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April 6, 2020 • Vol. 98 No. 7

Contents

News & Markets

P/C Insurance Outlook Challenging, Uncertain: Fitch Ratings

Insurers Report Uptick in Claims Against Architects and Engineers

Cyber Insurance Sales to U.S. Businesses Picking Up: Marsh

Ransomware Attacks, Funds Demanded Soared in 2019: Beazley

COVID-19 Claims to Hit Lloyd’s on Multiple Lines, Says CEO Neal

Losses Could Be Substantial for P/C Insurers Writing Event Cancellation Business: A.M. Best

6 | INSURANCE JOURNAL | APRIL 6, 2020

Special Report: How Agents Can Help Small Business Clients Navigate Cyber

Minding Your Business: Coronavirus Effect on Agency Value

27 Special Report:

M&A Review: A Banner Year for Insurance M&A Activity

Evolution of Ransomware Pushes Companies to Examine Business Interruption Coverage

Special Report: Cybersecurity Expert Tells Industry to ‘Better Prepare’ Clients for Evolving Ransomware Attacks

Spotlight: Small Commercial Drones: Overcoming the Misconceptions

Closer Look: D&O Insurers Brace for Coronavirus ‘Event Driven’ Litigation

Lloyd’s Returns to Profit; ‘Strong Position’ to Respond to COVID-19

Departments 8 Opening Note

Idea Exchange

Special Report

Ask the Insurance Recruiter: 3-Part Hiring Plan During COVID-19

The Competitive Advantage: Accounting Matters and So Does the Balance Sheet

Is It Covered?: No Place Like Home … For a Catastrophic Claim Denial

Insurance Is Not a Company’s Primary Line of Defense in a Crisis

Closing Quote: 5 Tips to Help Small Business Clients Manage Cyber Risks

14 Declarations

14 Figures

16 Business Moves

20 People

48 My New Markets

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Opening Note Write the Editor: awells@insurancejournal.com

Publisher Mark Wells | mwells@wellsmedia.com Chief Executive Officer Joshua Carlson | jcarlson@insurancejournal.com

ADMINISTRATION / CIRCULATION

Chief Financial Officer Mark Wooster | mwooster@wellsmedia.com Circulation Manager Elizabeth Duffy | eduffy@wellsmedia.com Staff Accountant Sarah Kersbergen | skersbergen@wellsmedia.com

Zoom Trouble

nline video conferencing has proven itself a useful technology tool in the midst of a worldwide quarantine thanks to COVID-19 but such rapid expansion in recent weeks is causing one of the largest firms a bit of privacy troubles. Zoom Video Communications, which has seen its stock zoom by 115% since January, is being sued by a Sacramento user who claims the service unlawfully discloses users’ personal information. The video service has enjoyed a surge in downloads of its app and use of its services as people around the world are staying and working at home in the fight against the coronavirus. Robert Cullen is seeking to represent a class of users harmed by Zoom’s alleged failure to protect users’ information. The complaint claims that Zoom’s “wholly inadequate program design and security measures have resulted, and will continue to result, in unauthorized disclosure of its users’ personal information” to third parties including Facebook. It says Zoom’s privacy policy on its website “purports to identify and disclose to its users all the information Zoom collects” but that it does not disclose what information it shares with Facebook. Among the user information allegedly disclosed are the user’s computer model, time zone and city, phone service and a “unique advertiser identifier” that companies can use to target marketing to the user. The complaint cites a report in the tech publication Motherboard that it says first exposed how Zoom’s app was sharing data with Facebook. That publication reported on March 27 that Zoom has removed the code that was sending data to Facebook. Zoom told Motherboard it was only recently made aware that the Facebook feature was collecting unnecessary device data. The lawsuit is being brought under three California statutes: the state’s new Privacy Act, Unfair Competition Law and Consumers Legal Remedies Act. It further alleges negligence, unjust enrichment and a violation of the privacy provision of the California constitution. It seeks punitive and statutory damages plus equitable relief and attorney costs. The New York Times reported that the New York attorney general is also looking into Zoom for its data privacy and security practices. The case is Cullen v. Zoom Video Communications, No. 20-cv-02155, U.S. District Court for the Northern District of California (San Jose).

Among the user information allegedly disclosed are the user’s computer model, time zone and city, phone service and a 'unique advertiser identifier' that companies can use to target marketing to the user.

EDITORIAL

Chief Content Officer Andrew Simpson | asimpson@insurancejournal.com Editor-in-Chief Andrea Wells | awells@insurancejournal.com East Editor Elizabeth Blosfield | eblosfield@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 & Contributors Contributors: Brian Ambrosia, Sean Murphy, Jim Sams, George Speckart, David Strunk, Han Wang Columnists: Chris Burand, Mary Newgard, Catherine Oak, Bill Schoeffler, Bill Wilson

SALES / MARKETING

Chief Marketing Officer Julie Tinney | jtinney@insurancejournal.com West Sales Dena Kaplan | dkaplan@insurancejournal.com Romeo Valdez rvaldez@insurancejournal.com South Central Sales Mindy Trammell | mtrammell@insurancejournal.com Southeast and East Sales (except for NY, PA, CT) Howard Simkin | hsimkin@insurancejournal.com Midwest Sales Lisa Whalen | (800) 897-9965 x180 East Sales (NY, PA and CT only) Dave Molchan | (800) 897-9965 x145 Sales & Marketing Coordinator Ashley Berg | aberg@insurancejournal.com Advertising Coordinator Erin Burns | eburns@insurancejournal.com Insurance Markets Manager Kristine Honey | khoney@insurancejournal.com Senior Strategist Pam Simpson | psimpson@insurancejournal.com Social Media Manager Ly Short | Lshort@insurancejournal.com Marketing Administrator Gayle Wells | gwells@insurancejournal.com Marketing Director Derence Walk | dwalk@insurancejournal.com

DESIGN / WEB / VIDEO

V.P. of Design Guy Boccia | gboccia@insurancejournal.com Web Team Lead Nathan Huebner | nhuebner@insurancejournal.com Ad Ops Specialist Jeff Cardrant | jcardrant@insurancejournal.com Web Developer Terrance Woest | twoest@wellsmedia.com Web Developer Ryan Kleshinski | rkleshinski@wellsmedia.com New Media Producer Bobbie Dodge | bdodge@insurancejournal.com Videographer/Editor Ashley Waldrop | awaldrop@insurancejournal.com

ACADEMY OF INSURANCE

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News & Markets P/C Insurance Outlook Looks Challenging, Uncertain: Fitch Ratings

orth American property/casualty insurers reported improved 2019 operating performance, but near-term performance will likely be more challenging with the onset of coronavirus and the resulting economic impact, according to a report from Fitch Ratings. Fitch’s rating outlook for the U.S. property casualty insurance and the global reinsurance sectors remains stable. However, on March 20 Fitch Ratings revised its outlook for the underlying fundamentals of the P/C insurance sector to negative from stable. Fitch said the sector outlook revision is due to increased concerns over COVID-19, the disease caused by the coronavirus, and related impacts on near term performance and the credit quality of insurers. “Claims experience relating to coronavirus and related economic disruption is not anticipated to significantly increase loss ratios in the near term, but as the duration and severity of the crisis lengthens uncertainty regarding future sources of underwriting losses expands,” said Jim Auden, managing director, Fitch Ratings. Fitch projects that claims are likely significant in specialty segments, including 10 | INSURANCE JOURNAL | APRIL 6, 2020

event cancellation and accident and health lines. The analysts also believe that legal challenges to contract terms excluding pandemics and requiring physical damage for business interruption claims bear watching. Liability claims in several lines are also likely to emerge, but the extent of losses is difficult to project until the crisis subsides, according to the report. Insurers have benefited from favorable recent premium rate movement across the broader commercial lines spectrum. But looking ahead, the global coronavirus pandemic “adds tremendous uncertainty to the U.S. economy and financial services sector,” Fitch said. “A move towards an economic recession could alter premium growth trends through declines in insured exposures or renewed competitive pressure that restricts pricing momentum.” 2019 Results In 2019, operating performance improved moderately for the group of 47 P/C insurers Fitch tracks as improvement in the calendar-year combined ratio and modestly higher investment income drove results. Annualized GAAP operating ROAE increased to 7.7%, up from 7.0% in the

prior year. Seventeen of the 47 companies reported a double-digit operating ROAE in 2019, down from 18 in the prior-year period. “A decline in reported catastrophe losses, along with a hardening pricing environment across nearly all commercial lines, led to an improvement in calendar-year underwriting results in 2019,” said Christopher Grimes, director, Fitch Ratings. Insurers exhibited improved core underwriting results in 2019 with the group accident-year combined ratio (excluding cat losses) improving by 1.8 percentage points as the group benefited from a favorable pricing environment in most business lines. Underlying results improved for commercial insurers as well as the reinsurance segment in 2019. Nearly every company in the personal lines group posted improved performance in 2019. However, nearly all of the Florida homeowners’ specialists reported deterioration, reflecting elevated loss cost trends and unfavorable reserve development. Fitch says there is evidence of a broader improvement of pricing and insurance premium rates for most P/C insurers. INSURANCEJOURNAL.COM

The world of cyber risk never sleeps or stops changing. Your business needs a partner at the forefront of cyber insurance for 20 years to provide coverage clarity. As of January 2020, virtually all AIG commercial property and casualty policies can affirmatively cover or exclude cyber exposures.

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

News & Markets Insurers Report Uptick in Claims Against Architects and Engineers

By Jim Sams

ncreased billings by architecture and engineering firms generated bigger professional liability premiums in 2019 but also led to the first upswing in claims activity in several years, Ames & Gough said in a report. The brokerage, based in McLean, Va., said its annual survey of professional liability insurance carriers found that 40 percent reported a deteriorating claims experience. Partner Jared Maxwell said some carriers will likely have to raise rates to keep up with increasing losses. “It’s a trend that we are monitoring. Claims experience is up,” Maxwell said during a telephone interview. “But it’s not a doomsday sort of thing.” Many carriers pointed to “social inflation” as a cost driver. Reciting a complaint that is very familiar to commercial auto carriers, they say juries are handing down larger and larger awards. Some specifically cited litigation funding firms as a source of 12 | INSURANCE JOURNAL | APRIL 6, 2020

those larger awards. “Insurers are keenly aware of this growing phenomenon and now pay close attention to how it impacts insurers and insureds alike,” the report says. Ames & Gough surveyed 23 professional liability carriers out of about 40 in the market, Maxwell said. He said the 15 companies that answered the surveys hold the bulk of the PLI market share. According to the survey, 80% of the carriers saw PLI premium growth in 2019. Nearly half of those had increases of 10% or more. Among the 40% of carriers that reported an increase in claims, a majority said those losses increased by as much as 10%. On the other hand, the majority of insurers that experienced better claims results saw only modest improvements of slightly above 2%. “One trend that I am seeing is higher limit demands across the board regardless of discipline and/or complexity of the project. We are inundated daily with specific

project excess limit requests.” The insurers pointed to structural engineering as the discipline with the highest claim severity, followed by architecture, mechanical engineering and civil engineering. Much of the increased claims activity was centered specifically on residential and infrastructure projects. Maxwell said increasing claims will put pressure on rates, the first time that has happened to the PLI line since the nation began recovering from the Great Recession. “There was a long stretch there where everybody was very happy,” he said. “Now, for whatever reason, we are seeing some claims creeping into the market.” The report said 82% of carriers surveyed are seeking increases of 5% or less, while the remaining insurers are planning to raise rates by 6-10%. The report says underwriters are especially wary of high-risk disciplines, including structural engineering and geotechnical engineering. Carriers are also concerned about the complexity of contracts, design reliance and increased costs. The report included comments from some of the insurance executives who completed the survey. “Severity is up and attritional losses are up due to, among other things, claims inflation and social inflation,” stated Jim Schwartz, A&E focus group leader for Beazley Group. After a decade in which PLI pricing has been driven down substantially, a correction is needed.” INSURANCEJOURNAL.COM

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Figures 5%

M5.7

The percentage increase in the return-to-work (RTW) rate for employees in the Texas workers’ compensation system who received temporary income benefits (TIBs) for their injuries over the decade from 2007 to 2017. That’s the finding of a report, Return to Work in the Texas Workers’ Compensation System, March 2020, issued by the Workers’ Compensation Research and Evaluation Group at the Texas Department of Insurance, Division of Workers’ Compensation. The report analyzes the percentage of injured employees who initially return to work after their injury; the percentage who remain at work; and the average days away from work.

That’s the size of earthquake that shook parts of Utah. Days later residents continued to report damage. About 100 people were driven from buildings and homes by damage near the epicenter in Magna. Tens of thousands more lost power after the state’s largest earthquake in nearly three decades.

Declarations Delivery Aid

“Insurers must cover delivery services for restaurants on personal auto insurance policies and must offer coverage for hired drivers and non-owned automobiles as a rider on a restaurant’s general liability insurance if it is requested – both at no extra cost to the policyholders.” — Insurance Commissioner Mark Afable said in a press release announcing an order requiring insurers operating in Wisconsin to assist restaurants who have begun offering delivery service to customers during the COVID-19 public health crisis.

14 | INSURANCE JOURNAL | APRIL 6, 2020

Money Available, or Not

“We understand money is available. … But at some point, they need to take some responsibility.” — Eric R. Nowak, a New Orleans lawyer handling the lawsuit filed against the state by group of Louisiana flood victims who have been owed over $300 million for the past decade. Residents won a lawsuit in 2003 which found the construction of a local highway blocked drainage of the Tangipahoa River. The state has not paid the flood victims citing a lack of funds; the total amount owed by Louisiana taxpayers now exceeds $320 million.

Dead Dog Fire

“Wildfires are a constant danger in Colorado, and taxpayers often foot the bill for putting them out. The Dead Dog Fire is an example of how not following best practices around campfires can lead to a wildfire.” — U.S. Attorney Jason Dunn explained why a Colorado man and his insurance company had to pay $500,000 to the U.S. government over a wildfire that burned federal land in the state due to an improperly extinguished campfire. Dale Owns and Grange Insurance Association made the payment to resolve liability for the 2017 blaze . INSURANCEJOURNAL.COM

$8.5 Million

$215,000

The amount in financing that Cincinnati, Ohio-based insurtech Coterie, which specializes in commercial insurance, recently secured. The company said its total venture funding is now at $11.65 million. Investors in the latest financing round include RPM Ventures, Allos Ventures, Western & Southern, Intercept Ventures, Frontier Venture Capital, and Sure Ventures, as well as several former executives from the property/casualty insurance industry.

The amount a Georgia public adjuster is accused of stealing from a Georgia business damaged by Hurricane Michael, according to state authorities. Steven Eric Chastain is accused of stealing insurance checks from a business in Albany, Ga., after being hired to handle insurance claims from damage suffered from the October 2018 storm. He has been charged with two counts of theft by conversion.

Compliance and Prevention

“Complying with OSHA regulations and manufacturers’ recommendations for forklift equipment could have prevented this tragedy.” — Rosemarie O. Cole, the Occupational Safety and Health Administration (OSHA) New Hampshire area director, said in a U.S. Department of Labor press release regarding OSHA’s citing of Quartz and Stone Creations of New Hampshire LLC for crushing and other hazards following an employee fatality on July 19, 2019. The Northwood, N.H., stone products manufacturer faces a total of $87,516 in penalties. INSURANCEJOURNAL.COM

Insurer Flexibility

“In light of the circumstances related to COVID-19 ... OIR will not consider actions … that provide benefits to policyholders and are applied in a nondiscriminatory manner to be violations of underwriting guidelines or the prohibitions against unfair trade practices.” — The Florida Office of Insurance Regulation, in a memorandum, urged insurers to be flexible with premium payments, remove exclusions on certain personal auto policies, and explore virtual options for inspecting claims or underwriting policies.

Deceptive Propaganda

“To avoid payments for a civil authority shut down the insurance industry is pushing out deceptive propaganda that the virus does not cause a dangerous condition to property. … This is a lie, it’s untrue factually and legally.” — Attorney John Houghtaling II of Metairie, Louisiana, who is involved with at least two lawsuits filed by restaurateurs against their insurers seeking coverage under their commercial insurance policies for losses caused by a statewide business shutdown ordered to prevent the spread of coronavirus. APRIL 6, 2020 INSURANCE JOURNAL | 15

Business Moves

East

Hub International Limited, Triester, Rossman & Associates

Hub International Limited, a global insurance brokerage, has acquired Triester, Rossman & Associates Inc. Located in King of Prussia, Penn., TRA Insurance Solutions is an independent insurance firm providing clients with commercial and personal insurance and employee benefits solutions. Scott Davis and Jeffrey Triester, principals at TRA Insurance Solutions, will join Hub Northeast. Hub International Limited is committed to growing organically and through acquisitions to expand its geographic footprint and strengthen industry and product expertise. Headquartered in Chicago, Ill., Hub International Limited is a full-service global insurance broker.

CBIZ, Alliance Insurance Services

CBIZ Inc., a provider of financial, insurance and advisory services, has acquired substantially all of the assets of Alliance Insurance Services Inc. of Washington, D.C., effective February 1. With roots dating back to 1986, AIS is an independent insurance agency providing property and casualty insurance as well as personal lines to small and midsized clients across many industries including charter schools, real estate, construction and technology in the D.C. metro area. AIS has nine employees and approximately $1.6 million in annual revenue. 16 | INSURANCE JOURNAL | APRIL 6, 2020

CBIZ Inc. is a provider of financial, insurance and advisory services to businesses throughout the U.S.

Insurance Office of America, RDA Benefit Services

Insurance Office of America has merged with New Jersey-based RDA Benefit Services, owned by Bob and Nancy Damato. The merger became effective Jan. 1, and further adds to IOA’s growing team in the Northeast region. RDA has served primarily the construction, distribution, health care and manufacturing industries for more than 30 years, providing guidance within the employee benefits arena. IOA shares the same market focus and provides comprehensive consulting services to these industries and more including bonding, commercial insurance, employee benefits and risk management. IOA is a full-service insurance agency founded in 1988 by John Ritenour and Valli Ritenour. Headquartered in Longwood, Fla., it has more than 1,000 associates located in more than 60 offices in the U.S. and London.

Risk Strategies, UNIRISC

Risk Strategies, a privately held, national insurance brokerage and risk management firm, has acquired UNIRISC Inc., a specialist in the global relocation insurance and risk management needs of corporate personnel and private individuals moving domestically and overseas. Founded in 1972 and based in Arlington, Va., UNIRISC’s clients include Fortune

100 companies spanning the automotive, financial, pharmaceutical, insurance, service, manufacturing, communications, technology and relocation industries. UNIRISC’s services include claims and bespoke relocation assistance to mitigate the risk and complexity of relocation. Organized as two distinct divisions – insurance brokerage and third-party administrator – UNIRISC aims to simplify the complexities of relocation. UNIRISC’s brokerage team can customize coverage while its third-party administrator group uses proprietary technology to manage and streamline the claims process for self-insured relocation clients. Risk Strategies’ presence in the mid-Atlantic region has steadily increased in recent years through the acquisition of several specialty firms. In 2017, Risk Strategies acquired both Baltimore-based Delmarva Surety, and Cornerstone Professional Liability Consultants. In 2018, Risk Strategies acquired Bethesda, Md.based employee benefits specialist, Arkin Youngentob Associates, and Potomac, Md.-based Creative Insurance Solutions. Risk Strategies offers risk management advice as well as insurance and reinsurance placement for property and casualty, health care and employee benefits risks.

Midwest

The Hilb Group, Healthcare Liability Consultants Agency

The Hilb Group LLC has acquired Healthcare Liability Consultants Agency Inc., and hired owner and medical malpractice insurance specialist, Julie Paton, as a producer. Paton is based in Cleveland, Ohio. The transaction became effective March 1. Paton will join the THG’s Central/ Midwest operations and continue to provide customized solutions to her clients. Her addition will complement and strengthen THG’s medical malpractice capabilities in the Central region. THG is a leading middle market insurance agency headquartered in Richmond, Virginia, and is a portfolio company of

continued on page 18 INSURANCEJOURNAL.COM

Business Moves continued from page 16 global investment firm, The Carlyle Group.

Patriot Growth Insurance Service, The Olson Group

Patriot Growth Insurance Service LLC, a national insurance agency headquartered in Fort Washington, Penn., has added Omaha, Neb.-based The Olson Group to the Patriot platform. The partnership with Olson strengthens Patriot’s existing employee benefits capabilities and further supports the company’s strategic geographic expansion. Olson is a comprehensive employee benefits consulting firm with a focus on retirement planning and group insurance plans. With more than 500 employee benefits programs in place covering more than 20,000 employees, the firm is known for its unparalleled customer service and extensive knowledge of the Affordable Care Act. Olson advises clients on compliance initiatives, wellness plans, risk management strategies, retirement plans and more. Founded by industry veteran Tim Olson, the firm helps companies navigate the rapidly changing healthcare landscape and improve their bottom line by implementing state-of-the-art employee benefits programs. CEO Julie Nelson leads a team of 26 professionals with an average of 25 years’ experience in the industry working to ensure the best benefit outcomes for individuals and families. Founded in 2019, Patriot is a growth-focused national insurance services firm that partners with employee benefits and property/ casualty agencies across the United States. It has over 500 professionals operating in 48 locations across 13 states.

First MainStreet, EGR Insurance, Warth Insurance, Rominger Insurance

First MainStreet Insurance, a Cedar Rapids, Iowa-based affiliate of TrueNorth Companies, has closed on its acquisition of three new agencies. The firm expanded to Western Iowa with the merger of EGR Insurance in Moville. A dedicated staff of 10, Pat Rogers and team has been a long-standing 18 | INSURANCE JOURNAL | APRIL 6, 2020

predominant player in their region. FMSI also has merged with Warth Insurance in Burlington, Iowa. Earning the respect of its client base through hard work and dedication, Mark Warth and team has established themselves as a go-to insurance agent in Southeast Iowa. Continuing FMSI’s expansion in Southeast Iowa is the merger of Rominger Insurance in Ottumwa. Tim Hardie and team joined the FMSI platform after agreeing to terms to transition effective March 1. With the acquisition of these three agencies, FMSI increases its total revenue to over $10 million. In addition to these new acquisitions, FMSI currently has locations in Bettendorf, Bloomfield, Centerville, Fairfield, Indianola, Iowa Falls, Mason City, Mt. Pleasant, Pella and Perry, Iowa, as well as an office in Brentwood, Tenn.

Tennessee. HMP focuses on construction, distribution, manufacturing, and healthcare, as well as alternative risk options, which will strengthen and complement Hub’s existing capabilities in specialty practices. Cooper Jones, president of Hub Mid-South, said the acquisition in west Tennessee is an important component of its expansion in Hub Mid-South, which includes operations in Tennessee and Kentucky. HMP’s leadership, Mark Harris, Jay Madden, Rick Powell, Ric Stallings, Keith Brown, Wally Jones, Cooper Permenter and Blake Dickens, as well as all full-time employees, will remain in place at HMP’s existing offices in Memphis and Oxford, Miss. Headquartered in Chicago, Ill., Hub International Limited is a full-service global insurance broker.

South Central

West

First United Insurance, headquartered in Durant, Oklahoma, has merged with Dallas-based Independent Insurance Group. First United Insurance President Howard McClure said the partnership with Independent Insurance Group will give First United the opportunity to continue growing its business in Texas. Allen Sparks will remain president of Independent Insurance Group once the merger is complete. First United Insurance currently has offices in Oklahoma City, Tulsa, Durant, Oklahoma, and in Plano, Texas.

Alera Group has acquired Fall River Employee Benefits in Denver, Colo. Fall River joins Alera Group through Benefit Commerce Group, an Alera Group company. The Fall River team will continue serving clients in their current roles. Fall River is a benefits broker with a focus on self-funding, compliance, and human resources technology. Based in Deerfield, Ill.-based Alera Group offers employee benefits, property/ casualty, retirement services and wealth management.

First United Insurance, Independent Insurance Group

Southeast

Hub, Harris, Madden, Powell, Stallings & Brown

Hub International Limited, a global insurance brokerage, has acquired the assets of Harris, Madden, Powell, Stallings & Brown Inc. HMP is an independent, full-service commercial, surety, employee benefits and personal lines agency in Memphis,

Alera Group, Fall River Employee Benefits

Inszone Insurance, Global Pro Insurance Services

Inszone Insurance Services has acquired Global Pro Insurance Services in Pleasanton, Calif. Global Pro provides property/casualty insurance services to individual and businesses throughout the Bay Area. Inszone Insurance Services is a privately held Insurance agency based in Sacramento and is focused on personal and commercial Insurance for both small and large businesses. INSURANCEJOURNAL.COM

News & Markets Tech Issues Hampered Information on Tsunami Watch for Hawaii

echnical issues made it difficult to get information about a tsunami watch for Hawaii and its subsequent cancellation, the National Weather Service said. The brief tsunami watch was canceled in late March after a 7.5 magnitude earthquake struck in the northern Pacific near Russia’s far eastern Kuril Islands. Tsunami waves were possible for the nearest shores. However, Hawaii’s watch did not appear on the Pacific Tsunami Warning Center’s website because the site was discontinued a month ago and had been automatically redirecting visitors to tsunami. gov, said Susan Buchanan, a spokeswoman for the National Weather Service. The redirect expired the day of the warning, so visitors needed to go directly to tsunami.gov to receive watches

and warnings. This change was communicated to the public via a notice in February, Buchanan said. Even for those who knew about the change and went directly to tsunami.gov, the watch didn’t appear there immediately. “Within an hour, staff at the National Tsunami Warning Center in Alaska changed a local router setting and the watch appeared on tsunami. gov,” Buchanan said. By the time Ryan Ozawa, a civic tech advocate, pinned down accurate information about the Hawaii watch, it was lifted. He first saw news about the watch on Twitter and went to verify the information on the Pacific Tsunami Warning Center’s website, which didn’t re-direct him to tsunami.gov. Lots of other decommissioned websites automatically re-di-

rect users, he noted. “It was disappointing,” Ozawa said. “I think it was a failure to use all the tools at their disposal.” Ozawa tried accessing information on Twitter, going to the handle (at)NWS_PTWC, a verified account for the Pacific Tsunami Warning Center. But there were no tweets about Hawaii’s watch. The watch was “tweeted and communication over the National Weather Service’s Honolulu Weather Forecast Office website,”

Buchanan said. “People should have multiple ways to receive weather and tsunami information. On Twitter, the Pacific Tsunami Warning Center and the Honolulu Weather Forecast Office are both great sources for people in Hawaii.” Copyright 2020 Associated Press.

Settlement Reached in Lawsuit Involving Wyoming Coal Workers

ttorneys representing Wyoming coal miners reached a settlement in a class action lawsuit against a bankrupt coal operator. The settlement with Blackjewel LLC of West Virginia requires final approval by a federal judge, The Casper Star-Tribune reports. The lawsuit alleged the coal operator violated federal labor law by failing to notify or compensate hundreds of workers before abruptly closing its mines. The judge needs to issue a decision before the court releases

details of the settlement, which remain sealed, attorney Ned Pillersdorf said. “We have reached a comprehensive settlement with everyone involved in litigation,” Pillersdorf said while addressing Blackjewel

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workers during a live social media broadcast. The lawsuit was filed on behalf of about 1,700 Blackjewel miners and other workers affected by the closures at two Wyoming mines and others in Kentucky, West Virginia and Virginia in July. The lawsuit filed in a West Virginia federal court alleged Blackjewel violated the Worker Adjustment and Retraining Notification Act when then-CEO Jeffrey Hoops

failed to give sufficient written notice of the layoffs or offer 60 days of wages. Under the legislation known as the WARN Act, the workers would be entitled to wages and benefits, court filings said. Though the mines have reopened under new ownership, attorneys, creditors and workers continue to battle over outstanding legal issues in federal bankruptcy court. A majority of former Blackjewel workers have yet to receive the full compensation they were promised, according to investigations by Wyoming’s Labor Standards Office. Copyright 2020 Associated Press. INSURANCEJOURNAL.COM

News & Markets Cyber Insurance Sales to U.S. Businesses Picking Up: Marsh

he share of businesses buying cyber insurance continued to increase in 2019, driven by growing recognition of cyber threats as a critical business risk, says a new report. Marsh’s 2019 Cyber Insurance

Purchasing Trends Report found that 42% of the broker’s U.S.-based clients purchased cyber insurance last year, up from 38% in 2018 and more than double the number of companies that purchased coverage in 2014. Marsh said there was a modest rise in cyber insurance pricing last year, starting in the second quarter, with the average increasing approximately 3% in 2019 after years of declining or flat pricing. Among the report’s other findings: • The number of Marsh U.S. clients

• • •

purchasing standalone cyber for the first time grew 18% in 2019 compared to 12% in 2018. Average cyber insurance limits for all companies rose to $21.3 million in 2019, up slightly from $20.9 in 2018. By industry, education once again led the pack, with a 74% take-up rate, followed by health care (65 %) and hospitality and gaming (61%). Hospitality was the fastest-growing industry for cyber, with an average annual growth rate of 37 % from 2016-2019, followed by manufacturing (34%) and education (27%). Marsh noted that while only 41% of manufacturers purchased cyber in 2019, that’s up from 30 % in 2018 and a fivefold increase from 8% in 2014. Marsh said this is likely due to the expansion of coverage to include cyber business interruption.

Ransomware Attacks, Funds Demanded Soared in 2019: Beazley

he number of ransomware attack notifications against insurance clients increased by 131% in 2019 and the funds demanded by the attackers surged along with the counts. A new report from specialty insurer Beazley’s Breach Response (BBR) Services, cybercriminals have been asking for sevenand even eight-figure sums in some cases. The two most common forms of attack to deploy ransomware are phishing emails and breaching poorly secured remote desktop protocol (RDP). RDP enables employees to access their work computer desktops or company’s primary server from home with the press of a button. That convenience comes with added risks that are heightened now as the coronavirus has forced more employees to work from home, noted Katherine Keefe, global head of BBR Services. Using RDP can make IT systems more susceptible to attack without the right security measures in place, she said in a statement.

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She said that in the current “pressured environment” created by the need to work for home as the coronavirus spreads, it is very important for employers to reduce the vulnerability of their IT infrastructure. “Always ensure employees can access their computer using a virtual private network with multifactor authentication,” she said. “It is important to whitelist IP addresses that are allowed to connect via RDP, and make sure that unique credentials for remote access are in place— particularly for third parties.” Beazley’s BBR services managed a growing number of ransomware incidents for policyholders that actually resulted from attacks on IT service providers and other companies providing support services. In some cases, these attacks halted the operations of hundreds of customers downstream from the attacked IT provider.

Keefe cited a troubling evolution in the development of ransomware in recent years. While earlier ransomware was just used to encrypt a target’s data as leverage for a ransom demand, more recently, attackers have been using ransomware variants in tandem with banking Trojans. “This two-pronged attack leaves organizations not only with the debilitating impact of its critical systems and data being encrypted, but also with the added risk of data being accessed or stolen,” she said.

APRIL 6, 2020 INSURANCE JOURNAL | 19

People National

Mark Friedlander and Kris Maccini have been appointed

to senior communications positions at the Insurance Information Institute (III) to broaden the organization’s traditional and social media operations. As III’s Florida communications consultant since July 2019, Friedlander is now its director of corporate communications. Based in northeast Florida, he will continue to lead the organization’s communications efforts in the Sunshine State while also handling national media relations issues and providing editorial support for the website and its social media channels. Friedlander was the head of corporate communications at The Main Street America Group in Jacksonville, Fla., for 13 years. Before coming to III, he was a communications consultant at the Insurance Institute for Business & Home Safety (IBHS). He has also held management roles at HSBC Holdings and Prudential Financial. Maccini, who is based at III’s New York City office, joined the organization as its director of social media. She will be responsible for leading the institute's social media and digital marketing strategies and enhancing its online presence. Most recently, she served as global director of social strategy at MetLife, where she led MetLife’s social media initiatives and implemented its digital transformation strategies. Earlier in her career, Maccini was vice president of digital marketing and communications at Jefferies, a financial services firm. Both Friedlander and

Maccini will report to Michael Barry, III’s head of media and public affairs.

Colleen Vallen

East

J.A. Montgomery Consulting, a New Jerseybased affiliate of Conner Strong & Buckelew that

focuses on risk control, safety and claims services, has hired Colleen Vallen to its team. Vallen, a forensic services expert with more than two decades of industry experience, will guide the launch of a new forensic practice and serve as senior vice president and Forensic Services Practice leader. Previously, Vallen worked as a partner at Citrin Cooperman, where she was the practice leader for the firm’s Litigation Support Services Group. Vallen has more than 20 years of industry experience, specializing in economic damage analysis and forensic and fraud investigations. In addition, she has worked with Conner Strong & Buckelew’s claims team for the past decade. Complementing Conner Strong & Buckelew’s claims department, J.A. Montgomery Consulting’s Forensic Services Practice will focus on two key areas: claims preparation and forensic services. Under Vallen’s leadership, the team will provide services including preparing proof of loss and coordinating communication with carriers, along with assisting clients with economic

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evaluations and claim calculations.

SterlingRisk Insurance, a Woodbury, N.Y.-based independently owned insurance brokerage, has hired Kaitlin Friedman as alternative market leader. As a licensed property and casualty insurance broker, Friedman also provides wholesale support to the SterlingRisk Programs Department. Much of Friedman’s experience centers on property and casualty insurance for commercial real estate, non-profits, construction and manufacturers. She comes to SterlingRisk from HUB International, where she most recently served as an account executive handling more than 50 small- to middle-market accounts. She began her career at HUB in 2014 as assistant account executive.

Southeast

BMS Group, an independent specialist reinsurance broker, has appointed Alejandro Ceron as BMS Latin America & Caribbean chief operating officer, effective immediately. Ceron will be based in Miami and report to Jose Astorqui, CEO of BMS Latin America & Caribbean. Ceron joins BMS with more than 28 years of experience in international corporate management. He was founder and CEO of his own consulting firm that was formed in 2016 with a focus on corporate governance and organizational growth strategy. Ceron also worked at Marsh & McLennan in the U.S. and Latin America, where he led the HR and sales operation for Latin America between 2002 and 2016.

Prior to that, he held various senior HR roles at Philips Lighting in the Netherlands and PepsiCo in Mexico.

Kendall McEachern

Acentria Insurance, an insurance agency operating in the Southeastern United States, has made executive leadership promotions in preparation for its plans to grow and expand within the marketplace. Effective immediately, Kendall McEachern, co-founder of Acentria Insurance, will serve as chairman of the board of directors. McEachern is a 35-year industry veteran who co-founded Acentria Insurance in 2010. Launching the agency with only 25 team members, he has helped grow Acentria to more than 600 team members and approximately $90 million in annualized revenue. As chairman, McEachern will continue to be involved with Acentria’s further growth and expansion by overseeing mergers and acquisitions.

Kevin Mason

Mary Lawless

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Kevin Mason, co-founder of Acentria Insurance, will take the reins as chief executive officer and oversee the agency as he leads in the company’s organic growth strategy and execution. Mason previously served as the president of Acentria Insurance and brings with him almost 30 years of industry experience. Mary Lawless has been promoted to president, while continuing to serve as chief operations officer. She has held a variety of senior management positions in personal lines, select business and employee benefits along with agency operations. In her new role, Lawless will develop insurance products and oversee day to day agency operations. Lawless has more than 30 years of insurance experience.

South Central

Employee benefits and risk management firm, BOK Financial Insurance (BOKFI), a division of Tulsa, Okla.-based BOK Financial Corp., has tapped Jessica McCool, regional operations consultant, to lead its expansion effort in Oklahoma and Texas. She will be based in Oklahoma City. After beginning her career in a pharmacy benefit account management role, McCool most recently worked as a benefit consultant focusing primarily on large, self-funded accounts. BOK Financial Insurance offers employee benefits and risk management consulting services for businesses and nonprofit organizations across the Rocky Mountain and Midwest regions.

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Erick Schmitt

National insurance program manager, Distinguished Programs, has hired Erick Schmitt as regional sales executive for Oklahoma and Texas. He is based in Dallas. Schmitt brings nearly 16 years of industry experience to his new executive role at Distinguished Programs. Prior to joining Distinguished Programs, Schmitt spent more than two years at Markel Specialty as senior sales manager. He also worked as business development manager at AIG for more than two years and with Nationwide for nearly 11 years.

Kim Pov

Midwest

J.M. Wilson has added Kim Pov as an assistant property/

casualty underwriter in its Madison, Wisc., office. Pov comes to J.M. Wilson with more than 10 years of experience in the banking industry, as well as eight years of insurance experience working as both an insurance agent and in the claims department for an insurance company. J.M. Wilson also promoted Kyle Bryson to senior transportation underwriter in its Portage, Mich., office. Bryson is responsible for quoting

new and renewal Non-Fleet Trucking (1-10 units) and serving independent insurance agents in Michigan. Bryson first joined JM Wilson in 2016 as a transportation intern. Upon graduating from Olivet College with a degree in Insurance and Risk Management, he was hired as transportation underwriter. Chicago-based Ryan Specialty Group (RSG) has appointed Mark S. Katz as

executive vice president and general counsel. In his new position, Katz will lead RSG’s legal, compliance and regulatory functions. Katz joined Ryan Specialty Group in February 2019 as senior vice president and counsel of Insurance Services and has been responsible for leading a team focused on supporting the insurance operations of RSG and its subsidiaries. Prior to joining RSG, Katz was a partner with law firm Mound Cotton Wallan & Greengrass LLP for 25 years, where he analyzed and litigated complex insurance coverage disputes on behalf of insurers, with a special emphasis on commercial first-party property litigation.

West

Alliant Insurance Services Inc. has named Steven Bubes

as vice president for its West Coast employee benefits team. Bubes is based in Orange County, Calif. Bubes was previously senior vice president with SullivanCurtisMonroe Insurance Services LLC. He also has experience in the payroll industry. Newport Beach, Calif.-based Alliant provides property/

casualty, workers’ compensation, employee benefits, underwriting, surety, and financial products and services.

Worldwide Facilities has named Juliet Carrillo as assistant vice president and broker in the Los Angeles, Calif., property department. Carrillo has worked as both an underwriter and surplus lines broker in her 30-year insurance career, which includes 20 years working for surplus lines brokerages in the Western region. Specialist insurer Beazley has appointed Justin Sanches as an underwriter within the U.S. healthcare liability team. Sanches joins Beazley’s Los Angeles, Calif., office to underwrite a range of global miscellaneous medical and life sciences risks for middle market and large U.S.-domiciled healthcare providers. He will maintain national broker relationships with a particular focus on building Beazley’s West coast healthcare book. He previously held underwriting positions at Tokio Marine HCC, where he was most recently a senior underwriter covering specialty lines including healthcare. Beazley plc is the parent company of specialist insurance businesses with operations in Europe, the US, Canada, Latin America, Asia and Australia.

Worldwide Facilities has named Brad Foote as senior

vice president, leading its new Denver, Colo., office. He has more than 14 years of experience in the wholesale insurance industry and brings expertise in professional, cyber and management liability.

APRIL 6, 2020 INSURANCE JOURNAL | 21

News & Markets COVID-19 Claims to Hit Lloyd’s on Multiple Lines, Says CEO Neal insurance is the easiest line “to get your arms around,” which will include the Olympics, Wimbledon and the Glastonbury music festival in the UK. “We are an insurer of event cancellation but not as big as the Munich Re’s and Swiss Re’s of this world.” Swiss Re announced recently that it has an estimated overall market share of approximately 15% to event management and cancellation covers that could be claimed due to COVID-19. Before the Tokyo Olympics were postponed, John Dacey,

group chief financial officer, said Swiss Re has a specific exposure of $250 million to loyd’s insurers face COVID-19 the Games. However, with postponement, related claims from approximately analysts agree, the insurance exposure is 14 categories of insurance, said Chief less than it would have been if the event Executive Officer John Neal during a media were cancelled. call to discuss the market’s 2019 results. Dacey went on to say that the company Neal said it is too early for the market has an exposure somewhere in the middle to assess the likely quantum of insurance between $100 million and $999 million for losses from COVID-19, but a whole range other events scheduled over the rest of the of classes of business would be affected. year, split between its Corporate Solutions He emphasized that Lloyd’s is treating the and P&C Reinsurance units. COVID-19 crisis as it would any other form Munich Re has not yet released any of catastrophic loss. numbers connected to COVID-19, In the main, Lloyd’s expected although it said that the group’s losses will arise from lines such as economic position remains strong event cancellation insurance, travel even in the current circumstances. insurance, medical malpractice, “Even in the very unlikely scenario of workers’ compensation and employa worldwide pandemic equivalent to ers liability from groups such as a 200-year event, insurance claims are health care workers and airline flight expected to be similar in scope to a attendants, Neal said. medium-sized natural catastrophe in Neal confirmed that other areas of property-casualty reinsurance.” exposure include potential lawsuits Neal said the market would communicate its market losses in early May, from general liability claims against having learned the lesson of the 9/11 cruise companies and hotels, for People wearing masks walk past the Olympic rings near terrorist attacks when losses were example. And then there are the the New National Stadium in Tokyo, Wednesday, March released too soon and had to be economic losses affecting directors 4, 2020. The fast-spreading Covid-19 virus that has shut adjusted. “It’s tempting ... but there’s and officers, trade credit, political down most schools, sports competitions and Olympicnothing worse than rushing out with risk, surety and mortgage. the wrong figures.” Neal noted that event cancellation related events in Japan. (AP Photo/Jae C. Hong)

By L.S. Howard

Losses Could Be Substantial for P/C Insurers Writing Event Cancellation Business: A.M. Best

lthough event cancellation insurance represents a very small percentage of overall property/ casualty premium, the losses for carriers that write this line of business amid the COVID-19 outbreak still could be significant, according to a new AM Best commentary. Losses on this line of business could have a compounding effect as carriers navigate other lines of business exposed in the pandemic such as business interruption, directors and officers,

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and workers’ compensation, as well as dealing with losses on assets, says the commentary, “Event Cancellation Insurers May Rethink Their Strategies.” One of the world’s largest events, the Tokyo Olympic Games, was postponed until July 2021, the first such delay in the modern Games’ 124-year history. The fact they have been postponed, as opposed to cancelled, could be a relief to insurers, according to some analysts. Swiss Re has announced that it has a $250 million exposure to the Olympic

Games in Tokyo, while Munich Re revealed it could have exposure amounting to hundreds of millions of euros. The postponement of the Games could have implications on insurers, depending on the individual contract terms, AM Best said. AM Best notes that event insurance is a customized form of insurance, and every covered event is unique and policy wording can vary greatly. Limits can be as low as $500,000, and up as high as $10 million depending on the circumstances, and prices may vary as well.

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Lloyd’s Returns to Profit; ‘Strong Position’ to Respond to COVID-19

hile announcing a return to profit of £2.5 billion (US$3 billion) for 2019, Lloyd’s also affirmed that the market is in a strong position to respond to the impacts of COVID-19. Lloyd’s return to profit was the first since 2016 and was a £3.5 billion (US$4.1 billion) improvement over its 2018 loss of £1.0 billion (US$1.2 billion). Lloyd’s said its 2019 results were driven by the repair in investment markets in the first half of 2019, alongside sustained rate increases and improving underwriting discipline. Nevertheless, the market still reported underwriting losses in 2019 indicated by its combined ratio of 102.1%, an improvement of 2.4 percentage points from the 104.5% reported in 2018. (Combined ratios above 100% indicate an underwriting loss). Lloyd’s said the market has made “encouraging” progress, given the fact that the underlying 2019 accident year ratio improved to 96.0%, (2018: 96.8%), exclusive of major claims, which show its “performance agenda is beginning to drive better underwriting discipline in the Lloyd’s market.”

Demonstrating that the market has the resilience to withstand the financial impact of the COVID-19 pandemic, Lloyd’s said in 2019, Lloyd’s net resources increased by 8.6% to £30.6 billion (US$36.2 billion), “reflecting an exceptionally strong balance sheet and a central solvency ratio of 238%.” (The statutory supervisory standard for solvency ratios under Solvency II is 100%). Although there has been a high degree of turbulence in the financial markets over recent weeks, Lloyd’s said its solvency ratio stood at 205% on March 19. “Whilst we are pleased to be announcing Lloyd’s return to profitability in 2019 and continued progress across our priorities,

our primary focus right now is on supporting our customers and business partners in their time of need,” Lloyd’s CEO John Neal said in a statement. Neal said it has never been more important “to accelerate progress on our ambition to create the most advanced insurance marketplace through the Future at Lloyd’s.” “We have sharpened our focus for 2020, prioritizing initiatives that will ensure around 80% of Lloyd’s business is digitally supported, together with fast-tracking claims processing improvements and building the foundational data and technology infrastructure to support Lloyd’s future ecosystem,” he continued. “The beginning of 2020 has proved exceptionally difficult as COVID-19 spreads rapidly around the world with devastating consequences for families, communities and the global economy. Now more than ever, our customers need us to be ready to support them through these challenging times,” said Bruce Carnegie-Brown, Lloyd’s chairman. “At Lloyd’s, we are laying the foundations to do this more effectively,” CarnegieBrown added.

The insured could be an event organizer, sponsor or venue, as well as other stakeholders such as caterers, entertainers and keynote speakers. Communicable disease is not always a covered peril and the applicability of COVID-19 is uncertain. According to AM Best analysts, withdrawals by individuals from events owing to COVID-19 concerns are unlikely to be covered and prohibitions by local municipalities of gatherings of more than 150 persons or curfews that result in cancellations also would not be covered. For events cancelled following national emergency announcements or state proclamations, event insurance could apply and insurers then would be responsible.

AM Best warns that insurers should be prepared for possible broader interpretations of contract language by courts and said “given the global impact of event cancellations, these interpretations could dramatically impact the results of event insurance providers.” Fitch Ratings noted that event cancellation is one area of insurance that may have losses, even though the overall impact of the coronavirus on P/C insurance industry should be modest. According to Fitch, industry experts anticipate coverage of approximately $2 billion for the Olympics event, with the large risk spread among several insurers. While planners of events could have

purchased pandemic coverage before the current outbreak, those trying to get pandemic coverage going forward are unlikely to find it. “As things stand at the moment, you would struggle to get coronavirus cover for any event, until we know where we are with this virus,” Rebecca Mitchell, contingency underwriter at ArgoGlobal, told Reuters. AM Best said that it is developing stress testing that it will conduct on its rated insurers’ balance sheets to gauge the impact of the COVID-19 virus fallout on their risk-adjusted capital levels, investment portfolios, reserve adequacy and other aspects of the risks borne by rated entities.

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APRIL 6, 2020 INSURANCE JOURNAL | 23

Special Report: Cyber

How Agents Can Help Small Business Clients

Navigate Cyber By Elizabeth Blosfield

ore small businesses may be purchasing cyber insurance today as compared to a few years ago, but agents still have work to do to help clients understand their unique risks and ensure they have the right coverage. That’s what panelists had to say during Insurance Journal’s March 31 webinar: What Agents Should Know About Cyber.

Panelists opened the hour-long discussion on a positive note, stating there has been an uptick in small and medium-sized businesses that recognize their cyber insurance needs and are purchasing coverage. “We’ve certainly seen an uptick in small business customers,” said Rob Rosenzweig, national cyber risk practice leader at Risk Strategies. “With the growth of ransomware,

Webinar on Demand To view the full webinar, visit: InsuranceJournal.tv. https://www.insurancejournal.com/research/research/ what-agents-should-know-about-cyber-insurance/

24 | INSURANCE JOURNAL | APRIL 6, 2020

I think the individual small businesses have realized how impactful that can be to their direct business.” Indeed, ransomware – malicious software designed to shut down access to a computer system until a ransom is paid – is typically spread through phishing emails or infected websites. As technology has evolved, so have ransomware attacks, with The Cybersecurity and Infrastructure Security Agency (CISA) noting on its website that it has observed an increase in attacks globally. “We’ve seen a huge uptick with the awareness and increase in both frequency and

severity of ransomware claims, and then a huge awareness on the social engineering and invoice manipulation fraud front that seems to be driving more smaller businesses into the marketplace,” said Matt Donovan, senior vice president and cyber specialist at Worldwide Facilities. Donovan said he believes the industry is on the back of a 10-to-15 year period in which businesses began moving to digital capabilities, and this has led to increased concern about ransomware and other cyber risks. “Now, we see a high concern on the business continuity INSURANCEJOURNAL.COM

Rob Rosenzweig, Risk Strategies

Matt Donovan, Worldwide Facilities

Matt Prevost, Chubb

Nadia Hoyte, USI Insurance Services

side, whether it be reliance on your own network or people waking up and realizing how much they’ve outsourced to the Cloud, to Amazon web services, Microsoft, Google – whomever it might be – and they recognize that while going through some pretty nice cost-cutting and efficiency measures, they now are further exposed to business interruption events,” he said. Rosenzweig said on top of that, he’s seen more carriers pulling back on including cyber coverages in other lines of business or silent cyber risk coverages in policies. “…which could be driving a need for smaller businesses to, for the first time, think about purchasing standalone, affirmative cyber coverage,” he said.

the insurance marketplace not necessarily addressing cyber risk exposures are a function of policyholders being reliant on other insurance products that they think are going to have some element of coverage for cyber-related losses.” Matt Prevost, senior vice president of cyber at Chubb, agreed, adding that agents and brokers have a responsibility to help clients understand what their policies cover. “I think there’s an element of agents and brokers really pinpointing, ‘Okay, here’s what cyber coverage is, here’s how it relates to you as an organization, and here’s why you need to understand this,’” Prevost said. It’s important for agents to run through an actual claim scenario, he explained, in order to understand how a cyber insurance policy will respond in the event of a claim and what the next steps are. That way, agents can properly convey this information to clients. “I think those are the good agents and brokers if they understand the ramifications of not just going out and seeking cyber coverage, but really knowing how a policy works at the time when it’s needed,” he said. “That’s where we’ve seen that education gap lessen in a

favorable way, given that they can communicate that message to those non-buyers who are out there.”

is no standardization of policy wordings across the marketplace,” he said. “There is just a tremendous difference from one policy to the next, so either taking a crash course and familiarizing yourself with some of the trapdoors in the wording or linking up with a broker or other outsourced provider that can help you navigate those differences in the wordings can be crucial. You have to be able to give the 50,000-foot view of what a policy covers, and then try to extrapolate that to: What does that mean for the insured?” Rosenzweig pointed to industry resources such as classes and publications that can help agents understand the available insurance coverage, as well as trends facing small and medium-sized businesses. “You certainly don’t need to be a technology expert, but to have that base level understanding so that you can communicate to a small business owner in a very succinct and clear way why they need to think about data security and why the insurance policy might help them - that’s imperative,” he said. Additionally, Nadia Hoyte, national advisor for USI Insurance Services’ Executive & Professional Risk Solutions

The Education Challenge

While more small and medium-sized businesses may be buying cyber insurance, there are still some misconceptions among insureds about whether they’re too small to be a target or what their policies actually cover, Donovan said. That’s where agents come in. “Where I think the insurance industry probably needs to do a better job is on the education front,” Rosenzweig said. “A lot of stories you might see about INSURANCEJOURNAL.COM

Understanding Coverage for Clients

However, it’s not just insureds that need a better understanding of cyber insurance. Agents also need to educate themselves in order to meet clients’ coverage needs, panelists said.

‘I think we’ve only scratched the surface as to where it’s going to go.’ “The popularity around cyber is something that’s important, but also the significance of educating the agent/ broker community around cyber insurance,” Prevost said. Rosenzweig said any remaining lack of buyers in the cyber insurance space could partially be due to insurance brokers and agents who aren’t cyber specialists feeling hesitant to talk to clients about it. This is especially important for agents just getting started selling cyber, he added. “If you’re getting started, first and foremost, you need to understand that there

continued on page 26

APRIL 6, 2020 INSURANCE JOURNAL | 25

Special Report: Cyber continued from page 25 Practice, said new agents need to understand why their client is thinking about cyber in order to find the right product. “Sometimes, there is the desire just to go out and just get an insurance policy, but I do think it’s always prudent to take that step back to really understand what are [the clients] asking for, and making sure that is aligning with the product that we’re putting in front of them,” she explained. This starts through candid conversations with policyholders, Prevost said. “I think that’s when the cyber insurance marketplace is performing on all cylinders; when that communication happens, rather than just thinking, ‘Okay, these small businesses are going to get attacked,’” he said. “We can’t just throw our hands up in the air.”

The Age of Specialty

However, if agents hope a better understanding of cyber coverage will be made easier with standardized policy forms, that’s probably not going to happen anytime soon, panelists said. “If we talked about cyber insurance overall as a marketplace, there are over 70 carriers in the market in the United States,” Prevost said. “All have different policy forms. All have different underwriting questions. Really, there’s an element of innovation and staying flexible with both policy forms and the underwriting questions because these threats are evolving constantly.” Indeed, Rosenzweig said differentiation of policy forms presents an opportunity for agents and brokers to set themselves apart by becoming experts who can navigate a crowded and noisy marketplace. “We are in the age of

specialty,” he said. “I think clients want a specialty-focused insurer that is nimble enough and innovative enough to continually have an iterative policy that’s going to meet the unique needs of their industry and their risks. If we were to move towards a higher level of standardization, you lose that.”

‘You have to be able to give the 50,000foot view of what a policy covers, and then try to extrapolate that to: What does that mean for the insured?’ That said, Hoyte noted overall concepts will need to see more standardization in the future to lessen the risk of inconsistency and confusion about whether coverage exists in certain areas. “For example, the concepts of gaming or computer hardware replacement costs – that particular concept is extremely different when you read the technical language from one policy to another policy,” she said. “There should be some consistency from that perspective, because that certainly would benefit the insured.”

Scratching the Surface

With all of this in mind, panelists answered one final question: Where is the cyber insurance market headed? “I don’t think it can get much more competitive,” Donovan said. “It’s pretty competitive right now

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in the marketplace.” With the spike in ransomware and increased frequency of attritional losses, Rosenzweig said he anticipates more carriers will begin pulling out of the marketplace, leading to a smaller network of specialty insurers offering the right coverage, understanding the risks and asking important questions. “It will ultimately be better for the marketplace to have a committed, concentrated number of carriers that we know are here for the long-term and that we feel confident placing our clients’ business with,” he said. In addition, Hoyte said she believes the way insureds are thinking about purchasing cyber coverage will change in the future. “I think you will start to see people buy very differently in the future because they will see it as a risk that overlays your business rather than something that ties specifically to certain aspects of your business,” she said. “I think there will also be an influx of different ways to buy cyber insurance. It won’t necessarily be just a standard retention or deductible and then a limit on top of that. There will be different ways to conceptualize how you’re able to buy the insurance.” Donovan said while heightened competition may be keeping underwriters on their toes, he believes the industry has done well evolving with new cyber threats. “We’re still rapidly evolving as far as what the coverage is going to encompass. What we’re covering today will be expanded by next year, and so on,” he said. “I think we’ve only scratched the surface as to where it’s going to go.” INSURANCEJOURNAL.COM

Special Report: Cyber Evolution of Ransomware Pushes Companies to Examine Their Business Interruption Coverage

By Elizabeth Blosfield

s cyber crime continues to evolve, ransomware attacks in particular have ramped up and are leading more companies to recognize their need for the right business interruption coverage, explained panelists at the Professional Liability Underwriting Society (PLUS) Cyber Symposium, held in New York City in February. “I think without insurance, we’ve seen countless companies that would just have to close their doors,” said Nathan Little, vice president of Digital Forensics and Incident Response at Tetra Defense, a digital forensics, incident

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response and cyber risk management firm. “They wouldn’t be able to function, because they can’t pay the million or two million or whatever it may be to get their data back.” Ransomware is a type of malware that is designed to deny access to a victim’s computer system or data until they pay the attacker a ransom. These attacks have grown in number recently, with the New York Times reporting that 2019 saw a 41 percent increase in attacks from the year before, according to information provided by Emsisoft, a security firm that helps companies hit by ransomware. “It seems these days, almost every call we get is ransomware

because it’s so rampant,” Little said. Ransomware attacks are not only growing in frequency, but in severity, leading to longer periods of restoration as backup systems are hit as well, Little said.

‘Miscommunication between IT and the financial sector – not being on the same page – that brings a lot of confusion.’ “Ransomware attacks used to always be the low-hanging fruit — people with severe security issues that got

hit — and that’s not always the case anymore,” he said. “The trend we’re seeing is more and more advanced attacks where people lay dormant in systems for months or even years and know every detail about the IT department.” Little pointed to another trend in ransomware attacks: double extortion. This means that if a victim doesn’t pay a ransom within a certain time frame, the attacker will publish their private data and screenshots of the systems that have been compromised on public websites. “Those types of attacks are causing exponential growth in ransomware because they’re

continued on page 28

APRIL 6, 2020 INSURANCE JOURNAL | 27

Special Report: Cyber continued from page 27 very profitable,” he said.

Business Interruption

While the good news is that this growth in ransomware is leading more companies to prioritize securing the right business interruption insurance policies, Little and fellow panelist Cheryl Warner, of technical advisory firm MOXFIVE, agreed the insurance industry has work to do on educating clients about how policies are written and how incident response works. “I think there’s a lot to be learned in how policies can be written and how we can respond to incidents to really give that white glove treatment for the insured and make them feel like they’re getting the most bang for their buck out of the policy,” Little said. Warner added that insureds often have a misunderstanding of how long the incident response process can be, as

there can be a lag of time in between understanding what has happened during an attack and beginning restoration. “On the insurance side, it’s an educational process,” she said. “I think with what the insured purchases, they expect instant gratification and that doesn’t necessarily always happen.” Little said he believes this misunderstanding could be because these attacks, while more widespread than in the past, are still new to clients. That said, even if a client has the right backups in place to restore quickly, he said it’s important to take time to investigate and understand the attack completely or else a client could be showing an attacker that is still in their network how to strike the system again. “It’s the time to restoration, and it’s the time to investigate,” he said. “It’s really a delicate dance bringing people back

online, and it’s a challenge.” Indeed, Warner said a common misunderstanding regarding cyber incidents is how long organizations can be down, which can be anywhere from a few hours to a few months or longer, even when companies bring in the right experts and have the right insurance policy. “Even if you have insurance, being down for three weeks is still a dramatic experience for your company and hard to recover from regardless of how much cover you have,” Little added. With this in mind, insurers need to understand that each client’s environment is different and work with insureds to assess how long recovery might take, Warner said. It’s also important for insurers to communicate with insureds’ IT departments to determine response plans and identify critical assets, she added. “Miscommunication

between IT and the financial sector – not being on the same page – that brings a lot of confusion,” she said.

IT Targets

Speaking of IT departments, Little and Warner both stated IT providers are becoming a major target for attacks as ransomware evolves. “Typically, they weren’t targeted, but now they are because it gives access to all of their clients and customers,” Warner said. “You hit one, and it gives you access to hundreds of other clients.”

‘Ransomware attacks used to always be the low-hanging fruit – people with severe security issues that got hit – and that’s not always the case anymore.’ Manufacturing is another industry that's been hit hard by ransomware attacks recently, Little said. Previously, the sector hasn't been a target for these attacks as it didn’t much valuable data. “Now, manufacturing is one of the largest targets for ransomware because taking down the operation is taking down the money,” he said. As cyber attacks continue growing, types of attacks are expected to evolve too, keeping insurers and insureds alike on their toes, Warner said. “Right now, it’s ransomware that has been rampant for the past couple of years,” she said. “Pretty soon, it will be something else that follows ransomware and will probably be a lot worse.”

28 | INSURANCE JOURNAL | APRIL 6, 2020

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Special Report: Cyber Cybersecurity Expert Tells Industry to ‘Better Prepare’ Clients for Evolving Ransomware Attacks By Amy O’Connor

he insurance industry has been working to educate policyholders about the cyber risks their businesses face for many years, but the increasing frequency of ransomware attacks on businesses and municipalities is elevating this ever-changing risk to a new level that experts, including insurers, are unsure how to handle. Cybercrime is nothing new to cyber experts, but the sophistication of cyber attacks and the breadth of targets has evolved over the last 10 years, said Robert Anderson Jr., a former national security executive who served

more than 20 years with the FBI and now works in the private sector as the CEO of cyber information security service provider, Cyber Defense Labs. Anderson spoke at Advisen's Cyber Risk 30 | INSURANCE JOURNAL | APRIL 6, 2020

Insights Conference in San Francisco in February, telling attendees that just 10 years ago, ransomware attacks were handled by the government, who could usually get the data back. But the last three years have brought a new reality for both public and private entities as cyber criminals’ attack methods have advanced significantly. “The hackers that are employing this [ransomware] doesn’t just attack the client, doesn’t just attack the partner, it attacks the managed service provider's network to

make sure that they don’t alert the client that they’re being attacked or a ransomware attack is going to happen,” Anderson said. “And by the way, it shuts off anything that they have to minimize that attack.” Anderson said insurers and their policyholders have to be thinking ahead to how these threats are carried out, either INSURANCEJOURNAL.COM

through different organizations, criminal, hacktivists, or nation states. “And unfortunately, what I see … that’s not where we’re at,” he said. “We’re focusing on today and now, and how these threats are affecting us.” Anderson said these incidents will continue to increase as criminal organizations globally learn from other attacks and figure out how they’re going to infiltrate a company to make money. He said cyber hackers who launch these attacks are part of a multi-trillion dollar industry. “People that say crime doesn’t pay — that’s not true. It doesn’t pay if you get caught, but if you don’t get caught, it pays a lot of money,” he said. Anderson noted when he was in the FBI, he would never advocate to pay a ransom to a cyber criminal, but his tune as changed as our dependence on technology infrastructures has become critically important. Since starting his consultancy 4.5 years ago, he said he has been involved in paying 600 ransoms. “Why? The sophistication of the attack … cripples the company,” he said. “We all know we need to segment data, we all need to have redundancy data, we all need to have a plan for when an attack happens,” he said. "[But] I have worked thousands of breaches since I’ve retired. I’ve been involved in all kinds of proactive risk assessments. I speak all over the world. We still aren’t doing it.” Clients and the insurance industry, which Anderson says could also be crippled by these attacks, need to put preparatory response plans in place to handle the types of INSURANCEJOURNAL.COM

ransomware attacks happening to businesses and municipalities today. “If you’re looking at two years ago, you’re missing it. You’re missing the threat. You’re not going to catch it,” he said. “Nowadays, these attacks are much more strategical. They look at infrastructure that they know companies can’t shut down; county governments can’t stop functioning.” He said all entities that could be impacted by ransomware attacks, as well as their insurers, should be evaluating the vulnerability of the entire infrastructure and how broad an attack could be in terms of affecting or interrupting other services the entity provides. “You can’t just look at what’s the threat today, but what part of that eco-structure are they in,” he said. “The sophistication of the bad guys and girls nowadays is off the charts.” Anderson noted thousands of advanced hackers in places like China, Iran, Russia and North Korea are being hired to attack entities in other countries so they can steal data from the U.S. to be sold later. All entities, particularly government and private corporations, need to be ready to respond quickly if attacked because these incidents will only get more sophisticated and costly. “Hear what I’m saying to you on this — it’s not as simple anymore as just going, ‘Breaches happen. This is what we’re going to do,'” he said. “No, you have to have your head up, and you have to be thinking about why does this fit together.” Anderson said virtual currency is the payment method of choice for ransomware attacks, but the U.S. government is

getting better at figuring out where that currency is being sent. As a result, ransomware attacks usually include a countdown clock or set amount of time for the victim to respond because the quicker the hacker gets their funds, the less likely they are to be caught, and they are likely attacking multiple entities at one time. The use of virtual currency by criminal organizations should be significant to everybody “because it’s eventually going to come to the group that we’re working with and the clients that we’re trying to protect,” Anderson said. Advances in artificial intelligence and machine learning are also making it less cost prohibitive for cyber hackers to execute attacks, which could increase their frequency. “When we look out in front of where this threat’s going, we can’t just look at the totality. We have to look at who’s going to be the victim, who’s going to be attacking that client or that corporation or that government agency,” he said. “It’s a lot more complex nowadays. Five, 10 years ago it wasn’t like this. Nowadays, it’s absolutely like this.” He urged the industry to work with its clients on being more proactive at stopping attacks in the first place, and that involves doing more than just buying and selling a cyber policy that fits the budget and thinking that addresses the risk. Most companies, he said, are not “leaning forward” enough to avoid the devastation of what a ransomware attack could bring, such as costly lawsuits or the end of a business. “I’ve been retained for a lot of outside expert witness

Robert Anderson Jr. cases, and I can tell you the first thing in these $500 million class action lawsuits that comes out of all the depositions is when did the head of the organizations know there was an issue? When did they know something needs to be fixed?” In most of these lawsuits, companies knew they were vulnerable and deferred doing anything about it, and that puts the company in a worse position when defending itself, Anderson said. “They’re going to say, well, wait a minute, you were the head of the company,” he said. “I don’t care if you had cyber people sitting on your board. What are you doing to try to fix it? What are you doing to try to push it forward? What are you doing to try to be proactive in your company?” He said insurers can help their clients by learning about the current risks they face and how those will evolve. “An ounce of prevention goes a long way, and I think if we can get clients, partners, people inside the country — whether it’s private or government — to be thinking about what’s the next thing coming at them, it benefits everybody,” he said.

APRIL 6, 2020 INSURANCE JOURNAL | 31

Spotlight: Aviation & Drones Small Commercial Drones: Overcoming the Misconceptions

ne of the most interesting and rapidly-growing technologies emerging for small business owners is the use of unmanned aerial vehicles, commonly known as drones. In 2019 alone, there were nearly 1.3 million By David Strunk registered drones in the United States and more than 116,000 registered drone operators, according to Reuters. With the number and use of drones on the rise, businesses are facing new risks and challenges.

Small Businesses' Misconceptions

There are a number of steps business owners must take prior to being able to safely and legally fly a drone for business purposes. For small businesses,

securing insurance coverage for drones has become one of the most important but overlooked steps. This is often due to misconceptions, such as thinking that drone and drone use is already covered by their insurance policy, not knowing that drone coverage is available, and the preconceived notion that drone coverage is too expensive to obtain. It is good risk management practice for business owners to spend time with their agent or broker, taking a close look at the language in their policy and making sure that their insurance program adequately addresses their proposed use of drones. Agents and brokers are well-equipped to provide business owners with a full understanding of the coverage options available, the costs of such coverage, and the available coverage enhancements that provide exactly whatâ&#x20AC;&#x2122;s needed for a companyâ&#x20AC;&#x2122;s

32 | INSURANCE JOURNAL | APRIL 6, 2020

expected drone usage. The challenges associated with small business drone use have evolved over the past few years and will continue to change as the Federal Aviation Administration (FAA) regulations shift and the potential for reputational and financial damage from the use of drones continues to grow.

Regulations

As the governing body for aviation operations in the U.S., the FAA provides clear guidance and direction around the risks involving commercial drone use and is consistently adapting regulations to ensure safety. Here are three challenges commonly overlooked by businesses: 1. License and registration. Any business planning to operate a drone for commercial purposes must register the drone with the FAA and secure an FAACertified Drone Pilot license for

the operator.

2. Liability. Operating a drone,

by nature, presents many unique liabilities. The risks are varied and potentially significant. Drone-related accidents could include situations, such as running into a power line and causing subsequent damages and power loss; colliding with buildings, vehicles or other drones with resulting property damage to others; crashing into a person and causing bodily injury; or using photos/videos taken from a drone and using them without proper authorization, creating a potential personal and advertising injury claim. 3. Waivers. There are a number of procedures that require specific waivers from the FAA to operate, including nighttime operation of a drone, operation over groups of people and operation in certain restricted airspaces. Failure to secure proper approvals could open a INSURANCEJOURNAL.COM

business up to a violation of the FAA regulations and increase potential for accidents.

Reputational Damages

Often overlooked are the risks businesses face in the event of a drone incident â&#x20AC;&#x201C; whether this be a crash, FAA violation or invasion of privacy

accusation. An incident such as this poses a large threat to a small business and could deeply damage a companyâ&#x20AC;&#x2122;s bottom line. Beyond the direct financial impacts, there could be reputational risks, as public knowledge of a negative event could lead to a loss of customer confidence and trust.

There are a number of property and casualty insurers that are offering drone coverage to businesses. Each of these companies have varying coverage options and product offerings. CNA, for example, offers a drone endorsement, which includes options for general liability and property coverages. In addition to a drone coverage policy, business owners may also consider purchasing an umbrella policy that could help cover unexpected risks.

Looking Ahead

The opportunities that drones present to small business owners are diverse and exciting. As the market continues to evolve, new risks and challenges will emerge, and business owners and

insurance carriers will need to continue to be flexible to adapt to the changes. It is essential for small business owners to understand the opportunities and risks associated with drones and stay connected to their insurance provider so that they can remain competitive, tap into new technologies, make sure their insurance program contemplates any potential commercial drone usage as well as stay compliant with regulations. For more information on the specific regulations published by the Federal Aviation Administration, visit faa.gov/ uas/commercial_operators/. Strunk, CPCU, AU, serves as assistant vice president of Small Business Underwriting for CNA.

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APRIL 6, 2020 INSURANCE JOURNAL | 33

Closer Look: Directors & Officers D&O Insurers Brace For Coronavirus ‘Event Driven’ Litigation

About: Norwegian Cruise Lines was one of the first two defendants in securities litigation related to the coronavirus. This photo by the company shows the Norwegian Bliss.

By Jim Sams

hat may be the first U.S. securities lawsuits alleging misdeeds related to coronavirus were filed in late March — one against a cruise line and another against a pharmaceutical company that claimed to have developed a vaccine for COVID-19. There are likely many more securities lawsuits to come, experts say. The pandemic promises to be another cost driver for directors and officers policies, a line that has already been under pressure by “events-driven litigation” prompted by calamities such as oil spills, cyber attacks, airplane crashes and wildfires, said Christine Williams, chief executive officer for the financial services group at Aon, a global brokerage and risk

management firm. “Plaintiffs attorneys are going to be looking at this as an opportunity,” Williams said. She added that even when the claims are specious, “the cost of defending can become very high very quickly.” Williams said the D&O line has been in a “challenging marketplace since 2018, with less capacity and insurers insisting on higher retentions." She said lawsuits swept into being by the #MeToo movement demonstrated to insurers how claims more commonly associated with other lines, such as employment practices liability for sexual harassment allegations, can leak into D&O. She said California wildfires and major oil spills have had a similar impact. “The trend is for premiums to continue to increase,” Williams said, adding,

34 | INSURANCE JOURNAL | APRIL 6, 2020

“Insurers are looking to scale back their limits. If it was $50 million this year, it will be $25 million.” Williams expects the coronavirus outbreak to be the latest event to drive a new rash of D&O claims.

Two Lawsuits

Kevin M. LaCroix, executive vice president at RT ProExec, noted the securities lawsuits filed against Norwegian Cruise Lines and Inovio Pharmaceuticals in a blog post. LaCroix, who is an attorney, said they were the first securities lawsuits filed in response to the cornoavirus outbreak. Both suits were filed March 12. The suit against the cruise line alleges Norwegian employed sales tactics of providing customers with unproven or blatantly false statements about COVID-19 to entice customers to purchase cruises.

The suit against Inovio takes aim at statements made by Chief Executive Officer J. Joseph Kim, who told Fox Business News that he had developed a vaccine for COVID-19 “in a matter of about three hours once we had the DNA sequence from the virus.” The suit says Kim made similar comments in a “well-publicized” meeting with President Donald Trump on March 2. According to the complaint, Inovio’s stock soared from $4.28 to $19.36 after the Trump meeting, but dropped to $5.70 after Citron research on March 9 called for a Securities and Exchange Commission investigation into Kim’s “ludicrous and dangerous” claims. Cirton, which does investment research, said Inovio had merely created a precursor for a vaccine, not the final product. INSURANCEJOURNAL.COM

The lawsuit was filed on behalf of all investors who had purchased Inovio shares from Feb. 14 to March 9, 2020. LaCroix said he found it interesting that the lawsuit does not allege Inovio won’t someday develop a COVID-19 vaccine, only that it had not yet done so.

Potential Pitfalls

With a wave of D&O litigation on the horizon, insurance attorneys have been reviewing potential defenses. Several law firms have noted many D&O policies have an exclusion for bodily injury claims, which means insurers may not be on the hook if the complaint alleges a policyholder caused harm by exposing the public to the virus. But a policy exclusion goes only so far. There are other ways directors and officers can get into trouble. A white paper by Aon points to some potential pitfalls: Individuals are slandered due to their national origin in relation to COVID-19. Mismanagement of the response to the pandemic results in a stock drop caused by corporate waste or failure to properly supervise. An employee’s medical condition related to the virus is disclosed without permission. Mary McCutcheon, a partner with the Farella Braun + Martel law firm in San Francisco, pointed to another peril in a March 19 blog post. She said officers and directors may be vulnerable to insider trading claims as stock prices fall. “If companies do not survive the crisis, shareholders and creditors may pursue such claims in bankruptcy courts, with the directors and officers (and ultimately, their insurINSURANCEJOURNAL.COM

ance) as the only remaining viable targets,” McCutcheon wrote.

‘If companies do not survive the crisis, shareholders and creditors may pursue such claims in bankruptcy courts, with the directors and officers (and ultimately, their insurance) as the only remaining viable targets.’ In an email to Claims Journal, McCutcheon said plaintiffs’ lawyers may find it difficult to link damages caused by the pandemic to specific corporate or individual wrongdoing, which gives them an incentive to pursue claims to force settlements from

litigation-adverse companies, directors and officers and their insurers. “Whether it’s a #MeToo claim, a massive security breach or now COVID-19, plaintiffs’ lawyers will always seek to find new grounds for bringing securities claims,” she said. Downplaying the impact of the virus on an enterprise’s supply-chain may mark another way to litigation. William Wagner, a partner with the national Taft law firm in Indianapolis, wrote in an article for the Indiana Business Journal March 15 that 60% of U.S. manufacturers have been impacted by COVID-19 in their production facilities and supply chains. He said executives may feel compelled to quell investor panic. Wagner pointed to a class-action lawsuit against HD Supply Holdings Inc. to demonstrate the folly in that strategy. Stockholders alleged the company’s distribution centers were paralyzed after

the company relocated its headquarters and laid off nearly all of its supply chain employees. Yet, executives made statements such as “the supply chain difficulties are behind us now” and “we’ve had … no surprises whatsoever.” Whistleblowers from the company said otherwise. Although HD Supply said the statements were puffery, the U.S. District Court in Atlanta found the investors had sufficiently alleged the company’s CEO made misleading statements. The court gave preliminary approval to a $50 million settlement on Feb. 21. “The takeaway for public company CEOs from the HD Supply case should be clear — only state what you know to be true, even if it leads to a drop in your stock price,” Wagner wrote. Sams is editor of the Claims Journal, a part of the Wells Media Group. Email: jsams@wellsmedia.com.

APRIL 6, 2020 INSURANCE JOURNAL | 35

Idea Exchange: Minding Your Business Coronavirus Effect

on Agency Value

ife has changed for everyone since the lockdown of US citizens and businesses a few weeks ago by our local and federal governments. No one can really believe that in such a short time, beginning mid-March, that our lives could turn completely upside By Catherine Oak & down. This article focuses on the effect we see on the value of insurance agencies and brokers due to the literal shutdown of many of the busiBill Schoeffler nesses they insure. In addition, without jobs, homeowners could lose their homes, autos and other assets, despite a short-term inability to pay these bills. No one can predict when and if things will really get back to normal in the coming weeks or possibly months. What we do 36 | INSURANCE JOURNAL | APRIL 6, 2020

know is that a situation like this has never happened to insurance agents and brokers, nor to the American public. Things could look drastically different by the time this article is published. It will take time to heal and get back to where we were in January. However, the lessons from this experience should be kept in mind for the next disruption to the system. Many individuals and some businesses operate with very little excess money in their budgets and savings accounts. A prolonged lockdown on businesses, especially small business will likely lead to their inability to restart easily, or hire back all their staff, so that people can begin to pay their bills again and live their lives. That could mean a much higher unemployment rate in the U.S.

Agency Values Before the Coronavirus

In early March, agency values were at an all-time high. Many agencies and brokerages across the country have been able to sell for the highest multiples ever seen, often in the 2.5 to 3.5 times revenue range and/or eight to 10 times EBITDA

(earnings before interest, taxes and depreciation/profit). It was simply a matter of putting a good profile and pro forma together for a firm and taking them to market, with no lack of buyers both regionally and nationally. Some were private equity based and others weren’t, but were still willing to pay these prices, with incredible terms. Usually terms of 50%-100% of their offers in down payments with some or little requirements for stock in the acquirers. Often additional payments in the form of earn-outs and bonuses for making certain benchmarks in revenue or EBITDA growth were offered.

Impact of Coronavirus on Agencies

Insurance agency consultants are just beginning to see the effect of the mandates that have been put into place by local and federal government shutting down businesses and people’s lives. An agency’s commissions are directly a function of premiums charged by insurance companies and the rating bases used to develop those premiums. Most businesses’ insurance rates for their propINSURANCEJOURNAL.COM

erty and casualty coverages are related to sales. Rates for workers’ compensation are based on payrolls. Work comp rates have been dropping a good deal over the past year. Now, with numerous layoffs, employers are asking their agents to lower their payrolls and sales that create their premiums. In addition, any businesses that have commercial autos are trying to reduce their costs, by putting these vehicles out of use, during this work stoppage. We have had insurance clients that insure certain fragile industries, where they cannot have workers work from home, tell us of complete layoffs of all of their staff and are already asking for premium credits to their policies.

What Are Employers Doing?

When they lay off their workforces employers are encouraging or assisting workers in filing for unemployment, since the government has told them to do so and they will cover these persons’ wages in the interim. However, there are so many applying for this benefit, the online system simply cannot take the number of claims. It locks up and shuts down before the individual can finish the application. We have heard numbers like one-in-three in a household, know a friend or family member that has lost their job. With about 340 million people in the U.S., the number of unemployed workers is staggering.

Make-Up of an Agency’s Book

Those agencies with a significant amount of workers’ compensation and

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employee benefits business will be most affected with a loss of revenue. Agencies that write clients in the hardest hit businesses, like restaurants, bars, hospitality and entertainment venues, will also have a large loss of revenue. This will occur for whatever length of the shutdown, but could also affect life afterwards, if those businesses cannot easily recover and start back up. As valuation and merger and acquisition consultants, we are asking agency clients to predict their loss of revenue from their workers’ comp and benefits books of business, as well as to review clients that operate on a tight margin, or those that already have indicated they will be out of business, or likely unable to survive. The numbers are shocking. Usually a 10% to even a 25% drop in commissions is anticipated, depending on the make-up of the agency’s insureds. Of course, the agencies will then cut expenses accordingly, usually in staff. No one feels optimistic.

Agency Value After the Coronavirus

What we do know is that values are declining, as revenues to agencies and brokerages are declining. We know that the effect of even a two-month shutdown will be disastrous. We know that the contingencies/bonuses the insurance companies give to agencies and brokers will be affected negatively as most require not only growth in the books of business placed with that carrier, but also profitability.

Buying Frenzy May Subside

We know that many acquirers are currently thinking about what to do about the sellers they currently have in their pipelines and if they can proceed with some caveats or changes to the terms of the deal. Some will pause their acquisitions until they see what is going to happen and how long the current shutdown lasts. Some may keep acquiring, but drastically change their pricing. There is still a lot of private equity money available to these buyers but will not make foolish decisions in light of what is happening. It will be a wait and see environment through the next several weeks, if not the next few months. If things go beyond that, there may be no return for many insurance agencies’ clients. We might see a switch from a seller’s market to a buyer’s market. Many more agency owners could think it is time to take the equity out of their business and put it in their bank account. If that happens, buyers could have more options and be selective on what to purchase. This would have a downward impact on agency value. Oak is the founder of the consulting firm, Oak & Associates, based in Northern California and Central Oregon. Schoeffler is an associate of the firm. Oak & Associates specializes in financial and management consulting for independent insurance agencies, including valuations, mergers acquisitions, sales and marketing planning as well as perpetuation planning. Phone: 707-935-6565. Email: catoak@ gmail.com.

APRIL 6, 2020 INSURANCE JOURNAL | 37

Idea Exchange: M&A Review A Banner Year for Insurance M&A Activity

ueled by continued, albeit moderate, economic growth in a historically low interest rate environment and an increase in the number of well-capitalized acquirors, deal-makBy Brian Ambrosia ing in the insurance distribution sector hit yet another all-time high in calendar year 2019. This marks the third year in a row when the number of publicly announced deals outpaced the prior year. With 642 publicly announced deals, 2019 was the most active year of merger and acquisition (M&A) transactions on record. For perspective, since 2013 during which publicly announced transactions

totaled just 224 annual deal counts have increased on average over 19% in comparison to their respective prior year. 2019 didn’t waste any time racking up transactions. Ninety-three of the year’s 642 deals were closed in January 2019, 18 of which were the result of the formation of private equity (PE) backed Patriot Growth Insurance Services LLC. From February through December, monthly deal counts averaged just under 50, a remarkable number when compared to historical averages. PE-backed buyers continue to lead the pack with 400 of the 642 announced transactions for the calendar year, or 62.3% of all deal activity. Non PE-backed independent firms completed 153 transactions in 2019, and public brokers accounted for 52 deals or

approximately 8% of the total. Insurance carriers, banks and thrifts, and other buyers rounded out the numbers with a total of 37 transactions. The top five buyers for the year represented approximately one-third of the total deal activity, and the top 10 buyers accounted for roughly half. Acrisure LLC retained its long-standing title as the year’s most active, having completed a total of 68 announced transactions in 2019. Hub International Limited was the second most active buyer with 45 closed transactions in calendar year 2019. It has closed 234 publicly announced deals since 2012, trailing only Acrisure that had 303 during the same period. Broadstreet Partners Inc., AssuredPartners Inc. and Arthur J. Gallagher & Co. rounded out the top five buyers

and collectively closed 96 deals in 2019. Other buyers in the top 10 include Patriot, The Hilb Group LLC, Alera Group Inc., Risk Strategies Co. Inc. and Brown & Brown Inc. Patriot led this group with 27 closed transactions, followed by Hilb with 25, Alera with 24, Risk Strategies with 19 and Brown & Brown with 17. The geographic locations of the sellers generally tracked the most populous U.S. states, including California, Texas, New York and Florida, which accounted for 224 of the 642 announced deals in 2019. Ambrosia is vice president for Marsh, Berry & Co. Inc., responsible for financial analysis, agency valuations, compensation consulting, perpetuation planning, buy and sell-side M&A, and due diligence projects. Email: Brian. Ambrosia@MarshBerry.com.

Announced Deals (U.S. Transactions)

Disclosure: All deal count metrics are inclusive of completed deals with U.S. targets only. Scorecard year-to-date totals may change from month to month should an acquirer notify MarshBerry or the public of a prior acquisition. 2019 data is as of Jan. 17, 2020. Source: S&P Global Market Intelligence, Insurance Journal and other publicly available sources. Note: Investment banking services offered through MarshBerry Capital Inc., Member FINRA and SIPC, and an affiliate of Marsh, Berry & Co. Inc. 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122, 440.354.3230. 38 | INSURANCE JOURNAL | APRIL 6, 2020

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Merger Announced and Acquisition Activity Date Buyer Announced Date

Buyer

10/1/19 Acrisure LLC 10/1/19 Acrisure LLC 10/1/19 Acrisure LLC 10/1/19 BroadStreet Partners Inc. 10/1/19 Heffernan Insurance Brokers 10/1/19 Hilb Group LLC 10/1/19 Hilb Group LLC 10/1/19 Hilb Group LLC 10/1/19 Risk Strategies Co. LLC 10/2/19 Acadia Professional LLC 10/2/19 Warburg Pincus LLC 10/2/19 AmWINS Group 10/3/19 AssuredPartners Inc. 10/3/19 Connex Credit Union Inc. 10/3/19 Hub International Limited 10/3/19 Relation Insurance Inc. 10/4/19 AssuredPartners Inc. 10/7/19 Hub International Limited 10/7/19 Salus Workers' Compensation LLC 10/8/19 AssuredPartners Inc. 10/8/19 Entertainment Benefits Group LLC 10/9/19 Arthur J. Gallagher & Co. 10/10/19 Arthur J. Gallagher & Co. 10/10/19 Higginbotham & Associates Inc. 10/11/19 Brown & Brown Inc. 10/11/19 Cornell Capital LLC 10/11/19 Cross Insurance 10/14/19 Brown & Brown Inc. 10/15/19 EPIC (Edgewood Partners Insurance Center) 10/15/19 Integrity Marketing Group LLC 10/17/19 Davies Group Limited 10/18/19 Brown & Brown Inc. 10/21/19 USI Holdings Corporation 10/22/19 Integrity Marketing Group LLC 10/23/19 SSL Endeavour Limited 10/23/19 Arch Capital Group Ltd. 10/23/19 Digital Insurance Inc. 10/25/19 Seeman Holtz Property and Casualty Inc. 10/29/19 Risk Strategies Co. LLC 10/30/19 Integrity Marketing Group LLC 10/30/19 The Carlyle Group 10/31/19 AccuRisk Solutions LLC 10/31/19 AccuRisk Solutions LLC 11/1/19 Alera Group Inc. 11/1/19 Acrisure LLC 11/1/19 Alera Group Inc. 11/1/19 Acrisure LLC Acrisure LLC 11/1/19 11/1/19 Acrisure LLC 11/1/19 Acrisure LLC 11/1/19 Acrisure LLC 11/1/19 Acrisure LLC 11/1/19 Acrisure LLC 11/1/19 Acrisure LLC 11/1/19 Acrisure LLC 11/1/19 Acrisure LLC 11/1/19 BroadStreet Partners Inc. 11/1/19 BroadStreet Partners Inc. 11/1/19 BroadStreet Partners Inc. 11/1/19 BroadStreet Partners Inc. 11/1/19 BroadStreet Partners Inc. 11/1/19 BroadStreet Partners Inc. 11/1/19 BroadStreet Partners Inc. 11/1/19 Element Risk Management 11/1/19 Hilb Group LLC 11/1/19 Patriot Growth Insurance Services LLC 11/1/19 Hilb Group LLC 11/1/19 Spire Risk Management LLC 11/1/19 World Insurance Associates LLC Source: S&P Global Market Intelligence, Insurance Journal, other publicly available sources and MarshBerry proprietary databases Disclosure: All deal count metrics are inclusive of completed deals with U.S. targets only.

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October 1, 2019 - December 31, 2019 Seller Seller

Undisclosed Insurance Agency Undisclosed Insurance Agency Undisclosed Insurance Agency Certain insurance assets Mahan Insurance Brokers Inc. Avanti Associates Ltd. LCIA Inc. Campisano Insurance Co. New Agency Partners LLC Vista Underwriting Partners LLC Toro Risk Consulting Group LLC Fetch Insurance Services LLC Stealth Partner Group Powderhorn Agency Inc. Gloron Insurance Group LLC Doug Johnson Insurance LLC Premier Consulting Partners LLC Healthcare Consultants Inc. LBA Insurance Services Inc. Method LLC Ventura Pacific Insurance Services Beneplace LLC Garrett-Stotz Co. The Doyle Group Inc. dba Direct To PolicyHolder Diversified Insurance Management Inc. Poole Professional Companies Spectrum Automotive Holdings Corp. SSLP INC. VerHagen Glendenning & Walker LLP Prime Risk Partners Inc. Family First Life LLC Alternative Service Concepts LLC Roper Insurance & Financial Services Inc. Scheetz & Hogan Insurance Agency Inc. Your Insurance Group LLC WorldLink Holdings LLC Bonding & Insurance Specialists Agency Inc HealthPointe Insurance Services LLC GIA Insurance Agency LLC Dash & Love Inc. Great American Legacy Inc. The Hilb Group LLC M-D Underwriting Services Inc. M-D Underwriting Services Inc. Healthcare Liability Insurance Book Exceptional Risk Advisors LLC Undisclosed Third Party Administrator Folan Agency Ltd. Undisclosed insurance agency Undisclosed insurance agency Undisclosed insurance agency Undisclosed insurance agency Undisclosed Insurance Agency Undisclosed Insurance Agency Undisclosed Insurance Agency Undisclosed Insurance Agency Undisclosed Insurance Agency Book of business Certain insurance assets Certain insurance assets Certain insurance assets Certain insurance assets Certain insurance assets Independent Agency in Texas Barnes & Phillips Insurance & Financial Services / Crawford Insurance Co./Brenner Insurance Gould & Naimoli Partners LLC Landmark Insurance Associates Inc Ivy West Insurance Agency Inc. EBS Employee Benefit Services Inc J & S Risk Planning Group LLC

chart continued on page 40

APRIL 6, 2020 INSURANCE JOURNAL | 39

Idea Exchange: M&A Review continued from page 39

Merger Announced and Acquisition Activity Date Buyer Announced Date

11/1/19 11/1/19 11/4/19 11/5/19 11/5/19 11/6/19 11/6/19 11/6/19 11/7/19 11/8/19 11/8/19 11/11/19 11/12/19 11/12/19 11/12/19 11/12/19 11/14/19 11/14/19 11/15/19 11/18/19 11/19/19 11/19/19 11/20/19 11/20/19 11/20/19 11/20/19 11/21/19 11/21/19 11/22/19 11/22/19 11/23/19 11/25/19 11/26/19 12/1/19 12/1/19 12/1/19 12/1/19 12/1/19 12/1/19 12/1/19 12/1/19 12/1/19 12/2/19 12/3/19 12/3/19 12/3/19 12/4/19 12/4/19 12/5/19 12/5/19 12/10/19 12/10/19 12/10/19 12/12/19 12/17/19 12/17/19 12/17/19 12/17/19 12/17/19 12/18/19 12/23/19 12/31/19 12/31/19 12/31/19 12/31/19 12/31/19 12/31/19 12/31/19

Buyer

World Insurance Associates LLC World Insurance Associates LLC Hub International Limited Hub International Limited Relation Insurance Inc. Arthur J. Gallagher & Co. Alera Group Inc. Hub International Limited Integrity Marketing Group LLC Acrisure LLC McDermott-Costa Co. Inc. USI Holdings Corporation Alera Group Inc. Inszone Insurance Services Inc. PointeNorth Insurance Group LLC Risk Strategies Co. LLC Cross Insurance Acrisure LLC USI Holdings Corporation Johnson Financial Group Inc. Hilb Group LLC Risk Strategies Co. LLC Hub International Limited AmWINS Group Aon Corporation Integrity Marketing Group LLC MRI Software LLC Digital Insurance Inc. AssuredPartners Inc. AssuredPartners Inc. Northwest Bank AssuredPartners Inc. Patriot Growth Insurance Services LLC Acrisure LLC Acrisure LLC Acrisure LLC World Insurance Associates LLC Alera Group Inc. Heffernan Insurance Brokers Hilb Group LLC Risk Strategies Co. LLC S&R Insurance LLC Acrisure LLC Alliant Insurance Services Arthur J. Gallagher & Co. Hub International Limited Hub International Limited Worldwide Facilities Inc. Hub International Limited MetLife Inc. Risk Strategies Co. LLC Hub International Limited Risk Strategies Co. LLC Acrisure LLC Baldwin Risk Partners Brown & Brown Inc. Hilb Group LLC Baldwin Risk Partners Inszone Insurance Services Inc. High Street Insurance Partners LLC AssuredPartners Inc. Alera Group Inc. Hilb Group LLC Risk Strategies Co. LLC Risk Strategies Co. LLC Hub International Limited Alera Group Inc. Alera Group Inc.

October 1, 2019 - December 31, 2019 Seller Seller

McMillan Insurance Group Undisclosed insurance broker Stevens-Dell & Associates Insurance Inc. Newsura Insurance Services Inc. S.T. Good Insurance Inc. The EHE Group LLC dba BonusDrive HR inTune Marine book of business North American Senior Benefits LLC Undisclosed Insurance Agency A.B. Stevenson Co. Insurance Brokerage Alfred J. Davis Co. Inc. Capital Region Benefits Jones-Wilson Insurance & Investments Inc. Berger & O'Neal Insurance/Holmes-Shaw Zito Insurance Agency Inc. Fair & Yeager Insurance Agency Inc. Undisclosed Insurance Agency Marcotte Insurance Agency Inc. Financial Life Cycles Inc. Employee Benefit Advisors Of The Carolinas LLC Thomas Mcgee L.C. JW Retirement Group Book of business CoverWallet Inc. Senior Solutions Multifamily Insurance Partners LLC Ohio Benefits and Insurance Group Mack Mack & Waltz Insurance Group Inc. Star & Shield Insurance Services LLC Sundahl & Co. Inc. Surety Insurance Solutions Inc. Shapiro Insurance Group Inc. Undisclosed insurance agency Undisclosed insurance agency Undisclosed Insurance agency Dunhour Agency Inc. West Texas Insurance Exchange Inc Henderson Insurance Agency Wickford Insurance Agency Inc. Weaver Bros. Insurance Associates Inc. Three insurance agencies Cornerstone Insurance Agency Buck & Affiliates Insurance Inc. Pacific Northwest Marine book of business Hamman Miller Beauchamp Deeble Inc. SilverStone Group Inc. Risk Management Advisory Group Blair Jarcik Insurance Agency Inc PetFirst Healthcare LLC. Gowrie Holdings Inc. Book of business Gowrie Barden & Brett Inc./Maritime Program Group Inc. Undisclosed Insurance Agency Highland Risk Services LLC All of the assets of Insurance Management Group Inc. Kerr-Boswell Inc. All assets of Lanier Upshaw Inc. James Swiniuch Agency Inc. InPro Insurance Group Inc. First Service Insurance Agents & Brokers Inc. Sylvia & Co. Insurance Agency Inc. Undisclosed insurance agency Undisclosed Insurance Agency Transport Risk Management Cranbrook Bloomfield Insurance Agency AMCORP Inc. Undisclosed Insurance Agency

Source: S&P Global Market Intelligence, Insurance Journal, other publicly available sources and MarshBerry proprietary databases Disclosure: All deal count metrics are inclusive of completed deals with U.S. targets only.

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Idea Exchange: Ask the Insurance Recruiter 3-Part Hiring Plan During COVID-19

y recruiting career began 18 months before The Great Recession, so to say I’m seeing similarities between then and the current COVID-19 situation is an understatement. I remember the anxiety and uncertainty about the future. Would insurance agencies ever hire again? They slowed down claims, marketing and service hires but no one turned down a producer referral. In that realization I saw opportunity and light breaking through the darkness. From the ashes we built our agency division and moved to the forefront of producer recruiting. My company wouldn’t be where it is today if not for this storm. So, as you’re reading this — insurance agency owner and human resources leader — know that same opportunity exists for you. Even during the coronavirus, your hiring can prosper. You cannot and should not abandon your 2020 recruiting plans. Simply readjust and refine them to fit short and long-term plans. Here’s how.

Triage Current Openings

Coronavirus did not eliminate all your hiring needs. “What do I need to do right now?” is the question you want to ask over the next 30-60 days. I recommend compartmentalizing jobs based on urgency. 1. Refresh all current postings. People will have more time to search job openings online while they work from home. Expect an influx of applications within the next 30 days.

2. Convert applications to interviews within 24 hours. This isn’t the norm.

Before, you may have waited a week

to review resumes. Don’t create delays early in your process because there will certainly be unusual ones coming now in this season. An immediate turnaround on applications quickens your process.

3. Eliminate unnecessary interviews.

Forget about marathon interviews and office tours. Make hires after one to two phone and Skype sessions. If a face-to-face is absolutely required, be stringent on the number of hiring managers you invite, how much travel is truly needed and if you can replace on-site visits with marketing materials like a 360-degree video tour.

Manage Your Database

efficient with candidate engagement. Use questionnaires to enhance first round interviews. Send a benefits package before the second By Mary Newgard interview no matter if it is video or in-person. Give employees instructions on how to share posts about job openings on social media. Set reminders to follow up with declined candidates three and six months from now to keep in touch about future opportunities.

Think About Long-Term Opportunities

Will you allow your producers to stop prospecting because of COVID-19? Certainly not. The same theology applies with recruiting. If you put candidates on a shelf, they will collect dust and become outdated. I recommend finding ways to maintain an active pipeline. 1. Build a producer recruiting plan. This is your #1 opportunity hire with the greatest impact on revenue and profitability. The Three Ps of Producer Recruiting are: Profile, Pitch and Pay. If you’re not sure where to start, contact me. I will help.

People are scared. Being an “Employer of Choice” means offering comforting solutions to current and prospective employees.

views on hold, however, doing so jeopardizes your position with a job seeker. Treat a two to four day delay the same way you do the period between when a candidate accepts an offer and starts. Stay in weekly communication between first, second and third interviews. 3. Automate. You need to become more

2. Build pipelines for future hires.

2. Cancelled interviews do not mean the end. You’ll have to place some inter-

1. Pay attention to retention.

Instability, money and career progression are the top three reasons employees resign. Retention suffers when you are not forthright with what’s happening in the business. a. Be transparent. b. Set up virtual meetings weekly for updates on how the company is doing. c. Don’t cancel annual reviews or opportunities to discuss advancement. Three and a half months is the average length of time it takes an insurance agency to fill a job in the $75,000 to $125,000 salary range; it’s four-plus months to hire producers and positions over $150,000. What would you have hired between July-December 2020? Start working on those searches now. A recruiter is your best friend in pipeline building; they have capacity to work on long-tail searches.

Newgard is partner and senior search consultant for Capstone Search Group, a national recruiting firm dedicated to the insurance industry. Email: asktherecruiter@ csgrecruiting.com.

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APRIL 6, 2020 INSURANCE JOURNAL | 41

Idea Exchange: The Competitive Advantage

Accounting Matters

and So Does the Balance Sheet

keep seeing agencies that need dramatic improvements to their accounting practices. Many such agencies are small, By Chris Burand but not all. Many are new agencies, although some larger agencies have had shoddy accounting practices for 50 years. Most of the time the accounting problems are unknown to the owners. In other words, the owners do not know their agencyâ&#x20AC;&#x2122;s accounting is poor, and in many cases the situation is so obvious their accountants should be fired. The owners are relying on their accountants and the accountants are failing. I n other cases, the situation is more complex or the owners are ignoring their accountant(s). Sometimes, the owners know their agency has accounting problems or deficiencies, but do not know what to do and no one is pressing them to fix the issues. Whatever the situation and reason, listed below are absolute accounting require42 | INSURANCE JOURNAL | APRIL 6, 2020

ments that are applicable to all agencies. What follows are not suggestions, these are contractual and legal requirements and sometimes, just harsh realities.

No Difference Exists

Large agency accounting rules and small agency accounting rules are the same. Absolutely no difference exists. The rules are the same for every size agency. Many small agency owners find it hard to believe, sometimes they are literally beyond belief, that only one set of accounting rules exists. The playing field is level and only one set of rules applies to agencies of all sizes.

In Trust

Contractually, agencies of all sizes and types must be able to show they are in trust and maintain proper records. Many agency owners feel this point is moot because carriers never check. Carriers may not always check, but whether or not the agency is in trust, is checked when an agency is valued, sold, or applies for a loan (provided the bank knows what they are looking for).

Rules Apply

Trust rules apply equally to all agencies. Every single state and territory always require that agents be in trust. The federal government even regulates this aspect of insurance agency behavior. For too long agents have confused the right to comingle money with the requirement to be in trust. Being in trust is completely different from comingling money.

Trust Law

Few general accountants know anything about insurance agency trust law and contractual trust requirements. You will be doing yourself and your accountant a favor if you explain this to them and ask them to consider these requirements when providing tax advice so that too much money is not withdrawn at year-end.

Balance Sheets

To prove you are in trust, you must have a correct balance sheet. I have had too many small agency owners tell me they do not maintain, understand, or even have a balance sheet because only larger agencies need balance sheets. Every agency needs INSURANCEJOURNAL.COM

a quality balance sheet. I empathize, particularly with small agencies, on this point because: • They don’t always have the accounting background; • They are more susceptible to hiring lesser quality accountants; and • Many of their agency management systems have subpar accounting systems.

Good Balance Sheets Matter

For many agencies, balance sheets do not really matter in good times. I can make the point that balance sheets matter all the time and an agency can make more money and grow faster with good balance sheet management. However, many agency owners will never be interested in using a balance sheet that way, so their balance sheets will only matter when they have a serious problem. A weak plumbing pipe does not matter until it breaks. When things go wrong, particularly at valuation time, or loan time, or working capital shortage time, the balance sheet can make or break an agency. One does not need a heart surgeon often, but when you need one, you want the best one on speed dial. The difference is you can always have a good balance sheet if you manage it correctly.

When Is a Good Balance Sheet Needed? Whenever the agency is valued. The bal-

ance sheet matters a great deal in agency valuations. All good valuations consider the balance sheet. I have had owners who told me they acquired X agencies without ever considering the balance sheets. Many were nearly broke from buying agencies with bad balance sheets they had ignored. Nonetheless, they were still adamant that balance sheets do not matter. To accept that balance sheets matter would be to accept responsibility for their financial problems and that was not going to happen. Bank loans. Many banks do not have a clue how to assess an agency’s balance sheet. A few years ago, I had one banker tell me that his brother-in-law’s agency was worth just as much as the agency down the road because their books of INSURANCEJOURNAL.COM

business were the same size. The differences between the agencies were long and large, but the main difference was that one agency was in trust and the other was not. An agency out of trust does not usually have clear title to their expirations per their carrier contracts. Banks that do not specialize in insurance agency loans almost never understand how to read an insurance agency’s balance sheet. In my experience, the banks that do, do not make loans to agencies that are out of trust or have bad balance sheets. Every agency will be sold. If an agency owner with a bad balance sheet dies before the valuation, they have arguably sinned against their family and employees. Your family and employees will all be going through a tough time and to then subject them to the discovery that the agency is of low value or worthless because the balance sheet is so poor may be unforgivable. Yet I see this scenario happen at least once per year.

Clusters

If you are a cluster member, understand the cluster agreement likely requires the agency to be in trust, too. Some such contracts have special assessment potential, are not written well and the trust money situation is joint and several. In other words, you become responsible for the other members’ trust monies — without limit!

Proper Accounting Methods

To have a proper balance sheet, one must use proper insurance agency accounting methods. Insurance agency accounting is not “normal” relative to other business accounting primarily because of how premiums are billed. With direct bill, excluding audit potential, accounting is fairly straightforward provided one does not ever book premiums as revenues (which I still see happening). The major issues revolve around agency billing policies. The agency is accepting and billing money from a fiduciary trust position. The money is not the agency’s, but they are responsible for it. This is why, historically (though not possible under the new accounting rules

applicable to agencies), agencies could use cash accounting and still have bad debt. In most businesses one cannot have bad debt with cash accounting, but in agencies the bad debt exists because it is related to the money that has to be forwarded to the carrier versus revenue to the agency.

‘Fix your accounting and balance sheets when times are good, before that heart attack.’ Similarly, this is why an agency’s trust ratio is so important as those monies are premiums, not revenues, which some accountants and some agency management systems do not tie together well. One point of this article is purely selfish. I am tired of being the first person to tell an agency owner or a prospective client they have an accounting problem. No one ever likes the first consultant who serves up such bad news. It is preferable to be the third such consultant. I am tired of showing agency owners their agencies are worth far less than they thought or have been told by people who do not understand or neglect agency balance sheets. In reality, the value of the agency is materially less than the owner was hoping. I am tired of being thought of as an idiot and I must be an idiot because I am the only one giving them bad news. I am also tired of so many agency owners getting bad advice when they hire someone who tells them what they want to hear, no matter how wrong it is. Finally, I just like delivering good news more than bad news. Fix your accounting and balance sheets when times are good, before that heart attack. No agencies are ever exceptions to this advice. Yes, I acknowledge accounting can be a boring process, but it is the scorecard of your success. Sooner or later you will need that balance sheet and it will need to be proper and sensical. It is your choice, your livelihood. Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719-4853868. E-mail: chris@burand-associates.com. APRIL 6, 2020 INSURANCE JOURNAL | 43

Idea Exchange: Is It Covered? Logic & Language, Forms & Facts

There’s No Place Like Home … For a Catastrophic Claim Denial

n elderly widow in Kentucky was admitted to a nursing home to recuperate from surgery. During her convalescence, her nonresident By Bill Wilson children visited the home frequently, though no one spent the night there, prepared meals, or otherwise lived in the home. After a few months, the home was totally destroyed by fire. The insurance company denied the claim under the homeowners policy.

44 | INSURANCE JOURNAL | APRIL 6, 2020

A couple in Georgia bought a “fixer upper” home that was being renovated by their contractor son before their occupancy began. During this three to four month period, they stayed in an apartment. Near the end of the renovation, the house suffered a $186,000 fire loss. The insurance company denied the claim under the homeowners policy. Gulf Coast homeowners had temporarily vacated their home while it was being remodeled, though they visited the home almost daily. The home was damaged by Hurricane Gustav to the tune of five figures during the renovation. The insurance

company denied the claim under the homeowners policy. What do these three claim denials have in common? In each case, the denial was based not on an exclusion in the policy, but rather a three-word phrase in a definition referenced from an insuring agreement. Next year marks the 20th year that I have been writing and speaking on this onerous premise for denying an otherwise covered claim. Still, these types of denials continue to this day, especially in New York. When I did the original research on this, I found court cases in Arkansas, Maine, Maryland, Michigan and Texas that upheld

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such denials. In contrast, I also found court cases in Illinois, Kansas, Oregon and South Carolina that refuted the basis for these denials. In some states (e.g., Georgia), I found case law going both ways. So, what is the basis for the denials? With very, very few exceptions, most homeowners policies provide a Coverage A limit on the dwelling on the “residence premises” shown in the homeowners policy Declarations. The term “residence premises” is usually defined to be the dwelling “where ‘you’ reside.” The “where ‘you’ reside” language is what is being cited as the basis of these claim denials. If you do not reside in the dwelling at

The term “residence premises” is usually defined to be the dwelling “where ‘you’ reside.” The “where ‘you’ reside” language is what is being cited as the basis of these claim denials.

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the time of loss, this restrictive interpretation is that you have no coverage for damage to the dwelling. In most cases, you could operate a dynamite factory or a meth lab in the basement of your home and, as long as you live there, you are insured for covered damage to your dwelling. However, if your residency is interrupted, coverage vanishes immediately, even for otherwise covered losses.

Residency Interrupted

How can residency potentially be interrupted? A homeowner could be admitted to a nursing home, have a job relocation, suffer a foreclosure, experience a divorce, transfer ownership to a trust, allow a buyer to move in before closing a sale and/or take possession and move into a home before closing a purchase, move out (or not move in initially) when a home is being renovated, is militarily deployed, and the list goes on. According to authoritative definitions of “residency,” this term means that you live somewhere and anticipate continuing to live there. If someone is temporarily in a nursing home but anticipates returning home at some point, then their dwelling residency has not ended, though I have seen two claim denials attempted under such circumstances, both ultimately paid when the agents argued successfully for coverage. However, if at some point it becomes clear that the nursing home patient will be unable to return home, one interpretation of “where ‘you’ reside” is that coverage on the dwelling ends immediately when that circumstance is clear. I have not seen case law that supports that contention, but I’ve heard it argued by a policy drafter. So, what is the basis FOR coverage when residency ends or never begins? First and foremost, there is extensive case law that exclusions must be conspicuous, plain and clear to be enforceable. In my book “When Words Collide: Resolving Insurance Coverage and Claims Disputes,” I cite several court cases upholding this doctrine. For example, in Ponder v. Blue Cross of Southern California, 145 Cal. App.3d 709 (1983), the court opined, “To be conspicuous, an exclusion must be

positioned in a place and printed in a form which will attract the reader’s attention.” I taught my first homeowners class over 30 years ago and never interpreted this language in such an onerous, exclusionary fashion. Again, the basis for these denials does not involve an exclusion, but rather a phrase within a definition referenced from an insuring agreement. Certainly, it is not clear and conspicuous and easily interpreted as exclusionary. When I did my original research on this, courts that did not uphold this language as exclusionary did so on the premise that “where ‘you’ reside” are words of description, not a warranty of continuing occupancy. This phrase did not exist in the 1976 ISO homeowners forms. It was added in the 1984 edition, but the regulatory filing made no such reference of any change in original intent as far as I can read. From the standpoint of logic and reason consider this. Under ISO eligibility rules, a home under construction can be insured on a homeowners form. Needless to say, no one resides at a home under construction, so based on this limiting residency interpretation, you would be purchasing a homeowners form that doesn’t cover anything until occupancy takes place. That is completely illogical and, in fact, not reality. The good news is that there are workable solutions to this issue. The best is an insurer who has eliminated the “where ‘you’ reside” language, making residency an eligibility, not coverage, issue. Next would be a series of endorsements introduced by ISO for owner-occupied dwellings, condos, and mobile homes in an effort to remedy the problem. If you would like to dig deeper into this subject, the Independent Insurance Agents & Brokers of America have a resource page at http://tinyurl.com/WhereYouReside. Tune in next month when we explore how a claim might be rightfully denied under one part of a policy, but covered elsewhere in the policy. All you have to do is RTFP! Wilson, CPCU, ARM, AIM is the founder and CEO of InsuranceCommentary.com and the author of the book “When Words Collide: Resolving Insurance Coverage and Claims Disputes.” APRIL 6, 2020 INSURANCE JOURNAL | 45

Idea Exchange: Crisis Management

Insurance Is Not

A Company’s Primary Line of Defense in a Crisis “

magine your company having a Halloween party: Employees show up wearing costumes mocking your customers, says By Sean Murphy and the chief executive of a New York commercial insurance brokerage we recently interviewed. “Now imagine what happens when pictures of the party go public.” That happened George R. Speckart to a New York law firm, Steven J. Baum P.C., which handled foreclosure-related legal work. After The New York Times published the Halloween photos with a story, Freddie Mac and Fannie Mae forbade servicers of their mortgages from using the firm. Soon after, it went out of business, costing 89 people their jobs. The lesson, according to the commercial insurance brokerage executive we spoke

46 | INSURANCE JOURNAL | APRIL 6, 2020

with: “Instituting and following good business and hiring practices and talking to and educating your employees is the best risk management. Insurance is secondary. A business owner should never say, ‘I can rely on insurance as my primary line of defense.’"

Crisis is the New Normal

These days, all companies are in a state of pre-crisis. That’s because they’re under intense scrutiny from customers, regulators and others, who have a ready platform to air their grievances through social media. Consider how social media mobs move from one platform to another — posting, texting, messaging and blogging multiple times a day. Compounding the challenge of any crisis for business owners is the public’s lack of empathy for executives and corporations. Trust in institutions is at an all-time low and the reasons and results abound. For example, Wells Fargo opened millions of fake customer accounts, resulting in fines, lawsuits and a significantly damaged reputation. A California jury awarded $29

million in damages to a woman last year who claimed the asbestos in Johnson & Johnson talcum powder gave her cancer. WeWork’s IPO blew up last fall, in part over concerns about corporate governance and former CEO Adam Neuman’s business practices, including a provision in the original S-1 stating that if he died, his wife would appoint his successor. Before its anticipated IPO, WeWork’s valuation was $50 billion. After shelving the IPO, the company’s largest investor, SoftBank, valued the company at $7.8 billion.

At Risk, All the Time

Regardless of company size, corporate officers have a responsibility to shareholders, customers and employees related to crisis preparedness, which is an essential risk management function. Many crises lead to lawsuits or regulatory action, which require additional resources to manage and can threaten a company’s reputation over the long-term as the litigation unfolds and potentially damaging information is revealed over time. Brokers can add value by encouraging their clients to prepare for a crisis in order to protect their reputation, brand and valuation. After all, a client who invests in crisis preparedness also becomes easier to insure.

Kicking Off Crisis Conversations

Brokers and agents don’t have to be the

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experts or give guidance on how to manage a crisis. Rather, they can be the catalyst for a client to seek out experts in risk management and crisis communications. Here’s how to kickstart the discussion with clients: Relate your experience. “Tell them the war stories,” advises one commercial insurance agent. “If a client says, ‘We have crisis and risk covered,’ I tell them without divulging specifics and names what happened in a crisis with a client of mine who thought the same and didn’t prepare; I tell them they’re the beneficiary of this lesson.” Ask questions. Brokers and agents can link how the outcome of a mismanaged crisis can negatively affect a company’s valuation and reputation. Once a business owner expresses interest, ask questions to test their level of preparedness: • If a crisis, like a data breach, were to occur at your business, what preparations has your company made to communicate with important stakeholders, including customers, employees and shareholders? • Who would speak for your company and does that person come across as authentic and able to connect with your stakeholders? While there are cyber liability policies that include the services of public relations and security teams to help a policyholder, the business owner still needs someone in the organization who can manage and lead the crisis response. Sometimes that’s the CEO; sometimes not. • Have you established unassailable operating standards that are in sync with current social values? In a crisis, people want to know what you stand for and how you reinforce those standards. • Have you thought through potential crisis scenarios and prepared preliminary materials so that you’re in a better position to respond if an event occurs? Provide a checklist. Insurance professionals can also encourage clients to construct a crisis response checklist, to include: • Establish a crisis team: Designate a crisis leader and team that represents key INSURANCEJOURNAL.COM

• •

operational areas to undertake the planning and response. The team should include spokespeople who are properly trained, know the business and are cogent, concise communicators. Conduct crisis planning: Brainstorm specific crisis scenarios that could affect your business and, for each, construct a compelling response. Crises typically elicit emotional or even irrational responses from those affected. The right narrative breaks through all of the noise while addressing the needs of key stakeholders and delivers on their desire for a just outcome. Practice the company’s crisis response: Particularly in today’s social media environment, an organization’s first response will determine the course of the crisis. Companies that don’t practice their crisis response can find themselves in chaos, trying to gather facts, assemble the right team and figure out a response without any guidance

whatsoever. Whether it’s through table top exercises or role-playing drills, conduct simulations and rehearse at least once per year.

The underlying message for all insureds is that preparation is key because the narrative a company communicates in a crisis will determine its fate. Many companies get it wrong by either not talking or giving a “common sense” response that explains their viewpoint and seeks validation. A more effective approach is to listen and address the real concerns of stakeholders. The online mobs that typically fuel a crisis are seeking justice. A company’s response must show how it will address the root of the issue and the tangible steps it is taking to ensure it won’t happen again. Murphy co-leads the crisis and litigation communications practice for Texas-based Courtroom Sciences Inc. and Speckart is the firm’s Director of Research and Consulting.

STABILITY & CLAIMS EXPERTISE SINCE 1960 Our Exceptional Human and Social Service Programs are written with A+ Rated carriers, Berkshire Hathaway & Chubb. Contact us at 800.622.8272 siegelagency.com

APRIL 6, 2020 INSURANCE JOURNAL | 47

My New Markets Truckers Physical Damage

Contact: Christopher

Acosta info@gapsinsurance.com 646-383-7767

Market Detail: Rocklake

Insurance Group (www. rocklakeig.com) offers multiple carriers for physical damage needs. It offers broad and limited forms with flexible options to choose which coverage fits the insureds’ needs. Producers can quote up to $2 million TIV on proprietary rating systems in order to receive instant rate indications from many different carriers with a single submission. Available limits: As needed Carrier: Various, admitted and non-admitted available States: All states Contact: Derek Froidl at 800-716-2559 or e-mail: derek.froidl@rlig.com

Cannabis, CBD and Vape Shop Program

Market Detail: Blue River Underwriters (www.blueriveruw.com) has strategically expanded its commercial coverage to include the fast-growing cannabis and cannabidiol (CBD) industries. And not just growing the in the literal sense, our coverage spans the related testing, processing, manufacturing, warehousing, dispensing and retailing of these diverse products for a variety of uses. With our roots firmly established in smoke and vape shop program insurance, our underwriters are experienced in the nuances of insurance coverage for complex and multifaceted businesses. The same steadfast and informed approach has been taken with our cannabis, dispensaries, and hemp and cannabidiol coverages. We’ve partnered with AM Best Rated A and A+ carriers who are equally committed to industry-leading standards in support of pioneering agents and their insureds. Available limits: As needed Carrier: Unable to disclose, admitted and non-admitted available States: All states Contact: Blue River Marketing at 312-521-8971 or e-mail: success@ blueriveruw.com 48 | INSURANCE JOURNAL | APRIL 6, 2020

Workers’ Compensation for Contractors

Construction

Market Detail: Gaps Insurance Services' (www.gapsinsurance.com) program Construction Coverage NYC is designed for insurance agents and brokers in the New York City construction industry. Today, there is only a handful of insurance carriers that offer construction insurance services in New York. Traditionally due to cost and other limitation factors carriers in this market are difficult to access for many independent agencies. Now through a diverse carrier portfolio, agents and brokers can access products that can offer better customer care, access to appropriate levels of coverage, and competitive premiums. Construction insurance coverage includes, but is not limited to: business insurance; commercial automobile; commercial construction (new construction and renovation; commercial real estate; contractor insurance (artisan contractor, general contractor, HVAC contractor, specialty contractor, specialty contractor, subcontractor, other); cyber liability insurance; environmental; excess casualty insurance; general liability; homeowners insurance; middle market construction; New York construction; residential construction (new construction and renovation); primary casualty insurance; professional liability; specialty construction; specialty excess; and workers compensation. Available limits: As needed Carrier: Various, admitted and non-admitted available States: Conn., Fla., N.J., N.Y., and Pa.

Market Detail: SIS Insure Wholesale Insurance Services (www.sisinsure. com) has an exclusive Workers’ Compensation program available in 42 states for 37 different contractor class codes. New ventures and lapses in coverage are acceptable. Owner only policies available starting at Available limits: Minimum $650 Carrier: Nova Casualty States: All states except Alaska, Fla., Hawaii, N.D., N.Y., Ohio, Wash., and Wyo. Contact: Jenny Hammond at 760-8057619 or e-mail: jenniferh@sisinsure.com

Workers' Compensation

Market Detail: Arrow Brokers (www. arrowbrokers.com) is an alternative market provider for workers comp. Programs include: monthly self-reporting; startup staffing; PEO and payroll service. Submission requirements include: Acord 130; three-years loss history (currently valued); loss history affidavit for accounts with lapse in coverage or no prior; explanation of claims over $25,000. Available limits: As needed Carrier: Unable to disclose States: All states Contact: Tim Knight at 865-481-5071 or e-mail: tim.knight@arrowbrokers.com

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Advertisers Index

April 6, 2020

National Fire and Indemnity Exchange 6030 Bancroft Avenue St. Louis, MO 63109

Freedom Specialty Insurance Company One West Nationwide Blvd. Columbus, OH 43215-2220

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.

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 021186200, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.

April 6, 2020

National Casualty Company One West Nationwide Blvd. Columbus, OH 43215-2220

21st Century Premier Insurance Company 2595 Interstate Drive, Suite 103 Harrisburg, PA 17110

Scottsdale Indemnity Company One West Nationwide Blvd. Columbus, OH 43215-2220

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.

April 6, 2020

Lasso Healthcare Insurance Company 1999 Bryan Street, Suite 900 Dallas, TX 75201

The General Automobile Insurance Company, Inc. 2636 Elm Hill Pike Nashville, TN 37214

Benchmark Insurance Company 150 Lake Street West Wayzata, MN 55391

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.

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

AIG www.aig.com/business 11 Applied Underwriters www.auw.com 2, 3, 52 EZLynx www.ezlynx.com 17 The Hartford Insurance Group www.thehartford.com 7, 9 Irwin Siegel Agency www.siegelagency.com 47 M.J. Hall & Company www.mjhallandcompany.com W1 Nationwide Mutual www.nationwide.com 29 PersonalUmbrella.Com www.personalumbrella.com 4, 5 Regions Bank www.regions.com 13 St. Johns Insurance Company www.stjohnsinsurance.com S1

INSURANCEJOURNAL.COM

APRIL 6, 2020 INSURANCE JOURNAL | 49

Closing Quote 5 Tips to Help Small Business Clients Assess & Manage Cyber Risks

gents and brokers looking to expand their relationships with small and mid-sized businesses might try ramping up efforts to help them understand and By Han Wang manage enterprise threats, such as cyber exposures. While hacking incidents, ransomware and other cyber-related attacks are serious risks for all businesses, they can be devastating to small and mid-sized accounts that forgo needed protection. When discussing cyber risk with SME clients and prospects, simplicity is key. It’s better to focus on a couple of easily graspable concepts than make the issue appear so complex owners and managers incorrectly conclude it’s beyond their ability to address. Here are five tips for agents to simplify cyber risk discussions with small commercial accounts and deliver value in helping them manage this enterprise exposure.

1. Let them know how to spot their most significant potential cyber-vulnerabilities. Whether it involves

ransomware, malicious code or computer viruses, most of these problems result when someone opens a questionable email attachment, falls for a phishing scam, or visits prob-

lem websites. The common theme in these attacks is careless employees. Creating a culture that recognizes the seriousness around cybersecurity can go a long way.

2. Help SME clients understand what constitutes safe policies and procedures. In

most cases, small businesses won’t need sophisticated IT capabilities to establish and maintain safe practices for preventing cyber incidents. They can start by having all employees establish strong passwords auto-generated via password managers; limit access to any financial systems exclusively to your authorized finance and accounting team members; establish procedures for portable devices and working from home; enforce secondary authentication with all account payables; and make sure automatic updates are enabled on all computers.

3. Explain the value of making sure cyber-risk management practices are strictly followed by all employees and associates.

Be sure your SME clients not only frequently communicate their cyber-risk management policies and practices to their employees, but that they make sure employees take ownership of these measures. Employees need to realize cyber security is a shared responsibility and any lack of compliance may have a materially negative impact on their compensation, growth opportunities and even con-

50 | INSURANCE JOURNAL | APRIL 6, 2020

tinued employment. Training can be used to expand the employees’ understanding of the company’s protocols, and assessments such as phishing simulation can be used in conjunction to drive procedures home. Finally, the weakest link breaks the chain so all training should be extended to any part-time employees, interns, and any other workers who will be accessing the company’s email and computer systems.

4. Make sure clients communicate their cyber risk policies to all suppliers. In all

likelihood, any of your clients’ customers that use a client’s online resources will want assurances about cyber security and protection. At the same time, your SME clients should be encouraged to ask about – and be aware of - the cyber-security policies and practices of their trading partners, vendors and suppliers with which they share online data, tools, resources or conduct financial transactions. Often, even firms with strong internal cyber risk practices may be vulnerable if suppliers don’t follow equally robust protocols and enforce them. This can also place them at a competitive advantage, as a better cybersecurity program can be the tiebreaker with all other factors being equal.

5. Position cyber insurance as a critical backstop and resource. After reviewing

with your SME prospect or client the fundamental aspects of understanding and assessing potential cyber-risk vulnerabilities and exposures, you’ll be in position to have a productive discussion about cyber insurance. Besides showing clients its value as a critical source of financial protection, don’t overlook bringing up the added value provided by many cyber insurance companies that offer helpful cyber vulnerability analysis and cyber security software to insureds. The bottom line for small businesses is that countering the most significant cyber threats often comes down to implementing a handful of fundamental safeguards that may not require the involvement of an IT professional. Furthermore, by adhering to these basic cyber risk best practices, SMEs may also qualify for more affordable cyber-insurance that provides critical financial protection. At the same time, agents and brokers who help clients solve this challenging hazard stand to benefit from any insurance policy placements that result, not to mention client faith and trust. Wang is co-founder and CEO of Paladin Cyber. He is also a Captain in the U.S. Army Reserves Cyber Operations Group. Email: han.wang@ meetpaladin.com. INSURANCEJOURNAL.COM

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