Insurance Journal West 2019-02-04 by Insurance Journal

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FEBRUARY 4, 2019 INSURANCE JOURNAL | 3

February 4, 2019 • Vol. 97 No. 3

Contents

Special Reports

News & Markets

Mergers & Acquisitions Report

Big 3 Drive Personal Auto Insurance Recovery; Signs of Rate Hike Fatigue

23 32 Commercial Auto – An

10 Insurance Agents Assured

2019 Wishes & Predictions

of Trump Pass-Through Tax Break Under Final Treasury Rule

Safety U-Turn for Truckers with Animals

The Claims Talent Evolution

Nonprofits Prove to be a Growing and Loyal Niche

Taking a Page from the Insurtech Playbook

How One Agent Adopted a Niche within a Niche

Ask the Insurance Recruiter: Why Agencies Should Promote Soft Benefits

When Rebuilding After Hurricanes, Big Homes Replace Small

Navigating Today’s Nonprofit Insurance Market

60 64

Cyber Attack, or Act of (Cyber) War?

Businesses View Cyber, Business Interruption as Bigger Risks Than Catastrophes

Departments 12 12 14 18 62

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Old Dog Up to New Tricks

States’ Power Grab to Ease Food Laws Emerges as Public Health Issue

When Words Collide: Resolving Insurance Coverage and Claims Disputes The Competitive Advantage: A Regulatory Sandbox

Jan. 1 Renewals Saw ‘Muted Impact’ from 2018’s Catastrophes: Guy Carpenter

Idea Exchange

Closing Quote: Reaching the Moonshot Goal in Flood Coverage

Declarations Figures People Business Moves My New Markets

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FEBRUARY 4, 2019 INSURANCE JOURNAL | 5

Opening Note Write the Editor: awells@insurancejournal.com

Automation and Workers of the Future

utomation won’t replacing the entire workforce but about one-quarter of U.S. jobs could be severely disrupted as artificial intelligence (AI) takes hold in the near future.

Publisher Mark Wells mwells@wellsmedia.com

EDITORIAL

SALES

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

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

East Editor Elizabeth Blosfield eblosfield@insurancejournal.com

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

Chief Content Officer Andrew Simpson asimpson@insurancejournal.com

Southeast Editor/MyNewMarkets Amy O’Connor aoconnor@insurancejournal.com South Central Editor/ Midwest Editor Stephanie K. Jones sjones@insurancejournal.com West Editor Don Jergler djergler@insurancejournal.com International Editor L.S. Howard lhoward@insurancejournal.com Columnists Chris Burand, Mary Newgard, Bill Wilson Contributing Writers

Tony Cañas, John Dickson, Steve Discher, Saad Gul, Ray Mazzotta, Michael E. Slipsky, Kristoffer Tique, Jason Walker IJ ACADEMY OF INSURANCE Director Patrick Wraight pwraight@ijacademy.com

ADMINISTRATION

Chief Financial Officer Mark Wooster mwooster@wellsmedia.com

MARKETING

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

NEW MEDIA

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

CIRCULATION

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

South Central Sales Mindy Trammell (800) 897-9965 X149 mtrammell@insurancejournal.com Southeast and East Sales (except for NY, PA and CT) Howard Simkin (800) 897-9965 X162 hsimkin@insurancejournal.com Midwest Sales Lisa Whalen (800) 897-9965 X180 lwhalen@insurancejournal.com East Sales (NY, PA and CT only) Dave Molchan (800) 897-9965 X145 dmolchan@insurancejournal.com Advertising Coordinator Erin Burns (619) 584-1100 X120 eburns@insurancejournal.com Insurance Markets Manager Kristine Honey (619) 584-1100 X132 khoney@insurancejournal.com Social Media Manager Ly Short (619) 890-7735 Lshort@insurancejournal.com Classifieds, Jobs, Agencies Wanted/For Sale Sr. Sales & Marketing Coordinator Kelly De La Mora (800) 897-9965 X125 kdelamora@insurancejournal.com

DESIGN/WEB

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

Circulation Manager Elizabeth Duffy eduffy@wellsmedia.com

6 | INSURANCE JOURNAL | FEBRUARY 4, 2019

According to a new Brookings Institution report, roughly 36 million Americans hold jobs with “high exposure” to automation – meaning at least 70 percent of their tasks could soon be performed by machines using current technology. Almost no occupation will be unaffected by technological change in the AI era. Some of the most vulnerable jobs are those in office administration, production, transportation, and food preparation. Such jobs are deemed to face “high risk” with over 70 percent of their tasks potentially automatable. All of these either involve routine, physical labor or information collection and processing activities.

Almost no occupation will be unaffected by technological change in the artificial intelligence era. The Brookings Metropolitan Policy Program examined data focused on a mix of industries, geographies and demographic groups across the United States. The report, Automation and Artificial Intelligence: How machines are affecting people and places, offers projections for how automation and artificial intelligence will impact the American economy over the next few decades.

Key Findings

Demographic variation: Young people, men, and underrepresented groups, particularly Hispanics and blacks, will face pronounced difficulties as a result of automation’s disruptions— an underexplored viewpoint in current coverage of automation. Geographic unevenness: Some places will do much better than others in dealing with the coming transitions. Places such as Las Vegas, Louisville, Ky., and Toledo, Ohio are among the most susceptible to the automation of job tasks, while the list of least susceptible places includes coastal giants such as Washington, D.C., the Bay Area, New York City, and Boston. Varying levels of occupational susceptibilFOR QUESTIONS REGARDING SUBSCRIPTIONS: ity: By 2030, some 25 percent of U.S. employCall: 855-814-9547 ment will have experienced high exposure to automation, while another 36 percent of U.S. employment will experience medium exposure, and another 39 percent will experience low exposure. Education helps combat automation: Occupations not requiring a bachelor’s degree are 229 percent more susceptible to automation compared to occupations requiring at least a bachelor’s degree. Just 6 percent of workers with a four-year degree or more are in jobs with a high Andrea Wells potential for autoEditor-in-Chief mation.

Outside the U.S., call 847-400-5951 or you may subscribe or change your address online at:

insurancejournal.com/subscribe

Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Media 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 per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this publication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended to be legal, accounting, tax, technical or other professional advice. Readers are advised to consult competent professionals for application to their particular situation. Copyright 2019 Wells Media Group, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. Insurance Journal is a publication of Wells Media Group, Inc. POSTMASTER: Send change of address form to Insurance Journal, Circulation Department, PO Box 708, Northbrook, IL 60065-9967 ARTICLE REPRINTS: For reprints of articles in this issue, contact: Ashley at 1-800-897-9965 ext. 125 or aberg@wellsmedia.com Visit insurancejournal.com/reprints/ for more information.

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News & Markets Big 3 Drive Personal Auto Insurance Recovery; Signs of Rate Hike Fatigue Ahead

teady improvement for U.S. personal auto insurance companies has culminated in the sectorâ&#x20AC;&#x2122;s best underwriting performance in 10 years, according to Fitch Ratings in a report. The market improvement was driven by the three biggest auto insurers. The U.S. personal auto insurance market has shown continued fundamental improvement that is pointing to fullyear statutory underwriting profit for the first time since 2007, according to Fitch. Material premium rate increases over successive renewal periods and a return to more favorable claims frequency experience are key contributors to this result. An industry aggregate statutory direct loss ratio of 65 in private passenger auto liability and auto physical damage combined through the first nine months of 2018 represents an improvement of more than five points from full-year 2017. According to the report, â&#x20AC;&#x153;U.S. Personal Auto Insurance Market: Underwriting Recovery in Full Swing,â&#x20AC;? favorable statutory results have been supported by improved profitability 8 | INSURANCE JOURNAL | FEBRUARY 4, 2019

for nine publicly held U.S. insurers that provide detailed personal auto segment results. This group reported a combined ratio of 92.2 for the first nine months of 2018, versus 98.1 for full-year 2017 and 98.8 for full-year 2016. All nine companies reported better results in 2018. Strong performance of the group was driven by the three largest insurers in the group, The Allstate Corp., GEICO Corp. and Progressive Corp. Specifically, these insurers benefit most from size and scale advantages that allow for investment in technology to gain pricing and risk selection sophistication, and branding through marketing and advertising. GEICO rebounded from a rare auto insurance underwriting loss in 2017 to a 92 combined ratio interim 2018 calendar-year result. Interim statutory results from perennial market leader State Farm also indicate strong yearover-year improvement in automobile underwriting results. Strong performance aside, Fitch warns that the auto market is beginning to show signs of rate increase fatigue following several years of larger price

increases. Premium rates continue to rise and motor vehicle insurance costs increased by 6.7 percent year-over-year as of October 2018, according to Bureau of Labor Statistics data. Fitch said it expects flatter price changes going forward given competitive forces and recognition of recent better underwriting performance. Fitch also reports that claims frequency experience has resumed its longer-term historical downward trend, driven in part by improvements in vehicle safety from technology enhancements, including antilock brakes, backup cameras and blind spot sensors. However, technology advances are also a contributor to loss severity increases as vehicles with more sophisticated parts and components are more costly to repair and replace, the report notes. Bodily injury claims severity remains a prime source of future personal auto profit uncertainty as signs become more evident of medical inflation rising above general inflation and heightened litigation activity and settlement costs in the auto segment. INSURANCEJOURNAL.COM

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News & Markets Insurance Agents Assured of Trump Pass-Through Tax Break Under Final Treasury Rule By Andrew G. Simpson

he U.S. Treasury issued final regulations and other guidance on a provision of the Tax Cuts and Jobs Act that allows owners of sole proprietorships, partnerships, trusts, and S corporations to deduct up to 20 percent of their qualified business income on their taxes. The mid-January final rules cleared up lingering doubts about whether insurance agents qualify for the full 20 percent deduction for their 2018 taxes and for years going forward until 2025 under President Donald Trump’s tax law. They do qualify. “This regulation is a major and hardfought win for Big ‘I’ members — the vast majority of which are organized as pass-through entities. Prior to the regulation being finalized, there was uncertainty surrounding the application of the deduction to insurance businesses,” said Bob Rusbuldt, president and CEO, Independent Insurance Agents and

Brokers of America (Big “I”). The final rules follow draft rules issued in August. That earlier guidance

said for the first time that insurance agents and real estate brokers specifically would not be included in the

January 1 Renewals Saw ‘Muted Impact’ from 2018’s Catastrophes; Results Partially Off-Set by Plentiful Capacity: Guy Carpenter

he overall impact of catastrophe losses on property rates was muted at the Jan. 1, 2019, reinsurance renewals, but the fourth highest annual catastrophe loss year on record did create questions over pricing adequacy, underwriting strategy and the amount of capital available, said New York-based risk and reinsurance specialist Guy Carpenter & Co. In its annual renewal report, the company said potential sector pressure from global catastrophe losses in the second half of 2018 and the continued development of 2017 claims was at least partially offset by plentiful capacity. As a result, Carpenter’s Global Rate on

10 | INSURANCE JOURNAL | FEBRUARY 4, 2019

Line (RoL) Index, a measure of change in catastrophe premium dollars paid year-on-year, increased just 1.1 percent, despite back-to-back years of major loss accumulation. Contributions to the Index from the two largest sectors, the United States and Europe/Middle East/Africa (EMEA), increased 2.6 percent and decreased 2.5 percent, respectively, but there was a wide degree of variation within these results depending on account specifics, the report said. For some European renewals, the uncertainty around Brexit affected their willingness to use Lloyd’s capaci-

ty, but this had little effect on renewal outcomes as additional capital was available, said Guy Carpenter, adding that the renewal impact of Japan’s significant catastrophe activity in 2018 will not be evident until April 1 renewals conclude. While upward movement in property pricing was limited to localized activity, the effects on profitability from losses in this sector put pressure on other lines to achieve or maintain self-sustaining levels, the report continued. As a result, in addition to increases on loss-affected business, increases on some non-loss-affected casualty and specialty

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definition of the specified businesses that face limits on their eligibility. The August guidance was approved for use by agents for 2018 tax filings. However, the lack of final rules from Treasury until today raised questions about whether the earlier guidance might be changed and about the tax break’s status in future tax years, Charles Symington, Big “I” senior vice president of External, Industry & Government Affairs, told Insurance Journal. The questions about taxes for 2018 and taxes for years until 2025 when the deduction expires have now been answered in agents’ favor. Owners and shareholders of insurance agencies and brokerages can take up

to a 20 percent tax deduction on qualified business income, no matter their taxable income levels, because the IRS does not consider insurance agents and brokers to be engaged in a “specified service trade or business.” Owners and shareholders of “specified service trades and businesses” cannot take advantage of the deduction if their taxable income is over a certain level. “Big ‘I’ members, whether organized as a pass-through entity or a C-corporation, can now rest assured that the tax reform law is working for them and their employees,” Symington said. Symington said he and fellow lobbyists from the Council of Insurance Agents and Brokers, real estate agents and others have been working for the past year – including over the holidays and during the government shutdown when communication was difficult– to secure this final rule. “These regulations provide much needed certainty to insurance agencies and brokerages and their employees. We thank the Administration for moving quickly to finalize these important regulations despite the partial government shutdown,” CIAB said in a statement.

business were achieved. “While the impact on Jan. 1 renewals overall was muted, this was a more challenging environment for some segments than it was a year ago. The industry is dealing with questions of pricing adequacy and where and to what degree adjustments might be needed. Finding equilibrium was not always easy and questions remain coming out of this renewal,” said David Priebe, vice chairman at Guy Carpenter. Conditions for upcoming 2019 renewals are uncertain as capital providers integrate recent experience into their market approach, said the report. Diminishing profitability as well as uncertainty over the amount of available convergence capital affected retrocessional renewals at Jan. 1, but

it's unclear what this might mean for broader market dynamics going forward, added Carpenter. As the events of 2018 unfolded and 2017 losses continued to develop, increasing amounts of collateralized capital were lost or restricted by trust agreements, the report said. If this trend continues, or capital providers in general are more conservative in their commitments, deployable capacity may become more broadly constrained. But there are also signs capital may increase, with several initiatives reportedly in progress to bring in new funds. As the industry continues to refine the process by which capital supports risk, the evolving nature of those risks is creating more challenges. The effects of climate change are not fully known, but

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The deduction, referred to as the Section 199A deduction, is available for the first time on the 2018 federal income tax returns. Qualified business income includes domestic income from a trade or business. Employee wages, capital gain, interest and dividend income are excluded. The 20 percent deduction was designed to target small businesses that don’t benefit from the Trump tax law’s reduction in the top corporate rate from 35 percent to 21 percent. “Small and mid-size businesses are the engines of growth for the U.S. economy,” said Treasury Secretary Steven T. Mnuchin. “The pass-through deduction will drive more investment in U.S. companies and higher wages for American workers. This provision will reduce pass-through business tax rates to their lowest rate in more than 80 years.” It is estimated that between 17 and 40 million American business owners will be able to take advantage of this deduction. According to the Big “I,” two-thirds of its member agencies are pass-through entities.

may shape the industry’s future assessment of exposure to loss, and emerging risks like cyber can potentially rival or exceed the exposure from any event currently considered. Market participants may need to adapt their approach to a shifting landscape, but capacity is likely to remain plentiful for risks that can be adequately measured and priced, said Guy Carpenter.

FEBRUARY 4, 2019 INSURANCE JOURNAL | 11

Figures

5.0 MAGNITUDE

The size of an earthquake that rattled Alaska residents through the Anchorage area and beyond in mid-January. The quake was confirmed as an after aftershock of the magnitude 7.0 Anchorage earthquake that struck on Nov. 30, 2018.

Declarations Nevada Seatbelts

“Whether folks want to or not, it’s currently a secondary law in Nevada.”

— Nevada Department of Public Safety spokesman Andrew Bennett believes seatbelts should be a primary law in the state. New data shows 331 people died in crashes in 2018 in Nevada, while fatalities caused by vehicle occupants who were not wearing seatbelts increased 23 percent over the year.

Information Disclosure

Flooding Risks

— U.S. District Judge Paul A. Engelmayer said regarding his decision that a New York City law forcing Airbnb and HomeAway home-sharing platforms to reveal certain information about their businesses seems unconstitutional — a decision that caused the law to be shelved for now. Under the law, companies would be required to reveal the names of hosts, among other information.

— Texas State Sen. Joan Huffman, R-Houston, who has filed legislation that would require sellers of residential properties to notify buyers if a property is located in a flood-prone area — and whether it has previously flooded.

“The scale of the production that the ordinance compels each booking service to make is breathtaking.”

“One issue in particular that I have heard about from so many constituents who were affected by Harvey is that they were completely unaware they were at risk of flooding.”

Medical Marijuana

“It’s coming up repeatedly, employers trying to terminate folks who either have a card, and they know it, or who test positive for marijuana.” — Patrick Gallagher, the attorney for Jeremiah Chance, a medical marijuana user and yard equipment operator at the Kraft Heinz plant in Dover, Del., regarding a lawsuit over his 2016 firing after he failed a drug test. Chance claims his termination violated an antidiscrimination provision contained in Delaware’s Medical Marijuana Act.

12 | INSURANCE JOURNAL | FEBRUARY 4, 2019

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104

The number of people who died in traffic accidents in North Dakota in 2018. That’s the lowest number in a decade and a decrease of 10 percent from 2017, according to Dakota Department of Transportation and the North Dakota Highway Patrol.

The number of reported tornadoes in Texas in 2018. For comparison, Texas averages 134 tornadoes each year, with the fewest number of reported tornadoes being 14 back in 1951, and a record-high of 258 tornadoes in 2015.

Michigan Auto Coverage

“I think as we heard last year loud and clear from citizens throughout Michigan, we need to lower the cost of auto insurance.”

— Republican Sen. Aric Nesbitt of Lawton, Michigan, who has sponsored legislation that would make it optional for Michigan drivers to buy what is now mandatory unlimited medical coverage. Michigan has some of the highest auto insurance rates in the nation.

Toxic Algae, Red Tide

“The policies of the past administration have taken a terrible toll on our natural resources, to say nothing of the impact on our marine life. But an executive order has to have more than just lofty goals, or admirable pursuits. It has to have the details we need to judge whether these goals are doable.”

— Florida Senate Democratic Leader Audrey Gibson in response to an order by new Florida Governor Ron DeSantis’ to tackle the state’s problems with toxic algae in its rivers and red tide off the state’s coast.

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FEBRUARY 4, 2019 INSURANCE JOURNAL | 13

People

Joseph Cook

Schuyler M. Ryan

AmTrust Financial Services

announced leadership changes as it moves forward as a private company. Its $2.95 billion privatization plan was finalized on November 28, 2018 after receipt of all approvals. AmTrust announced retirements of Michael Saxon, executive vice president for U.S. Commercial Lines, and Max Caviet, chief executive officer of AmTrust International Ltd., the company’s European parent holding company. Saxon has been with the company since 2001 and Caviet has been with the company since 2003. In addition, Christopher Longo, chief operating officer, has resigned to pursue other opportunities. Longo had been with the company since 2001. Saxon will be succeeded by Christopher Foy and Caviet by Peter Dewey. Foy will serve as executive vice president and head of North American Commercial P&C. Foy joined AmTrust in 2016 as president of AmTrust Underwriters, with responsibility for the specialty program business segment. Dewey will serve as executive vice president, head of International. Dewey joined AmTrust in 2003, and has served as CEO at AmTrust at Lloyd’s since 2014. FM Global has named Deanna Fidler as senior vice president and chief human resources officer. She is based at corporate offices in

Timothy Morse

Johnston, R.I., and succeeds Enzo Rebula, who retired at year’s end after 37 years with FM Global. Before joining FM Global, Fidler served as the chief human resources officer at global asset management firm T. Rowe Price. The board of American International Group has elected Thomas Motamed,

who retired as chairman and chief executive officer of CNA Financial Corp. in 2016, as a director. Motamed has also been appointed to the board’s Risk & Capital Committee and the Compensation & Management Resources Committee. Motamed was chairman and CEO of CNA from 2009 to 2016. Prior to CNA, Motamed spent 31 years at The Chubb Corp., where he rose to vice chairman and chief operating officer.

East

Union Mutual has promoted M. Joseph Cook, Schuyler M. Ryan and Matthew Miles. Cook was named vice president of Union Mutual and executive vice president of Community Mutual, a member of the Union Mutual Companies. Ryan was named director of accounting of the Union Mutual and was also elected to serve on the board of directors for Community Mutual. Miles has been named director of subrogation. Miles is based in the company’s Montpelier, Vt.,

14 | INSURANCE JOURNAL | FEBRUARY 4, 2019

Penni Nelson

Abel Travis

office, while Cook and Ryan are based in the company’s Troy, N.Y., office. Cook joined the companies in 2018 as the chief marketing and business development officer of New York operations. Previously, he was a regional and national Eastern region vice president for Swiss Re and has also worked for Employers Re and American/Munich Re. Ryan joined Union Mutual as a senior accountant in 2014 and was most recently the companies’ accounting manager. She previously worked as a senior accountant at LeverPoint Management and as an associate at PricewaterhouseCoopers. Miles joined the companies in 2015 as a subrogation adjuster. Acadia Insurance has appointed Tim Morse as regional vice president and branch manager of its New York branch. He succeeds Joe Gresia who has been appointed senior vice president and chief field operations and business development officer at Berkley FinSecure. Morse joined Acadia in 2013 and most recently was assistant vice president of Specialty Marine. Matt McManus has succeeded Morse as assistant vice president of Specialty Marine. McManus joined Acadia in 2007. He was most recently assistant vice president of Loss Control. Prior to that, he was underwriting director for the

Maine branch.

Southeast

USG has hired Kim Steinmetz as producer/broker

to its branch in Tampa, Fla. Steinmetz joins the USG team with 16 years of experience specializing in large commercial property. She most recently held the position of assistant vice president at AmWins in Jupiter, Fla. In her new position at USG, Steinmetz will work to develop her book of business, as well as USG’s large brokerage property division. InsuranceHub has doubled the size of its Lawrenceville, Ga.-based commercial transportation division with the addition of several new team members within the last year. Within the last three months, the following people were hired to enhance the company’s Transportation team: Mike

McLeod; Kristina LaBarre; Rachel Parks; Ben Blanks; Connie Voong; Markita Hodge and Riley Crawford.

Allied American Underwriters (AAU), a division of USG Insurance Services, Inc., has hired Stan Connally as producer/broker for workers’ compensation in the Tampa, Fla., branch. Connally joins AAU with 36 years of experience in workers compensation. Most recently, Connally worked with Employers National Insurance INSURANCEJOURNAL.COM

Keri Kittman

Mitch Walsh

Becky Holnagel

Co. as vice president/ Marketing.

most of his career with Arthur J. Gallagher.

South Central

Roman E. Bernal has joined AXA XL’s broker and client management team in Houston as client distribution leader for the South Central region, reporting to Wayne Speeg, South Central regional leader. Bernal will be a key contact for brokers and clients in the region, helping them address their multi-line property, casualty and specialty insurance needs in the U.S. and internationally, through AXA XL’s global network. Bernal joins AXA XL from AIG in Houston where he recently served as regional business development director. His career also includes positions with Aon, Brown & Brown and Travelers.

Penni Nelson has been named president of the DallasFort Worth chapter of the Risk

and Insurance Management Society (RIMS) for 2019.

Nelson serves as director of Risk Management for Hillwood Development Group and has been involved with RIMS for almost 10 years. As the largest of four Texas RIMS Chapters, the DFW Chapter boasted more than 425 members in 2018. EPIC Insurance Brokers and Consultants hired Joffrey Clark in the firm’s property/ casualty practice as a principal and charter school practice leader. He is based in Dallas and reports to EPIC Southwest Region Managing Principal and Director KJ Wagner. Clark will be responsible for new business development and building EPIC’s charter school practice. Clark joins EPIC from McGriff, Seibels & Williams Inc. and brings 20 years of industry experience. EPIC also added Brandon Rich in its property/casualty practice in Houston as a client advocate, reporting to Wagner. Rich will be responsible for new business development and programs for mid-market and large clients. Rich joins EPIC from Upstream Brokers, where he served as a vice president. Prior to that, he spent INSURANCEJOURNAL.COM

Midwest

Lansing, Michigan-based property/casualty insurer AF Group has promoted five in key leadership positions across the organization. Abel Travis has been promoted to vice president, Underwriting & Product Innovation. Prior to joining AF Group in April 2018, Travis was assistant vice president and head of commercial lines product management for Hanover Insurance Group. Keri Kittmann is now vice president, Servicing Carrier Operations. Kittmann joined AF Group in 200, and has held various management posi-

Jacob Geyer

Katherine Evans

tions within the organization. In 2009, she was named AF Group’s “Leader of the Year.” Prior to joining AF Group, she held several finance and accounting roles for Citizens/ Hanover Insurance and Blue Care Network. Mitch Walsh has been named vice president, Business Transformation. Walsh joined AF Group in 2015 as director of Strategy and Operations. Prior to joining AF Group, he served as vice president of Insurance Services at Texas Mutual Insurance Co. and previously held several executive-level positions including vice president of Loss Prevention & Underwriting Systems. Becky Holnagel has been appointed chief actuary. Holnagel has held several management positions since joining AF Group in 2006 and now leads the company’s Actuarial and Predictive Modeling teams and data strategy initiatives. Prior to joining AF Group, Holnagel served as a senior actuarial analyst for MEEMIC Insurance Co. and as an actuarial analyst and commercial lines underwriter for Citizens Insurance Co. Jacob Geyer has been promoted to vice president, AF Specialty; and vice president, Business Analytics and Underwriting Operations. Geyer joined Accident Fund in June 2008 as a senior actuarial analyst. Prior to this, he

worked at Liberty Mutual in an actuarial role for pricing and ratemaking. Randy Perez has been hired as senior vice president of product management for Columbus, Ohio-based Motorists Insurance Group. Perez comes to Motorists from Horace Mann, where he spent three years as vice president of pricing and product management. Perez has 20 years of experience in the personal lines industry.

West

CSAA Insurance Group has named Katherine Evans vice president of regulatory and government affairs. Evans will oversee all areas of CSAA Insurance Group’s government and regulatory practices, and will report to the company’s chief legal officer, Mike Zukerman. Evans has been senior counsel in the company’s regulatory group since 2014. Prior to joining CSAA, Evans was an insurance regulatory partner with Dentons. San Francisco, Calif.-based Woodruff Sawyer has named Frank Mckenna senior vice president and national healthcare practice leader. Mckenna will be responsible for expanding and growing the current Healthcare practice. Mckenna was previously president of the healthcare practice for a large national broker.

FEBRUARY 4, 2019 INSURANCE JOURNAL | 15

News & Markets States’ Power Grab to Ease Food Laws Emerges as Public Health Issue

n recent years, more than a dozen states have passed laws limiting local governments’ ability to create food and nutrition policies and more than two dozen states previously enacted laws preventing obesity-related lawsuits against food businesses. A new analysis led by NYU College of Global Public Health finds these laws are examples of preemption, a legal mechanism in which a higher level of government withdraws or limits the ability of a lower level of government to act on an issue. The study, published online in the American Journal of Preventive Medicine, tracks state preemption of local food and nutrition policies and litigation—and documents a growing, industry-influenced trend to thwart public health efforts. “Local governments are in a prime position to address public health issues, such as reducing health disparities, providing nutrition information and access to healthy food, and regulating the cost of unhealthy food. Unfortunately, state preemption hinders public health progress by impeding local food and nutrition policies and government-initiated litigation,” said Jennifer L. Pomeranz, assistant professor of public health policy and management at NYU College of Global Public Health and the study’s lead author. In the U.S., federal, state and local governments have various legal tools to support public health and prevent diet-related disease, including enacting policies like nutrition labeling and soda taxes, as well as bringing lawsuits against businesses that produce harmful products. 16 | INSURANCE JOURNAL | FEBRUARY 4, 2019

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“While all levels of government play important roles in public health, local governments are often the first to create innovative solutions to public health problems, and successful local policies—such as New York City’s ban on trans fats—have the potential to spread nationally,” said Pomeranz. In addition to Pomeranz, Michael Bare and Mark Pertschuk of Grassroots Change and Leslie Zellers co-authored the article. Businesses try to defeat public health efforts at the outset by championing preINSURANCEJOURNAL.COM

emption, and state legislatures have ceded to food industry pressure by enacting preemptive laws prohibiting both policymaking and litigation. The researchers identified state laws enacted through March 16, 2018, that preempt local food and nutrition policies as well as litigation based on claims that food consumption causes obesity or diet-related disease, often referred to as Commonsense Consumption Acts. Between 2008 and March 16, 2018, 12 states enacted 13 laws preempting local food and nutrition policies. These laws prevent local governments from regulating several areas, including nutrition labeling, consumer incentive items (e.g. toys with children’s meals), portion size, food and beverage taxes, food safety, and food-based health disparities (e.g. food deserts). Several states included more than one topic in their laws, with laws in Kansas and Mississippi restricting regulation of at least four food-related areas. The researchers found that preemptive laws were often enacted swiftly, and some were drafted by the food industry or were based on industry-sponsored model legislation. The earliest two laws (from 2008 and 2009) preempt nutrition labeling, while more recent laws (from 2017 and 2018) preempt food and beverage taxes.

On June 25, 2018, California state legislators amended a budget bill to preempt local governments from adopting new soda taxes for the next 12 years. Within four days, the bill passed through both the California State Senate and Assembly and was signed by the governor on June 28 — leaving little opportunity for stakeholders to organize in opposition. Similar measures to prohibit local soda taxes were on midterm ballots in Oregon and Washington. Voters in Washington passed the initiative, effectively banning future soda taxes but leaving Seattle’s existing soda tax intact, while Oregonians voted against theirs. In addition to laws preempting new policies, between 2003 and 2013, 26 states enacted Commonsense Consumption Acts prohibiting lawsuits against food businesses based on obesity-related claims. Of these 26 states, 10 explicitly prevent government-initiated litigation including state attorneys general in most cases. Preempting litigation can have far-reaching consequences for public health, according to the researchers. Litigation can reveal documents that expose industry practices, and litigation by state attorneys general, especially, has led to industry changes in food labeling, tobacco and other products. “Preemption is currently one of the most important policy topics for public health and should be central to all food policy discussions, given that it is part of broader efforts to reduce government regulation of the food industry,” Pomeranz said. “State legislatures should avoid using preemption, as it undermines local control and impedes public health progress.” FEBRUARY 4, 2019 INSURANCE JOURNAL | 17

Business Moves

National China Re, Chaucer, Hanover

China Reinsurance (Group) Corp. has completed the 100 percent equity acquisition of Chaucer Holdings Ltd. - the major portion of Hanover Insurance Group’s Lloyd’s international specialty business. The acquisition of Chaucer Insurance Co. DAC (Chaucer Dublin) and Hanover Australia Hold Co. Pty Ltd (SLE) remain subject to local regulatory approval and is expected to close by the end of first quarter in 2019. China Re is acquiring Chaucer for total proceeds of $930 million to $940 million. The deal was completed on Dec. 28; it was first announced in September 2018. China Re said the purchase of London-based Chaucer marks a milestone in the expansion of its global footprint, given the fact that Chaucer is a top quartile player in the Lloyd’s market and a global re/insurer. China Re said it aims to strengthen its core reinsurance business, enhance its global market position and better serve China’s Belt & Road Initiative.

Carlyle Group, Sedgwick

The Carlyle Group Global is now the majority owner of claims and technology services firm Sedgwick. Funds managed by Carlyle completed an ownership transaction that is valued at approximately $6.7 billion on Dec. 31. Previous majority shareholder KKR is fully exiting its position. KKR and company management paid $2.4 billion in 2014 to buy Sedgwick. Funds managed by Stone Point Capital and Caisse de dépôt et placement du Québec, 18 | INSURANCE JOURNAL | FEBRUARY 4, 2019

together with Sedgwick management, remain as minority investors. Equity capital for the investment came from Carlyle Partners VII, an $18.5 billion fund that focuses on buyout transactions in the U.S., and Carlyle Global Financial Services Partners III, a financial services buyout fund.

East Ryan Specialty, Stetson Funding, Superior Payment

Ryan Specialty Group has acquired the assets and operations of Superior Payment Plan, a premium finance company based in Depew, N.Y. Superior’s operations will become part of Stetson Insurance Funding, a subsidiary of RSG and a licensed premium finance company.

Hilb, Bruce Crohn

The Hilb Group has acquired Bruce Crohn, an employee benefits consultant and insurance brokerage firm located in Cambridge, Mass. It assists small-to-medium sized companies in managing group benefits programs, with a specialty in early-stage technology firms.

Shore Bancshares, Avon Dixon Agency, Alera Group Agency

Shore Bancshares Inc., a financial holding company headquartered in Easton, Md., and The Avon-Dixon Agency, its wholly-owned insurance producer firm, have agreed to purchase the assets of Avon-Dixon - an Alera Group Agency, a Delaware limited liability company and subsidiary of Alera Group Inc. Alera will

purchase substantially all of the assets used in the operation of Avon-Dixon’s insurance business, and Shore Bancshares will receive net proceeds of approximately $26.9 million at closing. The transaction will increase Shore Bancshares regulatory capital, enabling the company to expand its banking activities, and the association with the Alera Group will bring new opportunities for growth, according to Shore Bancshares President and CEO Lloyd L. Beatty. Following the transaction, Beatty stated that the entire team will remain in place, and Rich Trippe will remain as the managing partner.

Hilb, H.J. Knight

The Hilb Group has acquired Massachusetts-based H.J. Knight International Insurance Agency, a commercial insurance broker that specializes in alternative risk management for commercial clients throughout the U.S. Managing Director Matt Lanza and his team will continue to operate out of HJK’s Braintree, Mass., location following the acquisition.

A.J. Gallagher, Preston-Patterson

Arthur J. Gallagher & Co. has acquired Conshohocken, Penn.-based PrestonPatterson Co., a retail property and casualty insurance broker specializing in broadcasters and media clients throughout the U.S. It also serves other commercial clients, as well as personal lines clients with a particular focus on coastal property exposures. Stephen, John and Stuart Patterson, and their associates, will initially remain in their current locations in Conshohocken and in Barnegat Light, N.J., under the direction of Dan Tropp, head of Gallagher’s Mid-Atlantic retail property and casualty brokerage operations.

South Central Worley Claims Services, Replacement Source of America

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News & Markets Expert Ponders California Wildfire Commission, Other Solutions to State’s Severe Seasons By Don Jergler

stablishing a California Wildfire Commission is just one idea an expert is tossing out to help the state deal with worsening fire seasons. James Woods was formerly co-leader of Mayer Brown’s Global Insurance Industry Group and chair of the LeBoeuf, Lamb, Greene & MacRae Insurance Practice. He now owns and operates Woods Group Solutions, headquartered in Sonoma, Calif. Woods, a long-time Jim Woods insurance attorney, is all about looking for solutions to help the insurance industry and insurance consumers. He’s been talking a great deal lately about how to be better prepared and more adequately handle the costly wildfires the state has been dealing with over the last several years, including the November 2018 wildfires which are now reported to have amassed $11.4 billion in insured losses. He recently discussed his ideas for possible solutions with Insurance Journal. This has been edited for clarity and brevity.

Insurance Journal: When you look at last year’s wildfire season, can you recall any season as bad? James Woods: No. Forest fires are becoming increasingly likely, because of climate change, and costing insurers more than ever. Wildfires are here and they’re doing devastating damage and they’re likely to continue. IJ: You stated before that this an opportunity for the insurance industry to step in and provide leadership. What can be done? Woods: Well there’s several things. We

need to focus first and foremost on the consumer. The consumer today has three options, and what we’re fearful of is, in wildfire areas the consumer is likely to be uninsurable. To give one a sense of measure of that, the governor’s office has stated that one-in-10 buildings in the state of California are located in wildfire areas. About 2 million buildings are located in wildfire areas. So we’re talking about 10 percent or more of this state’s building industry, both residences and commercial structures, located there. The alternatives, first and foremost, was to seek coverage for the consumer, in the so called admitted insurance market, that always should always be the venue first and foremost. Secondly, if the consumer cannot find adequate coverage there, they can seek coverage through the state sponsored FAIR Plan. I say state-sponsored, it’s really a creation of the insurance industry and the admitted market. And thirdly, if both of those do not provide adequate cover for the (consumer), there’s a very robust non-admitted market such as Lloyd’s of London, where the consumer can attempt to seek coverage. The problem is that we’re finding holes in each of those, and limitations, in each of those coverages, or sources of coverage, for the consumer. With the admitted market, we’re starting to see admitted insurers refusing to write wildfire areas ... one large national broker has set wildfire deductibles in those areas ... or in the FAIR Plan we’re seeing limitations of, I think it’s a million-five of coverage, and they may be reaching capacity as to how much they can write. The non-admitted market is a very flexible market, and

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it’s unknown whether or not they’ll step forward as they did in the days after the Chicago fire, when Mrs. O’Leary’s cow kicked the lantern and started that fire, the non-admitted market came in to provide coverage. We’re too early to see whether or not they will fulfill that capacity problem, which forces us to start thinking about other alternatives.

IJ: You’ve heard about the lawsuit filed by Allstate, State Farm and USAA. Have you heard of something like this happening before? Do you think these suits have legs? Woods: It’s a subrogation type of suit. It’s a suit whereby the insurers are seeking to recoup for some of the damages that have insured to their detriment, as a result of these wildfires, and they’re legally entitled to go after the entity that allegedly caused that fire. So, they do have legs. I will point out one thing that I found to be quite interesting. Sometimes it’s important not to achieve what one hopes for, and I know that Bloomberg has estimated that the insurance industry owns 20-25 percent of the California utility bonds. So, if these lawsuits, and other suits, manage to bankrupt PG&E, it is possible that the bondholders will be left out in the cold. Hopefully, the insurance industry is tracking their asset balance sheet, as they proceed through these suits. IJ: You’ve previously mentioned the idea of having a California Wildfire Commission. Can you tell us a little bit about that?

continued on page W4

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News & Markets continued from page W2 Woods: This is such a prevalent prob-

lem, it tends to stay, economically, so hard. It’s also hugely detrimental to the housing crisis that we currently have. We need to think differently and, in this instance, (think about) forming a Wildfire Commission that would take a look at, and draw the lines for, the truly exposed areas

with wind overlays. Then, helping us make sure that infrastructure in these populated areas is adequate for public evacuation, in the event that the worst happens, which of course was the huge issue in the Camp Fire. 26,000 homes were burned. People had to leave. They, by virtue of the fact that they

had a wildfire 10 years earlier that had destroyed 80 homes, were looking to the future and created a skyway, in order to help evacuate people. The problem was, it was locally reviewed, not state reviewed, and it turned out to be inadequate. It was totally jammed. People couldn’t get out, had to leave their vehicles on the side of the road. They had planned to have three stages of evacuation, but the fire spread so quickly that everybody was trying to leave at the same time. There was no order to it. Eventually, Cal Fire had to come in and bulldoze cars out of the way, so that the firefighters could reach where the fire was most devastating. We need more of a coordinated effort to take a look at infrastructure, as well as fire remediation in these areas.

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Building standards (for instance). California meets the highest quality of building standards, but I think the insurance industry could be helpful here too. They can help set higher standards for insuring risk in wildfire areas, by making sure that adequate defensible space around each home. Eaves don’t over-extend. When communities are built, they will have areas where firetrucks can actually turn around, at the end of a cul-de-sac, rather than get stuck and therefore not respond to a fire at the end of the cul-de-sac. All of these things can be governed, indirectly, by the insurance industry and their underwriting standards.

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tents replacement, salvage, and on-site field inventory services for the property insurance market. The transaction with ReSource is Worley’s seventh acquisition since 2015.

Seeman Holtz, Professional Medical Services

Seeman Holtz Property & Casualty has acquired insurance broker Professional Medical Insurance Services, headquartered in Houston, with seven other offices across the country. This PMIS medical and malpractice group will further expand the Seeman Holtz Healthcare Division, headed by Guy Feist in the Oklahoma City office. Professional Medical Insurance Services works exclusively within the healthcare industry. Bill Reiss of PMIS will remain in a leadership role for Seeman Holtz Healthcare. Seeman Holtz Property & Casualty Inc. is headquartered in Boca Raton, Florida.

Webb, Young & Webb, Rich & Cantrill

Oklahoma City-based Webb, Young & Webb Insurance has joined Rich & Cartmill Insurance and Bonds, headquartered in Tulsa, Oklahoma. Webb, Young & Webb Inc. was started in 1947 and has been passed through four family generations. Rich & Cartmill Insurance and Bonds was founded in 1922 and has branches throughout Oklahoma, Kansas, Missouri, Indiana and Louisiana.

Midwest Hub, Sheridan Road Financial

Chicago-based, global insurance brokerage Hub International Limited has acquired the assets of Sheridan Road Financial, an institutional retirement consulting and private wealth firm, and certain of its affiliates. Headquartered in Chicago, Sheridan Road manages more than $14 billion in assets and services of more than 300,000 individuals through its retirement plan and wealth management practices. Sheridan Road Founder and Chief Executive Officer Daniel Bryant, and Managing Partner Jim O’Shaughnessy, will join Hub Midwest. Bryant was named president of National Sales, Retirement and Private Wealth, and INSURANCEJOURNAL.COM

O’Shaughnessy assumes the role of president of Retirement and Private Wealth in the Central Region. Sheridan Road’s advisors will be part of Hub International Investment Services Inc. and a subsidiary of Hub. They will also maintain their broker dealer affiliation with LPL.

Auffenberg, Valley Agency Alliance

Auffenberg Insurance Services in Belleville, Illinois, has joined Valley Insurance Agency Alliance, which has 120 independent insurance agencies in Missouri and Illinois. Owned by Mike Auffenberg and Nathan Schumacher, Auffenberg Insurance Services previously was known as Auffenberg Allstate. The agency specializes in personal lines, as well as fleet and employee workplace benefits.

ONI Risk Partners, MBAH Insurance

office will operate as a new stand-alone location in Brown & Brown’s Wholesale Brokerage Division under the leadership of Tony Strianese, president of Brown & Brown’s Wholesale Brokerage Division.

Southeast Aloisi, Brightway Insurance

Lucas Aloisi has opened a Brightway Insurance Agency located in Parkland, Fla. Born and raised in South Florida, Aloisi comes to Brightway from MassMutual, where he worked in the financial planning and insurance industry for the past two years. Brightway is a national property and casualty insurance retailer, selling through a network of franchised independent stores.

Arthur J. Gallagher, Complete Benefit Alliance

ONI Risk Partners, headquartered in Indianapolis, is acquiring MBAH Insurance, a Lafayette, Indiana-based insurance agency that has been in operation for more than 90 years. The MBAH team joins ONI’s 300-plus insurance professionals serving business and individual clients throughout Indiana, Illinois and Kentucky. The MBAH Lafayette location will serve as ONI’s fifth Indiana regional office in addition to its offices in Indianapolis, Ft. Wayne, Terre Haute and Evansville. MBAH Executive Vice President Matt Metzger will serve as the market executive for the new regional office.

Arthur J. Gallagher & Co. has acquired Complete Benefit Alliance LLC. Terms of the transaction were not disclosed. Complete Benefit Alliance (CBA) is a benefits enrollment firm serving large and mid-sized, public and private sector employer groups from its home office in Birmingham, Ala., and regional office in Phoenix, Ariz. Steven R. Griffin and his team will continue to operate from their current locations under the direction of John Neumaier, head of Gallagher’s Great Lakes employee benefits consulting and brokerage operations.

Hull, Izzo Insurance Services Hull & Company, a subsidiary of Brown

Board

& Brown Inc., has acquired substantially all of the assets of Izzo Insurance Services Inc., based in Bloomingdale, Illinois. Founded in 1980 by Karen Izzo, Izzo Insurance Services is a wholesale brokerage that specializes in providing workers’ compensation insurance coverage options to its retail broker partners. The firm has annual revenues of approximately $2,000,000. Following the acquisition, Izzo Insurance Services will continue doing business from its Bloomingdale location under the leadership of Izzo. The

West Alliant, Public Sector Pension Investment Newport Beach, Calif.-based Alliant Insurance Services Inc. announced that a Canadian pension investment manager is making an investment in the firm. The investment by the Public Sector Pension Investment Board is joined by an additional investment from funds managed by Stone Point Capital LLC. Terms of the deals were not announced. Following the transaction, funds managed by Stone Point will remain Alliant’s largest institutional shareholders while the company’s management and producers will continue to own the majority of the firm. FEBRUARY 4, 2019 INSURANCE JOURNAL | 19

Closer Look: Mergers & Acquisitions Report

Big Deals

Marsh/JLT, Brown & Brown/Hays Topped 2018 P/C Agency Mergers By Andrew Simpson

handful of big deals dominated the very busy property/casualty insurance agency and broker merger news cycle for 2018. Based on Insurance Journal reporting, the most active agency acquirers across the country included AssuredPartners, Alera Group and Seeman Holtz along with perennial active acquirers Hub International, Arthur J. Gallagher, Brown & Brown and Hilb.

In terms of number of deals, Texas (25), New York (24), Massachusetts (23), California (19) and Florida (11) had the most P/C agencies acquired in 2018. A number of Insurance Journal’s Top 100 privately-held P/C independent agencies grew their books with acquisitions, including Hub (ranked #1), Alliant (3), AssuredPartners (5), USI (6), EPIC (9), Risk Strategies (11), Higginbotham (17), Insurica (23), Hilb (26), Alera (49) and TrueNorth (50) and Crest Group (90). Two of the top 100 – Hays Companies (22) and Integro (12) – were acquisition targets.

Marsh/ JLT

No insurance merger story in 2018 20 | INSURANCE JOURNAL | FEBRUARY 4, 2019

generated more buzz than Marsh & McLennan’s $5.7 billion acquisition of its U.K.-based competitor, Jardine Lloyd Thompson (JLT). The deal, announced in September after only 11 days of negotiations, has received JLT shareholder approval and cleared U.S. antitrust hurdles but is still going through other regulatory approvals. The deal ranks among the largest ever involving insurance brokers. KKR & Co. in 2017, with Canada’s Caisse de Depot et Placement du Quebec, bought USI Insurance Services for $4.3 billion. MMC says the purchase will strengthen its specialty risk brokerage operations, expand its global reinsurance network INSURANCEJOURNAL.COM

and enhance its position in Asia and Latin America. The deal will boost MMC’s revenues by about $17 billion. The company expects some cost savings (about $250 million over three years) and faster revenue growth from the smaller JLT. MMC CEO Dan Glaser said while the acquisition makes his firm bigger, it mainly “accelerates” MMC’s existing strategy and aspiration to be the preeminent global firm in the areas of risk, strategy and people. It is no great departure from what it now does. “It’s keeping within our knitting,” he said. While JLT has some traditional wholesale business in its mix, Glaser said the deal does not mean Marsh is getting back INSURANCEJOURNAL.COM

into the wholesale business it exited when it sold its wholesale broker Crump in 2005. He said the term wholesale is an “archaic one” for what he says has become specialty placement business rather than traditional third-party wholesale brokerage business. He said every business has some, but JLT “does not have a dramatic amount “of third-party wholesale business. “It’s not like we are entering a market we exited when we sold Crump,” he commented.

Brown & Brown/Hays

In terms of agency M&A, after the Marsh-JLT blockbuster, the agency transaction that caught the most attention was

Brown & Brown’s move to acquire Hays Companies. The deal for the Minnesota-based insurance broker with $200 million in revenues marks the largest acquisition ever by Brown & Brown in its 75-year history. Hays is ranked 22nd on Insurance Journal’s Top 100 list of privately held independent P/C Agencies. The deal, announced in October, closed in mid-November. Headquartered in Minneapolis, Hays Companies is comprised of more than 700 risk management and employee benefits professionals in 32 locations across 21 states. The Hays Companies focuses on risk management, commercial insurance,

continued on page 22

FEBRUARY 4, 2019 INSURANCE JOURNAL | 21

Closer Look: Mergers & Acquisitions Report Noteworthy P/C Agency M&As in 2018

1 Marsh & McLennan to Acquire Broker JLT 2 Hays Companies Is Brown & Brown’s Biggest Acquisition 3 AIG Acquires Program Manager Glatfelter Insurance 4 BB&T Insurance Acquires Regions Insurance Group 5 EPIC Holdings to Acquire Integro 6 Ryan Specialty Group Acquires New York’s Irwin Siegel 7 Ryan Specialty Group Acquires New Jersey’s New Day Managers 8 Alliant Acquires New York’s Crystal & Co. 9 Hilb Group Acquires Massachusetts’ H.J. Knight International 10 Optisure Risk Partners Merges with New Hampshire’s Masiello Agency 11 Brown & Brown of Massachusetts Acquires Rodman Agency 12 Worldwide Facilities Acquires Connecticut’s Tennant Risk Services 13 Alera Group to Purchase Avon-Dixon Agency from Shore Bancshares 14 Worldwide Facilities Acquires California’s Sullivan Group 15 Alera Group Acquires Orion Risk Management Services in California 16 Crest Insurance Acquires Colorado Restaurant Insurance 17 TrueNorth Acquires Colorado’s Jewell Insurance 18 Brown & Brown Acquires Servco Pacific in Hawaii And Northwest 19 AmWINS Acquires Seacoast Brokers, Trident Claims Management 20 Hilb Group Acquires Huckaby & Associates of South Carolina 21 NSM Insurance Group Acquires Transpec of Tennessee 22 Marsh Acquires Houston’s Wortham Insurance 23 Worldwide Facilities Acquires Texas Wholesaler McClelland and Hine 24 Arthur J. Gallagher Acquires Texas MGA, Pronto 25 Arthur J. Gallagher & Co. Acquires Houston’s AquaSurance 26 Safety National Casualty Buys Oklahoma’s Midlands Management Corp. 27 Oklahoma’s Webb, Young and Webb Insurance Merges with Rich & Cartmill 28 AssuredPartners Acquires Cornerstone Group in St. Louis 29 USI Insurance Acquires Minnesota’s CHS Insurance 30 Arthur J. Gallagher Acquires Michigan’s First Agency

22 | INSURANCE JOURNAL | FEBRUARY 4, 2019

continued from page 21 employee benefits, consulting services, specialty programs and private client services. Hays Companies will operate as a region inside Brown & Brown Retail, one of four divisions. The Retail division brought in $940 million in revenues in 2017, which was 50 percent of the company’s total. None other than Patrick Ryan, founder and CEO of Ryan Specialty Group and former CEO of Aon, called the acquisition of Hays a “very, very smart move” in an age of consolidation by large retail brokers that is reducing opportunities for MGAs and wholesalers.

BB&T/Regions

BB&T Insurance Holdings made some waves with its agreement to acquire another bank-owned insurance broker, Regions Insurance Group, from Regions Financial Corp. The deal closed in July. Memphis-based Regions is a mostly retail insurance broker with offices in 10 states: Alabama, Arkansas, Georgia, Florida, Indiana, Louisiana, Mississippi, South Carolina, Tennessee and Texas. In 2017, it sold about $1.5 billion in premiums in property/casualty and employee benefits products to businesses. Regions Insurance also has a wholesale insurance division, Insurisk, based in Little Rock, Arkansas, which accounts for about eight percent of its business. Insurisk is also included in the sale. This acquisition “adds incremental balance” to BB&T’s insurance business between its wholesale and retail insurance channels and further builds its footprint across core markets in the Southeast, according to Kelly S. King, BB&T CEO. Following this acquisition, BB&T Insurance’s retail network will contribute almost half of its insurance brokerage revenue. The company also announced it is rebranding its BB&T Insurance Services

retail broker as McGriff Insurance Services, which includes Regions Insurance Group. BB&T Insurance Holdings operates 200 offices through subsidiaries BB&T Insurance Services, BB&T Insurance Services of California, McGriff, Seibels & Williams, CRC Insurance Services, Crump Life Insurance Services and AmRisc.

AIG/Glatfelter

Ryan and others are also watching American International Group’s purchase of insurance program manager Glatfelter Insurance Group, which AIG CEO Brian Duperreault said will help AIG reposition its existing U.S. program business, 50 percent of which the insurer is currently non-renewing. Glatfelter serves approximately 3,000 brokers and 30,000 insureds in the U.S. and Canada with multiple niche programs. Glatfelter’s divisions include a Public Practice (public entities, including water entities, municipalities and educational institutions); a Healthcare Practice (hospices, assisted living and senior living facilities, and home healthcare providers) and a Religious Practice (churches, synagogues, temples, mosques and other religious organizations). Glatfelter also has programs for emergency responders, private ambulance companies and benefit plans for public entities, schools and nonprofits. Glatfelter also operates two retail insurance agencies: The Glatfelter Agency in York, Pennsylvania, and The InsuranCenter in Joplin, Missouri. The two firms are not strangers. Glatfelter has been doing program business with AIG for 40 years, according to Tony Campisi, CEO of Glatfelter. According to Ryan, the industry is wondering if AIG’s move will “make a new strategic statement of carriers buying up MGUs” and whether carriers will feel they better “get into the game.” INSURANCEJOURNAL.COM

Special Report

nsurance Journal conducted a targeted survey of 200 insurance agents and other professionals to get their views on what to expect in 2019. They were asked to cite one prediction or trend for P/C insurance agents, one prediction or trend for P/C insurance carriers and one hope for the P/C insurance industry or their own business for 2019. Some individual wishes and predictions expressed by respondents in their own words are on the following pages. Respondents were also asked to rank areas of concern, project the economic climate and estimate how various lines of insurance will perform in 2019. Summaries of answers to these three questions follow the comments from respondents.

INSURANCEJOURNAL.COM

FEBRUARY 4, 2019 INSURANCE JOURNAL | 23

Special Report: Wishes & Predictions Wishes & Predictions… in their own words

espondents were asked to cite: one prediction or trend for P/C insurance agents, one prediction or trend for P/C insurance carriers and one hope for the P/C insurance industry or their own business for 2019.

Ely Kaplansky, President, Kaplansky Agency, MA Increased market share. Rate increases. Continued profitable growth.

Keith Poirrier, CEO & President, Poirrier Group, LA

Slowed new business growth given the economy. Even though they’d like to get increased rate at a steady pace, the economy will command flat renewals if loss ratios are in line. We are looking for 50% organic growth as we make a push for footprint expansion in other markets outside our niche: oil and gas.

Crag Shink, Managing Partner, C.H. Shink & Associates, NY

A harder market in some segments. Increasing premiums 10-20% this year. An increase of 10-15% over 2018.

Richard Aldorisio, EVP Casualty, Sompo Intl., NY

It will be increasingly arduous to place primary general liability insurance as carriers return to fundamental underwriting. Rates will be gradually but consistently increasing along with the requirements for more detailed information. There is a greater awareness of social inflation relative third-party injury awards and demands and we work towards dealing effectively with those trends.

Peter Reilly, Regional Director-Healthcare, Gallagher Agency, MA

Tim Hodge, President, Allabout Insurance, TX

More consolidation among agents and brokers; both P&C and benefits. With loss trends, underwriting will become more reliant on actuarial models (not necessarily a good thing). I’d like to see market stability and a return to disciplined underwriting, not actuarial pricing.

Growth. Growth. Growth.

24 | INSURANCE JOURNAL | FEBRUARY 4, 2019

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Harry Johnson, Senior Vice President, Hub International, TX Tough market. Cat losses. Growth and stability.

Tia Gagnon, Marketing Manager, Chalmers Insurance, NH

Focusing on new business and moving with technology to be easier to do business with. Emphasizing a client centric experience. Focusing on relationships with their agency partners, increasing support and marketing dollars. To promote the good our industry does and work hard on our reputation.

James Siegler, Risk Manager, Fisher Brothers, NY

Increased competition from Lemon and other AI companies offering insurance. Inability to secure sufficient rate increases due to competition. Carriers will continue to complain about it. Fewer storms in the U.S.

Thomas Cox, President, Bluewater Solutions, VA

More mergers and acquisitions of agencies, with the stronger partner acquiring the assets (customers) and trying to eliminate liabilities (employees), and especially invoking the non-compete agreements of producers that are let go, essentially ending their careers. I see M&A activity on the carrier side slowing down, with many carriers trying INSURANCEJOURNAL.COM

J D Dickens, Dickens & Dickens Agency, VA

More competition from self-serve insurance outlets. Less loyalty to agents. That carriers will suddenly remember all policyholders are more than a profit margin.

to make sure they are in good financial condition given the large number of cat losses in 2018 and the end of the â&#x20AC;&#x153;irrational exuberanceâ&#x20AC;? in the stock market since 2008. On the agency side, the business has become so cut-throat, I only see more of the same in 2019. No more large accounts to write, so big brokers continue down into middle- and small-market business. I also think more banks will be getting out of the insurance business.

Frank Noyes, Owner/Principal, Frank Noyes Insurance Consulting, VA

Continuing to increase use of technology in their distribution. M&A will again be ongoing. Profitability!

Todd Willingham, President, Bierschwale-Rees Insurance, TX

Premiums will continue to rise in all areas. Appetites will continue to tighten while they demand more. No major storm events.

Jerry Kralich, President, KNH Insurance Services, TX Auto insurance rates will continue to increase. They will want to cut commissions in 2019. Strong organic growth.

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Special Report: Wishes & Predictions Kelley Herrin, Owner, Jack Bradley Agency, GA

Customers require faster interaction. Companies modernize products to reflect lifestyles of today’s consumer. Customers have the ability to add on to their policy through digital apps that make options easy to choose when the client has time.

John Musengo, Commercial Lines Account Manager, Frank H. Furman, FL

Cayla J, Agency, TX

Increase in premiums. Insureds are going to shop for better rates. Friction between lenders and carriers. Carriers are getting more strict regarding things like ACV roof provisions and more lenders are requiring these provisions to be completely removed. I think it’ll reach a head in 2019. That the insurance industry will be at the forefront of the climate change discussion. Our industry is so heavily influenced and affected by the changes of our climate - the devastating storms and fires. The industry should be the first to the table to demand legislation.

Charles Ford, Risk Manager, AL

That the industry will continue to tell the world what a great job it’s doing. Commercial auto will return to the black and underwriting results in 2019. Some incidents of Integrity are a desired objective for both groups.

Nicole Coppock, Personal Lines Agent, Furman Insurance, FL

More automation. Better claim service. Better informing the insured of coverage.

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I see a reduction of the use of intermediaries and smaller E&S brokers. Personal lines retention will continue to dwindle in small, independent agencies. Small commercial lines and personal lines in existing independent retail agencies will continue to not be able to compete with direct writing companies that offer these services. (State Farm, Allstate, Progressive, etc.) My hope is for more competitive salaries for millennials such as myself, considering the efficiency and speed we are able to do much more in less time than older individuals who are paid significantly more.

Harlan Garrett, Commerce and Life Producer, IBC Insurance, TX More lawsuits against agents for coverage gaps. Rates to remain overall level with markets hardening by the end of the year. Start standardizing cyber coverage.

Joe Capers, Owner/Partner, Insurance Zone, FL

More operational efficiencies and virtual servicing. More services on line. Grow profitably and gain more efficiencies.

Patrick Lacy, Operations Manager, Landmark Insurance, FL More organic growth. Consolidations. Firm pricing and underwriting.

Rob Galbraith, Author, Agent, The End of Insurance As We Know It, TX

Greater specialization, especially into more niche lines such as cyber and private flood. Active pursuit of systems modernization efforts to move beyond legacy systems and take advantage of insurtech offerings via APIs. I hope to bridge the gap between traditional incumbents and insurtech startups to better serve our customers and improve the insurance experience for all.

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Juan Martinez, CEO, Cargocorp Underwriters, FL

Diane Tait, Agency Owner, A & B Insurance Agency, FL

Better use of automation and technology. Companies setting bigger sales goals. Better automation processes.

Consolidation in some areas. A more competitive market space. More discipline underwriting process. A stable rate environment.

Wandle Mace, Senior Underwriter, Global Indemnity/Penn America, GA

Greater opportunities within the P&C industry for both growth and profit. Slight increase in rate for property, especially in areas prone to CAT-type events. Profitable growth.

Kemper Morton, Senior Marketing Supervisor, Duane DiCola, Territory Berkshire Hathaway Manager, Smart Choice North Carolina, NC Homestate Cos., IL

More agencies joining networks, especially seasoned ones getting squeezed by carriers. More reliance on networks to manage carrier/agency relationships. Continued growth and expansion!

William Smola, Senior Program Manager, Glencar Underwriting Managers, IL

Higher retention as rush of new business will not allow as much time for marketing of renewals. Innovation from carriers to provide additional coverage options for exposures like Uber/Lyft, Turo and Air B&B. Reduction in hurricane and wildfire losses.

Higher property rates in wildfire prone areas. General rate increase in all lines, especially in workersâ&#x20AC;&#x2122; comp and contractors GL.

Matthew McFadden, President, Sievers Insurance Agency, IN Continue to grow. Increase rates. Continue growth and profitability.

Mick Fowler, Vice President, Crosby & Henry, MI

Writing more EPLI and Cyber. More tech being adopted. More sales for us and an underwriting profit for the industry.

Jerry Knudtson, President, Konen Insurance Agency, Il More on insurtech initiatives. Downsizing underwriting staff. Grow our new staff positions.

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Special Report: Wishes & Predictions Bill Wilson, Founder and CEO, Thought Leader, InsuranceCommentary.com, TN

They need to stop measuring their investment in education based on CE hours accumulated and earnestly invest in higher quality education that provides them with the knowledge and skills to better serve their customers. They need to put their fascination with “big data” and singular predictive modeling in perspective and use it as a means-to-an-end tool and not an end in and of itself in order to achieve the proper balance between analytics and the human aspect of the industry. To reach as many people as possible with the ' messages in #1 and #2.

Jody Jordan, Manager, OH

Christopher Kelly, Agent Owner, AzKELLY Insurance Agency, AZ I think 2019 is going to be a great year

for new agents as there is a lot of disruption in the marketplace so insureds will be willing to listen to new ideas. Another large commercial insurance company will exit transportation. Sustainable profitability.

Bob, Vice President, Cornerstone Insurance Agency, OH

Less personal contact. Requiring more use of computer input for agency operations. Better agency/company computer input with the companies taking the lead vs agency.

Terri Pruitt, Commercial E&S Senior Underwriter, Nautilus Insurance Co., Arizona

Increased pricing in personal and commercial lines. Increased competition for quality risks will keep pricing from reaching needed levels. Adequate pricing levels. 28 | INSURANCE JOURNAL | FEBRUARY 4, 2019

Less direct client interaction. Stability in premiums. Growth through efficiency technology.

Andrew Katz, Sales Manager, Nationwide, AZ

Joining market access groups. Chat bots, consolidation. Focus on client needs and not just cookie cutter solutions.

Kelly Cordill, Account Executive/Director, High Ground Insurance/ United Agencies, CA

Insurance costs going up in auto and property. Help their clients understand why rates are increasing. Better partnership between carrier and broker toward the insured’s benefit.

Steve Brooks, President, B&B Premier Insurance-Acrisure, CA

Hard market for home insurance. More competition from direct companies. Insuretech competition. Some small regional companies will be bought by larger companies. Will be interesting in California with a new insurance commissioner.

Michael Fusco, President, Fusco & Orsini Insurance Services, CA

I believe 2019 will be a year of excellent growth for P/C agents. I believe P/C carriers will begin to tighten up underwriting in 2019. Strong profitability, less catastrophic losses.

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Jay Mack, President, Mack Insurance Group, FL

Selling and competing with online insurers will become more difficult. More streamlining of their underwriting for agents if they want to stay relevant. That millennials stop relying so much on electronics for lifeâ&#x20AC;&#x2122;s decisions.

Michael Marsh, President, Underwriting Solutions, Midland Claims Service, MT

Continued centralization by carriers, further removing the local agent from the insurance experience. Dehumanization through centralization, particularly in the claims process. Re-ignite the fire of professionalism in the industry.

Lauren House, Employer Advocate, NV

Direct marketing will erode the market share of independent agents. Direct marketing, either directly or through an aggregator. Expansion of specialty products.

Don Barberie, President, Olympic Insurance Agency, CA

M&A will slow down. Rate increases in second half of year. Hardening of market.

Dennis Chookaszian, Professor, Former CEO, University of Chicago, IL

Continuation of the consolidation trend with the 20 largest P/C Agents continuing to acquire individual agencies. Substantial cost reduction programs to improve profitability. Hope for a benign catastrophe year.

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Special Report: Wishes & Predictions Wishes & Predictions for 2019-Whatâ&#x20AC;&#x2122;s ahead for insurance ?

nsurance Journal conducted a targeted survey of 200 insurance agents and other professionals to get their views on what to expect in 2019. Respondents were asked to rank areas of concern, project the economic climate and estimate how various lines of insurance will perform in 2019. Data compiled by Pam Simpson, Senior Strategist, Branded Content & Research for Wells Media.

Rank these areas of concern for the P/C insurance industry or your own business heading into 2019? (1 = least concern, up to 5 = greatest concern)

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How do you expect these lines of insurance will perform in 2019 compared to 2018?

What do you project for the business/economic climate for the industry in 2019?

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FEBRUARY 4, 2019 INSURANCE JOURNAL | 31

Spotlight: Commercial Auto An Old Dog Up to

New Tricks

By Steve Discher and

Ray Mazzotta

or the seventh consecutive year, commercial auto is losing money. Despite rate increases in 23 of the past 25 quarters, the combined ratio topped 111 percent in 2017. The line has been a weak spot for many insurers, forcing them to reduce writings, trim their portfolio and— in some cases—exit writing monoline auto altogether.

While these traditional approaches have had some impact, they have fallen far short of turning this line around. For one, they work from the assumption that the problem lies mainly on the front-end in underwriting. Our studies show that there are pockets of opportunity across the enterprise when you look at the business from end to end. Claims, underwriters, actuaries and loss control staff all claim ownership when results are good. But when results are less than desirable, it’s difficult to find an owner. It’s a textbook illustration of the expression, “Success has many fathers, but failure is an orphan.”

es is that these unfavorable trends are occurring along multiple dimensions. It’s not a question of frequency or severity; it’s both. It’s also not a question of coverage part, as the increase in costs can be seen in both liability and physical damage. Factors that have been offered to explain the increase in frequency are, to name a few: • Increase in miles driven due to an expanding economy and lower unemployment. • Firms finding it harder to hire experienced drivers to handle growth and retirements. • Fewer vehicles sitting idle due to improving economic activity. • Increase in distracted driving.

Root Cause: What’s Going On

Some reasons attributed to the increase in severity are: • Higher speed limits causing

There are many theories as to why auto loss costs are on the rise. One of the challeng-

32 | INSURANCE JOURNAL | FEBRUARY 4, 2019

more severe accidents. • More expensive vehicles with advanced technology. • Increase in litigation and new approaches by plaintiffs’ attorneys. Historical patterns and relationships are changing, making it more difficult for underwriters and actuaries to identify risk and to price for exposure. As newer cars and trucks work their way into the population, the changes listed above make it hard to measure the impact of technologically advanced automobile safety devices. It’s believed that these safety advancements will change the nature of risk and bend the loss curve, driving down frequency but raising severity due to increased repair costs. On the positive side, there are many new tools available today to help underwriters get a better handle on exposure INSURANCEJOURNAL.COM

and behavior. Analytics are ramping up every day, telematics—at least in personal auto—are providing great insights, and companies are getting better and better at segmented pricing.

Suggested Quick Hits

• Update practices and processes to deliver designed results. INSURANCEJOURNAL.COM

• Review and address: skill, knowledge, performance gaps. • Gain new insights from existing data to improve triage in claims and underwriting.

• Enhancedashboards to improve utilization and performance. • Is your pricing matched to exposure? Most commercial auto rating plans are class-based and, while models can price for driving history, credit record, loss history, type of vehicle, etc., they do not capture

Historical patterns and relationships are changing, making it difficult for underwriters and actuaries to identify risk and to price for exposure. items such as miles driven and where. The best companies are developing strategies to get a better handle on exposure and try to match price to exposure. For example, insurers in the trucking market are using public data such as gas tax receipts to get insight into where

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Spotlight: Commercial Auto continued from page 33 vehicles are going. This could eventually lead to route or trip pricing down the road. Telematics are providing personal auto insurers a wealth of information, but we’re a long way from universal adoption, especially on the commercial vehicle side. Companies with larger fleets employ these devices for their risk management but are not ready to share that information. The challenge for underwriting is determining if the increase in the number of claims per policy or per insured vehicle reflects risk selection, or if it simply reflects an increase in exposure such as miles driven. In the first case, you might implement tighter

underwriting standards. In the latter, you may see a mismatch in pricing to exposure. There is substantial evidence that underwriters are responding to lagging information and that the increases in rates are trying to catch up to the increases in utilization and miles driven. Do you have to wait to purchase expensive new technologies and data analytics? The short answer is no. In the absence of usage-monitoring technologies, some companies are using reporting forms to stay on top of exposure, some are utilizing their audit departments, and others are using loss control on larger accounts. What all these companies have in common is trying to gather richer, quicker data

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to help them better match pricing to exposure. They are segmenting their book and targeting the areas where they suspect they have the most leakage exposure.

More Systemic Near-Term Actions

• Bring/expand focus on opportunities and threats into data warehouse and models. • Augment models with increased external data. • Develop plan to increase usage-based pricing. • Evaluate specialist or segmented structural alignment in claims and underwriting.

Are You Only Watching the Front Door?

Underwriting is not alone when it comes to dealing with the rise in auto loss costs. We have delivered substantial work with claims organizations over the last couple of years aimed at getting a handle on rising claims costs in automobile. Commercial auto cases are getting more complex and tougher to handle. For example, physical damage claims used to be very straightforward, but now they are more challenging just to estimate. Locating qualified independent appraisers is becoming more difficult. Today, a small fender bender can be a substantial claim due to damage to sensors and other electronic devices. Loss-of-use costs require vehicles to get repaired and back in service

1/17/19 8:55 AM

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More and more attorneys are being successful in shifting liability from the individual to the employer. with even greater speed. Increased vehicle costs, higher limits and broader coverage are all straining the experience and skill level of claims departments. Many carriers have grown their commercial portfolio and expanded into new classes of risks that require adjusters with greater expertise and skills. Often companies look at market opportunities and go into new areas without preparing other parts of the organization to deal with more complex cases or classes of business. The thought might be that you have a year to worry about the claims coming from a new target market. With auto, you may not have that time luxury. As we talk to claims leaders, they voice concerns on the liability side. Plaintiffs’ attorneys are pushing the envelope and finding ways to produce larger verdicts and settlements. For example, studies show that there has been a significant increase in cases claiming traumatic brain injury from a collision. These are adding

substantial costs to claims and require claims departments to step up to the challenge. More and more attorneys are being successful in shifting liability from the individual to the employer. In the spirit of “no good deed goes unpunished,” plaintiffs’ attorneys can now access motor vehicle safety data, GPS data, webcam information, etc., to support their cases. All these developments are putting stress on claims operations to do deeper investigations along with customer expectations to do them faster. The best claims operations are using data and their top adjusters to identify these cases and develop a proactive game plan to combat these trends. Another factor we see contributing to the poor auto results is adverse prior period development. These changes—particularly in litigation trends, vehicle costs and medical costs—are exceeding reserve estimates and impacting current results. We’ve seen an increase in leakage on the claims side as well due to these current trends and developments. The best claims operations are assessing how comfortable they are with their current case reserves and implementing systematic open file reviews to make sure their estimates are keeping up with current trends.

Deep Change to Models

• Define future needs for core system support: speed integration for new technologies/analytics. • Expand value-added features and INSURANCEJOURNAL.COM

services for customer. • Move out of silos in use of integrated models, data and system-based decision making. • Develop a long-term business intelligence approach. • Top performers are doing well Industry results can be deceiving. The belief that a “rising tide will raise all ships” isn't true. With respect to commercial auto, the difference between the top performers and bottom quintile is almost 30 points. The loss and expense ratio for the top quintile of carriers averages 89 percent, while the bottom quintile is a hot 118 percent. Some carriers are doing well in this environment. They’re capturing rate increases, staying on top of exposure growth in underwriting, and have beefed up their analytics and claims departments. As exposure growth eventually levels out, they will be poised to ride rate increases still coming in

from lagging data and enjoy even better returns. You don’t have to wait for the technology silver bullet. The top carriers are identifying what they can do now, building around their best people, training the next wave of talent and laying the foundations for system and technology advances. We see these and other practical, nearterm actions that can be taken to improve commercial auto performance, both in the short and longer term. Discher is a managing director for The Nolan Co., which provides strategy, operational and technology consulting services. For 30 years, he has advised clients on how to improve the performance of their businesses. Mazzotta is property/casualty practice director for The Nolan Co. His experience includes optimizing revenue and turning around underperforming organizations.

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Claims Journal

CAUTION:

Safety U-Turn for Truckers with Animals Hours of Service, Other Safety Exemptions for Livestock Haulers Raise Concerns By Kristoffer Tique Midwest Center for Investigative Reporting

t was sometime around 4 a.m. on a cool, spring morning when James McGilvray lost control of his semi, careening into a ravine off Interstate 49 in Harrisonville, Mo. His trailer, which carried between 80 and 100 cattle, according to police records, flipped on its side as the truck plowed to a halt. The crash killed roughly half the 36 | INSURANCE JOURNAL | FEBRUARY 4, 2019

livestock onboard, with the other half escaping onto the highway where state and city law enforcement spent the next four hours shutting down traffic to corral the remaining herd. McGilvray, who was 48 at the time of the crash, blamed another car for causing the wreck, according to the crash report, despite officers marking no evidence for another vehicle’s involvement. Rather, Stacy Ball, 45, who was traveling with McGilvray and was in the sleeper cabin changing when the crash occurred, believes McGilvray fell asleep at the wheel.

On the crash report, Ball told officers that McGilvray had run off the road twice the previous night and “had been driving ‘non-stop’ for two-to-three months between Mississippi and Florida.’’ She also informed officers that McGilvray had been pushing himself to prove to his current employers that despite his age, he was still fit to drive the long, hard hours commonly associated with the trucking industry. “Show me you’re not too old to haul cattle,’’ Ball recalled the trucking company telling McGilvray when he was first hired, according to the report. Ball also told officers that McGilvray INSURANCEJOURNAL.COM

hadn’t updated his mandatory hours log because of how busy the company was keeping him, and that the trucking company wasn’t using electronic logging devices (ELDs), which in December 2017, the Federal Motor Carrier Safety Administration began requiring most U.S. truckers to carry to prevent fatigue-related accidents. Numerous attempts to reach McGilvray for comment were unsuccessful.

Hours of Service

Under current federal hours of service law — which dictate how long commercial drivers can be on the road — commercial drivers can operate on duty for 14 hours after a mandatory 10-hour break. ELDs, which are approved GPS tracking devices plugged into the truck’s engine, are meant to replace older paper logs in order to more accurately track driver’s on-duty hours, federal officials said. The devices are projected to save dozens of lives and prevent hundreds of injuries

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each year, officials said. ELDs also save stakeholders more than $1 billion annually by reducing paperwork.

The trucker wanted to prove that despite his age, he was still fit to drive the long, hard hours. But McGilvray’s crash, which happened April 27, 2018, came while livestock haulers were still temporarily waived from complying with the new ELD law because of persistent lobbying efforts from the agricultural industry. In fact, federal agencies that track and enforce these laws, like the FMCSA, have been slow to implement the devices since the law came into effect. FMCSA has also expanded broad exemptions for drivers carrying agricultural commodities and is now considering changing several other standards that some safety advocates say would greatly

reduce the effectiveness of hours of service rules. That’s despite national data showing a rise in large truck-related fatalities. In 2017, there were 841 occupants of large trucks killed in crashes, up from 725 in 2016, and 665 in 2015, according to a National Highway Traffic Safety Administration report. When including pedestrians and other cars involved in those crashes, fatalities jump to 4,761 in 2017, up from 4,369 the year prior. That upward trend goes for Missouri’s statewide data, too. According to the Missouri Department of Transportation, the number of deadly crashes involving commercial motor vehicles rose by more than 40 percent between 2013 and 2016. “Forty-four states have experienced increases in truck crash deaths since 2009,’’ said Harry Adler, a spokesman for the Truck Safety Coalition, a national nonprofit focused on reducing truck-related fatalities and injuries. “When you look at

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Claims Journal continued from page 37

the state of truck safety, the number of truck crashes, injuries, fatalities, they all keep going up.’’

Skirting Regulation

For years, industry associations like the National Pork Producers Council and the National Cattlemen’s Beef Association have touted the safety record of their drivers to circumvent expanding regulation. “Livestock haulers comprise one of the safest sectors of the commercial motor vehicle industry, due in part to the very nature of the only cargo they haul: live animals,’’ wrote the association in an October petition to the FMCSA, asking the agency to increase on-duty hours for livestock drivers from 14 hours to 16. The group points to an analysis it did of FMCSA data between 2013 and 2015, where livestock haulers make up between 6 percent to 7 percent of the nation’s roughly 4 million commercial drivers, yet constitute less than 1 percent of the total crashes. Added to their driver safety record is the fact that livestock haulers must also worry about keeping their animals safe, particularly during

times of extreme heat or cold, said Allison Rivera, the beef association’s executive director for government affairs. “It’s an animal welfare issue,’’ Rivera said. “The problem is that, unlike the rest of trucking, we can’t just stop at a rest stop for 10 hours and rest with the animals in the back.’’ So far, that argument has been working, delaying ELD implementation and relaxing the way federal agencies interpret hours of service laws and their exemptions. Petitions from the National Pork Producers Council — joined by the National Cattlemen’s Beef Association and several other stakeholders — delayed the original ELD implementation date of December 2017 not once, but twice, giving livestock haulers 180 days to fall into compliance. Then on Dec. 13, the FMCSA announced on its website that transporters of livestock and insects aren’t required to carry ELDs at all “until further notice,’’ raising questions of when livestock haulers, if ever, will need to install the device. But a larger change came from several revi-

sions the FMCSA made to the National Highway System Designation Act of 1995, which established the first exemptions for drivers “transporting agricultural commodities or farm supplies for agricultural purposes.’’ The act set a radius of 100 “air miles’’ around any pickup spot for agricultural goods, including livestock, feed and farm equipment. The agency defines an air mile as a nautical mile, which is equivalent to about 1.15 miles. Truck drivers operating within the radius were exempt from hours of service regulations during a state’s harvest season. However, if their trip included leaving that radius after they picked up their livestock or other agricultural goods, then standard hours of service laws applied as soon as they left the radius, and they were subject to 10-hour breaks every 14 hours. The idea was to give drivers with sensitive cargo the flexibility to manage their own schedules without having to worry about tight federal deadlines. And under

pressure from the agriculture industry, Congress expanded that exemption to 150 air miles, or roughly 172 miles, back in 2012. Then in the summer of 2017, the FMCSA quietly changed how it interpreted the nearly 30-year-old law altogether, said Matt Wells, the associate director of the Midwest Truckers Association, on a Facebook video. Drivers hauling agricultural goods have always been exempted from hours of service rules while in the exempted radius but were required to track all their hours driving if their trip ever intended to leave it. Under the agency’s new guidelines, he said, now agricultural haulers only need to track their hours outside the radius and aren’t required to log any hours within it. “Meaning that you record that time as off-duty, not driving,’’ Wells said. “This is the drastic change the FMCSA has done that you can now turn your logbook on and off throughout the day without affecting your daily or weekly hour limit of the logbook rules.’’ That means that unlike before, law enforcement or regulatory agencies are now no longer privy to when

truckers are actually driving or when they’re taking a break while in exempted zones. Industry leaders say giving drivers more flexibility and less stress over logging hours was necessary to help address the unique challenges livestock haulers face. For example, Rivera said, truckers hauling livestock in some cases require extra training to handle live cargo, and therefore, some end up loading and unloading by themselves because of workforce shortages and the cost of hiring extra manpower. That itself can be a safety concern, she said, and eats into the already limited time allotted to drivers under hours of service rules. Some drivers have also come out publicly to say ELDs force truckers to act more recklessly because they essentially create a “hazardous race to beat the clock,’’ reported Business Insider back in May. But Adler said these exemptions go too far at the expense of safety, especially since Congress considered expanding them further. In 2018, about 10 bills were introduced that would, in some way, expand hours of service exemptions or relax ELD requirements, he said. “They’re all different attempts to lengthen the amount of time truck drivers are either driving or working, and there’s just not data to support that more time on task without a break, or longer work days, are safer,’’ Adler said.

Free Reign

One bill, called the Transporting Livestock Across America Safely Act, was introduced to both the U.S. Senate and House in early

2018, but failed to make it further. That bill, sponsored by Republican Nebraska Sen. Ben Sasse, would double the 150-airmile exemption to 300 air miles — nearly 100 miles longer than the drive between Kansas City and St. Louis. In states like Missouri or Illinois, where harvest season is year-round, 300 air miles essentially covers each state entirely, giving anyone hauling livestock or other agricultural goods free reign to drive within them without any kind of federal accountability. While the FMCSA won’t deal with that bill — since it stalled — the agency is considering relaxing other hours of services rules, including short-haul limits and 30-minute breaks. Short hauls are when drivers operate only within 14 hours a day instead of 24 hours and are currently limited to 11 hours of on-duty time, eight hours off duty and a mandatory 30-minute break. The agency announced in October it would be extending the public comment period for a second month to discuss proposed changes to those regulations, including increasing on-duty time from 11 hours to 12. Duane Debruyne, acting director for FMCSA’s office of external affairs, said the agency has a robust process that prioritizes safety when considering changes to regulation. For instance, he said, the agency gathered hundreds of comments before granting waivers to delay ELD implementation for livestock haulers in 2018 and weighed the decision carefully. Under the safety considerations of that waiver approval, the agency stated it “expects that any drivers and their employing motor carrier operating under the terms and conditions of the exemption will maintain their safety record.’’ Adler points to that as evidence the process wasn’t robust, especially when studies commissioned by the agency itself — such as a 2011 study titled Hours of Service and Driver Fatigue — show a correlation between longer hours on duty and increased risk of crashing. “The FMCSA’s own studies show that

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Claims Journal continued from page 39 working longer...will diminish safety,’’ he said. “So, the agency doesn’t need to look toward other studies; they have studies that they commissioned and did that show just that.’’

Drop Off the Shoulder

On an early October morning in 2016, about a mile west of Osborn, Mo., Gary Bowling’s cattle truck struck a ditch along U.S. Highway 36 and overturned. According to the St. Joseph News-Press, the crash killed at least four cows and sent others to roam in the pre-dawn darkness, where they caused two additional accidents. One woman, 68-year-old Bonnie Bridgeman of Winston, Mo., was airlifted to Kansas University Hospital with serious injuries after her car struck one of the escaped cattle. According to the crash report, Bowling gave no explanation when the state trooper asked him what caused the accident. “I dropped off the shoulder. I don’t know,’’ he’s quoted to say in the report. A witness, who was driving behind Bowling when he crashed, said he watched Bowling’s truck drop off the shoulder as it passed his car. “The cows must have shifted and made it so he couldn’t get back on the road,’’ the witness said in the report. In the end, the Missouri State Highway Patrol filed the crash under “improper lane use/change,’’ which in some ways acts as a catch-all category when a cause hasn’t been identified. But Bowling’s crash highlights several challenges that both truckers and those enforcing safety face when it comes to hauling livestock. Because animals often escape after crashes, they can cause additional accidents, particularly at night. And the cargo itself is exceptionally dangerous to transport because animals can move within the trailer, shifting weight and exacerbating the situation. That’s a common reason many drivers give after they’ve crashed their livestock trailers, said Jennifer Woods, an expert in livestock handling and safety. But Woods, who operates her own livestock services company in Canada and helps train drivers 40 | INSURANCE JOURNAL | FEBRUARY 4, 2019

on safety across North America, said that explanation is a myth. Rather, Woods said, it’s more likely that sleepy drivers nod off and overcorrect after drifting out of their lane, or they turn too hard while merging because they’re fatigued and less in control. “The load shifted because the trailer started to tip over,’’ Woods said. “The load doesn’t shift and tip the trailer over.’’ In fact, a 2008 study conducted by Woods points to fatigue as a major cause of accidents involving livestock transportation. The study, which analyzed 415 accidents involving commercial livestock trailers in the U.S. and Canada between 1994 and 2007, most notably points to five things that suggest fatigue is the real cause behind most livestock-related crashes. Of those crashes, it found that more than half — 59 percent — happened between midnight and 9 a.m., when drivers are likely tired. Woods believes, due to limitations from gathering that data from news reports, that the prevalence is likely closer to 90 percent. The vast majority — 80 percent —were single-vehicle accidents, which helps rule out other vehicles causing the crash. Driver error was blamed for 85 percent of the wrecks. The vehicle rolled over 83 percent of the

time, which Woods said typically suggests the driver drifted out of the lane, then overcorrected. Trailers overturned to the right-side 84 percent of the time, which falls in line with typical fatigue-related crashes in North America, where driving is done on the right-hand side. Outside of Woods’ study, there’s not much official data on fatigue-related crashes to help push safety efforts. Looking at national and state data, fatigue doesn’t seem to play a prevalent role. A 2007 FMCSA study that looked at 963 crashes involving 1,123 large trucks between 2001 and 2003 found fatigue only playing a role in 13 percent of the accidents. That’s the same rate in Missouri, at just above 13 percent. Of the approximately 2,057 crashes involving large trucks between 2015 and 2017, just 271 involved fatigued drivers, according to the Missouri Department of Transportation. Woods said that’s because fatigue is highly underreported in crashes. “Does the driver look at the cop and say, ‘Hey, I’m tired’?’’ she said. “Because I can tell you, when your truck hits the ditch, you’re wide awake.’’

Drowsy Drivers

In fact, a 2014 study by the AAA INSURANCEJOURNAL.COM

Foundation for Traffic Safety estimated an average of 328,000 drowsy driving crashes occur annually, which is more than three times the police-reported number. Of those, about 109,000 result in injury and roughly 6,400 are fatal, the report said. Captain John Hotz, director of the public information and education division of the Missouri State Highway Patrol, said it is likely that fatigue is underreported in highway crashes because proving fatigue played a role can sometimes be difficult to do. Drivers are disincentivized to admit fatigue, Hotz said, because admitting fault can result in discipline from employers, suspension of a commercial driver license or prompt insurers to raise rates. It can also result in a hefty fine or hold drivers criminally liable, he said. In Missouri, anyone who crashes their vehicle because they fell asleep can get slapped with careless and imprudent driving — which depending on circumstances, can come with up to one year in jail or a $1,000 fine. If anyone is injured or killed as a result of the crash, Hotz said, that can be upped to assault or manslaughter - a felony. Ultimately, Woods said, industry and regulators need to find a balance between public safety and animal welfare, especially when it comes to tracking driving hours and mitigating fatigue. “There’s a lot of moving parts,’’ she said. “This is not just about our truck drivers, this is about our industry. It’s about animal welfare...trying to find one hat that fits them all isn’t going to work.’’ Finding a balance between industry and safety needs may be easier said than done, said Adler, who believes current trends show government regulators favoring industry over safety. For more than a decade, he said, both the Federal Motor Carrier Safety Administration and the National Highway Traffic Safety Administration have essentially stalled talks on implementing a speed limiter rule, which would require drivers to install a device that would put a cap on the truck’s top speed. The agencies have also been slow or reluctant to address other safety proposINSURANCEJOURNAL.COM

als, Adler said, like assigning minimum hours behind the wheel for new drivers, raising minimum insurance or researching automatic emergency braking. In 2017, the agency stalled or withdrew from nearly half a dozen safety rulemakings, reported The Hill. “You do look at some of their priorities and say, ‘Hm, they’re not focusing on proven policies that could really move the ball on safety,’ Adler said. Adler also said that the way agricultural exemptions are being handled is making it increasingly difficult for regulators to provide needed oversight on things like hours of service and how those hours are tracked.

This is not just about our truck drivers, this is about our industry. In states like Missouri, where agricultural exemptions have given drivers hauling livestock enormous leeway on time spent on-duty, regulating driving hours falls almost entirely on the trucking companies themselves. That means whether a driver is scheduled in a way that provides adequate time for rest, or whether drivers are being encouraged to log hours accurately, falls on company management rather than government agencies commonly tasked with that role. That’s one of the challenges regulators and industry leaders need to consider, Woods said. Most livestock hauling companies are small and have a good track record for compliance. But there are some chronic “bad actors,’’ she said. In McGilvray’s case, when he crashed his cattle trailer in Harrisonville, he was working for Phenix Transportation West Inc., a Mississippi-based company with 125 drivers, according to the FMCSA. In the past two years alone, Phenix drivers have been involved in three fatal crashes, according to the agency’s website, and the company has received 905 inspections for compliance that resulted in 120 of its drivers receiving out-of-service violations — a government order that pulls drivers from the road until they’re back in

compliance. That gives Phenix a ratio of 13.3 percent regarding inspections to out-of-service orders, more than double the national average of 5.5. percent, according to the website. Information on the FMCSA website also shows that, at some point this year, the agency pulled the company’s interstate operating authority. Debruyne said that means the Mississippi company can no longer operate outside state lines, but he wouldn’t clarify when that status was revoked or for what reasons. Ricky Wilkerson, president of Phenix Transportation West, said the fatalities involved in the company’s record are misleading and that two of the three weren’t his drivers’ fault. He also said his livestock drivers work for his cattle hauling operation Southfork Cattle Company, which has no record of compliance inspections or fatal crashes. However, Southfork Cattle isn’t authorized to operate across state lines, according to the FMCSA, and Wilkerson acknowledged McGilvray worked for Phenix. According to the agency’s website, Phenix reported that it does haul livestock. Wilkerson wouldn’t clarify that discrepancy. He also wouldn’t clarify why despite his statement that Phenix drivers installed ELDs in 2017, McGilvray was driving without one, and disputed the notion that his company pressured its employees to drive beyond what’s allowed under federal law. “It’s a mystery to us, too,’’ Wilkerson said of McGilvray’s crash. “But I can assure you that he had ample time to make his delivery.’’ For Adler, McGilvray’s crash is the perfect example of why rolling back hours of service rules or expanding exemptions that allow more time on duty for drivers without federal oversight is a bad idea. “All too often, you hear folks throw around the term ‘flexibility,’" he said. “Yet, there’s no discussion on how that 'flexibility' can be exploited by some of the worst actors. And I think that’s what you see with so many of these unstudied, unsafe proposals.’’ © 2019 Associated Press. The nonprofit news outlet Midwest Center for Investigative Reporting provided this article to The Associated Press through a collaboration with Institute for Nonprofit News.

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News & Markets When Rebuilding After Hurricanes, Big Homes Replace Small Trend Is Playing Out in Areas Prone to Extreme Winds and Storm Surge

study of hurricane-hit areas of the United States has revealed a trend of larger homes being built to replace smaller ones in the years following a storm. The research, led by the University of Southampton (UK) and published in the journal Nature Sustainability, shows that the sizes of new homes constructed after a hurricane often dwarf the sizes of those lost. “Our findings highlight a ‘building back bigger’ trend in zones known to be prone to damage from extreme wind conditions and storm surge flooding,” said lead researcher Dr. Eli Lazarus, of the School of Geography and Environmental Science at the University of Southampton. “This practice creates an intensification of coastal risk– through increased, high-value property being exposed to major damage or destruction.” Scientists from the UK and

U.S. measured changes in residential-building footprints at five locations on the U.S. Atlantic and Gulf Coasts that have suffered six hurricane systems between 2003 and 2012. They compared satellite imagery from before the major storms hit with corresponding imagery from 2017. The areas examined were Mantoloking (New Jersey), Hatteras and Frisco (North Carolina), Santa Rosa Island (Florida), Dauphin Island (Alabama) and Bolivar (Texas). The locations are all developed coastal barriers in designated flood-hazard areas, featuring mainly single-family homes. The research, which also involved Coastal Carolina University, U.S. Geological Survey, University of North Carolina and Cardiff University, showed an overall pattern of larger homes replacing smaller ones across all five coastal locations.

Among buildings which changed area size (pre- and post-storm) the average house footprint increased between 19 per cent (Hatteras) and 49 per cent (Santa Rosa Island). New homes constructed post-hurricane strikes (but not as direct replacements for existing buildings) exceeded the mean footprints of other pre-storm buildings in the locality by between 14 percent (Mantoloking) and 55 percent (Santa Rosa Island). Houses in the U.S. are getting bigger, in general. However, the increases shown in this study are much greater than the average increase nationally and are happening despite policy measures intended to curb them. The effects of disasters can leave vulnerable communities open to – and perhaps ultimately pushed out by – speculative real estate markets with investors who buy up ruined parcels of land to make gains in any subsequent recovery, the study says. "The building of larger homes, in-turn, puts a greater strain on the funding of subsidized insurance for properties in at-risk areas,” said Lazarus. The team suggests that the “build back bigger” trend isn’t just limited to hurricane strike zones in the U.S. and is investigating redevelopment patterns in other places.

Source: University of Southampton (UK)

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Special Report: Nonprofits Nonprofits Prove to be a

Growing and Loyal By Andrea Wells

onprofits are growing, which is good news for agents and brokers specializing in this diverse niche market. Data released by the U.S. Department of Labor’s Bureau of Labor Statistics in August 2018 shows that the job growth rate of the nonprofit sector is outpacing that of for-profit industries by 3-to-1. Between the pre-re-

cession year of 2007 and 2016, nonprofit employment grew by nearly 17 percent while for-profit employment grew by less than 5 percent. That trend was found in nearly every state, according to BLS. The nonprofit employment growth rate over the recent decade exceeded that of for-profit firms in 49 of 50 states, with the exception

being North Dakota, where the two sectors were tied. The growth is not only in small local agencies or services but also in large organizations, according to Melanie Lockwood Herman, executive director of The Nonprofit Risk Management Center based in Leesburg, Va. Although 66 percent of all nonprofits have budgets under $1 million, there are

thousands of nonprofits that have much larger budgets, and could be great accounts for agents. “I think that’s something agents and brokers may not appreciate,” she said. In the health and human services nonprofit sector alone, which encompasses many different types of nonprofit organizations, Lockwood Herman says

Niche there are more than 7,000 organizations with budgets of $5 million or more a year. Despite the challenging financial constraints nonprofits often face, the sector as a whole continues to grow, she added. Nonprofit organizations are the third largest private workforce of all U.S. industries, trailing only the retail trade and manufacturing

sectors, according to BLS. Nonprofits also account for the third largest employee payroll, with total nonprofit wages exceeding those of most other U.S. industries, such as construction, transportation, and finance. Another reason nonprofits make the ideal target market for agents and brokers – their loyalty, says Lockwood Herman.

“Nonprofits are really connected. They work through nonprofit associations and federations, and nonprofit leaders believe in networking,” she said. “It’s so important for agents and brokers looking at opportunities in this sector to recognize that if you work with one nonprofit organization, the person you are working with works with dozens of others.”

And they talk to one another regularly, she adds. “In our experience at the Nonprofit Risk Management Center, our clients always look for insurance referrals from other nonprofits,” Lockwood Herman said. “They ask their colleagues who they’re working with? Who is their agent or broker? And are they happy with their services?”

How One Agent Adopted a Niche within a Niche

hillip Hawley, president of Hawley & Associates in Bellevue, Wash., understands the power of referrals in the nonprofit insurance world. His entire agency’s book of business took root with nonprofit referrals – one right after the other. Hawley began his insurance career at Chubb Group, eventually landing in management as international underwriter and regional division leader. After 17 years on the company side, Hawley decided to explore a career as an independent agent and broker. “The first thing I noticed as a broker was this lack of any ability to differentiate

yourself from the other brokers in the area,” he said. The firm he was at was a large regional firm specializing in construction. “They handed you the phone book and said, ‘That’s what we specialize in.’” Hawley remembered his first call: “I get a hold of this guy and I said, ‘I’m Phil and we specialize in construction.’ And his response was, ‘Yeah, you and everybody else.’ And it was so true. We all specialized in construction.” That’s when Hawley started looking for a better way to differentiate himself. And it came during a family conversation with his brother-in-law. “My brother-in-law was

the executive director for one of the world’s largest international adoption agencies and he had just returned from a national conference,” he said. “He said everyone there had expressed frustration that there wasn’t one insurance broker out there that knew anything about adoption,” Hawley recalled. “He said, ‘You should really look into this,’ and so I did.” Hawley began reaching out to international adoption agencies. “I couldn’t believe how willing they were to talk to me. They said no one had ever called them ... and it started the snowball rolling downhill.” He approached his

continued on page 46

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Special Report: Nonprofits continued from page 45 employer at the time about forming a specialty in international adoption. “It was a space I couldn’t find anyone else in.” But his employer laughed. “They seriously thought that was the funniest thing they’d ever heard,” he said. “‘We do construction. We do big cranes and towers and you’re talking about doing babies? Are you nuts?’” Hawley had a decision to make – continue along the same path in construction along with everyone else or quit. “It was really the first time I ever took a chance in my life,” he said. “I quit and set up my own shop, Hawley and Associates, and began writing adoption agencies in my very first month.” Hawley uncovered a niche within a niche, and struck gold. “It was going so fast, it was making my head spin,” he said. Within a few months he had hired a couple of employees and within three or four years, he had written more than half of all U.S. based international adoption agencies. Just three years later his agency had earned the endorsement of the National Council for Adoption Associations in Washington, D.C. From there, Hawley expanded into domestic adoption agencies, and then foster care agencies. “Today, we are a full-service firm and provide insurance for

any social service agency whether it’s a humanitarian organization or a local foundation or a very large, diversified organization,” he said. “We’re just a small brokerage just outside of Seattle, but we have two of the state’s largest nonprofits.” Hawley serves some of the largest social service nonprofits in country, including one of the oldest U.S. adoption agencies, the Gladney Center for Adoption, an organization founded in 1887. “We’ve really grown by becoming real specialists and experts in this area,” he said. Today, Hawley is a recognized speaker on insurance issues surrounding the social services market especially in the smaller niche sector of foster care and adoption agencies. Adoption is a very risky class of business and probably an area to avoid without expertise, he said. “The E&O exposure is huge and it’s just not something that you can go into without a good understanding of how to cover them,” Hawley said. It’s about finding the right niche within this niche market. “Insurance brokers have to find their niche, whatever that niche is,” he said. “You’ve got to find your specialty. Instead of, ‘I’m a construction specialist, it should be ‘We specialize in mechanical contractors’ or whatever it is.”

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Navigating Today’s Nonprofit Insurance Market By Andrea Wells

onprofits are a lot like most insurance clients; there’s not much difference. They seek trusted and consultative relationships with their agents, brokers and carriers. They seek partners that understand their mission. But they also seek agents who understand in what ways their needs differ from those of for-profits. In exchange, they are loyal clients that are happy to give referrals for their agents. “Nonprofits face challenges similar to those of for-profit organizations in the areas of expense controls, human talent acquisition and retention, and an increasingly litigious society,” Jim Scardino, president of AmTrust Nonprofit, told Insurance Journal. On the other hand, revenue streams for nonprofits come principally from governmental and private grants along with individual fundraising activities rather than from sales of products and services. That can be an additional hurdle, he said. “Governmental sources have been less consistent and dependable in recent years, forcing nonprofits to be more self-sufficient and cost conscious,” Scardino said. The most impactful trend, and one not unique to nonprofits, is the rising cost of risk, according to Mike Liguzinski, divisional president, Specialty Human Services, Great American Insurance Group. That includes everything

from: increasing cost of legal expenses and expert witness expenses, a rise in frequency and severity of abuse losses, increase in frequency of professional liability, elder care/ wrongful death, and related cases, an increase in automobile costs, and an increase in building replacement costs, he told Insurance Journal. Liguzinski says that client-on-client abuse appears to be on the rise, with the age of the victim and perpetrator declining in many cases. “For example, a recent study showed the cost of a sexual abuse-related jury verdict averaging nearly $9 million in California,” he said. “These trends support rising costs and a longer tail, to which the non-profit insurance industry is not immune.” Liguzinski says that both short and long-tail claims totals have increased in frequency and severity over the past 12-18 months. “When you combine the increased claim costs with premiums that are rising at a lesser rate than is needed to keep pace with claim inflation due to increased competition, and you can see carriers feeling the pinch and taking action in the space,” he said. “There was [recently] a major carrier downgraded by A.M. Best due to current year weather claims and prior year reserve strengthening, and this is INSURANCEJOURNAL.COM

not the first,” Liguzinski said. “Several other carriers are taking action on high exposure, long tail classes of business, including limiting umbrella or abuse limits, mandating significant price increases, or exiting certain classes or geographies altogether.” Great American’s operating model will also change to some extent, Liguzinski said. “We will better understand how claim costs rise faster than economic inflation, terms and conditions will become more realistic for the claim environ-

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ment we see today, including more use of CAT deductibles in areas not previously known for CAT activity, and possibly some higher hazard business flowing back to the surplus lines market, where it came from a few years ago.” Despite this challenge, Peter Persuitti, managing director, insurance and risk management, who leads the Global Nonprofit Practice and Global Religious Practice for Arthur J. Gallagher & Co. in Chicago, sees more options for nonprofits in today’s insurance market. “The options are both

more carriers that are building specialized nonprofit expertise in terms of coverage forms and matching,” Persuitti said. “I think the good news on the insurance side is that every time I go to a nonprofit conference, I see more carriers and there’s more commitment to the sector,” he noted. However, while there are more markets in the space, he also sees a “definite shrinking of limits” in some areas such as abuse coverage due to the rising number of large jury verdicts. “But overall, there’s still plenty of

capacity for nonprofits and the alternative market [captives] continue to grow.” “Nonprofit organizations exist not to enhance shareholder value, maximize profits, or dominate market niches, but to improve the lives of people and the communities in which people live,” Scardino said. Therefore nonprofit administrators and managers must stay focused on the mission of the organization and depend on outside experts, such as their insurance agents and carriers, to guide them through insurance decisions and risk management procedures. “Agents and insurance carriers must understand the culture and specific risk exposures of the nonprofit organizations they serve,” he said. “They must be sensitive to the needs and resource limitations nonprofits have and, to some degree, adopt the nonprofit’s mission as partly their own.” And, nonprofits are loyal. “Indeed, it is not unusual for the account of a nonprofit to remain with the same agent and carrier for 10 years or more,” he said. “Insurers can make themselves better partners by providing education and assistance on loss control matters and safety training, offering flexible billing and payment terms, updating coverage terms to match the changes in the marketplace and society, and by truly showing respect and regard for the noble work done in the nonprofit sector.”

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News & Markets Businesses View Cyber, Business Interruption as Bigger Risks Than Catastrophes

yber incidents join business interruption as the top risks facing global businesses, according to a survey conducted by Allianz Global Corporate & Specialty (AGCS). The impact of business interruption (which includes supply chain disruption) is the major risk for companies for the seventh year in a row, according to the eighth annual Allianz Risk Barometer 2019*, with 37 percent of respondents ranking it as one of the three most important risks that threaten businesses. For the first time, cyber incidents join bodily injury (BI) at the top of the rankings, also identified by 37 percent of respondents as one of the three top risks, said Allianz. It explained that cyber incidents include cyber crime, IT failure/ outage, data breaches, fines and penalties, which are increasingly resulting in significant BI losses of their own.

Business Interruption

Drilling down into the findings, AGCS said, the average BI property insurance claim now totals €3.1 million (US$3.6 million), which is 39 percent higher than the corresponding average direct property damage loss of €2.2 million ($2.5 million). Allianz noted that many BI events can occur without physical damage but can still cost millions. “Events such as breakdown of core IT systems, product recall or quality incidents, terrorism, political violence or rioting and environmental pollution can bring businesses to a standstill, meaning firms may be unable to provide products and services — or customers stay away — having a devastating effect on revenues,” said Allianz in its survey report. Allianz cited the example of the French retailers that lost about €1 billion ($1.1 billion) from four weekends of protests at the end of 2018. Further, it added, legisla48 | INSURANCE JOURNAL | FEBRUARY 4, 2019

‘Events such as breakdown of core IT systems, product recall or quality incidents, terrorism, political violence or rioting and environmental pollution can bring businesses to a standstill, meaning firms may be unable to provide products and services — or customers stay away — having a devastating effect on revenues.’ tive change such as Brexit departure from the European Union in 2019 also poses a potential BI threat with anticipated disruption to supply chains. “Potential BI scenarios are becoming ever more diverse and complex in a globally connected economy, including breakdown of core IT systems, product recalls/ quality issues, terrorism, political rioting or environmental pollution,” Allianz said. Survey respondents cited the top five causes of BI they fear the most as: 1) cyber incidents (cited by 50 percent of respondents); 2) fire, explosion (40 percent); 3) natural catastrophes (38 percent); 4) supplier failure, lean processes (28 percent), and 5) machinery breakdown (28 percent). At the same time, BI is seen as the biggest cause of financial loss for businesses after a cyber incident (69 percent), said the survey report. “Cyber incidents can cripple a company’s operations and severely impair its ability to deliver its services, yet they are just one of many loss triggers that can result in a BI for corporates,” said Volker Muench, global practice leader, Utilities & Services, IT Communication, AGCS, in comments in the report.

Cyber Incidents

The average insured loss from a cyber incident is now just over €2 million($2.3 million) compared with almost €1.5 mil-

lion ($1.7 million) from a fire/explosion incident, said AGCS, noting that losses from major cyber events can be in the hundreds of millions or higher. Cyber incidents rank as the BI trigger most feared by businesses, and BI is also the biggest cause of economic loss for businesses after a cyber incident, according to Allianz Risk Barometer respondents. “Finally we have reached an important point where cyber is equally concerning for our customers as their major ‘traditional’ exposures, which means that entities across all industries and business segments now have this risk firmly on their radars,” said Marek Stanislawski, the deputy global head of Cyber and Tech PI at AGCS. “As all businesses embrace digital business models, success is highly dependent on the technology facilitating the business,” said Georgi Pachov, global practice leader, Cyber, AGCS. “Revenue streams can be easily interrupted following abnormal technological behavior. Cyber incidents leading to BI will become much more frequent in future due to the massive reliance on technology and data for running businesses,” Pachov affirmed. “In the age of the ‘internet of things,’ if two manufacturing devices cannot communicate and exchange data with each other, this will inevitably lead to a business disruption.” INSURANCEJOURNAL.COM

Allianz Top Business Risks: 1-10

In addition to business interruption and cyber, the other top business risks named by survey respondents are: • Business interruption – 37 percent • Cyber incidents – 37 percent • Natural catastrophes – 28 percent • Changes in legislation and regulation (e.g., trade wars and tariffs, economic sanctions, protectionism, Brexit, Euro-zone disintegration) – 27 percent • Market developments (e.g., volatility, intensified competition/new entrants,

• • • • •

M&A, market stagnation, market fluctuations) – 23 percent Fire, explosion – 19 percent New technologies (e.g., impact of increasing interconnectivity, nanotechnology, artificial intelligence, 3D printing, autonomous vehicles, blockchain) – 19 percent Climate change/increasing volatility of weather – 13 percent. Loss of reputation or brand value – 13 percent Shortage of skilled workforce – 9 percent.

Climate change (at number 8 with 13 percent of respondents) and shortage of skilled workforce (at number 10 with 9 percent of respondents) are the biggest climbers in rank from last year (from 10th and 8th rankings, respectively, in 2018), noted the AGCS survey report. Allianz explained that climate change

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rose up the list of business threats as a result of concerns that the recent spate of natural catastrophe activity could be a harbinger of increasing financial losses and disruption. In addition to damage and disruption to property, climate change is likely to have big implications for regulation and liability, including emissions targets, and reporting and disclosure requirements. Such concerns ensured that climate change rose to its highest-ever position, AGCS said. The shortage of skilled workforce appears for the first time in the top 10 global risks, which Alllianz attributed to factors such as changing demographics and Brexit.

* Methodology: Allianz’ annual risk barometer incorporates the views of 2,415 respondents from 86 countries, including CEOs, risk managers, brokers and insurance experts in 22 industry sectors.

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Idea Exchange: When Words Collide included a note from an adjuster to his supervisor that he was able to “low ball” (his words) an insured into accepting half of what the claim payment should have been. That $26,000 claim cost the carrier about $3 million. But I believe that such cases are, in the context of millions of claims, quite rare and more an indication of individual character flaws than corporate culture. Again, we’ll discuss unfair claim settlement practices and bad faith later in this series.

Cranial Inversion

What It Takes to Successfully Resolve Insurance Coverage and Claims Disputes While Understanding Why Some Claims Are Denied

n the first column of this series, I provided an overview of what it takes to successfully resolve coverage and claims disputes withBy Bill Wilson out litigation. In the coming months, we will be examining each of the facets of this approach. But before we can do that, we need to identify and understand exactly why claims are denied. How we proceed with claim resolution depends on the basis for the denial. So, in this column, we’ll address four categories of claim denials. We’ll start with the most common reason for claim denials and arguably the rarest basis for claim denials, then focus on the two reasons this series of articles is principally designed to address.

They’re Not Covered

The vast majority of claims are denied for a very simple reason — they’re not covered. This usually means that either the policy insuring agreement is not triggered, or an exclusion clearly and unambiguously applies. This doesn’t necessarily mean that the claim dies here because the question arises as to why the claim is not covered. If there is alleged negligence on the part of the agent or carrier, a properly denied 50 | INSURANCE JOURNAL | FEBRUARY 4, 2019

claim can morph into an errors and omissions (E&O) claim. In an upcoming column, I’ll discuss three sources of coverage gaps that can arise during the insuring process and how they can be prevented. Also, note the use of the word “properly.” Sometimes claims that are not covered are denied in an improper way and, until or unless that has been corrected, the claim denial may not stand. In another column in this series, we’ll examine unfair claim settlement practices, most of which arise not out of malice or wrongful intent, but rather due to poor training, supervision, workload or sloth.

Illegal and/or Unethical Reasons

In the Kentucky Court of Appeals case of Universal Underwriters Ins. Co. v. Travelers Ins. Co., the court opined, “It seems that insurers generally are attempting to convince the customer when selling the policy that everything is covered and convince the court when a claim is made that nothing is covered.” Of course, the court was speaking tongue in cheek, but policyholder attorneys that advertise on TV shows like Jerry Springer would have us believe that every claim is denied, in whole or in part, for some sinister reason. There is no question that this happens. There is ample case law to demonstrate this. One that comes to mind was a homeowners claim denial where the claim file

When I refer to a “cranial inversion” claim denial, that’s shorthand for a more medically correct “cranitis rectal inversio” diagnosis. Sometimes claims are denied for unfathomable reasons. Often such denials are verbal, or a written denial does not properly cite policy language and how it applies to preclude coverage. Again, this is something I’ll discuss in a later column on improper claims practices. For now, I’ll give you one notable example from a claim I consulted on a year or so ago.

Sometimes claims that are not covered are denied in an improper way and, until or unless that has been corrected, the claim denial may not stand. A warehouse was insured using the ISO CP 00 10 Building and Personal Property Coverage Form and the ISO CP 10 30 Special Causes of Loss form. The latter form covers damage to property caused by vehicles. In this case, a truck slammed into a loading dock causing about $6,000 in damage. The adjuster denied the claim, citing the Property Not Covered section of the CP 00 10 which excluded damage to “Bulkheads, pilings, piers, wharves or docks.” Needless to say, this list of excluded property refers to waterfront property, not warehouse loading “docks.” Why the adjuster cited this policy provision to deny the claim remains a mystery that I’ll explore in the Academy of Insurance’s companion webinar to this article, along INSURANCEJOURNAL.COM

with several other bizarre claim denials. These types of claim denials are usually easy to overturn if you know how to do it, something revealed over the course of this series. In this particular case, we cited a legal principle called noscitur a sociis, Latin for “It’s known from its associates,” that is used by attorneys to resolve claims based on the interpretation of a list of contract terms.

Legitimate Differences of Opinion

Our focus throughout the remainder of this series will be largely on claim disputes that arise from legitimate differences of opinion about coverage, something that characterizes the majority of claim disputes. In last month’s column and webinar, I talked about the myth that insurance, especially personal lines, is a commodity distinguished only by price. Perception is not reality. The reality is that, while many policy forms are similar, unless the language is INSURANCEJOURNAL.COM

exactly the same, minor variations can translate into major coverage differences. In fact, even when contract language is exactly the same, there may be disagreement about what that language means. In addition, as Supreme Court Justice Oliver Wendell Holmes Jr. put it, “A word is not a crystal, transparent and unchanged; it is the skin of a living thought and may vary greatly in color and content according to the circumstances and time in which it is used.” Likewise, identical policy language may be interpreted differently under a different set of facts and circumstances. For example, we all know that most property policies exclude “earth movement.” So, what constitutes “earth movement”? What about damage done by a boulder rolling downhill (you can visualize this if you’ve ever seen the Chris Farley movie “Black Sheep”)? In an open perils policy, would the rolling boulder be considered “earth” movement? In a

named perils policy that includes coverage for “falling objects,” what if the boulder bounces off a ledge and hits a structure? What prevails, coverage for the boulder as a falling object or the earth movement exclusion invariably found in even named perils policies?

‘The reality is that, while many policy forms are similar, unless the language is exactly the same, minor variations can translate into major coverage differences.’ I can tell you that I’ve been involved in at least two instances of The Case of the Bouncing Boulder and with both claims, we were able to convince the adjuster to pay the claim using the techniques I’ll be sharing in this series. I’ll elaborate more

continued on page 52

FEBRUARY 4, 2019 INSURANCE JOURNAL | 51

Idea Exchange: When Words Collide continued from page 51 on these specific claims in this month’s companion webinar. To further illustrate, we also know that most property policies exclude “water damage,” meaning flooding, water body overflow, surface water, etc. So, what is “surface water” since that term is usually not defined in the policy? Is the accumulation of water on a roof or a high-rise condo balcony that seeps inside the building a form of “surface water”? Not according to most case law, but we often find that policy form language changes to counter unintended legal interpretations.

While the majority of denied claims are denied legitimately because they are not covered, there are significant numbers of claims that are improperly denied or otherwise arguably covered. We know that most liability policies have a “pollution” exclusion, but what is a “pollutant” (a defined term in most

policies but still extensively litigated) and what kind of occurrence would trigger the exclusion? I can give you examples (and will in the webinar) of slips and falls involving pollutants that were improperly denied by someone who had not carefully read the form language or didn’t understand what was read. Folklore, not facts, tells us that CGL policies, with a few very minor exceptions, don’t cover the use of autos. So, there would be no coverage for a church under

their ISO CGL policy for a claim involving a church volunteer who has an injury-causing accident while transporting people to church, would there? If you have an ISO CGL form handy, take a look at the “auto” exclusion and answer that question. You may be surprised at your conclusion. While the majority of denied claims are denied legitimately because they are not covered, there are significant numbers of claims that are improperly denied or otherwise arguably covered. As this series of articles and webinars unfolds, we will be examining dozens of such claims and acquiring the knowledge, skills and tools to be able to better resolve disputed claims without litigation. Wilson is the founder and CEO of InsuranceCommentary.com and the author of “When Words Collide: Resolving Insurance Coverage and Claims Disputes.”

Web Resource: Join Bill Wilson for his monthly webinar series “When Words Collide” exclusively on the Academy of Insurance at:

www.ijacademy.com.

52 | INSURANCE JOURNAL | FEBRUARY 4, 2019

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Idea Exchange: The Competitive Advantage A Regulatory Sandbox for Insurtechs?

Regulatory Sandbox is the title given to the concept that regular regulations should not apply to insurtech By Chris Burand companies. The reasoning is that technology can provide a better consumer experience than traditional carriers and distributors, particularly if the insurtech company or agency does not have to comply with all the rules and regulations. The sandbox rules are not just theoretical. While some people lament that the United States is not as permissive as Europe in creating sandboxes, the United States clearly has them. How else can the lack of enforcement on the benefits broker who purposely avoided obtaining insurance licenses and went so far as to create software to hide their lack of licenses from regulators be explained? Some states eventually handed out fines but not all states did. That is a sandbox. They don’t have to have licenses, but everyone else does. By the way, that is not an issue that technology supersedes. Regardless of who or what is giving advice, a license is meant to help emphasize the person or entity has at least a modicum of knowledge and has passed a background check. “Technology” does not obviate this point. Another way of stating this is to ask the question, “How is INSURANCEJOURNAL.COM

technology delivering a better consumer experience, including a safer consumer experience, when the people that work for that technology company who are the live entities delivering advice, do not need licenses?” The technology argument is ridiculous.

with rebating other than maybe speed the delivery of the rebates. Some evidence exists of non-actuarial pricing being employed. This is evident in many areas. An obvious one is the difference between new business and renewal

Rebating

In another example rebating was allowed because the “agent” was “really” a technology HR company selling insurance on the side. That was the political decision. Rebating is rebating (although, as former President Clinton emphasized in one of his depositions, “is” has amorphous meaning so maybe rebating does too). Technology has nothing to do

FEBRUARY 4, 2019 INSURANCE JOURNAL | 53

Idea Exchange: The Competitive Advantage continued from page 53 pricing. Another example is reading the advertisements of the analytic firms promising favorable pricing models without any mention of actuarially based pricing. I cannot prove anything but based on the correlations between what I see happening in the real world and then reviewing certain insurance companies’ income statements, some carriers certainly seem more successful than others relative to their pricing models. I know this is not ever approved categorically by regulators, but assuming it is happening, it can more easily happen today because companies and their programmers can hide it more easily. Some people believe 100 percent actuarial based pricing is passé anyway.

Wolf in Sheep Clothing

Should a sandbox be created for new companies using steroid effected pricing models? What is the outcome if they write a lot of premium that is massively underpriced? Who pays the piper? Why is technology even required as a consideration for obtaining a special regulator exemption? As the industry has proven for decades, technology is not required to massively underprice. I have yet to see, read, or experience a situation where existing regulators hindered a technology-based carrier or distributor in any special way. Whatever regulation frustrated these insurtech players or whatever is frustrating them enough to call for special sandbox regulations frustrates traditional players, too. This sandbox concept is the epitome of a wolf in sheep clothing. Players, not just new ones, are using technology as a guise to skirt regulations that have a solid, important purpose. Nothing magic exists in technology allowing a “technology” based entity to responsibly and ethically deliver insurance products by exempting them specifically from these regulations. For example, licensing is important regardless if the agency is virtual or brick and mortar. Maybe licensing is even more important if the agency is virtual. In a brick and mortar agency, consumers have an opportunity to know and to meet the person. They see the person to whom they 54 | INSURANCE JOURNAL | FEBRUARY 4, 2019

can complain. The people live in their town and can be reported to their state’s regulator easily. How does a person report a “bot”? Rebating is controversial on many levels. Maybe the concept is even somewhat outdated, but then it is outdated for the industry, not just insurtech. Nothing special exists relative to technology vs. brick and mortar agencies relative to rebating and delivering a better consumer experience. Maybe it is time to revisit the anti-disparagement rules, too, because I’m seeing indications that certain entities who may play a little looser with the rules, not just technology-based carriers either, are using these rules to protect their behaviors. It also looks to me the way these rules work or are being enforced is a little one sided. These new companies seem quite able to knock traditional players without fear on prices, rates, service, etc., but one has a difficult time pointing out their poor forms, their forms that may violate copyright laws, their financial situations, or their overall corner cutting. Do they really need special protection to cut such important corners? The time may be right to revise these rules.

Not Good On Any Level

I feel for regulators because pricing is such a difficult, contentious and socially vital issue, especially in personal lines. If these firms demanding sandbox regulations are allowed to cherry pick, if any companies are allowed to cherry pick, by pricing exactly to the risk or through the use of non-actuarial based pricing, a material segment of the population may be faced with less affordable or completely unaffordable insurance. This is not good on any level, including the UM/UIM aspect. Industry veterans remember how horribly the state government solution/ takeovers were in the 1970s to 1990s when insurance became too expensive for too many constituents. Capitalization is of real concern on two levels: the balance sheet and the income statement. The concern on the balance sheet level is that capital is required to pay claims. I am starting to see the idea that

technology companies do not need as much capital with which to pay claims. That argument is hard to buy because claims are claims unless the technology will reduce claims. In that case: 1. Will rates decrease? Almost certainly rates will decrease meaning capital may need to increase for all the new business written because their rates are so competitive. More capital, not less capital is required for growth. 2. Will claim practices remain fair? Everyone’s definition of fair varies depending on which side of the table they face. Maybe a better way of posing this question is, if the same claim and same policy provisions (or maybe their policies will be skimpier?) exist, will many other companies pay more for the same claim? Another interesting balance sheet argument being made is that regulators should INSURANCEJOURNAL.COM

Regulatory sandboxes are a Trojan horse. allow a greater variety of investment without discount. I am seeing inklings of using Fair Value accounting. Fair Value accounting can be more easily massaged. Maybe it is okay for investors and mergers and acquisitions, but that is quite another for policyholders. Insurance is meant to be INSURANCEJOURNAL.COM

solid, not sexy. On the income statement side, the argument is being made by many, including old companies, that expenses will be less in the future because technology is going to increase productivity exponentially. This will result in more profit, and with that profit, more money can be assigned to surplus, which in turn, requires less initial capital. That is a neat argument and it has potential, assuming management and shareholders will leave the profits in the companies. While every company can leave profits on the balance sheet and use it to build sur-

plus, many companies do not do this. They do not even pretend to do this, so I have my doubts about this argument being universally realized. Another reason to doubt the efficacy of this argument is that if rates decrease because expenses are lower and the company then writes more business, it needs more capital to support the extra writings! I just do not buy into the idea any of these “technology” companies are so smart they can deploy capital so much more intelligently that they can truly protect policyholders with materially less capital. Math is kind of neat this way. Regulatory sandboxes are a Trojan horse. I hope regulators and the industry keep Troy’s gates closed. Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719-4853868. Email: chris@burand-associates.com. FEBRUARY 4, 2019 INSURANCE JOURNAL | 55

Idea Exchange: Talent function operates, claims is still claims. No one can take that away. Insurers still need the experience and expertise that traditional claims staff members possess to run their departments. By successfully retaining and engaging employees, claims can continue to reinforce its value to customers while maintaining its commitment to modernization. Just as plants grow and prosper with enough sunlight and nutritious soil, claims teams need an environment and culture that allows them to thrive in the age of innovation. The goal is to create a workplace where employees are comfortable discussing modernization and feel genuinely excited about the future of work. To realize these changes, organizational leaders should revisit their management practices and adjust their corporate cultures to embrace modernization and technological advances. In essence, innovation must be part of the corporate DNA. Yet some employees feel disconnected from modernization initiatives as they fear their roles may be replaced by robots and computers. They may be right; artificial intelligence, data analytics and digitalization can indeed replace some claims roles. However, these same advances can also generate new positions and career paths within the function, thereby putting more people to work. While positioning modernization in a positive light, insurance organizations should be transparent and regularly communicate upcoming changes and initiatives with their workforces. It is best to allow employees to express their concerns and ask questions.

staff members to different roles as needed. To ensure a seamless transition, insurance organizations can proactively invest in employees’ professional growth by providing extensive, intentional training opportunities. Departments should put aside their employees’ defined roles or professions and focus on evaluating their individual skill-sets. With that information, leaders can offer personalized training modules that successfully augment individuals’ strengths and fortify weaknesses. Well-educated employees will be empowered to better transition into their newly defined roles within their future claims department. Department leaders and executives should also consider promoting and sponsoring employees to attend industry, function-specific, technology or analytics events. Participating professionals can obtain critical knowledge and provide organizations a diversity of perspectives from which to launch continued innovation. They will also appreciate the fact that leaders are invested in their futures, which will motivate them to continue working in the claims function. Such intentional engagement is essential to building a solid foundation for competitiveness in tomorrow’s tech-driven business reality. The realm of training must extend to managers, supervisors and department leaders. The future of work calls for leaders who can provide stability and show flexibility. The time has come for professionals to lead in the ways business schools do not teach. Companies should revisit their leadership training programs, incorporating change management, empathy, collaboration and motivation into their curriculums.

The Right Attitude

Embrace Innovation

The Claims Talent Evolution

t should not be a surprise that drones fly over disaster areas for property inspection, and some insurers use chatbots to By Tony Cañas answer policyholders’ claims questions. Claims applications and supporting documents are shared within seconds, and real-time monitoring sensors alert people exposed to preventable risks. Those are only a few examples of the ways technology is changing claims operations. The shift is ongoing, even at this very moment, and the wave of innovation and technological transformation is opening a new age for the claims function and the industry as a whole. Accordingly, claims professionals of tomorrow are going to be different from those of today. In a tech-driven business environment, claims professionals need to be comfortable working closely with more technological assets to drive business initiatives. They must be able to use smartphones, laptops and other tech gadgets for daily operations. At the same time, futuristic claims professionals are expected to possess superior soft skills to successfully engage the human element of modernization and evolving claims operations. For example, adjusters have assumed the role of grief counselors to comfort customers during times of catastrophic loss. Modernization presents a myriad of possibilities for the function. However, only those organizations with well-rounded claims professionals in place will be able to take full advantage of them. How can claims departments ensure they have individuals with the right skill sets to thrive in the age of innovation?

Claims Operations of Tomorrow

While hiring is definitely important, it is essential for insurance organizations to develop and prepare their claims teams to successfully drive the claims operations of tomorrow. Even though the future of work is quickly changing the ways the 56 | INSURANCE JOURNAL | FEBRUARY 4, 2019

Amplifying the right attitude toward modernization is a great place to start. However, it takes more than semantics to position employees to actively contribute to the wave of innovation. The future of work calls for the redefinition of work and simultaneously creates new roles to address evolving business demands. To boost departmental innovation efforts, leaders have to be ready to transition their

As technology continues to change the claims function at an unprecedented pace, insurance organizations need to embrace innovation and focus on evolving their traditional teams into groups of well-rounded future-ready professionals. While realigning their corporate cultures and transparently interacting with employees, leaders must focus on providing ample training opportunities for employees of all INSURANCEJOURNAL.COM

levels. Special attention should be given to managers and supervisors, as the future of work calls for a different type of leadership. Those who proactively invest in the future of employees will be able to enjoy the limitless potential the wind of technological transformation presents to the claims function and the industry. Cañas is a property and 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 best-selling book Insuring Tomorrow. Phone: 800-466-1578. Email: tcanas@ jacobsononline.com.

‘Just as plants grow and prosper with enough sunlight and nutritious soil, current claims teams need an environment and culture that allows them to thrive in the age of innovation.’

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Idea Exchange: Talent Taking a Page from the Insurtech Playbook

How Insurtechs Can Help Attract Millennial Talent to Agencies, Carriers

he rules of the game are changing for companies wishing to attract top, young, qualified talent. Millennials, By Jason Walker Generation Y, Gen Next, Boomerang Generation, or whatever label 20- and 30-years-olds receive, have very different ideas about what they want from their employers. Many will sacrifice salary for more freedom in working schedules and the right culture. They see through insincere messages and over-rehearsed corporate speeches. They want to be part of something and

able to contribute to a company’s larger vision. For insurance — which has long been viewed as a traditional industry — appealing to this demographic can be difficult.

Enter insurtechs. Though these startups are seen as tough competition for agents and carriers, disrupting the industry with technology and new business models, they have done something really important for the sector: attracting young talent to the field. And the industry needs their help. According to a survey from The Hartford, only 4 percent of millennials were interested in pursuing a career in insurance. Insurtechs are helping to change the industry’s perception. Once considered a risk-averse, steady, predictable career path, insurance is transforming into a sector that is technology-focused, fast paced and filled with innovation and new ideas. In order to continue to grow and survive, independent agencies need to capitalize on the industry’s new reputation and use it to attract young professionals to their organizations. 58 | INSURANCE JOURNAL | FEBRUARY 4, 2019

For independent agencies, appealing to young industry professionals is a double-sided imperative. They need the next era of agents to succeed the older agents who are approaching retirement age. But even more importantly, younger agents will give the agency an advantage to attract new customers from the millennial market. It’s clear that the average 20- to 30-yearold has different priorities

from other generations, preferring experiences to tangible items, sometimes postponing starting families until later in life and dispensing with the need to own a car because of ride-sharing. Having young agents on staff can help agencies hone in on the specific insurance needs for this demographic. Often built around start-up cultures, insurtechs can have a natural advantage in hiring. The latest technology and the promise of participating in a company that may revolutionize an industry can be big motivators. But that doesn’t mean insurance agencies don’t have great tools at their disposal to attract next generation talent. Here are four things independent agencies can learn from insurtechs when it comes to hiring and retaining new employees.

1. Embrace new gadgets.

Millennials were born into the digital age. Many in this demographic never knew a world that did not include the internet. If an agency’s processes rely on antiquated systems, paper forms and sending policies through the postal service or even fax, next generation workers can be turned off. While the agency doesn’t have to be as state-of-the-art as Google, it

should have an agency management system that is up to date and can easily manage its workflow. Create a website that is interactive and well-designed. Try to incorporate as many cost and time saving tools that are available, such as claims download, eDocs and Messages, and e-signature. Also, be open to adopting new technology. The agency can even offer newer team members a chance to participate in the digital transformation. For example, establishing and growing the agency’s social media presence can be a great—and fulfilling—role for newer employees.

2. Focus on innovation.

Showing interest in innovation and offering employees opportunities to contribute to the agency’s transformation can entice millennials to join the organization. New generation workers don’t only want a job, they desire opportunities to effect change within the businesses they work. Participating in labs run by carriers, hackathons and industry organizations and initiatives like Agents Council for Technology (ACT), Associations & User Groups Information Exchange (AUGIE) or the Insurance Digital Revolution can demonstrate the agency is open to change and the pros-

pect could play a role in leading the digital revolution.

3. Keep them in the loop.

All employees look for transparency from employers. But many next generation workers demand openness. For some businesses, that can be a difficult shift. Though the agency doesn’t have to share every detail of business plans with all employees, giving people context is critical. When business decisions are made that impact the workers, they should be communicated clearly. Agencies should be transparent about their business goals. Share the direction of the organization, encourage feedback and listen to the team’s opinions. Don’t just be open when the news is positive. No matter how difficult the situation or awkward a confrontation, employees should never be guessing about the agency’s future or their role within the organization. For example, perhaps the agency is going through a restructuring. Inform employees about these decisions

and explain the reasoning behind the moves.

4. Offer a higher calling.

The agency has to stand for something more than revenue and the bottom line to attract millennial prospects. The most recent generation of talent is socially conscious and wants to support and work for organizations that give back to society. Providing an opportunity for employees to connect with the community can make the organization stand out.

Often built around startup cultures, insurtechs can have a natural advantage in hiring. For example, the agency could have an open policy for volunteer events, allowing employees to propose which charities to support and which service activities to participate in. Enable everyone to take part in these events–even during workdays. Getting out and helping those in the local community can not only improve the agency’s culture but also solidify its position within the neighborhood. Young talent is vital for continued growth of the independent insurance agency, and insurtechs may hold the answers. A focus on technology and reinvention of processes make them attractive companies for millennial workers. By embracing the elements of insurtech work culture, agencies can engage a younger employee demographic and evolve their organizations to attract the next generation of insurance customers. Walker is the managing partner at Smart Harbor. He oversees the strategy, development and delivery of the company’s technology solutions and analytics platforms for the insurance market. He is currently an advisory council member for the Insurance Digital Revolution, an industry organization focused on advancing digital technology adoption among independent insurance agents. FEBRUARY 4, 2019 INSURANCE JOURNAL | 59

Idea Exchange: ask The Insurance Recruiter Agencies Promote Soft Benefits to Gain A Distinct Recruiting Advantage

Q&A

Our agency is committed to providing a positive employee experience. We are dedicated to staying on top of the latest and greatest benefits. As a recruiter in the insurance industry, I want to pick your brain on what perks you know are valuable to insurance professionals? – Sarah in Chicago

The conversation about soft benefits isn’t “what” but “why and when.” Recruiting is an emotional process successfully done by building relationships. It’s professional speed dating. How companies perceive soft benefits affects their ability to leverage those perks in recruiting. • Old School Mentality: “Burying the Lead.” Soft benefits are a handout. It’s something we just have to offer. • New School Thinking: “Sharing is Caring.” Soft benefits are powerful. They differentiate our firm, describe our values and signify our culture. They attract and retain talent.

It’s Part of Who We Are

“When I first brought up some of these new ideas you would have thought I suggested we all go to the moon,” said Michelle Trueblood, chief human resources officer at The Horton Group. She and Sarah Newell, talent acquisition manager (who’s question spurred this article), are passionate about the impact soft benefits have on recruiting and retention. “It’s part of a strategic, comprehensive HR strategy that we know constantly needs to change,” Newell said.

60 | INSURANCE JOURNAL | FEBRUARY 4, 2019

By Mary Newgard

“For example, a relaxed dress code was once very cutting edge. It’s still great but we keep innovating for the best possible employee experience.” Caring for employees is in Horton’s DNA. They recognize that soft benefits can cost money. The agency sees this as a great way to reinvest in the company and maintain its independence. Friday breakfast, “food galore,” on-site gyms and fitness programs, on-site dieticians and health clinics are just a few examples of what’s available. Trueblood and Newell also challenge the conventional thinking that soft benefits don’t yield tangible results. • They’ve witness employee referrals become the agency’s No. 1 source for new talent. • Millennials going through summer internships often convert to new hires because they haven’t found another company with comparable benefits. • Teams tapping into soft benefit programs are among the highest performing and have the best retention. • Social media followers have increased exponentially because of testimonials.

Getting to the Heart of What Matters

Jeff Lightner, president and CEO of Marsh & McLennan Agency’s Midwest Region had an eye-opening experience about soft benefits one snowy winter morning. An employee commented in the elevator that she wished it was 20 degrees not 22 degrees so the Weather Rule would be in effect. Lightner asked, “Would wearing jeans really have given you a better outlook on coming to work today?” She said yes. In that moment, Lightner said soft benefits was about “getting to the heart of what really matters.” Lightner has since witnessed a “pay it forward” mentality blossoming throughout their staff. “They want to give back because of what they have received,” he said. He’s seen them band together for one another during tough times, raising money to help a colleague with a family

crisis. He said, “I really have to come up with another word for team-building. The executives and I can sit around, dreaming up team building outings, but nothing is better than when they go into the community and serve alongside one another.” Casual dress and Volunteer Time Off (VTO) are just two examples of where he sees soft benefits making a direct impact. Additional programs include healthy, fresh food delivered daily impacts employee health and plan costs. A formal work-from-home program became the perfect Disaster Recovery Plan. Most importantly, Lightner said these programs hold leaders accountable to get involved. “What is your social impact?” is the first question Millennials ask in an interview,” he said. “There was a time our managers fumbled their answers. Not anymore. They know what MMA’s doing in the community because they are doing it too.”

Five Places Where Your Agency Should Promote Soft Benefits 1. The Interview. Ask candidates what they desire. Share your company’s offerings. 2. Benefits Overview. Right next to what employees expect; share the unexpected. 3. Social Media. Pictures say 1,000 words when employees love your awesome perks. 4. Promotional Materials. Employee testimonials, Glassdoor reviews and career pages. 5. Job Advertisements. Mentioning compensation and benefits sharply increases applicant rates. Newgard is partner and senior search consultant for Capstone Search Group, a national recruiting firm dedicated to the insurance industry. For questions and comments, email: asktherecruiter@csgrecruiting.com.

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Food For Thought

1/18/19 9:51 AM

FEBRUARY 4, 2019 INSURANCE JOURNAL | 61

My New Markets Private Primary Commercial Flood

Market Detail: Insurmark, a division of Financial & Professional Risk Solutions, Inc., (www.insurmark.com) offers private flood insurance for commercial properties. Coverage is lender compliant/NFIP guarantee endorsement. Multiple locations can be covered on one policy and occurrence limits are available. Available limits: As needed Carrier: Unable to disclose, nonadmitted States: All states Contact: Casey Castagna at 404-4344384. Email: casey.j.castagna@insurmark. com

Motor Truck Cargo

Market Detail: Pacific Gateway Insurance Agency (www.pgiainsurance.com) offers coverage for cargo including: grain, hay, feed; livestock; trailers (manufacturer to dealer); building materials; auto hauler; food products and many others. Available limits: As needed Carrier: Unable to disclose States: Ariz., Calif., Nev., and Ore. Contact: Customer service at 800-3544844

General Liability

Market Detail: Casey Insurance Group

(www.caseyinsurancegrp.com) provides commercial general liability coverage for many markets in the majority of states. Available limits: As needed Carrier: Unable to disclose States: All states Contact: Casey Heer at 888-537-1412 or email: casey@caseyinsurancegroup.com

Active Assailant Program

Market Detail: Irwin Siegel Agency (ISA) (www.siegelagency. com), a specialty provider of property and casualty programs and loss control for human and social service organizations, has introduced an Active Assailant Program available to most industries across the United States. Siegel offers the product with an exclusive human services enhancement. In addi-

tion, the risk management and training services accompany the product to assist insureds in preparing and maintaining a proactive approach. Highlights of the new Active Assailant Program include: program backed by an A-rated carrier; service and support from the agency; consultation and training; 24/7 hotline and support teams; human services enhancement and off-site extension; and packages tailored to the insureds needs. Available limits: As needed Carrier: Unable to disclose States: All states Contact: Andrea Racanelli at 800-6228272 or email: andrea. racanelli@siegelagency.com

Workers’ Comp, First Responders

Market Detail: Designed by current and former firefighters and exclusively servicing fire and EMS agencies nationwide, 7710 Insurance (www.7710insurance. com) is a specialty workers’ compensation insurance company. Available limits: As needed Carrier: 7710 Insurance States: All states except Alaska, Calif., Hawaii, Idaho, Maine, Minn., N.D., N.Y., Ohio, Vt., Wash., and Wyo. Contact: 7710 Insurance at 844-200-7710 or email: info@7710insurance.com

On-Hook Coverage

Market Detail: DMI Insurance Services Inc. (www.dmi-insurance.com) has expanded the range of markets it supplies to producers serving non-franchised auto dealers and automotive specialty shops. This will supply coverage that has not been available to many producers due to

low volume, certain classes of business or characteristics to specific businesses within the non-franchised auto dealers and automotive specialty shops industries. Available limits: As needed Carrier: Unable to disclose States: Ariz., Calif., Fla., Ill., Ind., Kan., Mich., Minn., Mo., Miss., N.C., N.M., Nev., Ohio, Ore., Pa., S.C., Texas and Wis. Contact: Customer service at 800-8772525

Umbrella

Market Detail: Blackmoor

General Insurance Agency (www. Blackmooragency.com) is a dedicated team of service professionals based out of Atlanta and Doylestown, Pa. A variety of products are available for retailers, including property and casualty programs for specific product lines, unemployment insurance and transportation. Available limits: As needed Carrier: Unable to disclose States: Del., Md., N.J., Ohio and Pa. Contact: Audrey Nudelman at 267-4952322 or email: anudelman@ blackmooragency.com

Excess Maritime Employers Liability Market Detail: LIG Marine Managers

(www.LIGMarine.com) can tailor coverage by line to fit any client. LIG can cover marine employees with state workers' compensation, longshore, OCSLA, maritime employers’ liability or protection and indemnity) and can be combined with all the traditional “marine” lines of coverages. Available limits: As needed Carrier: Unable to disclose States: All states Contact: Karen Tischer at 727-578-2800

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Idea Exchange: Cyber

Cyber Attack, or Act of (Cyber) War? How a Small Distinction Can Nullify Insurance Coverage

n June 2017, the NotPetya virus crippled many large companies including Merck and Mondelez (the manufacturer of By Saad Gul and Nabisco, Cadbury, and Toblerone). The aggregated losses, including property damage, operational disruptions, and supply chain disruptions, added up to hundreds Michael E. Slipsky of millions of dollars per large corporation. The billion dollar question: who would bear this loss? A case in Cook County, Ill., will provide at least a partial answer. By way of background, companies mitigate the risk of losses through their commercial general liability (CGL) policy. The policy protects the company from extraordinary events. CGL policies generally offer coverage for bodily injury and property damage claims, but CGL 64 | INSURANCE JOURNAL | FEBRUARY 4, 2019

policies did not protect against most cyber losses. Most insurance policies now specifically exclude coverage for such losses. Corporations have responded by purchasing customized cyber liability coverage. Cyber insurance offsets the CGL cyber exclusion. Cyber policies specifically cover losses stemming from computer operations. Most combine traditional liability coverage protecting against third-party claims with first-party coverage that protects the insured. Yet no insurance policy covers everything. And an escalating issue with cyber policies is that they exclude coverage for losses that stem from “acts of war.” For example, Mondelez’s insurer blamed Russia for NotPetya. Russia, which denied the allegations, was accused of targeting Ukraine with NotPetya. Mondelez was collateral damage. The insurer denied Mondelez NotPetya coverage based on a standard exclusion that said the policy would not cover losses for: • Hostile or warlike action in time of

peace or war, including action in hindering, combating, or defending against an actual, impending or expected attack by any: (i) government or sovereign power (de jure or de facto); (ii) military, naval, or air force; or (iii) agent or authority of any party specified in (i) or (ii) above.

This verbiage is standard in CGL policies. But how would it apply in the cyber context? Even the baseline issue of whether a state of war exists can be disputed. Cyber warfare has no Fort Sumter, no Appomattox, no Congressional Declaration of War, and no signing ceremony on the Missouri. The U.S. recognizes and maintains diplomatic relations with Russia and China. Yet we are still technically at war with North Korea. Does that affect the coverage analysis? No court has decided yet. Historically, courts have struggled with the war exclusion. For instance, courts faced with the question of whether the Pearl Harbor attack invoked the exclusion split 50-50 on the issue. Compare New York Life Insurance v. Bennion, 158 F.2d 260 (10th Cir. 1946) and Stankus v. New York Life Insurance INSURANCEJOURNAL.COM

Co., 44 N.E.2d 687 (Mass. 1942) (exclusion applied) with Gladys Ching Pang v. Sun Life Assurance Co. of Canada, 37 Haw. 288 (1945) and Rosenau v. Idaho Mutual Benefit Association, 145 P.2d 277 (Idaho 1944) (exclusion did not apply). But those cases involved stark undisputed facts. Grossly simplified, courts interpret “war” to require state action. But determining whether a particular cyber attack results from state action is difficult. These difficulties are compounded by hackers’ ability to disguise the actual attack origination point by hijacking innocent third-party machines. Attribution necessarily requires inferences and surmises. Hard evidence is rare. For instance, while the media widely attributed the Sony hack to North Korea, evidence for the connection was tenuous at best. The evidentiary issues are exacerbated given that the motivation of the attackers is not always clear. Take a hypothetical attack, apparently originating from China. Is it the work of individual hackers or an intelligence unit? Is the intention to injure the United States as a nation or to gain a commercial advantage for a company? Were they acting under state orders or freelancing to make extra money?

An escalating issue with cyber policies is that they exclude coverage for losses that stem from ‘acts of war.’ Even if these questions could be answered, could a court do so? A litigant could subpoena members of the Intelligence Community and seek discovery of government assessments. It is unlikely to get far. Sources and methods are closely guarded. The government will be loath to share them in a court proceeding. These practical issues explain why bright line rules in this area are hard to come by. This confusion causes problems for insureds. The availability of coverage is contingent on whether the losses resulted from an “act of war.” For example, Mondelez’s insurer struggled to handle the NotPetya claim. It ultimately determined the claim was excluded as an act of war. Yet, it did not reach that determination without difficulty. Mondelez ultimately sued the insurer for breach of contract. The complaint alleges that the insurer at first denied coverage. It then reversed itself, and then reversed itself yet again. The Mondelez case will be closely watched as a signal of how courts

February 4, 2019

U.S. Specialty Insurance Company 13403 Northwest Freeway Houstoon, TX 77040

Guaranty Income Life Insurance Company 929 Government Street Baton Rouge, LA 70802

The above company has made application to the Division of Insurance to amend their Foreign Company License to transact Property and Casualty Insurance in the Commonwealth of Massachusetts.

The above company has made application to the Division of Insurance to obtain a Foreign Company License to transact Life, Accident and Health Insurance in the Commonwealth of Massachusetts.

Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, 1000 Washington Street, Suite 810, Boston, MA 02118-6200, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.

INSURANCEJOURNAL.COM

will view “act of war” cyber coverage denials. Insurers have the burden to demonstrate that an exclusion applies. The war exclusion presents a particularly formidable evidentiary hurdle in the cyber context. Even so, the policyholder has the ultimate burden of establishing coverage. For that reason, policyholders and their brokers must be intimately familiar with applicable policy terms, conditions, and exclusions. Policyholders should also consult with counsel. Not all exclusions are equal. Some can be offset with “riders.” Some riders may be worth the additional outlay. Others will not. All present traps for the unwary. After all, Mondelez may be the first corporation to sue for coverage over the war exclusion issue. It will not be the last. Gul and Slipsky, editors of NC Privacy Law Blog, are partners with Poyner Spruill LLP. They advise clients on a wide range of privacy, data security, and cyber liability issues, including risk management plans, regulatory compliance, cloud computing implications, and breach obligations. Gul (@NC_Cyberlaw) may be reached at 919-783-1170 or sgul@poynerspruill.com. Slipsky may be reached at 919-783-2851 or mslipsky@poynerspruill.com.

Advertisers Index Applied Underwriters www.auw.com 2, 3, 68 Atlas Financial Holdings www.atlas-fin.com 34 JM Wilson www.jmwilson.com S2, M2 M.J. Hall & Company www.mjhallandcompany.com W4 Marshberry www.marshberry.com 9 Midlands Management Corporation www.midlandsmgmt.com SC1 Monarch E&S Insurance Services www.monarchexcess.com W3 Nonprofits' Insurance Alliance Group www.niac.org 61 Pacific Gateway Insurance Services www.pgiainsurance.com W1 Philadelphia Insurance Companies www.phly.com 5 Providence Bank www.pbagencyfinance.com 7 Texas Mutual www.texasmutual.com SC2 United Fire Group www.ufgsolutions.com E1

FEBRUARY 4, 2019 INSURANCE JOURNAL | 65

Closing Quote Reaching the Moonshot Goal in Flood Insurance Coverage

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flood insurance industry made By John Dickson significant strides to insure more households against the peril of flood in 2018. Factor in recent major flood events and an ever-changing regulatory landscape, and the role of private flood insurance has never been more critical. The insurance industry has its work cut out for it. The National Flood Insurance Program’s (NFIP’s) “moonshot” goal to double the amount of homes insured for flood by 2023 is a tall order, given the NFIP’s well-publicized financial position and its complex underwriting process. From the industry’s perspective, private flood insurance is key to making that moonshot a reality. Quoting, writing and servicing an NFIP policy requires a higher level of experience and education typically associated with specialized agents, particularly for homes exposed to higher risk of flooding. This is where private flood insurance has really helped move the needle. By reducing those com-

plexities and simplifying the experience, the private insurance markets have created a suite of flood products that every agent can quote. Less than four years ago, private flood insurance began to make meaningful changes with respect to flood insurance innovation. At that time, most industry players had little underwriting experience in the private space due to limited production history. Today, capital markets have a deeper understanding of flood risk and the industry has developed tools that allow programs to better quantify risk. These advancements allow more people to have the flood insurance conversation. The climate is right. For the most part, the lending industry has embraced private flood insurance. But the Federal Housing Authority and its first-time-homebuyer program continue to follow an antiquated policy that only accepts

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the NFIP to satisfy borrower flood insurance requirements. That may be changing. In 2019, pending rule changes propose that first-time homeowners have the option of buying private flood insurance, where previously they have not been able to. Weather events of 2018 helped sharpen the focus of private flood programs. While several record-breaking hurricanes stole the spotlight, substantial rainfall along the East Coast for much of the spring and summer resulted in widespread flooding. We saw many claims in Texas because of the tropical moisture from the pacific cyclone that came from Mexico. There were more claims from that event in Texas than caused by Hurricanes Florence and Michael combined. These weather events have helped to improve underwriting and risk management, creating a more responsible, sustainable marketplace. Agent priorities and criteria have shifted as well. If you’re an insurer looking to enter this competitive environment, you need strong partners. There’s a lot at stake. Therefore, agents are vested in finding the best and most dependable programs to protect their cus-

tomers in times of greatest need. There are tremendous resources available to help both agents and policyholders navigate the complexities of flood insurance. As a result, there’s a more informed audience looking beyond the pitch to truly evaluate the offering. Agents pressing for proof points are now in the position to ask about past performance in the face of notable events such as Hurricane Harvey or the 2016 East Baton Rouge, La., flooding. If a private flood insurance program can’t show you how it creates both value and security for your customers, you should be skeptical. It comes down to choice. Consumer expectations have evolved; they want options best suited for their lifestyles. More than ever, agents must have alternatives available for the picky customer. Looking ahead, we can be optimistic about reaching the moonshot goal. The stars are aligned. The players in the homebuying universe — the homeowners, agents, realtors, lenders, the federal regulators backing these lenders, government officials and industry partners — recognize that private flood insurance brings viable options in critical protection. Dickson is president and CEO of Aon Edge, overseeing the delivery of primary, private flood insurance products as an alternative to federally-backedflood insurance. He has more than 20 years’ experience in the insurance industry. Phone: 888-281-0684. Email: john.dickson@aon.com. INSURANCEJOURNAL.COM

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