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June 15, 2020 • Vol. 98 No. 12

Contents

Idea Exchange

Special Report

News & Markets

Autonomous Car Makers at Odds With Insurance Industry Study

The Competitive Advantage: How COVID-19 Will Change Insurance Sales

Special Report: How Construction Companies Can Make the Most of Technology Advancements

The Wedge: It Takes a Crisis to Make You Change Your Game

Court Lockdowns From COVID-19 May Turn the Social Inflation Tide

Closer Look: Umbrella or Excess Liability: What’s the Difference?

38 Spotlight:

The Debate Between Business Owners, Insurers Over BI Claims Continues

Departments 8 Opening Note 6 | INSURANCE JOURNAL | JUNE 15, 2020

12 Declarations

Special Report: Building a PostPandemic Construction Market

12 Figures

18 Business Moves

Ask the Insurance Recruiter: Producer Recruiting and Retention Is the Same Issue for Agencies

Minding Your Business: What’s New Today in Producer Compensation?

Closing Quote: Triple Threats of Changes

22 People

27 My New Markets

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FLEXIBLE&STRONG

E&S is at the heart of what we do, from adapting to meet the unique needs of our partners and their clients, to our unsurpassed financial strength and stability. Let us show how we can put the very best of E&S together for you. nationwide.com/bESt E&S/Specialty | AM Best rating of A+ (Superior), FSC XV | Fortune 100 company Nationwide and the Nationwide N and Eagle are service marks of Nationwide Mutual Insurance Company. ÂŠ 2020 Nationwide ESC-0269AO (05/20)

Opening Note Write the Editor: awells@insurancejournal.com

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

ADMINISTRATION / CIRCULATION

Social Networks May Not Help in Disasters

ow social networks function in states of emergency could pose more risk than help, according to a new study. Hirokazu Shirado, an assistant professor in Carnegie Mellon University’s Human-Computer Interaction Institute, conducted experiments to show that social networks, such as neighbors, work groups and extended families, would improve decision-making by giving people actionable information. That wasn’t the finding, however. “What we found is that social networks make things worse,” said Shirado, who began the research while a member of the Human Nature Lab at Yale University. Instead, the study concluded that when faced with a common peril, people delay making decisions that might save lives, fail to alert each other to danger and spread misinformation. A paper on their work was published in the Proceedings of the Royal Society A. Gathering data about social networks in the midst of a crisis is difficult, so Shirado devised a game in which online participants had an economic stake in making a decision whether to evacuate in the face of danger. He recruited 2,480 subjects and organized them into 108 groups, comparing how networked groups and isolated individuals compared in their decision making. Participants received $2 at the outset of the 75-second experiment. If nothing happened, they could keep the $2 at the end. But if there was an impending disaster, they could leave the game and retain $1. If they failed to evacuate and disaster struck, they lost everything. They also received 10 cents for every other player who made a correct decision on whether to leave the game. The participants thus had every incentive to choose correctly and were encouraged to communicate with each other. One member of each social network group also received the correct information about impending danger. Compared with the isolated individuals, the networked players consistently tended to resist evacuation, regardless of whether the danger was real or not. Communication didn’t improve decision-making so much as delayed it, Shirado said. The networked players also generated misinformation, even though nobody had an incentive to do so. One of the problems, he said, is that players didn’t realize that they often used different strategies. A player who accepts “no news is good news,” for instance, might think that all is safe simply because he hasn’t heard anything. He might then send “safe” signals to other members of the group even though danger lurked. In other cases, players might be unable to learn the truth because the players adjacent to them all had bad information. Social media — one type of social network — was not included in the study, but might actually improve performance, Shirado said. Though individuals tend to follow like-minded people on social media, it’s also easy to connect with others who might fall outside normal social networks, providing a way around some of the barriers that form within networks.

‘What we found is that social networks make things worse.’

Andrea Wells Editor-in-Chief 8 | INSURANCE JOURNAL | JUNE 15, 2020

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

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: Lyndsey Christofer, Robyn Hahn Columnists: Chris Burand, Mary Newgard, Catherine Oak, Bill Schoeffler, Randy Schwantz

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 Web Developer James Wagoner | jwagoner@wellsmedia.com New Media Producer Bobbie Dodge | bdodge@insurancejournal.com

ACADEMY OF INSURANCE

Director Patrick Wraight | pwraight@ijacademy.com Online Training Coordinator George Jack | gjack@ijacademy.com

SUBSCRIPTIONS:

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News & Markets Autonomous Car Makers at Odds With Insurance Industry Study Claiming Low Estimate of Crashes

The insurance study says one-third of crashes might be prevented while the self-driving car makers say it’s more than double that. By Tina Bellon

ompanies working on self-driving vehicles have criticized an insurance industry study suggesting that only a third of all U.S. road crashes could be prevented by driverless cars, arguing that the study has underestimated the technology’s capabilities. The study by the Insurance Institute for Highway Safety (IIHS), released earlier this month, analyzed 5,000 U.S. crashes and concluded that likely only those caused by driver perception errors and incapacitation could be prevented by self-driving cars. The autonomous vehicle industry quickly responded that its cars were programmed to prevent a vastly higher number of potential crash causes, includ10 | INSURANCE JOURNAL | JUNE 15, 2020

ing more complex errors caused by drivers making inadequate or incorrect evasive maneuvers. Taking those design choices into account, autonomous vehicles could avoid some 72% of crashes, said Partners for Automated Vehicle Education, a consortium of self-driving technology companies. The group in a blog post said it was “fundamentally speculative” to determine crash avoidance rates. Nevertheless, companies developing self-driving cars for years have touted their ability to vastly reduce crashes, with some, like General Motors Co, calling them a key part in achieving “zero crashes.” The Alliance for Automotive Innovation, an auto industry group, in a statement said that even reducing traffic fatalities by a

third would be something to be proud of, but that its members aim to do more. Jack Weast, vice president of autonomous vehicle standards at Intel Corp.’s Mobileye, in an interview, said the auto industry was assembling a vast list of likely road scenarios and human behavior that every driverless car should be able to navigate safely. Government agencies and insurance companies are part of that process, Weast said. “Crashes will never be zero until we have no more human drivers on the road,” he said. “But (self-driving cars) can combine physical laws with behavioral studies and do much more than a human driver.”

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Figures

6 The number of defendants who have pleaded guilty in a case involving staged accidents between automobiles and tractor-trailers in New Orleans. The sixth, Mario Solomon, 48, a entered a guilty plea on May 28. Five of his co-conspirators previously pleaded guilty in January to their participation in the scheme to stage automobile accidents in the New Orleans area in an attempt to defraud insurance and trucking companies.

50% The decrease in the number of traffic crashes in Florida in April compared to the same time last year, according data from the Florida Department of Highway Safety and Motor Vehicles. Rush hour traffic has dipped with residents working from home and running fewer errands, and fewer drunk drivers have been on the road.

Declarations COVID-19 Lawsuit Protection

“We’re trying to protect our businesses and let them open.” — Rep. Thomas Pressly of Shreveport, Louisiana, sponsor of one of four bills passed by the state’s legislature that give protections from most lawsuits for coronavirus deaths and injuries to businesses that never closed during the outbreak and those that are newly reopening. The four bills authored by Republican lawmakers were sent to Gov. Bel Edwards on June 1, but it was uncertain whether he would sign them.

12 | INSURANCE JOURNAL | JUNE 15, 2020

Michigan Auto Insurance Refunds

“Michiganders have been staying safe and staying home and they should see the benefit in reduced auto insurance rates during the COVID-19 pandemic.” — Gov. Gretchen Whitmer's thoughts on an order issued by Michigan Department of Insurance and Financial Services requiring auto insurers to issue refunds or premium waivers to policyholders due to reduced driving brought on by the stay at home orders related to COVID-19. The order set a deadline of June 10 for insurers to submit filings that include the refund or premium waiver amount, information on how that amount was determined and how consumers will receive payments.

Protecting Workers

“Workers servicing or maintaining machines are at risk of serious injury, including amputations, if hazardous energy is not properly controlled.” — OSHA Marlton Area Office Director Paula DixonRoderick said in a U.S. Department of Labor press release announcing that its Occupational Safety and Health Administration (OSHA) has cited BWay Corp., doing business as Mauser Packaging Solutions, for workplace safety and health hazards after an employee suffered an amputation on Sept. 26, 2019, at the Lawrence Township, N.J., facility.

INSURANCEJOURNAL.COM

$1 MILLION The amount each that two companies have paid after having pled guilty to causing a chlorine gas leak over Atchison, Kansas, in 2106. Harcros Chemicals Inc. and MGP Ingredients Inc., pleaded guilty to negligently violating the Clean Air Act over an event that released a greenish-yellow chlorine gas cloud over Atchison when 4,000 gallons of sulfuric acid were mistakenly combined with 5,800 gallons of sodium hypochlorite at MGP’s plant.

6.8 The Massachusetts Division of Insurance has approved a 6.8% reduction in the existing overall average workers’ compensation insurance rates for policies effective on and after July 1, 2020. The rate decrease was the result of a compromise reached by the State Rating Bureau, the Workers’ Compensation Rating and Inspection Bureau of Massachusetts (WCRIB) and the Attorney General’s Office.

Responsible Truth

“Every company has a responsibility to be truthful to consumers. You can’t deceive them, you can’t make misrepresentations.” — Arizona Attorney General Mark Brnovich has filed a lawsuit against Google alleging the company kept tabs on the whereabouts of its users even if they had turned off location tracking. The suit alleges Google violated the Arizona Consumer Fraud Act and it seeks to claw back profits from the tracking.

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Significant Loss Event

“We expect this to be a significant loss event as the impact is being experienced in large and small markets across the U.S. … However, because it is an ongoing event, it is premature to determine the volume of property loss that will be incurred.” — Insurance Information Institute spokesman Mark Friedlander comments on the potential impact on property loss resulting from the violent civil unrest that followed peaceful protests mourning the death of George Floyd in Minneapolis. Destruction and looting that erupted after Floyd’s death was reported in at least 25 cities and some suburbs.

Economic Hit

“There is an economic hit when a hurricane comes through. … Some assets won’t be worth turning back on.” — With the hurricane season beginning on June 1 and Tropical Storm Cristobal expected to enter the Gulf of Mexico on June 4, William Turner, a vice president at research and consultancy Welligence Energy Analytics, said that for smaller oil and gas producers strained by low prices a bad storm may be the last straw. Restarting offshore production that shut in anticipation of Cristobal’s advance may take longer and prove more costly because of COVID-19, many experts said.

JUNE 15, 2020 INSURANCE JOURNAL | 13

News & Markets Court Lockdowns From COVID-19 May Turn the Social Inflation Tide

By Susanne Sclafane

efense attorney Ellen Greiper reported receiving more than the usual number of phone calls from plaintiffs attorneys last month, suggesting that the call dynamics could be signaling a COVID-driven change in social inflation trends. “I have had a flurry of phone calls, I would say in the last two weeks, from plaintiffs who are now willing to take that [settlement] amount I had offered before,” said Greiper, a partner with Lewis Brisbois, Brisgaard & Smith, during a webinar presented by insurance analytics and research firm Advisen in mid-May. The attorney, who is a member of the law firm’s construction practice, was responding to a question from Jim Blinn, executive vice president of client solutions at Advisen and the event moderator, about the impact of COVID-19 on inflationary litigation trends that impacted commercial insurance carrier results in recent years. 14 | INSURANCE JOURNAL | JUNE 15, 2020

“I am seeing a change due to COVID,” she said, speculating that court closures necessitated by COVID-19 shutdown—and uncertainty about when they would reopen—were factors behind the shifting legal environment. “In the last couple of weeks, we have started to see courts open. Federal courts and certain state courts are allowing filings. But we still are, for the most part, closed and working remotely,” said Greiper, who works in New York. “I have been told off the record by persons in the high seats in the courts that we will not be seeing jury trials until 2021 at best,” she said. She said that the plaintiffs who were not calling her back before the lockdowns are now calling. “Those plaintiffs are realizing that they are not going to get a trial for at least two years, no matter what status their case may be and whether it’s discovery or past that. So now they are coming out of the woodwork,” she said. “They are starting to realize that when we all come back and the jurors don’t

have jobs or they’ve been furloughed, they’re not getting $10 million on a cervical fusion. They may realize that’s a ridiculous amount of money,” she said, alluding to earlier observations that she and other webinar participants had made suggesting that jurors who had been contributing to rising judgments amounts pre-COVID were doing so, in part, because they were “desensitized” to the value of money. Greiper spoke as courts in some states starting reopening “on an extremely, extremely limited basis,” and a few days before Law360.com reported that New York would allow new lawsuits to be electronically filed statewide, and the physical return of judges and staff to upstate courts, while downstate courts continued to conduct business remotely. “Even depositions are now being held remotely….It’s a very interesting process to try to mark exhibits and speak to your client who’s not sitting next to you. It’s actually on another video. So it’s all new,

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News & Markets continued from page 14 it’s all interesting, and it’s just starting to happen. Because it’s taking so long, I expect cases will take longer to come to fruition,” she said.

Physical Restrictions

Co-panelist James Dorion, head of liability claims consulting and carrier relations for Willis Towers Watson, thought aloud about the physical restrictions that would delay trials in many locations. “When you think about what it takes for an actual trial to happen, the jury crammed into fairly tight spaces, you have exhibits being passed around —it just doesn’t lend itself to a COVID-safe environment at all,” he said. Offering a broad national view of COVID impacts, he said “law firm economics are a tricky thing” — and potentially having an impact on plaintiffs lawyers activity across the U.S. “Sometimes even a very successful plaintiff’s firm can have cash flow issues,” he said, speculating that a bigger factor is “the actual clients” — the plaintiffs themselves being “much more open to accepting offers.” “I’ve heard almost across the board from claim leaders at major insurance markets saying that they’re seeing opportunities and looking to capitalize on them where they can settle things more advantageously than they would’ve been able to a couple quarters ago,” Dorion reported. Michael Gorlin, technical director and head of liability underwriting at Zurich North America, agreed with the assessment. “We’re arguably in a recession, and I’m not sure there’s a lot of indicators that there’s going to be a speedy recovery. So when your options 16 | INSURANCE JOURNAL | JUNE 15, 2020

are to settle or to go to trial, and you know that the trial may be extended by quite a bit and then the other end, you may have cash flow problems, [then] settlement becomes more appealing, I think, to some of those dynamics," Gorlin said. “It’s too early to tell, but it seems like some of those dynamics would play out.” “It’s the plaintiffs themselves who may be out of a job now, or may be losing money that want to settle,” Greiper said in concurrence.

Truth or Myth?

The Advisen webinar was titled “Social Inflation: Truth or Fiction?” — so Blinn put the question directly to the panelists to get their take on the pre-COVID environment.

‘I’ve heard almost across the board from claim leaders at major insurance markets saying that they’re seeing opportunities and looking to capitalize on them where they can settle things more advantageously than they would’ve been able to a couple quarters ago.’ “I’m in the truth camp. Living it,” said Dorion, reporting that in the past six months, he was involved in a $195 million settlement for an explosion, a $170 million settlement for a trucking accident and an $88 million

settlement for an electrocution. “These are just settlements,” he said. “It’s the verdicts that always get reported, but what that does is it drives a fear through the market and it really drives much much higher settlements than you would ever think,” he said. Truth or Fiction? “It’s absolute truth. I see it in the trenches. I see it happening. I’d be curious to see what happens post COVID-19. Living it too,” said Greiper. Zurich NA’s Gorlin said: “I would highly encourage anybody who thinks it’s fiction to send me a note and let me know their rationale because I would love to listen to it. Based on any single data point and trends that we see, it’s certainly moving in the upward direction.” Blinn presented one such set of data points from Advisen’s large loss data base near the start of the session, after first asking Gorlin to define social inflation. “Social inflation is the name given to recent increases [in] severity that we’re witnessing across several lines of business. There are various factors driving this changing environment. They’re legal, regulatory, as well as really wider social changes in…moral standards and values,” Gorlin said. “While the high-profile well-publicized verdicts are certainly problematic, what’s just as important is the cumulative impact of significant six- and seven-figure settlements that we’re seeing in cases with little demonstrable damage or minimal liability,” he said. “This is happening throughout the tort world,” impacting general liability and excess liability insurance, auto, medical malpractice, employment practices liability and other third-party insurance coverages, he said. Blinn displayed a list of 15 large losses for 2019-2020 coming in over $250 million each, extracting the list from Advisen’s multiyear database of 160,000 liability cases. A list of cases over $100 million would have been unmanageable to present, he said, noting that there are 3,600 of those in the database across all years. Moving past the view of $250 million-plus case results that involved issues related to products liability, truck

continued on page 26 INSURANCEJOURNAL.COM

Business Moves SAN Group Inc. has more than 380 members across eight states. It is the founding master agency of SIAA, a national alliance of independent insurance agencies.

IMA Financial Group, ESS NexTier Insurance Group

East

Alera Group, Georgetown Insurance Services

Alera Group, a national employee benefits, property/casualty, retirement services and wealth management firm, has acquired Georgetown Insurance Service Inc. The Georgetown Insurance team will continue serving clients in their current roles following the acquisition. Headquartered in Silver Spring, Md., Georgetown Insurance has served clients throughout the state and the surrounding region for decades. Georgetown Insurance works closely with the construction, manufacturing, real estate and transportation industries, in addition to providing clients with specialty offerings and enhanced services. With more than 80 firms across the country and nearly 2,000 teammates, Alera Group works together to deliver solutions in employee benefits, property/ casualty, retirement services and wealth management.

World Insurance Associates, Martin & Rowland Insurance

World Insurance Associates LLC has acquired Martin & Rowland Insurance Inc. of Prospect, Conn., on April 1. Established in 1845, Martin & Rowland Insurance Inc. is a full-service, independent insurance agency. 18 | INSURANCE JOURNAL | JUNE 15, 2020

WIA is headquartered in Tinton Falls, N.J., and is a full-service insurance brokerage providing asset and lifestyle protection with risk management, insurance and benefit consulting services for individuals and businesses. Since its founding in 2012, WIA has completed 57 acquisitions and serves its customers from 40 offices in 10 states and Washington, D.C.

SecureRisk Insurance Agency, Satellite Agency Network Group

SecureRisk Insurance Agency has recently joined Satellite Agency Network Group Inc., an alliance of independent insurance agencies in the Northeast. The Burlington, Mass., agency will specialize in small business and offer personal insurance such as home, auto, flood, business, general liability, workers’ compensation and life policies. Jenish Thakkar, owner, is licensed in property and casualty insurance in Massachusetts. She started in 2014 as a producer with Allstate, running the agency and managing its four staff before joining her husband at NY Life Insurance, working as a producer and selling personal and commercial insurance with him for four years. Jenish’ brother-in-law Ajay Thakkar has recently joined the business, moving from Australia with a real estate management and sales background. He is now licensed to sell property and casualty insurance in Massachusetts.

IMA Financial Group, a national insurance brokerage firm specializing in property and casualty insurance, employee benefits and surety bonds, has completed its acquisition of ESS NexTier Insurance Group, a similarly structured practice with four offices throughout Pennsylvania. The acquisition expands IMA’s energy practice. ESS NexTier adds natural gas capabilities to IMA’s existing expertise, including onshore and offshore operations and international exploration. It also establishes a Northeastern presence for IMA, which has its main offices in Colorado, Kansas, Texas and Michigan. ESS NexTier’s 35 current employees and its four locations across Pennsylvania – in Butler, Pittsburgh, and two in Kittanning – will continue operations as IMA | ESS. In the new organization, Charles “Chip” Echnoz will serve as president of IMA | ESS – Pittsburgh, Rick Putnam as senior executive vice president of IMA | ESS and Watson Barker as executive vice president of IMA | ESS.

Midwest

High Street Insurance Partners, Trust Shield Insurance Group, Ken Bleeker Insurance Agency, Gates-Cole Associates Traverse City, Michigan-based High Street Insurance Partners, has acquired three additional agencies — two in Michigan and one in New York. These new agency partners are: Trust Shield Insurance Group in Schoolcraft, Michigan; Ken Bleeker Insurance Agency in Martin, Michigan; and Gates-Cole Associates in New Hartford, New York. Founded in 1993, TSIG operates three

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Business Moves continued from page 18 offices in West Michigan. In addition to individual customers, TSIG has a client base that includes Michigan-based companies in the energy, landscaping, and agriculture industries. Bleeker Insurance provides services to clients statewide and specializes in personal and commercial lines of property and casualty insurance, group and individual health coverages, and individual life insurance. Brian Bleeker, president, will remain in his current role and active in the business. Gates-Cole Associates is a central New York-based insurance agency with nine offices in the greater Syracuse area. The agency sells property/casualty insurance plans to employers and individuals in New York state. President Bill Cole and Vice President Tom Cole will remain active in the business in their current roles. High Street, one of 15 Huron Capital ExecFactor initiatives, was created to pursue growth through add-on acquisitions in the insurance agency market.

M3 Insurance, TechAssure

TechAssure, an international nonprofit association of insurance and risk management experts for technology-related risks, has added Madison, Wisconsin-based M3 Insurance as a new member. M3 employs more than 300 people from seven locations throughout Wisconsin and the Midwest. TechAssure is a consortium of risk management experts serving innovative industries, such as technology, telecommunications, life sciences, clean tech, as well as the venture capital and private equity firms that fund them. Comprised of over 30 specialist firms located in strategic locations across the world, TechAssure members collectively serve over 5,000 tech-industry clients and represent over $10 billion in premium volume.

Midwest Insurance Agency Alliance, Skyline Risk Management

Midwest Insurance Agency Alliance Inc., a network of independent insurance agencies across seven states, has added Skyline Risk Management of Independence, 20 | INSURANCE JOURNAL | JUNE 15, 2020

Missouri, as a member of the agency group. Skyline Risk Management was founded by President Daniel Cooper and specializes in educating clients on their insurance needs and finding the best coverage for them. The insurance agency offers personal and commercial insurance, including home and auto, recreational, renters and business insurance. Founded in 2001, Midwest Insurance Agency Alliance Inc. has more than 200 independent agency members located in Nebraska, Kansas, Missouri, Iowa, North Dakota, South Dakota and Minnesota. MIAA is a wholly owned subsidiary of SIAA and one of its 48 regional master agencies.

South Central

Service American Indemnity, Tangram Insurance Services

Service American Indemnity Co., a national workers’ compensation carrier, is partnering with Tangram Insurance Services Inc., a managing general underwriter and program manager, to enhance Tangram’s Social Service Workers’ Compensation Program. SAIC is a subsidiary of Texas-based Service Insurance Holdings Inc. A national carrier, SAIC offers Californiabased Tangram the opportunity to provide competitive workers’ compensation insurance to thousands of social service organizations across the country, the companies said. SAIC has specialized in workers’ compensation for close to 40 years and operating with a strong infrastructure to add bench strength to Tangram’s already well established, flagship program. In 2018, SIHI, parent of Texas-based workers’ compensation insurer Service Lloyds Insurance Co., acquired American Healthcare Indemnity Co. (AHIC), an Oklahoma-based insurer, which was rebranded as Service American Indemnity Co. Service Insurance Holdings is wholly owned by the Gray Family. Service American Indemnity Co. and Service Lloyds are rated A-VIII (Excellent) by A.M. Best.

Sleeper Sewell Insurance, Insurors Group

Dallas-based independent insurance agency, Sleeper Sewell Insurance, has joined Insurors Group LLC, an alliance of independent insurance agents in Texas. Sleeper Sewell Insurance was originally founded as Dwight Sleeper & Company in 1962 by Dwight W. Sleeper, Jr. In 2006, the agency became a wholly owned subsidiary of The American National Bank of Texas and operated as Sleeper Sewell Insurance Services Inc. (a division of ANBTX Insurance Services). Since 2009, Sleeper Sewell has been operated by Von E. Breaux, president, and Jeri Payne, chief operating officer. In 2018, the agency partnered with industry veteran D. Michael Sherman, owner of DMS Insurance Holdings LLC to complete an asset purchase of ANBTX Insurance Services. The privately held, independent insurance agency now operates as an LLC under its former name, Sleeper Sewell Insurance. The Insurors Group based in Austin, Texas, has 12 other member agencies located around the state.

Southeast

AssuredPartners, Cypress Insurance Group

AssuredPartners, Inc. has acquired Cypress Insurance Group, Inc. of Fort Lauderdale, Fla. The team of 20 will remain under the operational leadership of Terry Bond and Debbie Arciola. The agency currently reports $3 million in annualized revenues. AssuredPartners Regional President Jack Suber, said the move will allow the company to expand further in the Florida marketplace. Headquartered in Lake Mary, Fla., and led by Jim Henderson and Tom Riley, AssuredPartners, Inc. acquires and invests in insurance brokerage businesses (property and casualty, employee benefits, surety and MGU’s) across the United States and in England. From its founding in March of 2011, AssuredPartners has grown to over $1.5 billion in annualized revenue with over 180 offices in 30 states and England. INSURANCEJOURNAL.COM

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People National

Everest Insurance

announced changes to the Commercial Casualty leadership team. Four underwriters across the country have been appointed leaders for the Northeast, South, Midwest and Southwest regions. Frank Engle has been appointed vice president and regional leader for the South, overseeing Everest’s Commercial Casualty teams in Atlanta and Houston. Engle joined Everest Insurance in 2018 in the Atlanta office. Marc Costa will be transferring from Everest’s New York office to Chicago as vice president and regional leader for the Midwest. Costa joined the company in 2017. Vice President Scott Weiss has been promoted to regional leader for the Northeast. Weiss joined Everest in 2018 and will be focused on expanding the team in New York, along with deepening its underwriting presence in Philadelphia and Boston. Garrett Myklak has been promoted to assistant vice president and regional leader for the Southwest. He will lead the team in Los Angeles. He joined Everest in 2017. Independent insurance brokerage Lockton has promoted two leaders to support the company’s planned growth trajectory. Hiram Marrero, currently executive vice president and regional executive officer, will assume the role of president and global growth officer, reporting Hiram Marrero to Chairman of the Board Ron Lockton. He will develop and

execute on the firm’s growth strategies internationally. Also, Said Taiym, Lockton’s current chief digital officer, will assume the role of U.S. chief operating officer, reporting to Global CEO Peter Clune. These two Said Taiym announcements follow November’s announcement of Clune becoming global CEO as Ron Lockton assumes the role of chairman. Marrero has been in the industry since 2000 and joined Lockton Companies in 2016. Prior to joining Lockton, he was with Willis Towers Watson for 12 years. Taiym has more than 10 years of experience in the insurance industry. He joined Lockton in June 2018. Prior to that, he was senior vice president and chief information officer for AF Group, a workers’ compensation insurance organization. He has also worked at XL Catlin, Zurich Financial and Accenture.

East

Everest Re Group Ltd. has hired Dana Lodge as chief financial officer of Everest Insurance, reporting to Everest Insurance President and CEO Jonathan Zaffino as well as Everest Group CFO Craig Howie. Lodge will be based at the company’s U.S. headquarters in Liberty Corner, N.J. Lodge joins Everest from Sompo International, where she served as senior vice president and director of finance. Prior to joining Sompo, Lodge held various roles at Hiscox Insurance USA, including serving as director of finance and interim CFO. Earlier in her career, she

22 | INSURANCE JOURNAL | JUNE 15, 2020

worked at Ernst & Young LLP, culminating as senior manager of its Transaction Advisory Services division. Her roles at Ernst & Young included serving as a staff accountant in Toronto and manager of Corporate Finance in Bermuda.

Sayata Labs has announced two new hires to boost its on-the-ground capabilities. Valorie Owens will serve as U.S. business development manager, and Ben Goldfien will serve as insurance operations manager. They will both report to recent hire and former Beazley executive King Flynn, head of insurance. Owens, a more than 30-year insurance veteran, will help to expand Sayata’s footprint, engaging clients on a national scale. She was most recently at Beazley as head of broker relations for the South Central region. Prior to Beazley, she held executive-level underwriting roles at several blue-chip companies, including Chubb and AIG. In his new role, Goldfien will apply his underwriting expertise and account stewardship acumen to oversee all operations. Most recently, he was a senior underwriter at Starr Companies. Before Starr, Ben held underwriting roles with ACE and CNA. Sayata Labs is based in Boston, Mass.

Southeast

BMS Group (BMS), the

independent specialist (re) insurance broker, has appointed Larry Broadnax as senior vice president and Property Facultative leader, effective April 15. He will be based in Atlanta and report to Pete Chandler, president and CEO of

BMS’s U.S. reinsurance arm. Broadnax joins BMS with more than 40 years of insurance experience, specializing in property facultative (re) insurance. Broadnax has worked as vice president and Facultative Property broker at Guy Carpenter since 2003. He has also held various senior roles at Northbrook Insurance Companies. He began his career at Liberty Mutual Insurance in 1980.

Insurance Office of America (IOA) has added Travis Duke and Kip Bouknight to its team

in South Carolina. Duke joins IOA as a risk management specialist with a focus on liability, property and workers’ comTravis Duke pensation, as well as risk assessment. Prior to joining IOA, Duke served as a risk manageKip Bouknight ment advisor for McGriff Insurance Services, a subsidiary of BB&T Insurance Holdings. He specializes in providing risk management products for clients ranging from start-ups to middle market companies. Bouknight joins IOA as a commercial lines producer serving out of its Columbia, S.C., branch office. Before joining IOA, Bouknight served as a vice president for McGriff Insurance Services, a subsidiary of BB&T Insurance Holdings, and a business insurance agent with BB&T. His start in the insurance industry began as a sales executive for Hub International. Insurance Office of America (IOA) is headquartered in Longwood, Fla.

continued on page 24 INSURANCEJOURNAL.COM

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Tom Grove with members of Risk Services & Claims

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People continued from page 22 Jackson Sumner & Associates (JSA) has added Keith Shockley as controller

and head of the Accounting department. He will report directly to JSA President and CEO Danielle Wade. He has past experience working for BB&T as an analyst and portfolio manager in the commercial banking space. Keith Shockley Most recently, he was with Wells Fargo as a Commercial Relationship manager. Jackson Sumner & Associates (JSA) is an excess and surplus broker in Boone, N.C., offering a range of insurance products including property, casualty, automobile, garage, professional liability, workers’ compensation and personal lines. It is licensed to do business in North Carolina, South Carolina, Virginia, Georgia, Tennessee and Maryland.

South Central

Andrew Robinson has been named CEO of Houston International Insurance Group Ltd. (HIIG). Robinson takes

over from HIIG’s founder and outgoing CEO, Stephen L. Way, who has resigned as chairman of the board but will continue to serve as a director of the company. Robinson is a global insurance executive with more than 30 years of experience working globally in the insurance industry and in management and strategic consulting. His career includes 10 years with The Hanover Insurance Group Inc., where he was president of Specialty Insurance, executive vice president of Corporate Development and chief risk

officer, and subsequently at Crawford & Co., where he was global chief operating officer and executive vice-president. HIIG is an insurance holding company formed in 2007 and based in Houston, Texas.

Robby Moore, with PLUS Inc. in Austin, Texas, was installed as president of the Austin

Association of Insurance Professionals for 2020-2021 in

a virtual ceremony on May 19. In addition to Moore, other officers installed were President-Elect Jill Duggan Hale; Vice President Rhonda Bowles; Recording Robby Moore Secretary Laura Farmer; and Treasurer Jessica Hahn. Tamra Johnson, Marjolyn Varano and Lindsey Burton were installed as directors. The 2019-2020 Insurance Professional of the Year award was presented to Moore.

WSS, a member of XPT

Group, a specialty insurance distribution company, has added Meghan Easley as senior broker and underwriter in its Plano, Texas, office. Easley brings 15 years of industry experience to this new role, most recently in underwriting and brokerage business. She has experience writing general liability, property and excess for all classes of business with a previous focus on underwriting risks in coastal areas of Texas, Tier 1 & Tier 2.

Midwest

Aon has named Brent Rieth

as U.S. practice leader of the Cyber Solutions Errors and Omissions/Cyber Broking team. He is based in Chicago. Rieth first joined Aon in

24 | INSURANCE JOURNAL | JUNE 15, 2020

2009 as team leader of the E&O/Cyber Broking effort for multi-national clients. In December 2018, he became Central and West managing director and region leader for U.S. Cyber Broking. In his new role, he oversees the E&O/Cyber resources across the U.S., working with Commercial Risk and U.S. Broking to support Aon’s clients.

will be producers in the employee benefits division. Lyal was preDylan Vallino viously a broker at PFS Insurance Group. Vallino was previously a benefits agent and partner at PFS Insurance Group. CREST writes insurance business throughout the Southwest and continental U.S.

QBE North America has appointed Thaddeus Woosley

Woodruff Sawyer has added Kelly Crowder to its Northern

as senior vice president of Broker Management & Sales Operations. He is based in Chicago. Woosley most recently served as vice president and strategic advisor for Specialty & Commercial at QBE North America. He has 15 years of insurance industry experience and joined QBE in February from Aon. Most recently at Aon, he served as vice president of Global Broking and Commercial Risk Solutions. Woosley will be accountable for broker relationships in his new role, ensuring close connectivity for QBE’s trading partners, managing compensation strategies and executing service agreements. Before joining Aon in 2005, Woosley worked for five years at Ketchum Public Relations. QBE North America is part of QBE Insurance Group Limited, which is headquartered in Sydney, Australia.

West

CREST Insurance Group of Colorado has added Lyal Stephen and Dylan Vallino to the firm in the new Ft. Collins location. Both

Lyal Stephen

California management liability and property/ casualty teams as Kelly Crowder a vice president and account executive. Crowder will serve high-growth private and public company clients. She was previously a senior risk management consultant and account executive at G2 Insurance Services, where she managed large real estate and technology clients. She was an in-house risk manager at Google before that. San Francisco-based Woodruff Sawyer is an insurance brokerage and consulting firm with offices throughout the U.S.

Poms & Associates has named Jennifer M. Schirtz

as vice president of insurance placement. Schirtz is responsible for managing relationships with insurance carriers. Schirtz joins Poms & Associates from HUB International Insurance Services Inc., where she worked as an account executive since 2006. Before that, she worked as an independent commercial insurance broker. INSURANCEJOURNAL.COM

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News & Markets continued from page 16 accidents, sexual assaults, opioids and wildfire, Blinn focused Advisen loss data on settlements and verdicts that involved just a single fatality (no other injury). Finding roughly 100 per year for the past two decades, he presented a visual summary of median case amounts by year on a bar graph. The vertical bars came in round $1.0-$1.5 million for each year from 20012014, increasing to $2.0-2.5 million for the next three years, and finally jumping up to around $4 million for 2018 and 2019. Greiper said that Blinn’s data depicted the “exploding case values” she’s seen in recent years. “We now have plaintiffs that ask me for my excess. They really don’t care about the primary policy anymore. They want to know what the [liability insurance] tower is,” she said. “We’ll get requests or demands from certain plaintiffs attorneys for $20, $30, $40 million, which used to make us blanche. [It] no longer does so,” she said. “In the major cases, we’re discussing $50, $60, $70 million on trucking cases. This is no longer unique. This is now commonplace.”

Reptiles and Kardashians

“Social inflation is being driven by corporate mistrust, the reptilian theories that plaintiffs are using, the erosion of tort reform, which seems to just gone out the window, and litigation funding,” Greiper said. According to Dorion, the reptile strategy comes from a book (published in 2009), which describes tactics the plaintiffs lawyers have found to be successful. The idea is to operate on jurors by wiring into the “most primitive, oldest part” of the brain — the part “that has your flight or fight mechanism and where they make you feel a personal sense of danger,” he said. So, if it’s a nursing home case, they’ll make [you] think about when you get old and your care is entirely in the hands of these people. Or if it’s a 26 | INSURANCE JOURNAL | JUNE 15, 2020

trucking case, when your child is driving on the road on their way back to college. Safety is always a top priority, danger is never appropriate. Reducing risk [takes precedence], no matter what it would cost to reduce that risk.

‘Social inflation is being driven by corporate mistrust, the reptilian theories that plaintiffs are using, the erosion of tort reform, which seems to just gone out the window, and litigation funding.’ “That’s how they frame it: More is always better. There are no practical considerations for anything. And they’re trying to get you to respond on a personal level about the fear for the ones you love and your community, and translating that to the conduct of the defendants.” “It’s based on emotion, not on fact, Greiper agreed. “That’s why we have to be particularly careful with our corporate representatives who are produced in the deposition, so that we can avoid that as

best we can — so that we have not laid the groundwork for it at trial,” she said.

Sophisticated Bar

Dorion said that “a very well-funded, sophisticated plaintiffs bar” is another factor driving social inflation trends but noted that it’s not always clear that litigation funding is in the mix. “A lot of times, we suspect it when a plaintiff won’t take what by any measure seems to be a fairly reasonable offer. They won’t engage or they insist on getting to a certain watermark level of funding for to resolve the case.” But it’s difficult to know for sure that a litigation fund is involved. “It doesn’t always get surfaced soon enough.” Gorlin said the drivers that Dorion and Greiper described “are not specific to a particular industry. This makes underwriting and portfolio management difficult for insurers.” He added: “Ideally, when I see [claims] going up, my first question is, ‘Where is this happening? What can we do differently?’ When there isn’t necessarily an answer that points to one specific cause or industry, what it ultimately means is that liability insurance is more expensive across the board to help compensate for the results.”

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News & Markets Nevada Property Manager Paying $300K in Virus Eviction Ban Lawsuit

Nevada-based property management company that issued eviction notices to tenants in Tacoma during the coronavirus pandemic has agreed to pay nearly $350,000 to resolve a lawsuit filed by Washington state Attorney General Bob Ferguson. The money includes nearly $300,000 for tenants in the form of refunds, payments and rent forgiveness. It was the first lawsuit to enforce one of Gov. Jay Inslee’s emergency proclamations during the pandemic, The Seattle Times reported. The governor on March 18 established a moratorium on evictions for the inability to pay rent that specifically prohibits landlords from issuing notices to pay or vacate during the effective period of Inslee’s proclamation, according to a statement from Ferguson’s office. Nevada-based JRK Residential Group —

a real-estate investment firm that manages property in 20 states, and whose portfolio represents about $6 billion of investment

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capital — violated the governor’s proclamation by issuing the notices in April to at least 14 tenants of The Boulders at Puget Sound, a Tacoma apartment complex with more than 700 units, according to the suit. JRK said in a statement it had taken steps after the pandemic began to “ease the resulting burdens” on its tenants but recognized that more could have been done. “To that end, we have worked with the State to further improve our policies and procedures and to offer our residents financial compensation to ease their burden during this time,” the statement said. Ferguson’s lawsuit, filed April 20, also asserted that JRK sent unfair, deceptive and harassing communications to more than 1,400 Washington state tenants. As part of a consent decree filed in Pierce County Superior Court, JRK will be required to forgive or pay back April rent for the 14 tenants and pay $246,900 to 1,441 other tenants, among other measures. “JRK Residential knew about the governor’s proclamation, and ignored it,” Ferguson said. “This large, sophisticated corporation knew the law, and still threatened to evict tenants. This resolution makes those tenants whole.” Copyright 2020 Associated Press. INSURANCEJOURNAL.COM

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com) offers commercial general liability and products completed operations liability for difficult-to-insure businesses in over 200 eligible classes. Options can be tailored forr hard-to place-risks, including an array of small-to-medium sized recreation and leisure classes. All risk can be considered but risk that have been non-renewed, have a poor loss history or are located in a difficult legal venue are particularly targeted. Target classes for general casualty coverage includes: amusement and arcade facilities and events; aquariums, museums, and zoos; auditoriums, convention halls, performing arts centers, theaters; bowling alleys; campgrounds/RV parks; churches; condo and homeowners associations; country, golf, and tennis clubs; e-cigarette and vapor stores; escape rooms; family entertainment and amusement centers, excluding trampoline centers; flea markets; firearm stores; fuel haulers; gas stations; go-karts, batting cages, and mini-golf; grocery stores and supermarkets; gyms/ fitness centers; habitational; hotel, motel, and resorts - will consider long-term single room occupancy; hunt clubs and shooting ranges; lessor’s risk; kiquor liability (supported); movie theaters; paintball and laser tag facilities; property managers; quarries; restaurants; retail stores; schools; shopping centers; special events; tourist attractions; vacant land and buildings; and warehouses. Available limits: As needed Carrier: Unable to disclose, non-admitted States: Calif., Colo., Fla., Maine, Mich., Ore., Texas, and Wash. Contact: Aspera Marketing at 804-7742101 or e-mail: marketing@asperains.com

Veterinary and Animal Services Market Detail: Safehold Special Risk

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veterinary practices primarily devoted to the care and treatment of household pets; mixed practices with large animal and equine operations; specialty veterinary hospitals, including 24 hour emergency hospitals; mobile veterinary practices; veterinary behaviorists; pet day cares and pet lodging; pet groomers; pet trainers; humane Societies, SPCA’s and other animal shelters and welfare organizations with veterinary and shelter/kennel exposures may be considered. Coverages include: workers’ compensation; businessowners policy; professional liability; business auto; and umbrella. Additional coverage options available including: directors and officers liability; employment related practices; and network security and privacy (cyber). Special Features for professional liability have been negotiated such as elimination of the so-called “hammer clause,” which means no settlement without the veterinarian’s written consent. This gives the insured the right to defend their reputation by refusing recommended claim settlements by the insurance company. Access to legal defense coverage if the insured is required to defend license challenges from the veterinary licensing board is also available. Extra endorsements available. Professional liability BOP makes available separate limits up to $2 million per occurrence, with a maximum aggregate of $4 million per year. An expanded definition of “who is covered” addresses the exposures of modern practices and organizations. In addition, professional liability on a stand-alone basis outside of the BOP can be offered. License defense with up

to $100,000 per year for legal expenses incurred defending complaints brought by the state licensing board. Animal bailee automatic coverage for an animal dying, being injured or lost while in the insured’s custody. No limit on the number of animals in each claim. Emergency relocation with extended coverage for the expense of relocating boarded animals to safety. Available limits: As needed Carrier: Unable to disclose, admitted States: All states except Alaska, Calif., and Hawaii Contact: Heather Turner at 470-868-6930 or e-mail: heather.turner@safehold.com

Cannabis, CBD and Hemp Program

Market Detail: CannGen Insurance Services, LLC (www.canngenins.com) all lines program is available in all states and tailored to the needs of these emerging industries. Target Classes include: Cultivators, processors/harvesters, manufacturers, wholesale distributors, transporters, retailers, dispensaries, labs, property managers, lessor’s risk (LRO)/ building owners, and ancillary businesses. Coverages include: Workers’ comp; package – property/crop, general liability, excess liability; product liability/product withdrawal; transportation – commercial auto (Calif., Wash., Ore., Ariz., Ill., and other states to follow), motor truck cargo; and onsite consumption. Available limits: Minimum $500 Carrier: Unable to disclose, admitted and non-admitted available States: All states Contact: Michael Sidore at 916-956-2302 or e-mail: msidore@canngenins.com

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Special Report: Construction

28 | INSURANCE JOURNAL | JUNE 15, 2020

INSURANCEJOURNAL.COM

By Andrea Wells

he construction industry is one segment of the economy that could emerge from the pandemic stronger. That’s good news for construction insurance experts. But moving forward comes with a few challenges as contractors adjust to jobsites in a COVID-19 world. Danette Beck, national construction practice leader at Valhalla, N.Y.-based USI Insurance Services, says her construction clients are tackling these adjustments head on, but the new safety protocols add cost and new exposures. “No one had a plan for this,” she said, adding that some construction projects had 24 hours to get everyone off a construction project site. “How do you close the project down safely? How do assess employees? The call to action was pretty immediate.” Contractors with project sites in multiple states faced various compliances rules at the same time, she said. Contractors are resilient and always have been, Beck noted. They staggered workforces. They took temperatures on sites. They shut down projects and created plans to get back up and running when possible. And insurance professionals like Beck stood by to advise where needed especially when project delays meant securing insurance coverage extensions. Alan Ferguson, president of US Assure, a program administrator specializing in builder’s risk coverages, told agents to get out and talk to their contractor clients sooner rather than later. “They are experiencing

INSURANCEJOURNAL.COM

delays, and as these moratoriums are lifted, agents should be getting out to the job site quickly to see if there has been any trespassing and vandalism and report those claims timely,” he said. But they should also talk to contractors about any delays in project completion, he advised. “Look at the policy period for which they’ve been insured and determine if you need to extend those policies,” Ferguson said, explaining that could be a big exposure. “From a risk selection and pricing standpoint, delays do have impacts in certain parts of the country." For example, projects that may have only been exposed to one wind season for hurricanes could now be exposed to two wind seasons. “So that exposure will have an impact on renewal pricing going forward," he said. Overall, the construction industry will fare better than harder hit industries like hospitality, entertainment and restaurants, Beck predicted. “At least in construction, it was just a different kind of perspective because we were still working,” she said. “Were states shut down? Yes, but they were shut down for 30 or 45 days, not months and months.” Contractors will forage ahead with some changes, she says. Much of the slowdown happened in states that deemed the construction sector as nonessential. “Certainly, that impacted the industry by shutting down those jobs and not allowing new jobs to start,” Ferguson said. In other parts of the country where construction kept building, there were hurdles around social distancing guidelines on

job sites. “A lot of jurisdictions are only allowing one trade contractor on a job site per day,” Ferguson said. “For example, if the heating and air conditioning contractor is there doing a rough-in for the ductwork, the plumbers can’t be downstairs doing the roughin for the plumbing. They have to wait until the HVAC guys are done to come on the job.” That is leading to delays in project completion. Pre-COVID, a typical job site could have six to eight trade contractors per day, Ferguson said. “So now you’re extending that work time, which adds to length of completion time and that adds exposure for the contractor,” he said.

‘In today’s world, we really believe that construction is going to lead us all out.’ Todd Germano, managing director of Optio Insurance Services North America, the group company that includes Cove Programs, Ascent and Bay Risk, said most contractors are expecting significant changes in terms of their delivery times. “So, the scheduling is what you’re going to see changing the most,” he said. What concerns him is not project delays, but projects being shut down entirely. “That’s something that we’re watching carefully to understand what people are abandoning versus what people are delaying,” he said. “If you look across the various sectors, you’re seeing some of the larger commercial stuff, some office buildings, being

indefinitely delayed.” There have also been delay issues in securing permits. “There’s been delays for architect and engineering plans for new buildings because of alternating schedules of who’s in the office to use heavy digital CAD programs. It’s slowing down the engineering work that has to be done to pull building permits,” Ferguson said. Hospitals and medical facilities are seeing construction projects suspended as well, according to Brian Permenter, an area vice president for Risk Placement Services, who added that potential bright spots are in residential and infrastructure. For other construction projects, Ferguson said stay-athome orders led to acceleration in project completion, rather than delays, such as street and road projects. “Maybe the Department of Transportation normally allowed workers to be active on a job site for 10 hours a day, but since everybody was forced to stay at home and there’s no traffic, those contractors were now allowed to be on the job 20 hours a day,” he said. “That side of builder’s risk actually saw a little bit of an increase.”

Making a Comeback

Construction is already seeing improvement. May saw the largest monthly increase in construction jobs since the government began tracking employment in 1939, a drastic improvement from April, which recorded the industry’s largest drop in construction jobs. The construction industry added 464,000 net new jobs in May, according to according the Associated Builders and

continued on page 30

JUNE 15, 2020 INSURANCE JOURNAL | 29

Special Report: Construction continued from page 29

Contractors analysis of data from the U.S. Bureau of Labor Statistics (BLS). “For contractors, this is purely good news,” said ABC’s Chief Economist Anirban Basu. “With the economy beginning its recovery sooner and more dramatically than anticipated, fewer projects are likely to be postponed or canceled.” That said, Basu added that state and local government finances remain in tough shape, with many local government workers losing jobs in May. “Make no mistake — these remain treacherous times,” said Basu. “Though economic recovery may have begun, there is still the possibility of a resurgence in infections as stores, restaurants and other businesses reopen.” He added that while unemployment dipped to 13.3% in May, it remains elevated overall. “Labor force participation has been rocked in recent months, and it may be the case that many dislocated workers, including construction workers, will remain out of the labor force for an indefinite period.” The construction unemployment rate fell to 12.7% in May, up 9.5 percentage points from the same time last year, but down 3.9 percentage points from April 2020. Unemployment across all industries fell to 13.3% in May, down from 14.7% in April. Unlike the Great Recession in 2008, today’s economic downturn is expected to take a different path for the construction industry. “From our perspective, we have definitely seen a slowdown,” US Assure’s Ferguson said. “But what’s interesting

is that when you compare what we’re going through now, compared to the Great Recession where construction and housing in particular drove the economy down, in today’s world, we really believe that construction is going to lead us all out,” Ferguson said. Construction economists seem to agree. While the long-term impact of COVID-19 on construction is difficult to predict, the decline in construction activity might be short-lived. Markets are already showing resiliency, and data for housing are good, said the National Association of Home Builders’ Chief Economist Robert Dietz, in a recent statement. The construction industry’s recovery is not expected to be quick, but the May jobs report provides evidence of an economy on the rebound, he added. Like Ferguson, Dietz believes that housing and construction will lead the way. Dietz said home builders and remodelers in particular posted 226,000 jobs in May. “Clearly, hiring has restarted, and construction activity conditions improve," he said.

deterioration post-COVID. “The spread of COVID-19 is expected to exacerbate the hardening market for construction, as significant declines in available labor typically give rise to increased losses in workers’ compensation and general liability,” the report said. “Carriers are bracing for a flood of inquiries about coverage interpretation, while insurance buyers can expect delays in project placements.” One area where insurance prices have skyrocketed in recent years has been liability lines, most notably in the umbrella market, USI’s Beck said. “Social inflation, nuclear judgments and third-party litigation financing, coupled with the situation that surrounds distracted driving in auto for everyone is making the umbrella market more difficult,” she said. Now the sector’s seeing larger judgments on the casualty side, too,

she added. “There’s no longer a direct correlation between umbrella pricing based on the underlying exposure.” It’s severity driven, she said. The WTW report said contractors are experiencing significant rate increases and restrictions in coverages for the umbrella and excess liability lines. Rates have increased 25% to 50% for umbrella (lead) and 50% to 100% on excess liability, the report stated. WTW expects these conditions to continue throughout 2020 and perhaps even deteriorate further due to the pandemic. RPS’s Permenter said the umbrella and excess liability market is tightening more every other week. Underwriters are scrutinizing account information and asking for more details. “So right now, what we try to do is to prepare our retailers to say,

Insurance Market

So far, the pandemic has not made a significant impact on the insurance market for contractors, a market the experts say was already experiencing a hardening rate environment. According to a recent report by Willis Towers Watson, titled “Insurance Marketplace Realities 2020 Spring update – Construction” insurance rates were accelerating prior to pandemic and not because of the pandemic, but that doesn’t mean the insurance rate environment won’t have further

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even if it’s a renewal, we need all the best information available. Especially now, you have to make sure that you keep yours at the top of the list,” Permenter said. “Exposures change and carriers now may have different requirements for different states. Some states are now becoming ‘construction defect’ states. These are states that you didn’t think [in the past] would have a construction defective timeframe in; now that’s come into fruition.” Most other lines of coverage for contractors continue to harden, but at a more manageable pace, USI’s Beck said. “The builder’s risk market is still viable, and there’s still a lot of markets out there," Beck stated. The WTW report reveals project specific builder’s risk has increased from 5% to 15% while master builder’s risk/ contractors block programs has increased from 5% to 20% on average. “The builders risk market, while generally competitive with abundant U.S. capacity, has shown signs of hardening in 2020 after many years of soft conditions,” the report stated. One exception is wood frame construction. “Wood frame continues to be an extremely difficult class of business," the report added. Beck agreed frame construction is a tougher class of business, and it’s getting more difficult due to several large losses in late 2019 and early 2020. Ferguson said the frame market has steadily hardened over the past 30 to 36 months. “Not only from a pricing standpoint, but from a capacity standpoint,” he said. “You’re seeing a lot of markets that will want to participate INSURANCEJOURNAL.COM

on a quota share basis, but not necessarily want to take the whole risk once a project gets over a certain limit." He said there are limits as low as $10 million for frame construction, which is unusual. Recent fires in California and high catastrophes nationwide are driving that trend.

Outlook

Going forward, Germano says larger home builder clients have said that despite the upheavals of 2020, their annual projections are not likely to be affected. Smaller home builders might be a different story. “In the aggregate, the single-family home construction is down about 15%. So if the bigger clients are saying they’re not seeing a change, that feels like there’s a disparity between the bigger professional builders and the smaller builders. It’s sort of an indicator that

perhaps the larger, more professional home builders are better able to maintain their activity level, and that means it’s got to be shrinking faster somewhere else, which would indicate it was the smaller builders,” Germano said.

‘No one had a plan for this.’ In his view, there will be some winners and losers in construction, but overall, the market will recover. “If you’re overly exposed as a construction business to entertainment, building stadiums, concert halls, entertainment venues, that’s not going to be great for a while,” he said. “But if you’re more on the industrial side or the infrastructure side, I would expect you will see a quicker recovery and less of an impact.” There are still many unknowns about where building will be in the future. “It’s

hard to tell, but the prediction is that people are going to leave urban areas for suburban areas,” Germano said. Ferguson sees that happening. “I do think there’ll be a quest for space and people will want to spread out after this, understandably,” he said. “As we transition more and more to work-from-home, companies servicing customers in offices will change their workspaces significantly as well.” That could mean shifting back to more square footage per person, higher cubicle walls, offices with doors, and fewer open and collaborative spaces. “Or those spaces that are open will be forced to be larger because of the social distancing,” he said. Despite the economic slowdown from the COVID-19 pandemic, there is still steady competition for preferred construction risks, Ferguson said. But it is more selective.

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Special Report: Construction Building the Digital Revolution How Construction Companies Can Make the Most of Technology Advancements

s one of the oldest industries, construction has been notoriously slow to adopt technological advancements and embrace the digital age. However, in the last decade, many innovative technologies have By Lyndsey Christofer gained traction in the construction industry. TechCrunch reports that between 2017 and 2018, U.S.based construction technology startups saw a 324% boom in funding, reaching nearly $3.1 billion. So as we enter a new decade, we can only expect implementation and adoption to become more widespread. While such advancements are making construction sites smarter, safer and more efficient than ever before, technology also introduces new exposures and questions around liability. In turn, risk managers, agents and brokers need to understand the associated risks. Following are three emerging technologies — along with some of their related risks and rewards — that risk managers, agents and brokers should continue to evaluate as we enter a new decade of innovation.

Modular Construction

Modular construction can have an enormous impact on project completion speed. Now workers are able build project elements like walls,

floors or exterior panels at an offsite location while others simultaneously begin the core and shell work of a building onsite. The end result: the number of hours it takes to complete a project can be reduced drastically. For example, GenieBelt estimates that projects can be completed up to 65 times faster when implementing modular construction. As the industry enters a new decade of innovation, the pace is only expected to pick up: According to McKinsey & Company, as modular construction becomes increasingly commonplace and more materials need to be transported to offsite locations, artificial intelligence (AI) may be used to optimize supply chain coordination making

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processes even more efficient.

It is important to note that modular construction does more than increase efficiency — it can also help improve safety. It is important to note that modular construction does more than increase efficiency — it can also help improve safety. The offsite locations where prefabricated building components are created are often controlled environments. This means that for certain construction projects, fewer contractors have to spend hours working at extreme heights or exposed to weather

elements, in turn potentially reducing their exposure to injury. While the combination of controlled conditions offsite and less labor onsite can greatly enhance safety and efficiency, it does not fully eliminate risk. Modular construction practices can create new liabilities that require additional insurance coverage. For example, the production of certain elements offsite can result in transportation-related exposures, including physical damage or liability in the event of an accident. Additionally, safety managers need to ensure that they have the appropriate coverage not only on the project site, but also at the modular yard where the prefabricated materials are built.

continued on page 34 INSURANCEJOURNAL.COM

Special Report: Construction has fallen or is otherwise in danger, as well as whether there are any safety concerns with physical equipment. While we can expect wearable technologies to become more commonplace in the next decade, construction companies should not forget about the risks — including cyber — that these devices may impose. Wearables, along with all the emerging technologies discussed above, are meant to enhance current safety practices, not replace them. In the next decade, the construction industry will become increasingly digital. Innovative technologies are already starting to shift the way the industry operates, helping improve efficiency, accuracy and safety.

continued from page 32 Consideration should also be given to the “your product” and “your work” exclusions on your general liability policy to ensure adequate coverage for liability arising out of the prefabricated components.

Building Information Management (BIM)

BIM technology is continuing to render old-school project management processes obsolete. For instance, by leveraging artificial intelligence and machine learning, such technology can analyze historical data to better predict scheduling, costs and required manpower — ultimately leading toward a more accurate bid. BIM can also help with design capabilities, allowing

architects, engineers and construction companies to digitize blueprints and models that will identify any issues prior to breaking ground. Should there be a required structural change once construction is underway, BIM can incorporate the adjustment and advise on how other building components will be impacted. While BIM’s benefits can increase efficiency, this technology also poses a newer risk for the industry: cyber security. As a result, risk managers need to take necessary precautions to make sure any data BIM is using is protected and that access to it is controlled. Risk managers should work with an independent agent or broker to ensure that they have the appropriate cyber insurance coverage in place in the

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event of a cyber disruption or data breach. It can be especially useful to purchase a cyber policy that includes proactive risk mitigation services that can help identify and address any vulnerabilities before they are exploited.

Wearables

Recently, the construction industry has seen an influx of contractors testing wearable sensors with a wide array of functionality and benefits. Some devices can monitor workers’ body temperatures and heartrates in order to identify symptoms of exhaustion and heatstroke or alert a worker when he/she is approaching a potential hazard. Other contractors are testing devices that can alert a supervisor if a worker is hurt,

In the next decade, the construction industry will become increasingly digital. Independent agents and brokers are uniquely positioned to help construction companies capitalize on the industry’s digital transformation while also managing their newfound exposures. By working with a carrier, agents and brokers can help construction companies implement comprehensive risk management programs so they have sufficient coverages in place to respond in the event of a technology-related claim. Christofer is a senior vice president at Chubb. She is responsible for the strategic development, underwriting, growth, profitability and distribution of Chubb’s Primary Casualty Construction business across the country. Website: www.chubb.com/microsites/ chubb-construction INSURANCEJOURNAL.COM

Closer Look: Umbrella Umbrella or Excess Liability: What’s the Difference?

o I need an umbrella policy or an excess policy? Is there a difference and does anyone care? There are a few reasons that an insured may need (or want) more liability coverage than certain By Patrick Wraight policies will provide. • The limits available for the primary liability policies may not be enough to appropriately cover the insured’s exposure.

• The insured may be taking on a project for a customer and the contract requires limits that exceed the primary liability policies. What’s the solution? It might be an umbrella policy. It might also be an excess policy. What’s the difference?

Umbrella Policies

An umbrella liability policy is designed to pick up where the underlying liability insurance policies leave off. This might mean that once the underlying coverage is exhausted due to the payment of a claim, the umbrella policy can begin to pay on the balance that is owed

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to the claimant. It could also mean that the loss was excluded on the underlying liability policy, and the umbrella can pick up coverage because there is no exclusion for the loss. An excess liability policy is similar to an umbrella in that it picks up where the underlying liability policies cease making payments, but it is designed to pay claims in the same way that the underlying policies pay the claim. That tells us that claims that would be excluded by an underlying policy are also excluded by the excess policy. What does this mean to the insured? All that they want is a policy that will pick up an extra

million dollars in liability coverage so that they can get the contract. This is so they can do the work for their customer. The answer is in the details of all of the policies. An umbrella policy, especially one issued by a different company than the one that issued the underlying coverages, might have different coverage terms, conditions, and exclusions. The excess policy, by design, should have the same coverage terms, conditions, and exclusions as the underlying policies. This is where you find the obligatory warning to read every policy, because I’m INSURANCEJOURNAL.COM

making generalizations, and those only go so far. Go read the policies to make sure that you understand what each one covers, excludes, and how they interact.

Commercial Excess Liability Coverage

Let’s look at the ISO CX 00 01 04 13 Commercial Excess Liability Coverage Form. Anywhere that we make a comparison to an umbrella policy, we are referring to the ISO CU 00 01 04 13 Commercial Liability Umbrella Coverage Form. The first difference you might see between these two forms is length. The umbrella coverage form runs up to 18 pages, while the excess coverage form only runs up to five pages. That’s a big difference. Why the big difference? The umbrella coverage form provides specific coverages that mirror the ISO CG 00 01 04 13 Commercial General Liability Coverage Form, with the notable exception of Coverage C – Medical Payments. It also lists the specific exclusions for those coverages in several of those pages. This coverage form was designed to provide coverage similar to the underlying coverages and to provide first-dollar coverage on certain losses that would be excluded by the underlying policies. That’s why the form gives its coverage details and exclusions. For losses that are not covered by any underlying policies, but are covered on the umbrella, there is a self-insured retention amount. Here’s the definition from the form:

“Self-insured retention” means the dollar amount listed in the INSURANCEJOURNAL.COM

Declarations that will be paid by the insured before this insurance becomes applicable only with respect to “occurrences” or offenses not covered by the “underlying insurance.” The “self-insured retention” does not apply to “occurrences” or offenses which would have been covered by “underlying insurance” but for the exhaustion of applicable limits. In its own words, the self-insured retention is the amount that the insured will have to pay toward the loss if there is no underlying coverage. This term doesn’t appear in the excess coverage form because it’s not designed to come down and assume first-dollar coverage. It’s designed to provide excess liability coverage over other policies. We made the point that this form is considerably shorter than the umbrella coverage form. Here’s how it happens. We are reading from the beginning of the excess liability coverage form, before SECTION I – Coverages:

The insurance provided under this Coverage Part will follow the same provisions, exclusions and limitations that are contained in the applicable “controlling underlying insurance,” unless otherwise directed by this insurance. To the extent such provisions differ or conflict, the provisions of this Coverage Part will apply. However, the coverage provided under this Coverage Part will not be broader

than that provided by the applicable “controlling underlying insurance.” By design, from the beginning of the coverage form, you’re aware that this intends to follow almost exactly the coverages provided by the “controlling underlying insurance.” This defined term means any insurance policy (or self-insurance program) that’s listed on the declarations. There are a few places where this insurance differs. Most notably, it excludes medical payments coverage. This policy will also never provide coverage more broadly than the underlying policies will. Before this policy gets into the coverage section, it makes another important point about the underlying coverages that should be addressed here.

There may be more than one “controlling underlying insurance” listed in the Declarations and provisions in those policies conflict, and which are not superseded by the provisions of this Coverage Part. In such a case, the provisions, exclusions and limitations of the “controlling

underlying insurance” applicable to the particular “event” for which a claim is made or suit is brought will apply. If two different underlying policies have a conflict related to a particular claim, the policy that the claim is made under will prevail over the other policy as long as this policy doesn’t speak to it as well.

Which Policy?

This takes us back to our original question. Which policy does the insured need? That’s up to them. The umbrella might provide broader coverage for the insured and that might be just what they need. It might also provide more restricted coverage and the insured needs to be aware of that. The excess will provide them with more limits with essentially the same terms and conditions that their underlying policies provide. This is what they may want, but that’s not the question at hand. Wraight is the director of the Academy of Insurance. Email: pwraight@ijacademy.com

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Spotlight: Business Interruption The Debate Between Business Owners, Insurers Over Business Interruption Claims Continues By Elizabeth Blosfield

s the insurance industry faces litigation and questions over virus-related claim denials, it could soon be dealing with another business income hurdle due to the civil unrest that has taken place in many U.S. cities following the death of George Floyd in Minneapolis. This comes as insurance professionals say revenue benchmarks for business income claims due to civil unrest will be adjusted to reflect income

loss from virus-related business shutdowns, which could leave some business owners feeling unfairly compensated. “I think that all business owners are going to feel that the amount reimbursed is insufficient for their losses, partly because of the COVID-19 situation and partly because BI is such an ill-defined and hard to understand concept,” said Mike Vitulli, director of Risk Management Services at Boston, Mass.-based brokerage, Risk Strategies. “Most businesses did not consider what

it meant to have the coverage, simply assuming that if their business shut for any reason, they would be reimbursed.” Approximately 40% of small to mid-sized business owners, which are typically defined as companies with fewer than 100 employees and annual revenues of up to $5 million, have opted to purchase business interruption (BI) coverage, according to Mark Friedlander, director of corporate communications at the Insurance Information Institute. It will usually cover

any losses incurred as a result of a riot, civil commotion and vandalism, which have been occurring in various U.S. cities as peaceful protests by day over the death of George Floyd have led to violence by night.

Property Damage

Demonstrations over police brutality and racial inequality began in Minneapolis, where police officers’ May 25 arrest of Floyd turned fatal, and quickly spread to other U.S. cities, including New York, Philadelphia, Los Angeles,

Chicago and Washington D.C. Criminal activity including looting, arson and vandalism in the wake of the protests, however, has caused property damage and led to officials imposing curfews in some cities, raising questions of how business income loss will be calculated for business owners still reeling from the COVID-19 shutdowns. Insurers determine BI loss based on a 12-month assessment of a business’ income beginning from the date of loss, Friedlander said. This means a business that has been shut down or operating at a limited capacity due to the impacts of the COVID-19 pandemic may see a lower payout for any business income claims due to the recent civil unrest, Dan Corbin, director of research at insurance industry trade association, Professional Insurance Agents, explained. “The insurer’s obligation is to put the business back where it would have been with the income profit (or loss) that would have occurred during the period of restoration,” Corbin said. “If the business would have been operating at a loss, the recovery of continuing expenses would be adjusted to reflect that loss.” Larry P. Schiffer, senior partner at the New York office of the Squire Patton Boggs law firm, has a similar view. “Business interruption provisions have very specific valuation requirements for determining what the loss of income was. Those provisions will have to be followed. If a business was not open and the looting and vandalism took place, the loss of income will be calculated per the policy formula, which might result in a INSURANCEJOURNAL.COM

reduction of income depending on the formula in the policy,” Schiffer told Insurance Journal. Schiffer said the majority of the claims arising from the civil unrest will be actual property damage or loss of personal property claims that will be covered based on the value of the property and the business interruption claims should be much smaller compared to the actual damage claims. Peter Halprin, partner in Pasich’s New York office, said all of this could lead to even more pushback from business owners, some of whom are already frustrated by COVID19-related claim denials under their business interruption policies. “Given the stance that insurers have taken on COVID-19, I think that they may have burned some bridges with their policyholders and fractured some trust,” Halprin said. “Policyholders may be more willing now to be aggressive and file lawsuits.”

PPP Question

Another lingering question regarding the convergence of the pandemic with the riots in many cities, Vitulli said, is how the federal Paycheck Protection Program will factor into revenue calculations for BI claims. The Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll during the COVID-19 crisis. The Small Business Administration (SBA) will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest or utilities, according to the SBA website.

“There is not a lot of precedent for this situation in terms of how BI would be calculated,” Vitulli said. “While we believe these (PPP loans) should be treated as loans, not as income, and that payroll would be a covered expense under most property policy BI forms, it is certainly a debatable point.”

‘The insurer’s obligation is to put the business back where it would have been with the income profit (or loss) that would have occurred during the period of restoration. … If the business would have been operating at a loss, the recovery of continuing expenses would be adjusted to reflect that loss.’ Despite questions that remain, insurance professionals are confident that the industry is equipped to handle these two emergencies at once, for now. “It is my opinion that the resulting property damage

from the protests is manageable today for most insurers, but if it were to continue unabated for weeks or months, the cost could be staggering and may impact their short term results,” Vitulli said. “Fortunately, property damage is relatively quantifiable and not a long-tailed liability, which would impact them for years to come.” David T. MacLachlan, agent at Syracuse, New York-based The Dominick Falcone Agency Inc. and chair of the board for Big I New York, agreed. “I’m very confident that the industry nationwide is prepared because we’re in the business of dealing with really intense, unusual physical events,” he said. “There’s some new challenges, but we’re several months into the pandemic, so I’m very confident that insurance companies will be prepared to address the claims as they come in.” For business owners, however, it could be a different story, Halprin added. “Stores that probably were planning to open in the near future…now are faced with shuttering their doors for property damage,” he said. “These businesses are facing a double whammy, and it’s tragic.”

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Idea Exchange: The Competitive Advantage How COVID-19 Will Change Insurance Sales

n agent who is a client of mine asked me, “Do you really think any business owner is truly happy with their agent or insurance company today?” Good question. Having to By Chris Burand tell the public over and over and over, “There is no coverage. Sorry. Apply for a PPP loan,” makes even massive doses of empathy insufficient. Going forward then, I believe we have an inflection point where business owners will better appreciate agents who actually know what coverages are being sold and what exposures are not being covered. The larger and more sophisticated clients will be the most demanding, but I suspect the small businesses that survive will be far more demanding, too. Another client told me that trust is made of two parts: character and competency. Historically, most insurance was sold based on character. If the trust ratio required for a sale is 100%, then character often is 80% and competency is 20%. Specific to business income insurance, the ratio is more 95% character and 5% competency – and that is without any sarcasm or cynicism on my part. Somehow character does not pay claims as well as competency. I have been in the industry a long time.

Business income knowledge has always been lacking because it is a difficult coverage to learn. During my tenure, I have seen coverage knowledge deteriorate due to mandatory CE requirements and cost saving measures. Through my E&O audits and my coverage training classes, I see many industry veterans who have successful sales careers that do not know business income coverages. Over and over through my audits, producers and agency owners tell me, “My clients love me. Even if they don’t have the right coverages, they won’t sue me.” And, most of the time, they don’t. I know one agent who wrote a property policy on the wrong address which resulted in the client having no coverage for a fire. He called the client and explained the situation - that no coverage existed - and for some reason, the insured “understood” and did not sue the agency. I have met so many good old boys who sell based on their connections. They tell the greatest stories. I admire their storytelling abilities. I know more than one ex-athlete who is successful because clients want to buy from a semi-famous person. I know more than one producer with a pretty face who can barely spell insurance (this is not a sexist remark for anyone thinking I am referring to only one gender, as my examples are fairly proportionate). Producers who go to the right church or are members of the right country club or are members of the right nonprofits sell based on their relationships. On what are these relationships based? Trust in the producer’s character.

Trustworthy Change

This makes considerable sense because insurance — or really, insurance contracts — is complex. Selling such complex financial instruments with cartoon characters drives me up the wall, but cartoon characters are trustworthy in many people’s minds. Advertising research is convincing on this point. Selling on trust 40 | INSURANCE JOURNAL | JUNE 15, 2020

has historically been a far more efficient, i.e., cost effective, sales model. It costs less to sell on trust than to prove professional competency. There is a Darwinian aspect to this research because I don’t think anyone sat down and did the math to identify the most time efficient sales model - it just evolved this way. Currently, based on the estimates I have read, business income losses suffered by small businesses are as much as $430 billion a month. Maybe the losses are more, maybe less, but the losses are huge. The losses are large enough that business owners really could not care less what church, what country club, what stories are told. They could not care less whether they like their agent or not. They want coverage. They want their livelihood back. They want to survive. The trust ratio mix is changing. Rather than just trusting my agent because my agent is a “good guy” and my decision to trust him is based on 80% character and 20% competency, I now want someone who is far more competent. I want a ratio of 80% competency and 20% character. If character does not pay claims, but competency does, and my businesses’ survival is on the line, this is an easy choice. An agency owner who told me one year ago that he just wanted producers who could sell rather than sell the right coverages might need different producers now. What good is selling insurance that does not provide the right coverages for the client? Keep in mind, this is not just about business income insurance. The D&O claims, the workers’ comp claims, the EPLI claims, the inadequate liability claims have yet to really build, not mention the cyber attacks that are increasing exponentially as everyone works from home. Going forward, agents who actually know their coverages and are technically competent will likely have far more traction than they have historically had because customers will now pay attention INSURANCEJOURNAL.COM

to competency. Trust will now be at 100% only if the competency part of the ratio is quite high. If you and your producers do not think competency is going to matter more to clients, it will definitely matter more relative to your agency’s/brokerage’s E&O policy. I have seen many agencies claim the title “risk manager” so that their character trust factor increases. However, their competency has not increased one iota. While pandemic related business income claims may be universally denied, and therefore in this extreme example agents probably will not be sued successfully due to the lack of a product that would have provided coverage, the same is not necessarily true for a risk manager. A risk manager manages risk, and their duty exceeds the sale of an insurance policy. To manage risk means to manage INSURANCEJOURNAL.COM

the insured’s risk – ALL of the risks unless a contract limits the risks being managed, which may include pandemic risks. If no one ever has uncovered claims, fake titles that enhance the character/trust factor work. However, when large uncovered claims do occur, such titles are agency liabilities because the titles increase the standard of care responsibility. Being a risk manager may, depending on the circumstances, require analyzing your clients’ entire risk profile and making recommendations that go far beyond an insurance policy. Being a risk manager pretty much requires an enterprise risk management approach, and those are few and far between. In other words, you can’t have your cake and eat it, too. If you want to be a risk manager, it is the competency factor, not the character factor that matters. You must

walk the walk. Given how hungry, maybe predatory, some plaintiff firms are in this environment, such organizations might want to change titles or greatly increase competency ASAP before the next wave of virus infections occur. Life is always a trade-off. Trust needs to be 100% for the sale to occur. That really does not change, but within that recipe, more competency must be added because character is not what clients want. Just character is what the plaintiff bar salivates for because finding probable cause for justifiable E&O claims is so much easier. It is your choice. Do you leave the character/competency ratio as it is, or do you increase competency? Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719-4853868. E-mail: chris@burand-associates.com. JUNE 15, 2020 INSURANCE JOURNAL | 41

Idea Exchange: The Wedge It Takes a Crisis to Make You Change Your Game

on got the mail as he pulled up into the drive. There was a thick envelope from the credit card company. Jon opened it, and By Randy Schwantz the balance was much bigger than he’d expected. Jon and his wife had a bad habit. They used their credit card to buy whatever they wanted. Making minimum payments was driving the balance owed to new and scary heights. Jon has two kids, a house, two cars and a stay-at-home wife. Taking care of a family is expensive, so charging things on the credit card was almost necessary.

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Jon was heavily influenced by his dad growing up. His dad was half hippie, half businessman. His dad’s life was shaped by Jimi Hendrix, Jimmy Buffet, and Jimmy Page. Live and let live was his dad’s motto. Weekends were meant for letting loose. Jon’s dad would buy a case of beer on the way home from work and invite a few neighbors over. They’d crank up the barbie and turn on the Jimmy’s. It was an unwritten rule for Jon when he was younger. If you can sneak a beer or two from the cooler without anyone seeing you, I won’t have to tell your mom. Jon was surrounded by the freedom to be and do what he wanted to. Discipline wasn’t exactly in his vocabulary even though he knew what it meant. It meant

having to do things he didn’t want to do when he didn’t want to do them. Jon was smart. He made decent grades without having to study. His college experience was less about education and more about being social. When he graduated from college, one of his dad’s friends made him a job offer. It was an insurance agency. Honestly, it was the last thing Jon would ever consider as a professional choice. But it beat having to go on a bunch of interviews with uptight, white-collared professionals. The agency offered him a salary for the first year and said they would train him. Jon made a couple of trips to Hartford, Connecticut, for training. He said it reminded him of his college days: work INSURANCEJOURNAL.COM

half a day and party all night. The executives treated him like a king, saying, "Want a beer? Want another beer? How about another?" After a couple of weeks of training, he learned everything about Hartford’s bars and pubs, not to mention how to work the system. He also learned a bit about coverage. All in all, a promising start to a new career. But he never learned how to use the phone to make appointments. No one else at the agency did either. If you asked Jon, he’d say he was never taught how to sell, only how to quote. After 12 months in the business, things weren’t looking too good. His salary hadn’t changed, and there was no sign of his income increasing. After a decade of missed opportunities and woeful new business years, Jon was almost broke. Financially, he had enough money to pay his bills on a good month. Emotionally, he was tired of the rat race. Quoting his regional carriers never got easier. Winning some and losing some, there was no real method to his madness. By this time, he had a lot of small accounts just wearing him out. The future was anything but exciting. It seemed like a survival camp where he just had to make it through one more day at a time. On the drive home one day, he heard Dave Ramsey on the radio. Ramsey’s philosophy was simple: Pay cash. Don’t get into debt. Throw away your credit cards. It was only a few days before that he opened his credit card bill and knew he was in trouble. Something had to change, and it needed to change fast. So, Jon bought the $60 program on his credit card and blew Dave’s first rule of success to stop using your credit card. But there was no other way to get the program. Jon sat with his wife and went through all of Dave’s exercises on money. They agreed on a money strategy that started with cutting up the credit card. Their first goal was to pay it off. The second goal was to build an emergency account that would get them through six months if everything went bad. The third goal was to start saving for their kid’s university tuition. And the last goal was to build a retirement nest egg. INSURANCEJOURNAL.COM

Great goals, but to do this, he needed to increase his income. He needed to double how much money he made immediately. Jon’s research turned up a sales program. It taught him how to make cold calls and set appointments. The program taught him how to build differentiation without relying on price and coverage as the primary source. He learned how to win new business by BOR. He quit quoting accounts. He won more often and on accounts that were four and five times bigger than what he’d been writing the previous 10 years.

‘Get real about your situation.’ Jon’s boss sent him a lovely little card in the mail. “Jon, you’re doing an admirable job, but you need to slow down. We can’t service all this business.” A&M 1-Stop Umbrella couple.pdf 1 Jon didn’t slow down, and fortunately,

his boss found a way to keep up. It was 20 years ago that Jon started in the insurance business. And like most who tell their story, he never intended to be an insurance agent. But as he looks back on his career, he’s surprised most people aren’t clamoring to get in the business. Now, as the president of his firm, he’s stepping back from growing his million-dollar book and more involved in recruiting new producers and developing the business. He wants to give his newbies the benefit of his underground playbook for growing a million-dollar book. The moral of the story is to get real about your situation. If your finances are in a mess, get a financial coach. If your ability to grow your income is stagnant, get a growth coach. If you’ve mastered both by now, mentor others. Schwantz is founder of The Wedge Group. He’s also the author of the book Agency Growth Machine. 5/29/20 1:04 PM Phone: 214-446-3209. Email: randy@thewedge.net.

JUNE 15, 2020 INSURANCE JOURNAL | 43

Idea Exchange: Ask the Insurance Recruiter Producer Recruiting and Retention Is the Same Issue for Agencies

hy? This is the entire question for agencies when it comes to producer recruiting. Well, maybe not. Here are the By Mary Newgard elongated versions of questions I field on this issue. • Why is it so hard to find sales 44 | INSURANCE JOURNAL | JUNE 15, 2020

candidates? • Why can’t I seem to recover my investment before they cut and run? • Why do producers leave my agency for another? • Why do they want so much money guaranteed?

true producers should be the easiest recruit. I believe that’s the case if not for one fundamental flaw with most insurance agencies. They have no idea how to sell themselves.

My partner once told me, “The easiest person to sell to is a salesperson.” If that’s

You train your current salespeople on how to prospect, correct? You arm them

Producer Recruiting & Retention: Your Problem Is Branding

INSURANCEJOURNAL.COM

Your source for

Food for Thought

Looking for more insight into why producers change agencies?

Check out April 2019’s column In Their Own Words. Why Producers Change Jobs to hear from salespeople who made a move in the last 18 months.

with information on the agency’s history and culture, philosophy on client service, risk management/consulting resources and marketing/broker of record (BOR) capabilities. What is your sales pitch to recruit producers? (I’ll pause here for a moment as you think about it). If you struggle with producer recruiting, it’s because you don’t have a good answer to this question. A lot of insurance organizations have no idea what candidates find appealing or attractive about working for them. • Find out why your current producers like working for you. • Use this, verbatim, in your recruiting pitch. • Introduce prospective candidates to those employees during the interview process. They will be honest and positive brand ambassadors. This exercise is a hunt for retention information, too. If your employees cannot answer why they like working for you then you’ve just identified a serious culture problem.

Producer Recruiting & Retention: Your Problem Is Preparation

What is your producer recruiting plan? I’m guessing that you require sales plans from your current producers, so they aren’t just pounding the pavement without direction. Therefore, what’s your strategy to recruit new sales talent? (I’ll pause here for a moment as you think about it.) • The fact is agencies that struggle to recruit producers have zero plan. • They kick back on their laurels and wait for people to come to them. • Their leaders are not actively engaged in ongoing solicitation of new sales talent. INSURANCEJOURNAL.COM

• Rarely do good prospects (people or business) fall in an agency’s lap. You need to be better hunters of men and women. This exercise is about self-reflection. Too many agencies languish in poor producer hiring which leads to poor producer firing. You will retain your best producers if you elevate them from the pack. If you’re keeping marginal people on staff, then you’ll eventually drive the real producers away.

Environmental Insurance since 1990

Producer Recruiting & Retention: Your Problem Is Adaptation What is your producer recruiting profile?

Do you want your current producers to be specialists with a niche market focus? I’m guessing so for very tried and true reasons. Do you apply that same principal to recruiting? (I’ll pause here while you think about your ideal persona.) • Experience. Are you an agency with great training? Then hire newbies. Are you an agency that needs immediate ROI? Then only acquire producers with books. Are you an agency that invests in talent? Then hire experienced, validated producers. • Source. Where do you want producers to come from – across the aisle, big or small agencies or pivot from non-agency firms (carriers, out of industry organizations, college recruiting)? • Location. Is there anyone in your local market? Do you need to relocate people in? Are the best people remote and can launch new offices? This exercise is about self-awareness. You’ve made good and bad producer hires. You should be learning and adapting from each one. If you’re not, then history will repeat itself. Producers who feel like they fit in with your culture will stay. Producers that feel like an anomaly will leave.

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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Idea Exchange: Minding Your Business Whatâ&#x20AC;&#x2122;s New Today in Producer Compensation?

Producer Compensation & Profit Center Model

hat makes a good and motivating producer compensation model does not need to be rocket science. The key is to pay what the agency can afford to pay and for what the firm is providing the producers. Lastly, the plan needs to be in line with the importBy Catherine Oak and ant competition. Total compensation for any agency is always the largest expense category. For the typical agency, total compensation (producer and Bill Schoeffler employee compensation plus benefits and taxes) ranges from 50% to 75% of total revenue. If the compensation is too high, the agency will lose money. If the compensation is too low, then the agency could lose the producers and employees and service may suffer.

What Can the Agency Pay?

The way to calculate what you can afford to pay producers is to take total gross agency commission and fee revenue.

Sample Sample Sample Agency Agency Well-Run Dollars Percentage Agency Percentage 1 Total Commissions $2,000,000 100.0% 100.0% 2 Less: Targeted Agency Profit $360,000 18.0% 24.0% (Before Excess Compensation to Owners) 3 Add: Contingents and Interest $100,000 5.0% 8.0% Income (Use Five Year Average)

Take the total commission revenues and subtract targeted agency profit and add contingents. Enter these amounts into line 4. Enter the amounts for lines 5 and 6, and calculate the percentages.

4 Commission Available for all $1,740,000 87.0% 84.0% Expenses 5 Less: Business Development $160,000 8.0% 6.0% Expenses (Auto, Travel & Entertainment, $360,000 18.0% 15.0% Postage, Dues, Contributions, Advertising & Promotion) 6 Less: Operating Expenses (Rent & Utilities, Supplies & Printing, Insurance, Professional Fees, Bad Debt, Etc.)

Subtract lines 5 and 6 from line 4 and enter total into line 7. Enter the amounts into lines 8, 9, and 10. 7 Balance Left to Pay All Personnel $1,220,000 61.0% 63.0% 8 Less: Management Fee $100,000 5.0% 4.0% 9 Less: Staff Compensation $500,000 25.0% 21.0% (Non-Owner, Non-Producer) 10 Less: Employee Benefits $130,000 6.5% 8.0% (Including Pension/Profit Sharing, Payroll Taxes, Health Insurance)

Subtract lines 8, 9 and 10 from line 7. Enter this amount into line 11. 11 Balance Left to Pay Producer

$490,000

24.5%

30.0%

continued on page 48 INSURANCEJOURNAL.COM

JUNE 15, 2020 INSURANCE JOURNAL | 47

Idea Exchange: Minding Your Business continued from page 47 Then, subtract all necessary ongoing expenses, except producer compensation and any owner compensation or bonuses. It is not recommended to include contingents, since these should be considered bonus income. The next step is to take out an expected fair rate of return on the business for the owners. This typically ranges between 10% to 20% of revenue. This “expense” is the cushion for affordability of producers. If the agency really needs a producer, then the owners might need to dip into their profits to make it happen, at least until they validate. Today, an average firm that properly manages expenses can typically afford to pay commercial lines producers 25% to 35% commission for renewal business. This assumes that the owners want to realize a 10% to 20% pre-tax profit. Keep in mind that if the owner is a producer, their producer compensation is the same 25% to 35% commission and is in addition to the profits of the firm. Owners should also receive management compensation, if they are performing that role. The range of 25% to 35% varies based on whether (and how much) the employer pays for certain expenses, resulting from the producer’s employment and activities. These expenses include employee benefits such as health and related insurances, payroll taxes and retirement plans.

How to Pay Expenses

The producer expenses often include business development expenses such as travel and entertainment, auto and club dues, and cell phones. The best way to properly manage and reward producer business development expenses done by high-performing firms today is to give them about 2% to 4% of their book of business for these expenses. These expenses are perquisites for the producer. This percentage becomes an expense cap for the year, with monthly expense reports still being submitted up to the cap.

Pay More for New Business

New business can be paid at a higher rate, since the calculations assume expens48 | INSURANCE JOURNAL | JUNE 15, 2020

es are mostly paid out of renewal income. Of course, there are expenses associated with writing new business related to marketing and staff time putting the new account together. These are often higher due to the time of staff involved.

If the compensation is too high, the agency will lose money. If the compensation is too low, then the agency could lose the producers and employees and service may suffer. Particularly in agencies that want to grow, a higher percentage is often paid to encourage commercial lines and employee benefits producers to write new business, such as 40% up to 50%. The latter is usually if the agency pays 25% on renewal. This would assume that the owners are giving up some of their profit in the first year, as what is available is closer to 30%. Some aggressive agencies are paying an additional incentive to those producers that exceed their new business growth goals. Some firms today will expect experienced producers to write between $75,000 to $150,000 in new commission per year. This depends on the size of their current book, where the agency is located, etc. If the producer exceeds their goal, the agency may provide an additional bonus of up to 5% commission. This can even become retroactive on all of the new business written for the year.

Who is Doing the Work?

Another key compensation concept is to pay based on who is doing the job. Agencies do differ on certain job tasks performed by various employees. For example, who should do policy checking? In some agencies, this function is performed by the producer, but in others, this function is that of the account manager/ CSR. Still, in others, it is the marketing department if one exists. Today, many firms are delegating their small accounts to AMs/CSRs to sell and service. Thus, many firms pay producers

less commission or even zero for small commercial accounts. Or, there can be a high first year commission, such as 40% to 50%, and nothing on renewal if the account goes to a “Select” or “Small Accounts” person or department. Small is usually defined as those accounts that are business owner package policies or small monoline accounts. However, the definition of small also depends on the firm’s book of business and is usually defined as those accounts generating $1,000 to $2,500 in commission or less in most independent agencies. Where the agency is located and what is available to write in the area can often determine what is the dollar amount cut-off. Larger agencies and national firms often do not pay producers for commercial lines or group benefits accounts under $5,000 in commission.

How is Personal Lines Compensated?

The trend today is to not pay commercial lines producers who also refer personal lines accounts to the personal lines department because the account managers/CSRs are typically doing all of the work. A first-year commission for commercial lines producers for a VIP personal lines package policy may be warranted to encourage them to generate the leads on these much larger personal lines accounts and often do an introduction. Then, the account is handed off to the service staff in the future.

Payment Methods

The method of paying producers should not make a difference in determining what is a fair amount for compensation. Paying the producers their earned commissions each month is typical. Salaries or draws against commission should be considered only as a convenience for producers, since the timing of renewals can produce some lean months. They should be set based on a renewal commission rate because of probable attrition. For example, a producer that handles a $300,000 commission book of business could receive a fixed monthly draw of $5,000. This is based on $300,000 times 25% commission times 80% retention INSURANCEJOURNAL.COM

divided by 12 months. The producer’s compensation would periodically get “trued-up” the following month based on actual renewals and new business generated during the previous month. This allows the producer to have a budget for their income, while keeping them motivated to write new business. Salespeople need these carrots to keep motivated and to feel rewarded. Grandfathering the existing compensation plan for a period of time (or indefinitely) for accounts already on the books is

one way to introduce a new compensation plan and to avoid an immediate impact on producer incomes. This is also true when an agency is acquired. It is best to keep the existing plan in place and introduce the new plan on new business.

Summary

Compensation for owners and producers is not a simple, straightforward measure. There is no single solution. Business goals, owner philosophy and the drivers that motivate individual producers will vary.

June 15, 2020

Homesite Insurance Company of Illinois One North Old State Capitol Plaza, Suite 501 Springfield, IL 62701

Homesite Indemnity Company 8040 Excelsior Drive, Suite 400 Madison, WI 53717

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.

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.

June 15, 2020

Homesite Insurance Company of California 2710 Gateway Oaks Drive, Suite 150N Sacramento, CA 95833

Homesite Insurance Company of New York 708 Third Avenue, Suite 2500 New York, NY 10017

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.

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Each agency needs to blend the right ingredients for an effective compensation plan to attract and retain good producers. Being creative and trying new things (which may include some of the ideas in this article) may be the healthy change the agency needs to be competitive and become more profitable today. 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.

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JUNE 15, 2020 INSURANCE JOURNAL | 49

Closing Quote Triple Threats of Changes lockdown that has severely impacted business for the industry and all its customers.

By Robyn Hahn

Consumer empowerment, generational shifts, and a crisis disruption converge.

he movie, Hidden Figures, dramatized the U.S. space program’s unsolved math and science problems as it prepped to put John Glenn into orbit in 1961. Three brilliant, but previously shunned African-American workers, had to climb over scientific and societal obstacles to help launch and land the astronaut safely. Likewise, the insurance industry must look for previously unknown people and approaches to face a triple threat of challenges:

1. Continue responding to a consumer revolution enabled by social media and technology. 2. Create a new workforce combining existing and up-and-coming generations. 3. Confront the unprecedented crisis of a nationwide health

The first two challenges are not new in this tradition-bound industry, but they’re now complicated by the disruption caused by the pandemic, which has hit the industry’s workforce as well as customers, operations and financial performance. Whether on the insurance carrier/reinsurer side or the agency distribution channel, employers must reinvent their workforce. This triple threat also presents an opportunity. At the agencies and carriers where I’ve worked, determined and creative leaders have successfully boosted the competitiveness of their workforces. Here are thoughts on how the industry can wrestle with these three challenges:

1. Consumers in Charge

There’s a massive opportunity for agents to understand customer behaviors in new and better ways. It’s only right, then, for insurance carriers to facilitate that understanding in conjunction with their agents. Agencies should not be the only parties in the distribution relationship to invest in what I call the “Big 3” — talent and perpetuation, digital customer experience, and data analytics. Customers have individual

50 | INSURANCE JOURNAL | JUNE 15, 2020

perspectives and want to engage in different ways whether across a desk, the net, or by phone. Every carrier and agency must throw out the myth that everything is going digital. Customers who prefer digital experiences also sometimes want to talk with someone.

2. Talkin’ ‘Bout My Generation — and Yours

By 2022, the U.S. insurance industry will need to replace 295,000 workers. A research firm, The Future Hunters, labels what is happening in the workplace as an “intergenerational cauldron — a situation characterized by instability and strong emotions.” Insurance employers must make themselves interesting to people who have never thought about an insurance career. The recruiting pipeline at Westfield is based on three premises: who we are looking for, how we access them, and the experience they desire and that we deliver. Along with other optimistic insurance firms, Westfield dramatically altered hiring patterns, taking on bright young minds without insurance experience, but with new skillsets. Two generations of Westfield workers are meeting in the middle and changing each other: long-standing employees teach insurance workflows and solutions; new employees

teach new capabilities, helping to unleash the power of artificial intelligence and other tools. The interdependence of veterans and newcomers stretches the organization, and, most encouraging, supports customer centricity.

3. How Will the Pandemic Change the Independent Channel?

Each agency and carrier already knows they face a months-long process of assessing how clients might be affected. • How can we help small businesses emerge from the crisis? • How will their risk management and insurance needs change? • What new customers can agencies and carriers attract in a contracted economy? Every insurance leader must create and update a perspective on these challenges, and all must be prepared for the digital, holistic transformations. That’s our role as leaders: to help the business see around the corners and stay ahead of changing customer expectations. Hahn is president, small business, at Westfield, a super regional insurance carrier that offers commercial lines coverages in 21 states and personal lines coverages in 10 states through independent agents.

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â&#x20AC;&#x153;Insurance Journal provides agency owners useful information they can put to use in their agencies right away.â&#x20AC;? Kristy Longfellow Vice President at Hobson Insurance & Satisfied Insurance Journal Subscriber

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Expect big things in workers’ compensation. Most classes approved, nationwide. It pays to get a quote from Applied.® For information call (877) 234-4450 or visit auw.com. Follow us at bigdoghq.com.