending upon the savings. Or even time off, which everyone really appreciates. This process should be repeated annually. This is exactly what good consultants do. When brought in to improve the operation, they get their ideas from the staff sitting in the desks. It isn’t rocket science.

The Secret to Improving Productivity

The secret to improving employee productivity is … there is no secret. Every agency has its own personality. Owners and managers need to use a blend of art and science to arrive at the formula that works best for their specific firm. 66 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 17, 2018

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Key Ways to Analyze

Owner and managers should perform their own analysis. The following are some basic areas to explore. Is the agency overstaffed? Compare the agency productivity to peer groups using one of the published benchmark studies. The key is to make sure the standards used are based on size of account, not just location of the country and size of agency. If overstaffing exists, why and what can be done? Get rid of under-performing employees and reward the high performers. Is the layout of the office efficient? Can people print and fax from their own computers? The first step is to take an inventory. Does the agency have enough properly functioning and up-to-date office equipment? Sometimes a new machine can make a big difference in productivity. Is the telephone system efficient? Is there extra space that could be better utilized? Is the rent too high? Can telecommuting work for those who live far away? How can this be policed? Could four-day work weeks be implemented? One client moved into half as much space in a very expensive city and completely redesigned the office. Partitions were brought down, people sat side by side, booths were set up for private call meetings and mini-conference booths for clients. The proximity to their neighbors kept people from making personal calls and playing games, and made people communicate more with each other. Camaraderie soared. Even the producers 060-ARGO-COLONYB-8757_2018 Insurance shared offices and could learn from each

other, listening to calls and sharing ideas when the calls did not go so well on new business prospecting. How is the employee morale? Any number of things can cause poor morale. Often it is related to perceived unequal treatment. All employees should be expected to meet the same high standards. Be consistent with managing this. The annual performance review is the time to clearly communicate performance expectations and past results. Have the employees first complete the review for the manager’s review and critique. Is the staff properly trained? On-thejob training is good to make sure the staff follows agency procedures. Unfortunately, it can perpetuate the same old inefficient ways of working. It is great to send the employees outside the agency for new ideas, when possible. Make sure the staff is kept up to date with insurance coverages and procedures. Have the employee inform the rest of the staff on what they learned after they return from the training. Communication is imperative. Does management have a clear direction for the agency and is it communicated to the staff? Employees need to be pointed in the right direction and told what their purpose is. Having a purpose will prevent the employees from getting bogged down in the minutia.

Automate Wisely

The key with agency automation is not to buy the most expensive and sophistiJournal Construction Print ad_V1_7.25x2.25.pdf cated system. The key is to maximize the

usage of any effective agency management system. Some small firms spend lots of money buying a name brand system, but they don’t always have the proper training or utilize it for most functions. They would be better served buying a less expensive system and utilizing most of its functions. When it comes to the computer system, is the staff double entering data? This can occur when one person writes down information from a phone call on a piece of paper rather than bringing up the computer screen to complete the transaction, and thus the work is done twice. Or, this can occur when one person takes only some of the information rather than transferring the call to the appropriate person (e.g. claims, PL CSR or the producer). Is the agency using transactional filing or is it paperless? The new software, scanning machines and larger disk space, as well as company uploading and downloading makes being paperless the way to go on many lines of coverage today. The jump to being paperless requires a leap of faith. Almost all that have made the move have been happy and have eventually seen a jump in service staff productivity. There is one glitch in the automation arena — maintenance. When the computer system is down, most of the work in the agency is close to a standstill. Medium to large firms now must add an IT (information technology) person to the staff. Others have added data entry people. This is necessary for many larger agencies, but the addition of personnel and more expensive 8/29/18

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Minding Your Business continued from page 67 automation, adds to the firm’s expenses and lowers profits. Today many agencies also have two or three terminals on each person’s desk. This is done to be able to multi-task various activities, including accessing carrier rating systems and information.

The Book of Business

The type of insurance sold limits the productivity of employees. For example, firms that sell employee benefits tend to have very high productivity. One producer and two staff can easily handle $500,000 or more in commissions. In contrast, a non-standard auto agency might need three or four employees to service $300,000 in commissions. Commercial lines usually falls between personal lines and employee benefits productivity, when it comes to productivity. Even within each line of business certain classes of business are more labor intensive than others. Contractors and truckers will require a lot of service work, such as certificates. The good news is that there are some tricks to change the agency’s mix of business to improve productivity. Some agencies have also gone to using outside services to handle labor intensive activities, such as certificates, policy checking and even small commercial lines accounts, etc. Two that seem to be very popular are Resource Pro and Patra.

Cross-Selling

Does the agency cross sell its accounts? Relationships are strengthened when an agency sells more than one coverage to its clients. Efficiencies are gained by earning more commission per account and spending less time generating the sale because they are already familiar with the firm and employees/producers with the account. Does the agency have any program business? Selling a unique product that is slot rated can be an incredible income generator. Usually these sales require less work to sell and service. The similarity of the book of business can create high productivity. Do the producers pre-screen their prospects? Pre-screening will help eliminate

68 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 17, 2018

business that the firm cannot write or should not write. Know the price, product and politics needed to close the sale as soon as possible. It is best to find out the quality of the prospect in the phone call before the visit, then during the marketing process. Hit ratios will also improve.

Summary

If increasing employee productivity were simple, everyone would be making more money. Owners and managers need to make a commitment and then handle the items described above, one at a time. Sometimes it helps to bring in an outside partner to get the process started. Oak & Associates can assist an agency in performing a Management & Organizational study and make appropriate recommendations for management to follow. Again, many of these recommendations are uncovered in the staff interviews.

Owners and managers need to use a blend of art and science to arrive at the productivity formula that works best for their specific firm. Small gains when compounded over time result in enormous savings. The goal is to work smarter not harder. Implementing the ideas that are laid out in this article will take some time. We know it will also change the way the operation is run long into the future. These things make employees feel more respected and more efficient, which makes life easier for owners, managers, the producers and service staff. This also results in happier clients. Oak is the founder of the international consulting firm, Oak & Associates, based in Bend, Ore., and Sonoma, Calif. The firm specializes in financial and management consulting for independent insurance agents and brokers, including valuations, mergers, acquisitions, sales and marketing planning, as well as perpetuation plans. Phone: 707-935-6565. Email: catoak@gmail.com. Website: www.oakandassociates.com. INSURANCEJOURNAL.COM

INSURANCE INDUSTRY CHARITABLE FOUNDATION Twenty-five years of helping communities and enriching lives, together.

Insurance Industry Charitable Foundation (IICF) is a unique nonprofit that unites the collective strengths of the insurance industry to help communities and enrich lives through grants, volunteer service and leadership. Having contributed more than $31 million in community grants and over 270,000 volunteer hours, to hundreds of charities and nonprofit organizations, IICF continues to reinvest locally where funds are raised for greatest community impact.

#IICFWeekofGiving

Join with thousands of your industry colleagues for our annual

IICF Week of Giving October 13â&#x20AC;&#x201C;20, 2018 Be a Part of Something Greater Register your volunteer team and sign up for projects at: weekofgiving.iicf.org As the largest ongoing volunteer initiative in the insurance industry, IICF Week of Giving unites colleagues, competitors and clients in volunteer service to benefit nonprofit organizations supporting the communities where we live and work. Midwest Division Kelly Hartweg Phone: (773) 991-2149 khartweg@iicf.com

Northeast Division Betsy Myatt Phone: (917) 544-0895 emyatt@iicf.com

Southeast Division Sarah Conway Phone: (214) 228-2910 sconway@iicf.com

Western Division Melissa-Anne Duncan Phone: (714) 870-1084 maduncan@iicf.com

UK Division Wendy Wilder Phone: +44 (0) 7469 392 453 wwilder@iicf.com

Closing Quote Congress Should Amend Definition of Private Flood

By Jacqueline M. Schaendorf

istorically, the surplus lines market has served as a supplement to the National Flood Insurance Program (NFIP) and standard market, but the passage of the Biggert-Waters Flood Insurance Reform Act of 2012 caused some confusion in the lending industry regarding accepting private flood insurance, including surplus lines policies. The Flood Insurance Market Parity and Modernization Act (H.R. 1422/S. 563) will provide clarity for lenders so that they may accept private flood insurance solutions from the private market and the surplus lines market particularly. The Flood Insurance Market Parity and Modernization Act is intended to preserve the surplus lines marketâ&#x20AC;&#x2122;s ability to provide supplemental coverage and to provide insureds with alternatives and coverage options for difficult-to-place and complex risks that exceed or differ from options available through the NFIP or the standard market. This legislation has support from both the banking and insur-

ance industry, and Wholesale & Surplus Insurance Association (WSIA) has long advocated for its passage in collaboration with other industry trade associations. The surplus lines insurance market exists to provide coverage for nonstandard risks and for risks that exceed either what the standard market is capable of or willing to underwrite. There are specific situations in which consumers might turn to the surplus lines market to write flood coverage. These include cases where the property exposure exceeds the $250,000 residential property limit or the $500,000 commercial property limit offered by the NFIP. Or, it includes when homeowners or businesses want cover for replacement cost rather than the actual cash value of their property, want to insure additional structures, want the ability to schedule multiple properties on one policy, or when they reside in communities or zones not eligible for NFIP coverage. Consumers whose risks do not fit within the terms and limits of the NFIP, or whose risks are declined by the standard market, then look to surplus lines for solutions. It is essential for consumers in those situations to have alter-

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natives. It is also important to understand that surplus lines insurers underwrite private insurance flood policies primarily in commercial lines and, to a more limited degree, in personal lines. Based on data from nine surplus lines stamping offices, the surplus lines market is estimated to have generated $232.6 million in flood insurance premium in 2017, $49.9 million of which was of primary residential flood coverage, and $24.2 million of which was for excess residential flood coverage. Those figures represent a small proportion of the $44.9 billion surplus lines market and of the $3.3 billion of premium written by the NFIP, but they create important solutions for consumers who need higher limits or enhanced solutions beyond what the NFIP offers. WSIA believes H.R. 1422/S. 563 is a positive step that would enable the private mar-

ket to develop as it simultaneously allows the NFIP to focus on properties with repetitive losses and its goal of flood loss mitigation and prevention. The current legislation is a consumer choice bill. It clarifies the definition of private flood insurance for lenders and preserves the ability for consumers to seek policies in the surplus lines market if they choose or need to. But, it does not reduce or limit the ability of the NFIP to offer solutions at subsidized rates. Consumers will still be able to choose the NFIP policy. WSIA encourages Congress to support the legislation and remains hopeful Congress will take quick action to enact it before the November 30 expiration of the NFIPâ&#x20AC;&#x2122;s latest shortterm extension. Schaendorf is president/CEO of Insurance House, an MGA brokerage operation based in Atlanta. She currently serves as the president of WSIA. INSURANCEJOURNAL.COM

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