Insurance Journal West 2021-02-08 by Insurance Journal

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February 8, 2021 • Vol. 99 No. 3

Contents

News & Markets

Idea Exchange

Special Report

Global Catastrophe Economic Losses Largely Unaddressed by Insurance

Closer Look: 2021: The Year of Insurance Agency E&O Lawsuits

12 Pandemic-Related Business

28 Special Report:

16 Insurance Agency M&A

36 Spotlight:

Interruption, Cyber Top Business Risks for 2021: Allianz

Deals Surged 20% in Year of Pandemic: OPTIS

Surfacing Emerging Risks from COVID, Cyber, Civil Unrest, Mergers and More

COVID-19 and Employment Practices Litigation

4 | INSURANCE JOURNAL | FEBRUARY 8, 2021

The Wedge: Grow Big or Go Home: 5-Step Hiring Process to Help Your Agency Grow

Long-Term Vision Is Key to Agency Planning

The Myth of the ‘Surplus Lines Agent’

USAA, Serving Military and Veterans, Enters Small Business Insurance Market

Departments 6 Opening Note

Is It Covered?: Let It Snow, Let It Snow!

Closing Quote: What the Recessionary Environment Means for E&O Exposures

10 Declarations

10 Figures

18 Business Moves

20 People

46 My New Markets

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Opening Note Write the Editor: awells@insurancejournal.com

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

ADMINISTRATION / CIRCULATION

Consumers and Insurers’ Use of Personal Data

f it means reduced premiums, consumers are willing to share their personal information with insurers but they question whether insurers can protect their data. The number of consumers willing to share significant data on their health and lifestyle habits with their insurance company in an effort to reduce premiums has grown over the past two years, according to a report from professional services firm Accenture. But consumer trust on whether or not insurers will protect that data has fallen. Accenture’s Global Insurance Consumer Study examined consumer preferences and trends in insurance, building on similar reports from 2019 and 2017. The study found that seven out of 10 consumers (69%) say they would share significant data on their health, exercise and driving habits in exchange for lower prices from their insurers, compared with 58% two years ago. In addition, two-thirds (66%) of consumers say they would also share significant data for personalized services to prevent injury and loss — up from 54% in the 2019 report. But while consumers are more willing to share personal data, their concerns about intrusiveness and its impact on premiums have grown. Also, their confidence in their insurers’ ability to look after their data has diminished. For instance, just under a third (32%) of consumers say they significantly trust insurers to look after their data, down from 40% in the 2019 report. “Consumers are embracing the data-for-personalized-pricing trend and want insurers to reward their efforts to improve their well-being, but it comes with a warning that trust is waning, and they want to feel in control of their data,” said Kenneth Saldanha, who leads Accenture’s Insurance industry group globally. He said that insurers that are creating personalized insurance offerings based on behavior will need to be transparent and responsible with their customers’ data for these partnerships to succeed. “To earn consumers’ trust, insurers will need to show that their customers’ well-being is at the core of their business,” Saldaha said. The report also finds that insurers may need to re-evaluate the role of human workers, particularly as COVID-19 has accelerated the industry’s adoption of digital insurance services. For instance, the number of respondents over the age of 55 who said they would like the internet chat and video insurance claim process to replace the traditional in-office claim process increased by three percentage points to 71%. The study suggest that consumers overall still trust human advisors more than digital touchpoints for certain services. One example: Half (49%) of consumers trust a human advisor in a branch when making an insurance claim, while only 12% trust an automated digital service and just 7% trust a chatbot. Accenture surveyed 47,810 respondents across 28 markets. The survey was conducted online during July and August 2020.

‘To earn consumers’ trust, insurers will need to show that their customers’ well-being is at the core of their business.’

Andrea Wells Editor-in-Chief

6 | INSURANCE JOURNAL | FEBRUARY 8, 2021

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: Tony Caldwell, Gregory W. Leffard, Zach Lerner Columnists: Randy Schwantz, Bill Wilson

SALES / MARKETING

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

DESIGN / WEB / VIDEO

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

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News & Markets Global Catastrophe Economic Losses Largely Unaddressed by Insurance

here were 416 natural catastrophe events globally in 2020 that resulted in economic losses of $268 billion – 8% more than the average annual losses for this century, according to insurance broker Aon’s latest catastrophe loss report. Of this total, private sector and government-sponsored insurance programs covered $97 billion, leaving a protection gap of 64%, which is the portion of economic losses not covered by insurance. Aon’s report, Weather, Climate & Catastrophe Insight: 2020 Annual Report, notes that costs from catastrophes continue to rise due to a changing climate, more people moving into hazard-prone areas and an increase in global wealth. During the year, more than 8,000 people lost their lives due to natural catastrophes. Tropical cyclone was the costliest peril, causing more than $78 billion in direct economic damage. It was closely followed by flooding ($76 billion) and severe convective storm ($63 billion). From a climate perspective, the National Oceanic and Atmospheric Administration (NOAA) cited 2020 as the world’s second-warmest since 1880 for land and ocean temperatures at +0.98°C (+1.76°F) above the 20th-century average. Aon CEO Greg Case said future organizations will need to deal with more than one catastrophe at a time. “The global response to the socioeconomic volatility caused by the COVID-19 pandemic has increased focus on other systemic risks – particularly climate change – and is causing a fundamental reordering of business priorities. This report highlights the increasing likelihood of ‘connected extremes’ and reinforces that leading organizations of the future will be defined by their ability to manage the global implications of concurrent catastrophic events,” Case said. He added that the experiences of 2020 have also emphasized the need for more collaboration between the public and private sectors, calling this essential to closing the rising protection gap and building resilience against natural catastrophes. 8 | INSURANCE JOURNAL | FEBRUARY 8, 2021

In this Aug. 27, 2020 file photo, buildings and homes are flooded in the aftermath of Hurricane Laura near Lake Charles, La. (AP Photo/David J. Phillip, File) According to the report, catastrophic events will increase in frequency and intensity “and in ways that are impossible to predict using conventional risk assessment methods.” The authors contend that while catastrophe modeling has been conducted primarily in the private sector, academia and government scientists have taken the lead on the science of climate change. The report also advises the insurance industry to develop more of a bespoke view of risk, which will in turn allow them to reduce their “dependence on model vendors to measure their catastrophic risk and gain greater confidence in their risk tolerance thresholds.” Steve Bowen, director and meteorologist for Aon’s Impact Forecasting team, agreed that the world will be faced with new challenges around natural perils. “While many private and public sector entities primarily focus on physical and human hazard risks, an increasing number of global regulative bodies are further pivoting towards how to handle emerging transitional and subsequent reputational risks,” Bowen said. “This is especially true as the financial and humanitarian risks surrounding climate-enhanced events become more evident on a daily basis. Focus at the corporate and federal levels

will be critical around investments in risk mitigation, resilience, and sustainability as the landscape around climate change solutions continues to accelerate with renewed urgency.” Significant regional events during 2020 included: • Costliest year on record for global severe convective storms led by historic U.S. derecho • U.S. mainland endured a record breaking 12 named storm landfalls, including six hurricanes • Super Typhoon Goni struck the Philippines as the strongest landfalling storm ever recorded globally at 195 mph • Ciara became Europe’s costliest wind storm since Xynthia in 2010 • Drought conditions reduced agricultural crop yields in Brazil and Argentina, burning 30% of the Pantanal Region • The most widespread Yangtze River Basin floods since 1998 caused USD35 billion of economic damage in China’s monsoon season The full report is available on Aon’s interactive microsite at https://aon. io/3nsM7cu. To access current and historical natural catastrophe data, as well as event analysis, visit catastropheinsight.aon.com. INSURANCEJOURNAL.COM

Figures $1.5 Million A late October 2020 cyber-attack on the computer systems of the University of Vermont Medical Center cost the hospital about this amount per day in lost revenue and recovery costs, its CEO said. The Associated Press reported that the Oct. 28 attack crippled the computer systems of the hospital system that serves much of Vermont and parts of upstate New York.

Declarations Insurance Fraud Costs

“Insurance fraud is not a victimless crime. When false claims are made and money is stolen from insurance companies, it forces all of our insurance rates to increase and costs each of us hard-earned money.” — Westchester County, N.Y., District Attorney Anthony A. Scarpino Jr., announcing the takedown of Operation Sledgehammer, in which five registered businesses and nine defendants were charged with enterprise corruption for defrauding insurance companies by enhancing motor vehicle damage and falsifying insurance claims. The enterprise insurance fraud scheme operating in lower Westchester and the Bronx was taken down following a nearly two-year long investigation. Three more individuals were charged on separate felony complaints with other crimes relating to the scheme.

10 | INSURANCE JOURNAL | FEBRUARY 8, 2021

A Big Question

“My big question is why is he even allowed out, why is this guy allowed to be out there endangering our community? … In 32 years of policing I have never seen someone with that many priors.” — Green Bay, Wisconsin, Police Chief Andrew Smith comments after 73-year-old Wallace Bowers, of Green Bay, was charged with his 18th drunken driving offense, after a crash on Jan. 8 that took out power lines and caused an outage. Wisconsin law now requires driver’s licenses to be revoked after a 4th OWI conviction if the most recent conviction was within 15 years. Bowers’ last conviction was in 2011, before the law went into effect in 2018.

Contributing Factors

“Considerations such as the pandemic, economic downturn, loss of juvenile outreach programs and public safety budgetary and resource limitations are likely contributing factors. … Thieves exploit opportunities and may look for vehicles parked in the same location or citizens not taking proper measures to secure their vehicles.” — National Insurance Crime Bureau President and CEO David Glawe, on the NICB’s analysis of data from FBI’s National Crime Information Center showing a significant increase in automobile thefts in 2020 compared with 2019. The data is preliminary, but the analysis indicates every month in 2020 showed increases compared to 2019. Each month from June through December showed double digit gains.

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$221 Million The amount Springdale, Arkansas-based Tyson Foods said it will pay to settle a class action suit alleging price-fixing among chicken producers. The industry was accused of purposely inflating the price of chickens sold for meat for at least eight years. Tyson admitted no liability, saying the settlement is in the best interests of the company and its stakeholders. Walmart and Chick-fil-A are among the major grocery stores and restaurants that joined the complaint alleging they had spent billions on overpriced chicken.

$9.8 BILLION

That’s how much California may have paid out in phony coronavirus unemployment claims, with some of that money going to organized crime in Russia, China and other countries.

Preventable Disaster

“The disaster could have been prevented if Atmos Energy had done what they needed to do.” — National Transportation Safety Board Chairman Robert Sumwalt said regarding a natural gas explosion at a Dallas home in February 2018 that killed a 12-year-old girl. The NTSB reported in January 2021 that Atmos had failed to locate a damaged line despite two nearby homes being destroyed in gas-related fires on two days prior to the 2018 blast. NTSB officials said Atmos didn’t adequately investigate the first two fires. After the first two incidents, Atmos Energy should have isolated the natural gas line and evacuated residents, they said.

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Fire Tragedy

“The fire destroyed our family, we have never been the same. There’s never going to be just punishment for what all the victims lost.” — Zita Gregory, grandmother of Michela Gregory, a victim of a San Francisco Bay Area warehouse fire where 36 people died, commented on the January sentencing of Derick Almena, who pleaded guilty to involuntary manslaughter in exchange for a 12-year sentence.

COVID-19 Liability Protection

This legislation not only covers businesses, but it covers people, it covers educational institutions, it covers government entities and, frankly, it covers your churches. All of those are currently exposed. We need to create a safe harbor for those business that substantially complied with the guidelines.” — Florida State Senator Jeff Brandes on a bill that would give Florida businesses liability protection from coronavirus lawsuits. The liability would only apply if businesses show they made a good effort to follow state guidelines to prevent the spread of COVID-19, and would retroactively cover businesses, individuals and other organizations. The Senate Judiciary Committee moved the bill forward by a 7-4 vote with Republicans supporting it and Democrats opposed.

FEBRUARY 8, 2021 INSURANCE JOURNAL | 11

News & Markets Pandemic-Related Business Interruption, Cyber Top Business Risks for 2021: Allianz

here was no escaping the coronavirus in 2020 and the pandemic will dominate the risk landscape again in 2021, according to global leaders in business, risk management and insurance. A trio of Covid-19 related risks — business interruption, the pandemic outbreak and cyber incidents— heads up the 10th Allianz Risk Barometer 2021, reflecting potential disruption and loss scenarios companies are facing in the wake of the coronavirus pandemic. Business interruption (#1 with 41% responses) and pandemic outbreak (#2 with 40%) are this year’s top business risks with cyber incidents (#3 with 40%) ranking a close third. The annual survey on global business risks from Allianz Global Corporate & Specialty (AGCS) incorporates the views of 2,769 experts in 92 countries and territories, including CEOs, risk managers,

brokers and insurance experts. The barometer identifies the top corporate risks for the next 12 months and beyond. “Business interruption, pandemic and cyber are strongly interlinked, demonstrating the growing vulnerabilities of our highly globalized and connected world,” said AGCS CEO Joachim Müller. “The coronavirus pandemic is a reminder that risk management and business continuity management need to further evolve in order to help businesses prepare for, and survive, extreme events.” He said that while the pandemic continues to have a firm grip on countries around the world, businesses also have to prepare for “more frequent extreme scenarios, such as a global-scale cloud outage or cyber-attack, natural disasters driven by climate change or even another disease outbreak.”

‘Business interruption, pandemic and cyber are strongly interlinked, demonstrating the growing vulnerabilities of our highly globalized and connected world.’ The Covid-19 crisis continues to represent an immediate threat to both individual safety and businesses, which explains why pandemic outbreak rocketed 15 positions up to #2 in the rankings at the expense of other risks. Prior to 2021, it had never finished higher than #16 in 10 years of the Allianz Risk Barometer. However, in 2021, it’s the number one risk in 16 countries and among the three biggest risks across all continents and in 35 out of the 38 countries which qualify for a top 10 risks analysis. Japan, South Korea and Ghana are the only exceptions. The risk of rising insolvency rates is reflected in market developments (#4 with 19%) climbing up the barometer in 2021. According to Euler Hermes, the bulk of insolvencies will come in 2021. The trade credit insurer’s global insolvency index is expected to hit a record high for bankruptcies, up 35% by the end of 2021, with top increases expected in the U.S., Brazil, China and core European countries. Further, Covid-19 will likely spark a period of innovation and market disruption, accelerating the adoption of technology, hastening the demise of incumbents and traditional sectors and giving rise to new competitors. Other risers include macroeconomic developments (#8 with 13%) and political risks and violence (#10 with 11%) which are, in large part, a consequence of the coronavirus outbreak too. Fallers in this year’s survey include changes in legislation and regulation (#5 with 19%), natural catastrophes (#6 with 17%), fire/explosion (#7 with 16%), and climate change (#9 with 13%), all clearly superseded by pandemic concerns.

continued on page 14 12 | INSURANCE JOURNAL | FEBRUARY 8, 2021

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News & Markets breaches continue their upward trend.”

Macroeconomic Developments

continued from page 12 Pandemic Drives Disruption – Now and in Future

Prior to the Covid-19 outbreak, business interruption (BI) had already finished at the top of the Allianz Risk Barometer seven times, and it returns to the top spot after being replaced by cyber incidents in 2020. The pandemic shows that extreme global-scale BI events are not just theoretical, but a real possibility, causing loss of revenues and disruption to production, operations and supply chains. 59% of respondents highlight the pandemic as the main cause of BI in 2021, followed by cyber incidents (46%) and natural catastrophes and fire and explosion (around 30% each). The pandemic is adding to the growing list of non-physical damage BI scenarios such as cyber or power blackouts. “The consequences of the pandemic – wider digitalization, more remote working and the growing reliance on technology of businesses and societies – will likely heighten BI risks in coming years,” said Philip Beblo, expert in AGCS’s global Property underwriting team. “However, traditional physical risks will not disappear and must remain on the risk management agenda.” In response to heightened BI vulnerabilities, many companies are aiming to build more resilient operations and to de-risk their supply chains. According to Allianz Risk Barometer respondents, improving business continuity management is the main action companies are taking (62%), 14 | INSURANCE JOURNAL | FEBRUARY 8, 2021

followed by developing alternative or multiple suppliers (45%), investing in digital supply chains (32%) and improved supplier selection and auditing (31%). According to AGCS, many companies found their plans were quickly overwhelmed by the pace of the pandemic.

Cyber Perils

Cyber incidents may have slipped to #3, but it remains a key peril with more respondents than in 2020 and still ranking as a top three risk in many countries, including Brazil, France, Germany, India, Italy, Japan, South Africa, Spain, UK and the U.S. The acceleration toward greater digitalization and remote working driven by the pandemic is also further intensifying IT vulnerabilities. At the peak of the first wave of lockdowns in April 2020, the FBI reported a 300% increase in incidents alone, while cyber crime is now estimated to cost the global economy more than $1 trillion, up 50% from two years ago. Already high in frequency, ransomware incidents are becoming more damaging. Covid-19 has shown how cybercriminals are able to adapt and how the pandemic has created opportunities for intrusions. “Attackers are innovating using automated scanning to identify security gaps, attacking poorly secured routers or even using ‘deepfakes’ – realistic media content modified or falsified by artificial intelligence,” said Catharina Richter, global head of the Allianz Cyber Center of Competence at AGCS. “At the same time, data protection and privacy regulation and fines for data

Macroeconomic developments is up to #8 and political risks and violence (#10) returns to the top 10 for the first time since 2018, reflecting the fact that civil unrest, protests and riots now challenge terrorism as the main exposure for companies. The number, scale and duration of recent events, including Black Lives Matter protests, anti-lockdown demonstrations and unrest around the U.S. presidential election, have been exceptional. As the socioeconomic fallout from Covid-19 mounts, further political and social unrest is likely, with many countries expected to experience an increase in activity in 2021 and beyond, particularly in Europe and the Americas, according to AGCS analysts.

Legislation and Regulation

Changes in legislation and regulation drops from #3 to #5 year-on-year. “The pandemic may have caused some delays of the regulatory train, but it did not stop or even derail it. Quite the opposite, 2021 promises to become a very busy year in terms of new legislation and regulation, particularly in the areas of data and sustainability,” predicts Ludovic Subran, chief economist at Allianz. Natural catastrophes falls to #6 from #4, reflecting the fact that although aggregated losses from multiple smaller events such as wildfires or tornadoes still led to widespread devastation and considerable insured losses in 2020, it was also the third consecutive year without a single large event, such as Hurricane Harvey in 2017.

Climate Change

Climate change also falls to #9. However, the need to combat climate change remains as high as ever, given 2020 was the joint hottest year ever recorded. “With the vaccination campaign coming into effect, climate change will be back on the board agenda as a priority in 2021,” said Michael Bruch, global head of ESG at AGCS. “Many companies need to adjust their business for a low-carbon world – and risk managers need to be at the forefront of this transition.” INSURANCEJOURNAL.COM

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News & Markets Insurance Agency M&A Deals Surged 20% in Year of Pandemic: OPTIS

here were 744 announced insurance agency mergers and acquisitions in 2020, up nearly 20% from 649 reported in 2019. The surge resulted from the pent-up supply of pending transactions from earlier in the year coupled with sellers looking to avoid an expected increase in capital gains taxes. Private equity buyers continued to dominate the activity. About half of all transactions involved sellers of property/ casualty agencies. According to a report by insurance consulting firm OPTIS Partners, the 290 deals during the fourth quarter of 2020 marked a 68% increase from 173 in 2019. It was 61% more than the 180 transactions reported for the third quarter of 2020, as the country learned how to cope with the pandemic. The OPTIS data covers U.S. and Canadian agencies selling primarily property/casualty insurance, agencies selling both P/C and employee benefits, and those selling only employee benefits. “Most buyers continue to unabatedly pursue deals, though several have drawn back somewhat as they integrate acquired firms. There were also new buyers coming on line that have made significant head16 | INSURANCE JOURNAL | FEBRUARY 8, 2021

way with their acquisitions,” said Steve Germundson, partner at OPTIS Partners, an investment banking and financial consulting firm specializing in the insurance industry.

Buyer and Sellers

The report breaks down buyers into four groups: private equity-backed/hybrid brokers, privately held brokers, publicly held brokers, and all others. Sellers are classified as property/casualty brokers, property/casualty and employee benefits brokers, employee benefits brokers, and all others. Acrisure continued to lead all buyers with 108 transactions in 2020, which is consistent with their four-year average of about 100 deals per year. Other top buyers were Hub International with 64 acquisitions (up from 52 in 2019) and Broadstreet Partners with 58 deals (up from 34 in 2019), and newcomer to the top of the list, World Insurance Associates with 42 (up from 18 in 2019). Other buyers considered “most active” include PCF Insurance with 36 (up from 6) and OneDigital with 29 (up from 17 in 2019). Several other historically active buyers saw their transaction count drop somewhat

in 2020 including AssuredPartners, at 38 compared to 44, Gallagher from 34 to 23 and Hilb Group from 25 to 22.

Private Equity

The private equity-backed/hybrid group of buyers continues to dominate the volume of transactions at approximately 70% of the total. Acquisitions completed by privately held firms and publicly traded companies held steady at 17% and 9% of all deals, respectively. P/C agency sellers accounted for 397 of the total 774 transactions (51%), consistent with their percentage of the totals in recent years. OPTIS thinks M&A activity will also be significant in the new year for several reasons. “While it may not be quite as active as 2020, 2021 will probably be very active as a new wave of sellers looking to avoid an expected capital gains tax increase or simply to sell with a growth story emerge. Agency valuations and multiples for high-quality firms should continue to reach new upper limits as demand remains strong and the supply of quality firms is reduced,” said Tim Cunningham, managing partner of OPTIS Partners. INSURANCEJOURNAL.COM

Business Moves

East

World Insurance Associates, The Watts Group

World Insurance Associates LLC has acquired The Watts Group LLC of West Hartford, Conn. Founded in 2003 by Mike Watts, The Watts Group is a surety bond and property/ casualty agency serving the New England region. 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 85 acquisitions and serves its customers from 71 offices in 16 states. Giordano, Halleran & Ciesla provided legal counsel to WIA. Andros, Floyd & Miller provided legal counsel to The Watts Group. No other advisors, diligence firms or legal counsel were disclosed.

Arthur J. Gallagher & Co., Cool Insuring Agency

Arthur J. Gallagher & Co. has acquired Queensbury, N.Y.-based Cool Insuring Agency Inc. Founded in 1857, Cool Insuring Agency provides commercial, personal, life and health insurance and consulting services to clients across the Northeastern U.S. from offices in Queensbury and Latham. The agency specializes in serving construction and healthcare industry clients, as well as governments and municipalities, 18 | INSURANCE JOURNAL | FEBRUARY 8, 2021

which together account for more than half of its revenues. Cool Insuring Agency President Anthony Mashuta and Ira Neifeld, senior vice president, director and principal, and their associates will continue to operate from their current locations under the direction of Patrick Kennedy, head of Gallagher’s Northeast Region retail property/casualty brokerage operations, and Tom Belmont Jr., head of Gallagher’s Atlantic Region employee benefit consulting and brokerage operations. Arthur J. Gallagher & Co., a global insurance brokerage, risk management and consulting services firm, is headquartered in Rolling Meadows, Ill.

Midwest

World Insurance Associates, Two Rivers Insurance

World Insurance Associates LLC has acquired Two Rivers Insurance Co. Inc. of Burlington, Iowa. TRIC includes Two Rivers Insurance Services (TRIS) and Employee Benefits Systems. TRIC will continue to be headquartered in Burlington, Iowa, and will continue to offer insurance from its offices in Ft. Madison, Earlham and West Des Moines. Todd Ackerman will continue as president and CEO. World Insurance Associates LLC is headquartered in Tinton Falls, N.J.

First MainStreet, Nissen-Caven Insurance, Tyler Insurance Services

First MainStreet Insurance, an affiliate of TrueNorth Companies, has acquired two Iowa-based agencies: Nissen-Caven Insurance and Tyler Insurance Services. Nissen-Caven Insurance joined FMSI on Nov. 1, 2020. Since 1925, Nissen-Caven has been providing insurance products to the people of Maquoketa, Iowa and surrounding areas. Nissen-Caven’s staff of three remain fully intact and will eventually join FMSI’s Engel Agency, also located in Maquoketa. Combining both agencies gives FMSI increased market share in Jackson County and bench strength to add more right fit-clients in the surrounding area. FMSI acquired Tyler Insurance Services, effective Dec. 31, 2020. With two offices in Creston and Mt. Ayr, Iowa, Tyler Insurance has been a part of the community for over 50 years. Owned and operated by Phil Tyler for 27 years, Tyler Insurance brings insurance solutions to Southwest Iowa. Coming into the partnership on this new entity is Devon Tyler-Leith. Tyler-Leith's role ensures that this FMSI location will remain a local and family run agency.

The Hilb Group, Owen Moore Insurance

The Hilb Group LLC acquired Linwood, Michigan-based Owen Moore Insurance Agency (OMA) in a transaction that was effective Dec. 31, 2020. OMA is a full-service property/casualty agency, providing a broad range of personal and commercial insurance products and services to individuals and businesses. As a part of the transaction, Randal Moore and his team will join the THG’s Midwest region. THG is a property/casualty and employee benefits insurance brokerage and advisory firm headquartered in Richmond, Virginia. THG is a portfolio company of The Carlyle Group, a global investment firm.

South Central

Hub International, Commercial Insurance Brokers

Global insurance broker Hub International Limited has acquired the INSURANCEJOURNAL.COM

assets of Commercial Insurance Brokers Inc., based in El Paso, Texas. Commercial Insurance Brokers is a locally owned, independent insurance agency that provides commercial and personal insurance solutions. Ken Foster, president of Commercial Insurance Brokers, and vice presidents Maggie Foster, Richie Grodin and Martha Ramirez, will join Hub Texas and report to Don Margo, president of Hub Texas in El Paso.

Constellation will allow INSUREtrust to broaden its technology enabled products and continue to develop its risk management platform. Marsh Berry & Co was exclusive advisor to the seller. Constellation Affiliated Partners is a New York-based insurance consolidator platform that specializes in acquiring MGA, program administrator and wholesale companies in the U.S. and Canada.

Shields Insurance Agency CEO Bry Shields will join Hub Gulf South, and report to Shaun Norris, president of the region. Headquartered in Chicago, Hub International Limited provides risk management, insurance, employee benefits, retirement and wealth management products and services.

Upland Capital Group, Newlight Partners

The Hilb Group LLC has acquired North Carolina-based Dwayne Wilson Insurance & Financial Services Inc. The transaction became effective on Dec. 31, 2020. DWI is a full-service life and health agency, providing a range of insurance products and advisory services to employer groups and individuals. As a part of the transaction, Dwayne Wilson and his team will join the Hilb Southeast region. THG is a property/casualty and employee benefits insurance brokerage and advisory firm headquartered in Richmond, Virginia. It is a portfolio company of The Carlyle Group, a global investment firm.

The Hilb Group, Dwayne Wilson

Sarasota, Florida-based Purmort & Martin Insurance Agency, a locally owned insurance agency, has acquired Jeff DeJongh and Associates to further expand its presence in the region. Located in Sarasota, Florida, Jeff DeJongh and Associates is a property/ casualty insurance agency that serves Hillsborough, Manatee, Pinellas and Sarasota Counties. Jeff DeJongh, who has more than 18 years of sales and management experience in the insurance, financial services and medical and dental device professions, will join Purmort & Martin Insurance Agency as the vice president of sales. Jeff DeJongh and Associates’ three staff members will join the 26 other sales professionals in Purmort & Martin Insurance Agency’s Sarasota office. Purmort & Martin Insurance Agency has been a part of the local community since 1959. It employs more than 25 full-time insurance professionals.

Upland Capital Group, a Dallas-based specialty insurance business led by longtime insurance and investment executives, has opened for business. Upland is funded through an equity investment of up to $200 million from Newlight Partners LP, a growth equity investor, and an additional investment from the company’s executive management team. Upland offers a diversified portfolio of excess and surplus lines casualty, property and specialty insurance products.

Southeast

Constellation Affiliated Partners, INSUREtrust

Constellation Affiliated Partners has acquired INSUREtrust, a specialty wholesale broker and managing general agency (MGA) headquartered in Atlanta, Georgia. INSUREtrust, founded by Steve Haase in 1997, is a specialty wholesale broker and MGA, distributing cyber liability, technology errors and omissions and miscellaneous professional liability coverages. The INSUREtrust has also promoted Christiaan Durdaller to president and CEO. Durdaller will take over for CEO and Founder Steve Haase in his retirement from INSUREtrust. Durdaller will continue to oversee the strategy, company products, partnership and production. Bill Goldstein, CEO of Constellation, said INSUREtrust’s team of brokers and underwriters and its development of technology to drive business were driving forces behind the new partnership. Durdaller said the new partnership with INSURANCEJOURNAL.COM

Hub International, MPE Employee Benefit Services, Shields Insurance Agency

HUB International Limited, a global insurance broker, has acquired the assets of MPE Employee Benefit Services. Located in Ridgeland, Miss., MPE Employee Benefit Services is a third-party administrator providing administration services and employee benefit plan design and solutions to employers throughout the Southeast. MPE Employment Benefit Services President Bill Saint Sing will join Hub Gulf South, and report to Shaun Norris, president of the region. In a separate transaction, Hub International Limited has acquired the assets of Shields Insurance Agency. With locations in Birmingham and Mobile, Alabama, Shields Insurance Agency is independently owned and provides services for clients’ specific insurance needs, including personal and business.

Purmort & Martin Insurance Agency, Jeff DeJohng and Associates

West

Alera Group, CSNW Benefits

Alera Group has acquired CSNW Benefits in Portland, Oregon. The CSNW Benefits team will continue serving clients in their existing roles. CSNW Benefits serves clients throughout the Northwest region, creating employee benefits and retirement services plans. The firm serves clients in a variety of industries, with specific vertical expertise in manufacturing and non-profits. Deerfield, Illinois-based Alera Group serves clients nationally in employee benefits, property/casualty, retirement services and wealth management. FEBRUARY 8, 2021 INSURANCE JOURNAL | 19

People National

Nationwide wholesale insurance broker CRC Group has appointed

Garrett Koehn

Garrett Koehn and Brent Tredway as

co-presidents of the company’s Brokerage Division, effective January 1, 2021. The Brent Tredway company said Koehn and Tredway assume national leadership roles but divide primary responsibilities. San Francisco-based Koehn leads the company’s efforts around engagement with national customers and the London market, diversity, equity and inclusion and insurtech strategies and partnerships. Houston-based Tredway leads the company’s efforts around carrier engagement, new and emerging markets and sales management. Koehn has been responsible for CRC Group’s overall operations in the western states, as well as serving as a director of Corona Underwriters, an underwriting subsidiary. Prior to overseeing the western U.S. for CRC, Koehn was a senior executive with Crump and Tri-City Brokerage. He started his career at Marsh. His insurance brokerage expertise is centered on professional lines and specifically directors and officers, private equity, cyber and intellectual property. Tredway, now serving as president-Houston for CRC, has been with CRC for close to 24 years. Prior to CRC, he

was with Henry Ward Johnson from 1989 to 1997 as a casualty broker and leader of brokerage and underwriting divisions. Both Koehn and Tredway will report to Mike Brennan, who became CEO of the company’s Commercial Solutions business on January 1, 2021. No leadership changes are being made to the company’s binding operations, which will continue to be led by West McAdams, president of the Binding Division, who also reports to Brennan. Brennan reports to CRC Group CEO Dave Obenauer.

East

Kaplansky Insurance has

appointed

Donna Stanton to

Southeast Donna Stanton

vice president of Business Development. In her previous role within the agency, Stanton served as director of Business Development. She brings 29 years of sales, leadership and agency management experience to her role. Before joining Kaplansky Insurance, Stanton spent 15 years working for a countrywide insurance carrier. Founded in 1974 and headquartered in Needham, Massachusetts, Kaplansky Insurance is an independent insurance agency offering a suite of insurance solutions including auto, home, business, life and financial services.

Everest Insurance has named Robert Clark as senior

vice president and head of Everest Specialty Underwriters (ESU). Clark will continue to be based in the company’s New York City office, reporting to

20 | INSURANCE JOURNAL | FEBRUARY 8, 2021

Everest Insurance President and CEO Mike Karmilowicz. In his capacity as head of ESU, Clark will be responsible for leading the growth and management of the ESU business segments, including financial and professional lines, alternative solutions such as transactional liability and private equity, political risk and trade credit and surety. Clark has been a leader at Everest since joining the organization in October 2015 as vice president and head of Alternative Solutions. During his tenure at Everest, he has built out the division’s global transactional risk and private equity industry practice groups.

McGowan Allied Specialty Insurance (MASI), a provider of

commercial insurance products to the amusement industry, has announced the hiring of Joe K. Boyd as an underwriting manager. In his new role with MASI, Boyd will be responsible for managing a team of underwriters within industry verticals in its underwriting practice and negotiating and placing both facultative and treaty reinsurance for the group’s insurance portfolio. He will also be charged with regulatory compliance and filings, reporting to Director of Underwriting Steve Del Vecchio. Boyd has more than 20 years of experience in the commercial insurance space, including time spent in claims, underwriting, loss prevention, marketing, compliance and agency relations. The last 10 years of his career were spent at the United Church Insurance Association in roles

of increasing responsibilities, most recently as director of underwriting. McGowan Allied Specialty Insurance brings together two companies — Allied Specialty Insurance and McGowan Amusement Group — with a focus on the amusement and entertainment industries.

Global Risk Solutions Inc., a provider of claims adjusting and environmental risk management services, has added Colm Keenan as executive vice president and chief of Learning & Marketing. Keenan will be based in Sarasota, Florida, and report to Kip Radigan. Keenan has experience as a claims industry executive, including with training, e-learning and technical performance programs. Before joining GRS, he was director of training at Pilot Catastrophe Services and former vice president of e-learning at Crawford & Company. Earlier in his career, he launched and marketed an internet service company used by insurance companies to provide claims training and performance support. Keenan also spent 14 years in claims management research and training at Allstate’s Claims Learning and Development Center as well as its research center, Tech-Cor. At GRS, Keenan will develop and coordinate training and marketing programs for the firm’s business divisions, which include Property & Casualty Solutions, Environmental Risk Management Solutions and Complex Claims Solutions. He will oversee in-person and virtual training at GRS’ newly opened Training & Learning Institute in Sarasota, as well as training for GRS clients, INSURANCEJOURNAL.COM

adjusters and staff during catastrophe events. In addition, he will collaborate with GRS’ businesses to create marketing strategies, brand messaging, advertising and social media campaigns and other marketing activities. Global Risk Solutions is headquartered in Miami with offices in London and throughout the U.S. It offers a range of claims adjusting and environmental risk management services.

South Central

Kim Bailey has been

named general counsel for the Oklahoma Insurance Department (OID), effective Jan. 19, 2021. Bailey most recently served as general counsel and chief operating officer at the Oklahoma State Department of Health (OSDH). She previously served as general counsel and executive director of the Oklahoma Workers’ Comp Commission. While at the Workers’ Comp Commission, Bailey reviewed self-insured and third-party administrator applications, implemented its electronic filing system for all workers’ compensation carriers, managed appeals to the Commission and developed final orders. In her role at OSDH, Bailey handled employment law issues, ensured compliance with laws related to more than 70 federal grants and advised staff on an array of regulatory and compliance issues at the state health department. McGriff promoted

Patrick Dessauer

to regional

Patrick Dessauer

INSURANCEJOURNAL.COM

insurance president for McGriff’s West region. He is based in McGriff’s Houston, Texas, office. Dessauer, a 30-plus year veteran of the insurance brokerage industry, has been with McGriff since 1998. Most recently, he served as executive vice president and chief operations officer for McGriff’s West region. In his new role, Dessauer will provide leadership, vision and direction for the West region, as well as support sales to drive growth. McGriff is a full-service insurance broker providing risk management and insurance solutions to clients across the U.S. and is a subsidiary of Truist Insurance Holdings Inc.

Midwest

J.M. Wilson has promoted Ryan Gibbons

as senior transportation underwriter in its Westerville, Ryan Gibbons Ohio, office. Gibbons is responsible for underwriting new and renewal accounts for a variety of commercial transportation risks, corresponding with carrier underwriters and assisting independent agents in Kentucky, Ohio, Pennsylvania, Virginia and West Virginia. Gibbons joined J.M. Wilson in 2017, where he began as an assistant transportation underwriter before his promotion to transportation underwriter in 2018. Insurance broker/advisor TigerRisk has appointed Daniel J. “Tad” Eldredge as partner and general counsel. He is located in Minneapolis, Minnesota.

Eldredge comes to TigerRisk from Aon where he was chief counsel, Corporate and Americas, served on the Global Executive Committee for the company’s Reinsurance Solutions global business and provided legal support and counsel to Aon Securities. He began his insurance industry career as assistant vice president and associate general counsel at E. W. Blanch. With the acquisition of Blanch, Eldredge was named vice president and associate general counsel at Benfield. TigerRisk Partners LLC is a risk, capital and strategic advisor to the insurance and reinsurance industries founded in 2008 and headquartered in Stamford, Connecticut. Cincinnati-based Core

Specialty Insurance Holdings has added Jeff Jacobs as

senior vice president and head of Errors and Omissions Professional Liability. Jacobs has 30 years of insurance sector experience leading professional liability, management liability and other commercial property and casualty programs. He was most recently with Tokio Marine HCC. Before that, he was with NAS Insurance, which is now owned by Tokio Marine. Jacobs has also worked at Monitor Liability Managers, Lockton Affinity, Meadowbrook Insurance Group, ULLICO Casualty, and for 17 years, Aon Affinity. Core Specialty offers errors and omissions coverages for legal, marketing, media and real estate professionals. It operates through StarStone Specialty Insurance Co., a U.S. excess and surplus lines insurer, and StarStone National

Insurance Co., a U.S. admitted markets insurer.

West

La Jolla, Calif.-based Palomar Holdings Inc. has named Michelle Johnson as chief talent and diversity officer. Johnson was previously senior vice president of people and talent, having served in this role since joining the company in 2019. Johnson previously spent 20 years in human resources leadership positions, including senior management positions at Option One Mortgage, an H&R Block subsidiary, AMN Healthcare and Panasonic Avionics Corp. Palomar Holdings is the holding company of subsidiaries Palomar Specialty Insurance Co., Palomar Specialty Reinsurance Company Bermuda Ltd., Palomar Insurance Agency, Inc. and Palomar Excess and Surplus Insurance Co.

Euclid Life Science Specialty LLC has named David N. Bailey

as vice president of underwriting and executive underwriter. Bailey’s focus will be growing the company’s presence and core book of life science products for work hazard liability and professional liability on the West coast and partnering with executive leadership to expand product offerings for the life science industry. He has more than 20 years of experience in life science and technology related underwriting. Bailey was previously the commercial director of life science for CNA. Euclid Life Science Specialty is a specialty product and professional liability insurance underwriting platform.

FEBRUARY 8, 2021 INSURANCE JOURNAL | 21

Closer Look: Agency E&O

2021:

The Year of Insurance Agency

E&O Lawsuits

By Andrew G. Simpson

nsurance agents and brokers should prepare for a big agency errors and omissions (E&O) litigation wave to crash their shores in 2021. Agency E&O claims are a lagging indicator, meaning plaintiffs typically only go after agents and brokers after they exhaust other legal avenues — most often suing insurers — and come up short, according to experts at the 2020 virtual Professional Liability Underwriting Society (PLUS) conference. While E&O claims from the pandemic of 2020 have not happened yet in noticeable numbers, they will, just as they happen following major storms or other disasters, the experts warned. “When a loss like this happens, first party claims are immediately filed with the carriers. A lot of the carriers still haven’t made final decisions yet on the COVID claims. So we’re still waiting on those,” according to James Redeker, who is involved in overseeing E&O claims across the country as vice president of claims for Westport Insurance Corp., a member of Swiss Re Corporate Solutions. In addition, with large events, there’s often some form of federal relief as has been already seen with COVID and for victims of disasters. “So it’s usually not until after all of these sources of recovery are exhausted that the third party claim start to pour in.,” Redeker estimated. He noted that during the first four months following Hurricane Katrina, there were 55 agency E&O claims filed against Louisiana insurance

‘If you require the agent or broker to recommend types or amount of coverage, in all circumstances, that leads to Pandora’s box of a whole bunch of problems.’ agents. However, over the next eight months, an additional 745 claims came in. “So they’re coming,” he added. The year 2020 was packed with events to spark lawsuits over claims, including most obviously the pandemic with its lockdowns that shut down much of the economy for periods of time, strained health care systems and drained employers’ and employees’ coffers. The year’s claims generators also included multiple hurricanes, cyber attacks and the hard market. “Only when the tide goes out do you discover who’s been swimming naked,” is a quote attributed to Berkshire Hathaway CEO Warren Buffet that specialty lines insurance broker Lisa Doherty likes to summon when discussing what happens after a big storm or other major claims event. “We like to talk about the double trigger, meaning that there has to be an underlying loss on the policy in question to test the policy. If you never actually submit a claim, you’re never going to find an error on the policy,” said Doherty, a founder and CEO of Business Risk Partners.

Arguments Agents Can Expect While the full impact of the pandemic is almost unimaginable, it’s not hard to imagine what the allegations against

agents will be when the E&O lawsuits start coming. According to defense attorney Peter Biging, a partner with the law firm Goldberg Segalla, a lot of the activity in the agent E&O area is the alleged failure to properly advise with regard to the coverage to have or the coverage to purchase, or the coverage that is in place and what it covers. The issue is the basic duty of care for an agent or broker with regard to obtaining coverage or advising on coverage is to obtain the coverage that’s been specifically requested within a reasonable period of time, or advise the client of the inability to do so. Generally, across the U.S. there’s no duty to advise on the scope or amount or type of coverage except where special circumstances or relationships exist. “It’s the insured’s responsibility to request the type of insurance coverage and the amount of coverage needed,” he said. “The reason for that is generally that the customer is in the best position to know his or her needs, the level of premium he or she’s willing to pay, the amount of uninsured risk, and on the other end, that they’re willing to absorb,” Biging explained. “If you require the agent or broker to recommend types

continued on page 24

Closer Look: Agency E&O continued from page 23

or amount of coverage, in all circumstances, that leads to Pandora’s box of a whole bunch of problems.” Westport's Redeker said one of the problems would be to create the incentive for clients to purchase the least insurance possible, and then try to use the agent's or broker's E&O coverage as their own excess coverage. While generally there is no duty of care, he added that some courts may consider there is a special relationship and thus a higher standard where for instance, the client pays the agent or broker a fee in addition to a commission. “So if you’re receiving a fee in addition to the commission, the courts will look at that and say, ‘It’s more likely that you’ve contracted to do something more than the typical broker.’” Another place where a higher standard may be invoked is where the agent or broker presents themselves as an expert and is seen as an expert by the client. Redeker said agency websites are often the problem in touting the agency’s expertise. “Too often, these websites are created by web design companies who know how to generate hits and drive a website to the front page of a search engine, but they know nothing about an insurance agent’s duty, or how these statements can raise the duty of an agent beyond what it could even reasonably be expected to handle,” he said. Redeker said plaintiff’s attorneys routinely scour agency websites for language where agents claim to be experts and are even adding the quotes from websites directly into

their pleadings. “It’s getting harder to get these duty claims dismissed. Instead, courts are either finding a heightened duty brought about by agency website language, or they’re determining it as a fact question and letting the jury decide whether the agent met its duty to their customer. Remember, this is a jury of insurance purchasers, not insurance agents.” Ken Fall, chief litigation counsel at Marsh, cited an important Florida case (Tiara Condominium Association vs. Marsh USA) where Marsh succeeded in convincing the court that there was no special relationship with this luxury condo firm because the client was itself a very sophisticated purchaser complete with its own insurance committee that questioned everything and decided what coverages to buy. “[H]owever what you now have in a post Tiara world is that even in these situations, where you have a sophisticated insured, which is making conscious decisions about what insurance to purchase, how much insurance to purchase, how much money you’d want us to spend, or does not want

24 | INSURANCE JOURNAL | FEBRUARY 8, 2021

to spend in purchasing that insurance, that you still can have the issue of whether or not a special relationship existed being deemed an issue of fact for the jury,” Fall said. “So this means that if you’re an agent or broker facing this claim, it’s going to be more difficult to get the case resolved for a motion to dismiss or for a motion for summary judgment. And that’s going to increase the cost of litigation. It’s also going to increase the risks of litigation.” Fall referred to another agency E&O case out of Florida where the question of whether an agency was an expert was ruled to be a fact question for a jury even though there was no boastful website language. If E&O claims occur despite best efforts, Redeker urges the industry to fight them vigorously. “Whether you’re an insurance carrier or a property carrier, or if you are an insurance agency, fight these early COVID-19 claims tooth and nail,” he stressed. “Do not give plaintiffs a toehold to flip the court to a suit. It will be money well spent.” A major disaster means there

is going to be a concentrated and increased number of claims and a spike in the number of policies being tested. “So you just have a greater potential for finding underlying problems in the policy. So the double trigger is, I have a loss arising out of the disaster, I submit it to my carrier, the carrier denies it for whatever reason and then I turn and look to my insurance agent to be my source of recovery rather than the carrier,” explained Doherty, who recalled the surge in agency E&O claims following Superstorm Sandy. A disaster event that results in numerous and severe claims signals potential trouble for agents, agreed panel moderator Peter Biging, a partner with the law firm Goldberg Segalla and head of the firm’s Management and Professional Liability practice. “It tests the limits, terms and conditions and policies to the extent that there’s either no coverage or there’s insufficient coverage. There’s going to be agent and broker errors and omissions claims,” he warned. Biging noted that this year’s California wildfires set a record with more than four million acres destroyed. In terms of hurricanes, 12 storms made landfall in the U.S., breaking a century old record, and for just the second time ever, meteorologists had to resort to the Greek alphabet to name storms. And then on top of everything else there was the pandemic. “2020 is just this unusual year. It’s really a crazy era and it seems like it’s going to get worse,” Biging said. He referred to a comment by a climate scientist at Texas A&M University who said, “If you don’t like all of the climate disasters INSURANCEJOURNAL.COM

happening in 2020, I have some bad news for you about the rest of your life.” Redeker said the amount of covered losses can vary greatly depending on the type of catastrophe, citing the difference between only 36% of damages covered by Hurricane Florence being insured while 77% of the damages caused by California’s Woolsey Wildfire were insured. While those figures on uninsured losses may represent a selling opportunity, for flood insurance in particular, they also represent a risk for insurance agents and brokers, according to Redeker. “As we’ve seen, the frequency of these events is rising. It’s not a risk that’s going to go away,” he said. Biging agreed that uncovered losses will be a driver of coronavirus-related E&O claims. “There’s a big gap between what the C-suite executives think is going to be covered, and the coverage that they actually have,” he said. The main insurance litigation from the coronavirus disaster is with property insurers. “Obviously, lots of businesses in the hospitality industry, restaurants, theaters, hotels, you name it. And then many, many, many other businesses have been impacted, so they’re seeking coverage under their property policies for business interruption,” said Marsh's Fall. However, while primarily property-driven, disaster lawsuits can trigger a whole range of other coverage issues as well, added Fall, citing casualty risks, financial and professional risks and others that can all become implicated. “Lots of bankruptcies, obviously. Through the end of INSURANCEJOURNAL.COM

August, large firm bankruptcies had more than doubled. Some really iconic stores like Century 21 and others have filed. In terms of lawsuits, just a huge array of lawsuits has been filed. No surprise.” Cruise lines in the pandemic show how various lines can be affected. “You can certainly imagine that a cruise line may have business interruption claims to file under its property policies, but it may also be facing liability claims by passengers who may have been stranded on one of its ships, while the pandemic was going on, and it wasn’t able to come into shore. In the case of Norwegian Cruise Line, for example, they’re also facing a stock drop claim by their stockholders,” said Fall. Lloyd’s has said its firms are facing claims from 16 different business lines.

Cyber Risk for Agents

Beyond natural disasters and the coronavirus, cyber risk is an area where agents could be drawn into claims litigation with dissatisfied insureds who expected to have coverage. “There’s a real concern about the growing exposure for agents and brokers in cyber coverage because they’re varied, they’re new. The losses are so new that we just don’t have a good track record on how those policies are going to respond, creating issues for agents and brokers,” said Doherty. She said a Lloyd’s analysis of the exposure concluded that one cyber attack could cause a single loss across multiple parties ranging from $85 billion to $193 billion. “That’s just a staggering number,” she said.

‘Whether you’re an [E&O] insurance carrier or a property carrier, or if you are an insurance agency, fight these early COVID-19 claims tooth and nail. Do not give plaintiffs a toehold to flip the court to a suit. It will be money well spent.’ She added cyber attack figures claiming that Merck lost $870 million from business interruption; FedEx, $400 million; Maersk, the shipping company, $300 million. Also Mondelez, the parent of Nestlé, Cadbury, had a $100 million dollar business interruption loss that is in litigation because Zurich Insurance has taken the position that the claim was excluded under the war in hostile act exclusion. Doherty referenced an FM Global study that found 70% of C-suite executives felt like cyber coverage would cover all of their losses. “But we know that not to be true because there are certain things that are just not going to be covered,” she said.

More on Pandemic

Just as cyber is new in many ways so has the pandemic been unlike any other disaster because of its broad impact geographically and its diverse economic effects. No state has been spared and many industries hit. It’s not like a wildfire wiping out a town or a hurricane flooding communities in a coastal state. “What makes COVID-19 just amazing is the fact that it’s impacting the entire country,” Biging said. There are thousands of lawsuits around COVID-19 alone

including the many reported business interruption cases from the hospitality industry and other businesses. There are class actions against colleges by students seeking tuition reimbursements. There are also investor lawsuits alleging insufficient risk disclosure around the impact of the pandemic on operational and financial prospects of companies. While there have been some rulings, it is too soon to gauge the business interruption litigation in terms of its consequences for agents and brokers. “I think we need to see how underlying claim denials play out with carriers and even, very specifically, policies, because not all policies are going to respond in the same way,” said Doherty. She said most property policies have both the physical damage trigger and the virus exclusion. “So if you do get through the physical damage issue, you still have to contend with the virus exclusion.” Fall said that there have been more than 1,300 cases between policyholders and insurers in state and federal courts and that number is growing every day. About 70% of the time, courts have sided with insurers and granted insurers motions to dismiss. A minority have allowed

continued on page 26

FEBRUARY 8, 2021 INSURANCE JOURNAL | 25

Closer Look: Agency E&O continued from page 25 policyholders to get past the motion to dismiss stage, and into discovery. Overall, only a handful of lawsuits so far have named insurance agents and brokers. “But again, as we’ve all indicated, that number may well increase as time goes on,” Fall said. E&O claims tied to coronavirus business interruption won’t start coming in until after this year’s litigation storm calms down and decisions become known, the panelists said. Redeker said the plaintiff’s bar is taking a strategic approach to filing COVID-19 claims against the property carriers, recognizing that there are two basic forms of property policies when it comes to handling virus exposures, those with an explicit exclusion and those without. “Not surprisingly, plaintiffs are heavily suing carriers whose policy forms do not contain a virus exclusion,” he said. “If they can get the courts to find coverage under such a policy, it not only gives coverage to those policy holders, but it also gives them an avenue to recover for the customers who purchased property policies with the virus exclusion. For those customers, insurance agents will be sued for placing property coverage with a more restrictive carrier form than with one that would have afforded the coverage.”

Hard Market

The hard market presents yet another E&O landmine, especially because the pandemic litigation is generating a round of policy changes and

new exclusions that agents will have to learn and explain to their customers who are also being hit with rising priced in a hard market. Specialty lines specialist Doherty said the market hardening is everywhere, unlike after a major disaster season where underwriters can just stay away from states that have been hit. “When the disaster is national, it makes it a little bit more difficult. So what we’re seeing is there’s much more stringent underwriting and carriers have added COVID supplement apps in almost all lines of business,” she said. She said every specialty lines product her brokerage sells has a different COVID supplemental application with similar themed questions. There are COVID exclusions on products where they don’t typically appear, including some insurance agency E&O policies.

“So keeping with our theme of exposures for agents and brokers, the market is changing and that’s going to create exposure for them as they navigate new terms and conditions,” Doherty said. Any hard market will see more claims being contested or denied and ultimately more broker E&O claims stemming from that, according to Fall. Having a pandemic layered in top of the hard market is going to magnify the situation brokers will have to navigate. “I think the key is going to be for brokers to clearly communicate those exclusions and other nuances that are appearing in the hardening market to explain them to their clients and then to document those conversations,” Fall advised. Redeker said that’s good advice for agents looking to protect themselves. “Documentation becomes critical in a hardening market.

Never use the term ‘apples to apples’ coverage. Even if the wording in the policy forms is identical, the carrier’s interpretation may be different,” he cautioned. Biging, who defends agents and brokers facing E&O suits, noted that there are also operational issues due to the pandemic that could influence communication with clients, many of whom may need to cut costs or be needing something different than they previously had. “You’ve got brokers who typically would have their insureds into their office and see them visually sign the application and that’s not going to happen, or it’s not happening,” he said. “You have situations where brokers will go to visit locations as they normally would and eyeball the circumstances that might’ve changed, and they’re not necessarily doing that now.” Biging repeated the advice for agents and brokers cited by others: “It’s document, document, document. That’s really the most important thing. Make sure you document everything that you do, every conversation that you have. In particular if you offer coverage that’s declined or you offer endorsements or increase limits and they’re declined, you need to document that.” Fall agreed. “It’s very difficult to over-communicate as an agent or broker with your policy holder clients. Rarely, are they going to complain that you’re communicating too much. So err on the side of more communication, clear communication and document the communication.”

News & Markets 46 Years Helping Shape California Insurance Landscape firm to go for another five years. It was something he considered, but amid the obert W. Hogeboom has quietly pandemic, he made a call to the home been in the background of making office over the summer and promised to and forming insurance laws and go until the end of year and work with regulations for decades — and he’s seen partners who will eventually take his a lot change in California’s place. insurance landscape in all of “I think I was ready to do it,” that time. Hogeboom said. During his 46-year legal He grew up in Kansas City, Mo. career, he was on the His family moved to Los Angeles frontlines of hammering out when he was a junior in high issues and regulations with school. He then went to Stanford the California Department of University, and after graduating Insurance. Robert W. Hogeboom he went on to earn his J.D. from Hogeboom devoted his California Western School of Law in practice to insurance regulatory, legislative 1974. and administrative matters before the CDI, Around all that schooling he took handling numerous hearings involving a year off to serve as assistant to the CDI enforcement actions against insurers campaign manager of then Gov. Ronald and producers, rate hearings and market Regan, a position that Dick Barger helped conduct actions. him get. Barger was a former insurance He not only represented numerous commissioner and a former president insurer and producer clients, he served of the National Association of Insurance as outside special counsel to a number of Commissioners. Hogeboom became close trade associations. with Barger, who died in 2016 at age 87, Hogeboom became a partner at Hinshaw and spent the first 38 & Culbertson LLP in 2014 as a result of the years of his career merger of Hinshaw and the Los Angeleswith Barger & Wolen, based firm of Barger & Wolen LLP. and the past six That was to be his last stop. The 73-yearyears with Hinshaw old Pasadenan decided that the start of & Culbertson 2021 would be the begining of retirement. post-merger. A fitting sendoff to a long career was “We started with recently given to him by the Western about 10 people,” Insurance Agents Association board of Hogeboom said. directors, which during its December 2020 Barger & Wolen was meeting voted to make Hogeboom an focused solely on insurance, and Hogeboom honorary member, the first time since the focused his practice on group’s founding in 1947 that a person has regulatory issues and been so honored by the association. litigation. The firm grew “We are thrilled to have Bob be our very and continued its success. first honorary member,” said Ken Lyon, “After 20 years, we got up WIAA’s chairman. “Bob’s help and assistance with insurance regulatory matters to almost 90 people dealing with over the years has been invaluable to the only insurance issues,” Hogeboom WIAA board and our members. I wish him said. well in his retirement.” During his career he was involved in Hogeboom’s official retirement date was several influential and high-profile cases. on Dec. 31, 2020. A few of the better known legal matters he However, it could have been much later. was part of include: He’d been asked by the head of his law • Globe Life and Accident ALJ Decision

By Don Jergler

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• • • •

on Insurance Commissioner Claims Regulations; OAH No. 2011-090887 (2012) ACIC v. Poizner, 180 Cal.App. 4th 1029 (2009) American Liberty Bail Bonds v. Garamendi, 141 Cal.App. 4th 1044 (2006) Automatic Funding Group v. Garamendi, 114 Cal.App. 4th 846 (2003) National Elevator Services, Inc. v. Dept. of Industrial Relations, 136 Cal.App. 3rd 131 (1982)

Hogeboom has seen and survived numerous changes in California’s insurance regulatory history. “Things really changed with the Department of Insurance when Prop. 103 came out in 1989,” he said. Passed by California voters, Prop. 103 required prior approval before insurance companies can implement property/ casualty insurance rates and made the post of commissioner an elected position, among other sweeping changes. At the time it passed, the CDI had around 200 personnel. “Within 10 years the department had gone up almost to 1,000 people,” Hogeboom said. He said it also politicized the office of commissioner, changing the tenor of matters like rate regulations, community relations, consumer services and fraud issues. “They were really politicians and it became more difficult with the Department of Insurance in a lot of different ways,” he said. For him, the changes meant that three-fourths of his efforts were spent working with the department to find solutions to problems. “The other fourth were when we couldn’t find a solution and we had to deal with an administrative law judge,” Hogeboom said. For the firm as a whole, the changes had one positive effect, if one were to look hard for the bright side. “It kept us busy,” he said. INSURANCEJOURNAL.COM

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News & Markets USAA, Serving Military and Veterans, Enters Small Business Insurance Market

he insurer that targets members of the military and veterans, USAA, is going to start writing its own small business insurance policies for the first time. The company will initially offer the coverage in five states – Arizona, Colorado, Illinois, South Carolina and Tennessee. Plans call for an ongoing rollout to other states through 2021. The insurer – which serves insureds or members who are in the U.S. military currently, military veterans, and their families —has for 30 years offered small business insurance from unaffiliated companies through its USAA Insurance Agency. This is the first time USAA will be offering its own product, a move it said is based on increased member demand. Its new small business insurance is underwritten by subsidiary Garrison Property & Casualty Insurance Company of San Antonio. “For small business owners, their business is their life and livelihood,” Jim Syring, retired Vice Admiral, United States

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Navy, and USAA’s Property and Casualty president, said in prepared remarks. “They put their heart into building their business and work around the clock to make it a success. We believe we understand veterans better than anyone and want to be there to support them and their business every step of the way.” The military veteran-related small business market is a sizable one. There are 2.4 million veteran-owned small business firms, and they employ 5.8 million people, according to statistics from the U.S. Small Business Administration. These businesses cover a variety of sectors including finance and insurance, transportation and warehousing, mining, construction, manufacturing, wholesale trade, real estate, utilities, agriculture and forestry. USAA said its new coverage will be able to “help protect small business owners of virtually any size, in any industry and virtually every state.” The insurer said it can serve businesses of all sizes through USAA Insurance Agency, but its “manufactured product” is currently targeted to

businesses with under $500,000 in annual revenue. USAA said it will expand its offerings as it looks to serve evolving member needs. Initially, USAA is marketing a business owners policy product with basic, standard and premium levels of cover. Coverage elements include business liability, business personal property, business income, cyber, computer fraud, terrorism, hired and nonowned auto, and employment practices liability. Workers’ compensation coverage will be offered through USAA’s agency partners. USAA will sell its small business products and its ongoing agency offerings both digitally and through member service representatives. USAA Insurance Agency will still offer business insurance products underwritten by third-party insurers. USAA or its affiliates are not involved in the underwriting, but the agency gets a commission on the sale or renewal of these products, as well as potential performance-based compensation, the company said. FEBRUARY 8, 2021 INSURANCE JOURNAL | 27

Special Report: Emerging Risks

By Amy O’Connor and Andrea Wells

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Insurance Journal examined industries experiencing changes and challenges due to the COVID-19 pandemic, societal unrest and other market forces experienced in 2020. Here are 10 industry sectors that could see new and emerging risks in 2021 and beyond. Commercial Real Estate

Real estate owners are dealing with tenants who cannot pay rent. Some tenants are going out of business due to pandemic related shutdowns, while others are ending their leases as they maintain a work from home structure for their employees. These trends are shaping the future of the commercial real estate market. Wes Robinson, national property brokerage president of RPS, says there is endless discussion about what the corporate real estate footprint will look like in the not too distant future. “This, of course, will depend on corporate management philosophy, job/industry description and geographical presence, but there is a fair amount of certainty that an

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abundance of office space will soon be available,” Robinson said. “Perhaps that gets filled with more and more businesses, but a likely alternative is to repurpose that space for other occupancies.” As an example, if a company decides to vacate a high-rise building in New York City, the landlord has a decision to either do their best to fill that space with another office tenant, or perhaps convert that space to a hotel, apartments or condominiums. “This may be something risk managers, insurance agents and brokers, and underwriters will need to tangle with more and more as these decisions come due in the months to come,” Robinson told Insurance Journal. The implications for insurance is that the insured may ultimately be presenting a different risk than what was originally underwritten for and affecting multiple lines of coverage. There are some important concerns that may need to be addressed that will present opportunities for insurance professionals in the future, he said.

“Builders risk and liability insurance for the actual construction of the renovation will need to be placed,” he said. “The more structural components are affected, the more costly and expensive the coverage will be.” Office space typically carries a low property/casualty rate. “If space is converted, that will come with a higher exposure base from both a property and casualty perspective,” he added. Restaurant/bar additions, exercise gyms, ballroom/ convention space, and an increased public foot traffic are all exposures the carriers will want to rate for, according to Robinson. From a casualty perspective, office space is rated on square footage while restaurants are rated based on sales. Hotels and apartments are often rated by the number of rooms. “A consistent methodology will need to be determined

for proper rating and premium generation,” he said. “Additionally, past loss history may not be indicative of future performance if core operations may be changing or introduced to the program.”

Entertainment

The COVID-19 pandemic has had a huge impact on the specialty insurance industry especially the entertainment and event insurance markets. According to Thomas Sepp, chief claims officer at Allianz Global Corporate & Specialty (AGCS), the pandemic is one of the worst loss events for the insurance industry in history — claims could be as high as $110 billion in 2020, according to Lloyd’s estimates. AGCS alone has reserved about $571 million for expected COVID-19 related claims. The entertainment and events industry has been one of the hardest hit industries, with lockdowns and safety concerns over COVID causing the cancellation of countless live events and sporting events, as well as the closure of theaters, cinemas and theme

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parks. Film and TV production has stopped, restarted and at times stopped again. The cancellation or postponement of events and productions is one of the largest sources of COVID-related losses for the global insurance industry, bringing a surge in claims. Unlike traditional lines of insurance, it was not uncommon for entertainment policies to write-back cover for infectious diseases, AGCS says. A common concern is on-again/off-again production and the added cost that brings to the production. Another issue is coverage availability. According to EPIC Insurance Brokers, an ongoing issue for all entertainment production remains securing insurance for projects. “Lenders require it, and with the pandemic raging, it has been increasingly difficult to obtain,” EPIC says. The cost of insurance can be too much for some independent and smaller producers to pay, where policy premiums can at times exceed $400,000. For now, the entertainment industry globally is projected to lose $160 billion of growth over the next five years. Hollywood has gone from 2019’s record-breaking $42 billion in worldwide box office sales to its worst year in 20 years. The good news is that productions are picking up, John A. Hamby, senior managing director, national entertainment practice leader, told Insurance Journal. All have new COVID protocols. “While there are some productions starting now and very soon, the majority are waiting until summer or later in hopes that things will be better then,” Hamby noted. “Overall, the

risk profile of production companies is evolving, and will continue to evolve this year as things get better,” he said.

Employer Liability

Insurance rates for employment practices liability insurance are continuing on an upward trend, in part because commercial rates in general are on the rise, but more specifically due to COVID-19 and ongoing litigation concerns over the #MeToo movement. 2020 shined new light on the importance of EPLI coverage and emerging exposures such as a hybrid workforce and a focus on diversity and inclusion practices, as well as possible vaccine mandates could lead to further changes in the market. Jordan Kurkowski, vice president and professional lines broker with AmWINS Brokerage in Grand Rapids, Mich., says an employer’s risk today is heightened by both increased public intolerance

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for harassment and instant, worldwide distribution of news through social media. Last “year has been a whammy of layoffs, severance packages, furloughs along with the riots of Black Lives Matter and the #MeToo movement,” Kurkowski said. “It’s an underwriter’s nightmare.” EPLI claims often follow large changes in workforce, including reductions, promotions and demotions. “There is more of that happening during this time period with massive unrest in our country,” he said. “We’ve seen political and religious beliefs trigger some of these claims, too.” Remote work, or a hybrid work model that includes both remote workers and in-facility workers, can present some concerns when it comes to employer liability issues. Employees might have trouble maintaining a positive workfrom-home environment and such challenges could lead to

unsatisfied employees. Both employers and employees will have concerns about today’s current workforce dynamics. In conjunction with COVID-19, a new overtime rule was changed and put into effect at the beginning of 2020, according to an October 2020 blog by Founder Shield’s Jeff Hirsch, head of Product. “It had been untouched for 15 years, so the transition has been complicated. Add in remote work, and employers are scrambling to keep up with the unprecedented shift.” Hirsch wrote that as more employees educate themselves on old and new wage and hour laws, the industry should expect to see an uptick in employment practices lawsuits. “Plus, remote work often means employees feel ‘on the job' for more hours than usual — and they want compensation for it,” he wrote. The largest group of employment related legal disputes — 472 lawsuits, according to

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Jackson Lewis’ data — are related to disability issues, leave and accommodation claims by employees who were unable to come back to work because they were sick or had to care for someone with COVID-19. “Class actions in general have not come to fruition as predicted,” said Stephanie Adler-Paindiris, a principal at Jackson Lewis in Orlando, Fla. During the first six months of 2021, Adler-Paindiris believes there could be a “huge boost of class actions” dealing with systemic discrimination, as employers ask their workers to return to the office and potentially require them to take the COVID-19 vaccine.

Management Liability

The long-term consequences of the pandemic on corporations and their executive leadership will take years to unfold. However, insurers are expecting significant fallout as claims related to the economic turmoil from the pandemic continue to emerge in the U.S. directors & officers (D&O) liability insurance segment. The good news: there INSURANCEJOURNAL.COM

is limited risk to ratings of individual D&O insurers as a result of pandemic-related claims, according to Fitch, noting that carriers with significant D&O premiums are larger, diversified entities. Also, recent pricing changes are supportive of improving profitability post-pandemic, which will depend on the path of the economic recovery. In 2019, insurance agency Woodruff Sawyer forecasted the rise of D&O premiums — the first increase in nearly 10 years — and predicted it would continue on into 2020 and beyond. Today, the broker says that that rise shows no sign of decline as securities class action lawsuits and record settlements, corporate bankruptcies, and COVID-19 continue to impact an already difficult market. To add additional pressure, insurers are watching as over 600 unresolved securities class action court cases wind their way through the judicial system, Woodruff-Sawyer says. Woodruff Sawyer’s 2021 D&O Insurance Trends: A Looking Ahead Guide reveals that

underwriters are concerned that their insureds are not fully aware of the high cost of litigation, with 83% of underwriters saying they believe that companies underestimate the current risk. “That doesn’t bode well for insurance renewals for the riskiest clients — recently IPO’d biotech and technology companies — whose volatile share prices often make them targets for shareholder litigation,” the agency says. Insurance carriers cite multiple factors to justify their underwriting approach and D&O appetite, the report revealed: • Securities class action

frequency is coming off an all-time high. • Suit severity and settlement costs have increased, making excess layers too cheap relative to risk; and • Derivative actions are still on the rise with notable settlements tapping “A-side only” insurance. Civil unrest and social justice problems of 2020 will continue to play a significant role in 2021’s D&O market, says Priya Cherian Huskins, Esq., senior vice president, Management Liability, and editor of Woodruff Sawyer’s report. “We are now starting to see shareholders file breach of fiduciary duty suits against the boards of major corporations for failing to live up to their diversity commitment disclosures.” Cherian Huskins says that a corporation’s approach to social, environmental and governance issues is becoming increasingly more important to stakeholders.

Nonprofits

The COVID-19 pandemic has cut into nonprofits’ financial resources while increasing demand for their services, including rising community need for food services, housing

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assistance and much more. Almost three out of five nonprofits cut costs last year and more than half expect to continue cutting costs in 2021, according to The NonProfit Times. The 2020 Eagle Hill Consulting Nonprofit Survey, conducted by Ispos, included 505 respondents from a random sample of nonprofit employees across the United States. In recent months, nonprofits have implemented: Program reductions (30%); Hiring freezes (30%); Furloughs (25%); Salary reductions (24%) and Layoffs, 20%. More than four out of five indicated that their organizations changed how they serve constituents, in response to COVID-19. In the Nonprofit Industry Market Update by Gallagher’s Peter Persuitti, managing director, Nonprofit Practice, many nonprofits are facing 20% to 30% revenue reductions as they continue to work through the current economic and pandemic environment. COVID-19 has increased operating expenses overall. “Nonprofits of all types and sizes are desperately seeking cost reductions and seriously slashing budgets,” Persuitti said. “It is more important than ever for entities to focus on their total cost of risk and not just the line item of insurance costs. We know that reducing loss prevention or risk management efforts now may result in higher claims later,” he said. “COVID-19 has not masked the fact that we continue to see plaintiffs pursuing litigation of mostly older Sexual Abuse and Molestation (SAM) claims, and headlines of bankruptcy and cyber breaches for Nonprofits continue,” according to the

market update. Several nonprofit insurers are tightening their appetite for certain classes of nonprofit business, and even excluding certain exposures such as foster care, residential services, affordable housing, according the Persuitti. General liability and auto liability continue to see upward premium pressures. Nonprofit organizations with losses may find it difficult to purchase coverage at any price or may be forced to reduce limits while paying the same or even higher premiums, Gallagher says. Sexual abuse and molestation coverage is another area that is highly scrutinized by underwriters. The pricing of this property insurance is also rising with most insureds seeing double-digit premium increases, year over year, the Gallagher report noted. Also changing is cyber insurance for nonprofits. While many nonprofits haven’t consider cyber coverage in the past, Gallagher says it has seen sizable losses as more nonprofit staff are working remotely and use technology to

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solicit donations and manage donor data.

M&A Transaction Market

The mergers and acquisitions market saw record insurance premium in 2020, totaling around $2 billion worldwide, experts in this segment say. The growth of the insurance market aligns with the global growth in M&As as merger activity rebounded last year and a rise in litigation brought an upsurge in new policies, Reuters reported in December. Many new insurers entered the market, with more than 30 in Europe alone, which pushed down premiums, though M&A specialists speculated that is likely temporary. “In 2008, you could have probably sat the whole of the London M&A insurance community round a meeting room table,” said Adrian Furlonge, partner at M&A insurance broker Helmsley Wynne Furlonge. “Now there are more than 300 people in that market.” M&A growth was particularly hot in the insurance industry, with 744 insurance agency

mergers and acquisitions in 2020, up nearly 20% from 2019, a report from insurance consulting firm OPTIS partners found. Private equity buyers dominated the activity and about half of all transactions involved sellers of property/ casualty agencies, according to the report. OPTIS predicted M&A activity will also be significant in the new year for several reasons. “While it may not be quite as active as 2020, 2021 will probably be very active as a new wave of sellers looking to avoid an expected capital gains tax increase or simply to sell with a growth story emerge. Agency valuations and multiples for high-quality firms should continue to reach new upper limits as demand remains strong and the supply of quality firms is reduced,” said Tim Cunningham, managing partner of OPTIS Partners.

Cyber

There has been a significant shift in profitability in the cyber insurance market as the

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changing risk landscape from data breaches and ransomware attacks brings new threats and increasing claims. A report last summer from AM Best said growth in the market had slowed significantly compared with 2016-2017 when direct premiums written grew by more than 30% annually. While the admitted U.S. cyber insurance market grew by 11% year over year in 2019 to $2.25 billion, the rate of growth was lower than the previous year, marking the fourth straight year of the slowing trend. What grew instead were cyber insurance claims, doubling from 9,000 in 2017 to to 18,000 in 2019. “Claims are growing exponentially, which will be an issue if prices cannot keep up with rising frequency,” AM Best’s report, Cyber Insurance: Profitability Less Certain as New Risks Emerge, stated. Best advised carriers to focus on greater clarity in their insurance contracts “to set transparent expectations for themselves and their clients.” Carriers are also still battling claims from the large-scale 2016 NotPetya breach and the frequency of severity of ransomware attacks is escalating, with the average cost of ransom payments up 104% between the third and fourth quarters of 2019. The massive cyber breach of several U.S. government agencies and dozens of private businesses in late 2020 by Russian hackers and the COVID-19 pandemic brought new challenges for companies who sent their workers home to work remotely and, in many cases, increased their exposures. Still, carriers aren’t giving up INSURANCEJOURNAL.COM

on this market and risk management will play a key role in minimizing any continuous and emerging threats. “Cyber risk is definitely still insurable. To suggest otherwise is analogous to saying property risks are not insurable after a bad hurricane season,” Meredith Schnur, Marsh’s U.S. & Canada Cyber Brokerage leader told Carrier Management in January. “The cyber insurance market continues to evolve and expand to meet the changing nature of the risk.”

Municipal Liability/Law Enforcement

Law enforcement and municipalities are among the many segments that have dealt with significant tumult this past year, but in their case, it’s not completely related to the

pandemic. Rather, the deaths of Black citizens by white police officers sparked racial justice movements across the country and shined a light on unjust police practices. Police departments nationwide are under a microscope and compelled to address racial biases within their force. Policies like police immunity when shootings occur and civil rights violations are being more heavily scrutinized and litigated, with multi-million dollar settlements in some cases. The City of Minneapolis voted to abolish its police department after the May police killing of George Floyd. The incident sparked international Black Lives Matter protests and calls for police reform. Part of the recommended reforms in Minneapolis include requiring

officers to carry their own professional liability insurance. The city is also facing a lawsuit from Lloyd’s family that alleges his rights were violated and that the city allowed a culture of excessive force, racism and impunity in its police force. In Louisville, Ky., where Breonna Taylor was killed in July by police who entered her home with a “no-knock” warrant while she slept, the city paid out $12 million to Taylor’s family and agreed to enact a series of reforms that seek to improve community relations and prevent future police shooting incidents. Louisville Mayor Greg Fischer called for a true transformation of the Louisville Metro Police Department in response to a report commissioned after Taylor’s death that cited low

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Special Report: Emerging Risks continued from page 33 morale and lack of diversity as perpetuating its problems. The New York City Police Department enacted new disciplinary rules in January that would terminate officers found to use racial profiling or excessive deadly force. The legal doctrine known as qualified immunity has worked as a liability shield against frivolous litigation in suits against police officers and the municipalities they work for by making it difficult for plaintiffs to prove excessive force. But after so many high-profile events, qualified immunity has come under scrutiny in the courts, with even some judges questioning its application in excessive force cases. If liability claims against police departments or municipalities succeed, insurers are often on the hook for paying at least part of the settlements, experts say. The insurance industry is closely monitoring these events and how they will increase exposures in an already risky class. The insurance market has also looked at crafting new professional liability coverage for police officers as some jurisdictions seek to curb police misconduct by requiring officers to carry liability coverage for lawsuits alleging

excessive force, a Reuters report stated last summer. “I think we’re in a new world,” said Mark Turkalo at the insurance brokerage unit of Marsh & McLennan Companies Inc., about the trend. Turkalo said the firm is exploring whether it could develop the coverage. Some insurers contacted by Reuters privately raised concerns about wading into a political quagmire. They also face a hurdle accessing police disciplinary records, which are confidential in many states, according to legal experts. “A lot of our clients are asking” about the policies and carriers are working on coverage, said a senior executive at a U.S. insurance broker who was not authorized to speak publicly.

Transport/Delivery

The COVID-19 pandemic lockdown early last year brought the U.S. economy to a screeching halt as many businesses had to shutter in-person services or close their doors altogether. But one segment saw a boost that many are watching closely to see if

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the trend remains when the pandemic eventually ends. Home delivery services through app-based platforms like DoorDash and Grubhub, as well as independent contractors delivering groceries or medical supplies, saw a spike in demand as people stayed home and had their necessities brought to them instead. In response, several insurers, including Allstate, American Family, Farmers, The Hanover, Liberty Mutual, Main Street America, MetLife, and Nationwide, temporarily added or extended coverage for personal lines policyholders using their personal vehicles to make restaurant, grocery, pharmacy and other deliveries. Some states, such as Wisconsin, mandated insurers add the delivery coverage to personal and commercial policies while others, like Texas, Washington and Connecticut, asked insurers to consider doing so. Many insurers, however, voluntarily made the accommodation. “Property/casualty insurers recognize that American businesses are facing unprecedented disruption,” said David A. Sampson, president and CEO of the American Property Casualty Insurance Association (APCIA). An analysis by the National Council on Compensation Insurance (NCCI) said the drivers that work with appbased entities are typically independent contractors and not covered by workers’ compensation insurance, thus reducing the risk to insurers. NCCI predicted the surge in demand for delivery services was likely temporary, but in the warehousing and

overall transportation sector, NCCI predicted an uptick in injury frequency was likely in 2020 because of the increased demand for delivery services. The effect on the commercial auto space could be more significant. AM Best said in a July report that less road traffic during the COVID-19 pandemic may give commercial auto writers some breathing space from the high frequency and severity levels the segment has been experiencing for years, claims from meal or grocery delivery services could increase. The ratings agency encouraged insurers to embrace technologies like telematics and enhance their rate, underwriting and claims-settling practices.

Personal Risk

The government lockdown from the COVID-19 pandemic last March forced companies to embrace allowing office employees to work from home as the country focused on reducing the risk of transmitting the virus. For the most part, this trend continues, and many expect to see more employers offering work-fromhome flexibility when life returns to normal. According to the International Labour Organization, about 7.9% of workers — 260 million people — were home-based before the pandemic, but this figure has more than doubled worldwide since last year. Though many risks go down when employees are out of the office, there are still significant exposures to consider for home-based workers. The ILO said homeworkers are not given the same level of social INSURANCEJOURNAL.COM

protection as people working outside the home and are less likely to be part of a trade union or covered by a collective bargaining agreement. They can face greater health and safety risks, depending on what their job entails, and less access to job training opportunities. ILO economist Janine Berg told the Thomson Reuters Foundation that advances in technology and the COVID-19 pandemic would lead to a permanent increase in people working from home by using the internet, email and videoconferencing. “It’s not necessarily a bad thing — some people really like it. But it’s about being aware of the potential risks,” she said. “The pandemic has added urgency to these issues.” Still, NCCI predicted that the overall frequency of worker injuries will decline. Safety concerns extend beyond injuries for those workers at home, however. As employees moved out of their secure office networks and INSURANCEJOURNAL.COM

into home-based offices, there was a flood of cyber-scams and hacking attempts related to the COVID-19 virus, a March Bloomberg story reported. Nearly one in four respondents (22%) out of more than 1,200 business leaders

surveyed in 2020 Travelers’ Cyber Risk Index said their firm was the victim of a cyber event — the highest percentage since the annual survey began in 2014. Travelers’ Index found that cyber threats are a top concern for large and

medium-sized businesses, particularly as the ongoing COVID-19 pandemic forced many businesses to transition quickly to a remote working environment. The percentage of survey participants whose companies have at least 40% of their workforce being remote has more than doubled during the pandemic, from 26% to 59%. “Employees working remotely are often on routers that are less secure than corporate networks, so when workers return to the office, they’re potentially exposing their companies to greater risk if a corporate device has been compromised,” said Tim Francis, vice president of Cyber Risk Management at Travelers Insurance. Cybersecurity experts have emphasized the importance of ensuring employees have proper network security to protect their businesses from cyber vulnerabilities.

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Spotlight: Employment Practices COVID-19 and Employment Practices Litigation

s soon as the first community was shut down to slow the spread of the coronavirus or the first announcement By Patrick Wraight of a safer at home order by a governor, some of us saw the storm of suits coming related to the loss of business income from the COVID-19 shut down. What I didn’t see coming was the storm of employment practices suits related to the coronavirus. According to one website that is tracking these cases, wrongful termination or constructive termination suits have been filed related to actions taken by employers that are in some way related to the business’s response to the coronavirus are rising, including these examples: • Employee with pre-existing health conditions raises health concerns related to being required to return to working in the office. • Employee reports flu-like symptoms 36 | INSURANCE JOURNAL | FEBRUARY 8, 2021

while being checked in for work and is told to return home and schedule a COVID-19 test. • Employee requests time off under the terms of the Families First Coronavirus Response Act (FFCRA) to take care of his children. These are examples why businesses need employment practices liability insurance. These policies are designed to protect the business against the kind of claims that arise out of the hiring, firing, training, and leading of employees. What kind of claims specifically? Let me quote from ISO Form BP 05 89 01 10 Employment-Related Practices Liability Endorsement. This endorsement adds employment practices liability coverage to the Business-Owners Policy (BOP).

Insuring Agreement We will pay those sums the insured becomes legally obligated to pay as damages resulting from a “wrongful act” to which this insurance applies…

“Wrongful act”

“Wrongful act” means one or more of the following offenses, but only when they are employment-related: (truncated for the sake of space) a. Wrongful demotion or failure to promote, negative evaluation, reassignment, or discipline of your current “employee” or wrongful refusal to employ; b. Wrongful termination, meaning the actual or constructive termination of an “employee”:… c. Wrongful denial of training, wrongful deprivation of career opportunity, or breach of employment contract; d. Negligent hiring or supervision which results in any of the other offenses listed in this definition; e. Retaliatory action against an “employee”… f. Coercing an “employee” to commit an unlawful act or omission within the scope of that person’s employment; g. Harassment; h. Libel, slander, invasion of privacy, defamation or humiliation; or i. Verbal, physical, mental or emotional INSURANCEJOURNAL.COM

abuse arising from “discrimination”. So rather than an “occurrence” we are dealing with a “wrongful act” and rather than “bodily injury” or “property damage” we are dealing with a list of activities that we would all agree would be bad things to do. This coverage provides for the investigation and defense of claims related to how an employer deals with an employee and if the insured is found responsible for damages, it provides payment for those damages. That’s what we expect.

What’s so important about this coverage?

Go back to what we’re insuring here. An employee is let go, a prospect is not hired, or an employee believes that they have been mistreated during the course of their employment and they file suit. Once the employee files suit, that means that at least one other person agrees that there may be some merit to their assertion that they were treated wrongfully; that a “wrongful act” has occurred. At that point, when there’s coverage in place, the insurance company begins to investigate and assigns defense counsel. The company may ask the insured for certain documentation and have conversations with people within the company and begin to determine the merits of the claim and determine what defense strategies are available. You already know that. The bottom line is that without the coverage, the insured has to hire an attorney to do this for them and that means money out of their pocket. Investigations take time and are expensive if they come out of your pocket. In the end, these cases might settle for relatively little money, or they might cost the insured a great sum of money. With the coverage, that’s handled. Without, that might be called bankruptcy.

What businesses need this coverage? A better question might be what INSURANCEJOURNAL.COM

businesses don’t need this coverage? Any business that hires someone other than their spouse and minor children should probably consider buying coverage for this exposure. Once the business begins to hire people that don’t live in their house, they run the risk of interviewing or hiring someone that might be willing to bring an employment practices suit against them.

‘In the end, these cases might settle for relatively little money, or they might cost the insured a great sum of money. With the coverage, that’s handled. Without, that might be called bankruptcy.’

What else can a business do?

Businesses ought to have written processes and procedures for all aspects of the employment cycle for any individual, including those that do not get hired when going through the hiring process. The first step in avoiding an employment practices suit is to hire well. That requires several steps. •

Write a detailed job description. This should include, at a minimum, the minimum requirements of the job, the preferred qualification for the job, and the most common tasks involved in executing the job properly.

• •

Have a written process for reducing the candidate pool. This should include, at a minimum, how they will determine that a candidate is ineligible, how they will choose who to interview, how many interviews will be required, how they will score candidates during the interview process, and how they will inform candidates that they didn’t make the cut. Have a written onboarding process. This ensures that every employee gets the appropriate orientation to the company culture, gets the training that they need for their position, and has an understanding of how to be successful in their position.

It cannot be understated how important leadership and leadership training is in these circumstances. Just because an individual is a great salesperson doesn’t make them a great sales manager. However, people aren’t just natural born leaders. Leaders are trained and if a company fails to train leaders, they open themselves up to those employment practice “wrongful acts” that we discussed earlier. If a company hires well, trains well, and leads well, there should be fewer times when they have to let someone go, but if they are already doing so many other things well, they should also learn to end employment well. Whether an individual leaves a company of their own accord, or they are asked to leave, it should be handled in a professional manner. It should never be about the person, but about their actions and how they conflict with the culture or mission of the company. In the end, a company can do everything right and plan for contingencies. They can train their people well to deal with employee issues. They can hire well and treat their people well. But none of that ensures that they will never have to deal with an employment practices suit. Wraight, CIC, CRM, AU, is director of Insurance Journal’s Academy of Insurance. Email: pwraight@ ijacademy.com. FEBRUARY 8, 2021 INSURANCE JOURNAL | 37

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

Let It Snow, Let It Snow, Let It Snow

eople in the South love the snow. It’s like grandchildren … fun when it visits but not around enough to become a lot of work. By Bill Wilson In the North, snow and its evil cousin ice can become problematic, especially from an insurance

38 | INSURANCE JOURNAL | FEBRUARY 8, 2021

coverage standpoint. In this article, let’s take a look at two snow and ice exposures, both coming from questions I received from a Michigan agent (snow) and a South Dakota agent (ice). We’ll examine the snow coverage issue from the standpoint of the 2011 ISO HO 00 03 form and the ice issue from the standpoint of that form and the current National Flood Insurance Program (NFIP) dwelling

flood policy. Needless to say, the answers to the questions below may be different if an insurer’s proprietary policy form or endorsement is used.

If a home’s roof collapses from the weight of ice, snow or sleet, is it covered?

If it snows heavily, especially for several days in a row, several feet of snow may accumulate on a roof. Many, if not most, homeowners aren’t going to risk injury by trying to remove the snow themselves and contractors who can

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do this may be booked up. So, if the roof is damaged or collapses, is there coverage? The ISO form, with open or special perils on the dwelling under Coverage A, does not specifically exclude any damage to the dwelling caused by ice, snow or sleet, with the single exception being damage caused by freezing, thawing, pressure or weight of water or ice to a footing, foundation, bulkhead, wall or other feature that provides structural support to the building. In fact, even in the case of personal property under Coverage C, there is a broad named peril that covers “...weight of ice, snow or sleet which causes damage to property contained in a building.” And, in the case of the Additional Coverage of Collapse, collapse due to the weight of ice, snow and sleet is specifically covered because that is a Coverage C peril. However, while the policy does not specifically exclude most building damage caused by the weight of ice, snow or sleet, there is an exclusion for “neglect,” which means “neglect of an ‘insured’ to use all reasonable means to save and preserve property at and after the time of

a loss.”

There are two issues here. First, the exclusion applies only if an insured does not use all “reasonable” means to save and preserve the property. Is it reasonable to expect an insured to climb on the roof and shovel snow? I think we would all agree that, no, it’s not reasonable. The second issue is that the neglect INSURANCEJOURNAL.COM

exclusion effectively applies only at the time the loss occurs and thereafter. In other words, this is not a pre-loss or pre-collapse preventative requirement. The policy, under the duties after loss condition, requires that the insured “protect the property from further damage. If repairs to the property are required, you must ... make reasonable and necessary repairs to protect the property ....” Note that this is also a post-loss requirement and is triggered only if repairs are reasonable under the circumstances. In support of this condition, the policy has another additional coverage, this one for "reasonable repairs,” that says that the insurer “…will pay the reasonable cost incurred by you for the necessary measures taken solely to protect covered property that is damaged by a Peril Insured Against from further damage.” Have you noticed that ISO is fond of the word “reasonable?” Reasonableness is the key here. An insured should not be neglectful, but is also not expected to take unreasonable risks. That’s why the homeowner has insurance.

‘Reasonableness is the key here. An insured should not be neglectful, but is also not expected to take unreasonable risks.’ Is there coverage for a lakeside home damaged by an ice flow from the lake?

For a visual of what I’m talking about, search YouTube for “Glaciers Visit Izatys Resort - Mille Lacs Lake, MN” or go to this link I created to the video: https://tinyurl. com/LakeIceFlow. If you looked at that video or others like it, what apparently happened was that wind-driven water forced ice flows onto the land, causing damage to nearby buildings. In other cases, damage may result from expanding ice where the expansion is not wind related.

In addition to the pressure of water or ice exclusion for property such as footings, foundations, bulkheads, walls and other structural supports that was mentioned earlier in this article, we also have a general exclusion in the ISO form for any damage caused by waterborne material moved by water. The water exclusion applies to the “overflow of any body of water … whether or not driven by wind.” The initial question might be whether the overflow applies to ice. But that question is moot because the exclusion also includes damage caused by “Waterborne material carried or otherwise moved by any of the water referred to….” In the exclusion, ice would certainly qualify as waterborne material. So, is there coverage under the ISO form? There is an argument that there is coverage for property other than structural supports. In the video above, the only damage that was apparent was to a sliding glass door, though it’s possible there could be other unseen damage. However, as I read the water exclusion, it is broad enough to exclude this type of loss. What about the NFIP Dwelling policy? This form says, “We do not insure for direct physical loss caused directly or indirectly by any of the following … the pressure or weight of ice….” I was told by an NFIP rep that the policy does not intend to cover damage caused by ice even if resulting from the overflow of a body of water because of the specific exclusionary language for damage caused by ice. What do you think about lake ice flow damage? Do you have experience with claims of this type as to how carriers usually approach them? If so, as always, you are welcome to share your opinions and experience in the comments section on InsuranceJournal.com. Wilson, CPCU, ARM, AIM, AAM is the founder and CEO of InsuranceCommentary.com and the author of six books, including “Why Insurance Doesn’t Cover the COVID-19 Pandemic,” available on Amazon. FEBRUARY 8, 2021 INSURANCE JOURNAL | 39

Idea Exchange: The Wedge Grow Big or Go Home 5-Step Evidence-Based Hiring Process to Help Your Agency Grow

‘Offer a salary that is just enough to get by, but not much more. And, if they start negotiating too hard with you, help them to the door in a polite way.’

ach bad hire can easily cost you $100,000 to $200,000. However, quality producers can add $1 million of annual By Randy Schwantz revenue to the agency (which nets most owners around $150,000 to $250,000 in profit.) There’s a lot of money to be gained (or lost) in your hiring process. Not only that, but better producer hiring practices can solve some of your most pressing sales culture problems. The reality is most agencies still use an old arcane hiring process that causes them to make costly hiring mistakes. This old way of hiring doesn’t work because it relies on opinions and unscientific methods. It’s the approach that says: “He seems like a good guy. Let’s give him a shot!” It should be no surprise that agencies who operate like this have a failure rate of more than 50% for new producer hires. The good news is there is a hiring method that works. It’s known as the EvidenceINSURANCEJOURNAL.COM

Based Hiring System. It’s a formula that, when done correctly, will help reduce your 50% failure rate down to 20% or less. In other words, you’ll start hiring the right people eight out of 10 times versus four out of 10. The Evidence-Based Hiring System consists of five steps: A pre-employment assessment followed by four structured interviews. These interviews are carefully designed to accomplish specific objectives to help you weed out people who will never become million dollar producers. I’ve written a book about this hiring system, titled: GRIT: Find, Hire, Develop Real Producers, and in this article, I want to summarize some of the main points.

From $4 Million to $291 Million-Plus

A while back, I had the opportunity to help an agency in Fort Worth, Texas, implement the hiring system I just mentioned. At the time, they were struggling to find and hire consistent producers and admitted their hiring process was not sufficient. Over half the time, they’d hire someone and end up firing him or her six

months later, so they realized they needed help. I trained the agency owner and the management team on the Evidence-Based Hiring System, and they faithfully started using this system to find and hire new producers. The results? In the first 10 years after adopting this method, the agency hired 34 new producers, and 29 turned into champions. Those 29 produced $17.5 million of annual renewable revenue. And 13 are million dollar producers today. In that same 10-year period, the agency grew from $4 million to $30 million in revenue, mostly organic. Over the next 10 years, it went from $30 million to $291 million in revenue (and counting). And even though it has become the acquirer, it still maintains that same organic growth culture and always uses the EvidenceBased Hiring System. And that’s just one of the hundreds of stories I have about the transformative power of adopting this hiring system. So now, let’s get into the step-by-step process of how this works.

continued on page 42

FEBRUARY 8, 2021 INSURANCE JOURNAL | 41

Idea Exchange: The Wedge continued from page 41 Choose Good Cop/Bad Cop Roles

To properly execute this hiring system, you’ll need at least two people: A “Good Cop” and a “Bad Cop.” The good cop’s role is to find and recruit producers into the system. They should be able to tell your agency’s success stories in a way that gets your candidate drooling to get in. They say things like, “I’d hire you on the spot if I could, but I can’t. We have a process, and I’d like to get you in it.” The bad cop has one purpose: To discover the truth about whether this person can be a million dollar producer or not. They will be the person doing the interviews (interrogation), assigning homework, and everything else in their power to determine the truth about the candidate. They say things like, “My role is to keep you out. This is a great firm, and while you may be a great salesperson, we don’t want someone coming in and hindering our culture. Here are the criteria I use in my selection process …” Once you have decided who will play each role, you’re ready to proceed.

one has to lose for you to win.” There is an incumbent, and they have a relationship. This can’t be just a “nice guy” or “better price” contest. Play either of those games, and you’ll get rolled. If they understand that, they are good to go. If not, find out why not? Did they not read it? Does it not make sense to them? Synthesis. Synthesis is defined as “combining elements of separate materials into a single or whole unified entity.” Synthesize ideas to form a theory or system. See if they can take the new information they’ve learned and apply it to some other parts of their lives. For example, they might have had a situation in the past where there was an incumbent. It could have been a prospect or even a boyfriend/girlfriend. You want them thinking about proactive services in a new way.

Step 2: Book Summary Interview

One of the first homework assignments you’ll give the potential hire is to read the book, The Wedge; How to Stop Selling and Start Winning, and then write an executive summary. There are five reasons to do this. Follow Through. This will help determine if they can follow through with an assignment promptly (make sure not to assign a deadline). If not, it’s a bad sign of what the candidate would be like if you hired them. Comprehension. You want to know if they understand the concept that “some42 | INSURANCE JOURNAL | FEBRUARY 8, 2021

Step 3: The Book Review Interview

In this interview, you’ll review the executive summary of The Wedge with the preceding five points in mind. You’ll read what they wrote, ask them questions to discover their understanding level, and determine if they can defend what they wrote. Out of the whole book, why did they include what they did? More importantly, why did they leave out what they left out? Doing this book summary interview will give you valuable insight into how this person thinks. At the end of this interview, give them their second assignment. Start by asking, “If you got this job, what would you have to sell, and how would you sell it?” Then tell them, “That’s what I want you to find out.” Then have them interview some of your producers.

Step 4: Differentiation & Goals Interview

Step 1: Pre-Interview Assessment

Before you invest your time into doing the four interviews, you’ll want to screen potential producers with a proper pre-employment assessment. I recommend the GRIT Personality Inventory because it’s focused solely on salespeople. The assessment helps determine if they have “fire in the belly.” However, no matter how good the review is, there are some things you can only discover in the interview process.

process as your primary way of training, you are two steps ahead. You now share a common vocabulary to carry you through the rest of the interview process

Intelligence. Being able to comprehend,

then transform the information into something usable is a sign of intelligence. You want to know you have an intelligent person that learns quickly and can adapt to the situation. And you want someone who can take in a lot of information and summarize what they learned in writing. Writing is a form of intelligence. It is a black and white representation of how they think. Pre-Indoctrination to This Way of Selling. As a secondary benefit, you’ve already started indoctrinating your new producer into The Wedge selling techniques. If you do end up hiring this candidate and adopt The Wedge selling

In this interview, ask them what they found out during the homework activity and how they would sell themselves and the agency to prospects. In most cases, they’ll give the typical answers: Our people, our markets, our reputation, etc. That’s when you ask: “Do you think the other agencies you’d be competing against also have these things?” They’ll say, “yes.” That’s when you ask them to go back and find real concrete differentiators they could use. In the second part of this interview, you also want to ask them about their personal goals. You’ll ask about their current personal income and explain how many accounts, and what size, they’d need to write to make that much money at your agency. Then you can start forecasting potential income levels based on how much business they write. Remember, you’re looking for people who can become million dollar producers. If they don’t have the drive to make $250,000 to $300,000 a year, they probably aren’t motivated enough. At the end of this interview, you’ll ask INSURANCEJOURNAL.COM

them to develop a prospect list to see, first of all, if they have a natural market. Do they already have relationships with business owners that match up with the kinds of accounts you can write? If not, they will be starting from scratch. That’s not all bad, just risky.

Step 5: Final Interview

In this fourth and final interview, you will review their outstanding homework assignments. Start with the Differentiation List, check their Prospect List and end by reviewing their income goals again. Now is the time to dig in deep. Connect each goal to their family when possible. You want to understand what drives their desire to make money. If you don’t find out what drives them, you miss a golden opportunity to validate your decision and a more significant opportunity to leverage their desires once hired.

Decision Time

If all goes well after you finish the interview process, your agency is ready to make an offer. If it doesn’t go well, and you are not sure about hiring them, you have two choices: • You can be candid with them and tell them your reservations about hiring them. Thank them for all of their hard work and tell them this doesn’t appear to be the right fit. • Make up an excuse for why you can’t hire them now and postpone the future decision. That’s up to you. If you decide to make an offer, confirm everything you feel you have discovered. Are they driven and resilient? Can they deal with rejection? Are they good at relationships? Are they smart? Are they coachable? If they have come this far, I promise you

that they want this job. So, don’t give away the farm, but don’t be cheap. Offer a salary that is just enough to get by but not much more. And, if they start negotiating too hard with you, help them to the door in a polite way. Hopefully, you can see how this process can help you double your new producer hire success rates. It can help you find and hire more million dollar producers and transform your entire agency. Remember, as an agency owner, your business’s success is directly tied to your hiring process so continue to improve your hiring skills. Because if you don’t take action, who will? Schwantz is founder of The Wedge Group. He’s also the author of the book Agency Growth Machine, https://thewedge.net/free-book. Phone: 214-4463209. Email: randy@thewedge.net.

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FEBRUARY 8, 2021 INSURANCE JOURNAL | 43

Idea Exchange: Agency Management

Long-Term

Vision

Is Key to Agency Planning

nfortunately, research indicates that most people will not keep their New Year’s resolutions. My theory is that this failure By Tony Caldwell is closely related to the failure many businesses have in achieving their goals. And that reason is a failure to plan properly. Now, because it is February, and most businesses have completed their planning process, you may not think this article is particularly timely. But if you are an independent insurance agency — or any business — interested in consistently achieving at a high level and regularly obtaining your goals, read on. Most planning is short term, a year or less, which means the plans are made in a vacuum that lacks perspective. And this vacuum contributes

to frustration and failure to hit objectives. Instead, fill the bigger picture with a longer-term vision, and when

do, planning becomes more meaningful and productive.

Seeing the Big Picture

you

My first suggestion is to begin planning with a picture of yourself, or your business, 25 years from now (or at least 10 years). Ask yourself these questions about your business: What does it look like? How large is it? What is it doing? What are its

income and profits? What are other unique distinguishing characteristics of this future business or future career? As you do this visioning, make every effort not to limit yourself. High performance companies and individuals use Big Hairy Audacious Goals (BHAGS) not only to inspire, but to create a framework for how they will engage the future. As Jim Collins, author of the business classic “Good to Great,” says, “It is a particularly powerful mechanism to stimulate progress.” Begin your annual planning exercise with a vision of a bigger future for yourself and your company. Now it is time to ask the question, “What must I do in the next three years to make this goal possible?” While 25 (or 10) years is a very long time, and difficult to plan, three years is relatively easy. As you brainstorm about this period of time, think about all the things you can do to move yourself toward your BHAG. Next, ask, “What are the obstacles that I need to overcome to accomplish these three-year goals?” Even if you don’t have the answers to those obstacles today, identifying them will begin to allow you and your team to look for tools, techniques and strategies to overcome them and make progress. With your three-year future clearly in mind, turn your attention to the next 12 months. Notice I said, 12 months, not a year, so whether you are reading this in November, April, or January is not relevant. Plan for the next 12 months. Ask yourself, “What do I need to do in the next 12 months to make the three-year plan work?” The resulting list of tasks and goals begins to form the basis of your detailed 12-month plan. As you think about this period, ask yourself, “What do I need to stop doing in order to maximize progress?” You may want to eliminate any activities or expenditures that don’t bring you closer to your 12-month goals. In fact, beginning

your planning with “stop” decisions is often much more powerful and productive than adding “start” activities.

Pivot in Real Time

Finally, it is time to plan for the most dynamic period of all, which is the next 90 days. Again, ask yourself the question, “What must I do in the next 90 days to accomplish everything I have set before me for the next 12 months?” This list should be highly specific and identify who is responsible for each goal or activity, as well as how success will be measured. A useful acronym for well-specified goals, SMART, was coined by management guru Peter Drucker in 1954 and, today, is still incredibly useful. SMART stands for Specific, Measurable, Achievable, Realistic and Time bound. If you follow the SMART method you give yourself a head start on achievement. Committing to a set of 90-day goals will bring you to success and achievement

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of your one-, three- and 25-year vision. Focusing on short-term success will bring long-term accomplishment. Even though you won’t likely get everything you plan done every 90 days, if you set a standard of hitting 80% of them every quarter you will be amazed at your progress over time. Even when a project, or a goal, doesn’t get completed in the 90-day window you will undoubtedly have made tremendous progress and will finish in the subsequent 90 days. Planning and working in this short period of time will focus your energy, resources and thinking in a way that makes it almost certain you will reach your 12-month and three-year goals. As you can see this type of planning is not overly complex, but it is focused on performance. So, to make that performance as high as it can be, I recommend you review your progress every 30 days. In your review, I suggest you keep it simple by asking yourself only three questions:

1. Is this what I expected? 2. If not, why not? 3. Finally, what am I going to do about it? These three questions will keep you very focused on your actual progress and allow you to pivot as necessary in real time to ensure the accomplishment of the 90-day plan. And the 90-day plan is the key to the annual plan, which, in turn, is what makes the three-year plan work and the big hairy audacious goals of the next 10 to 25 years possible. Most entrepreneurs don’t love planning, but most entrepreneurs do have a vision for the future. This twenty-five-year, three-year, one-year, 90-day and 30-day planning process will make it much easier to reach that vision. Caldwell is an author, speaker and mentor who has helped independent agents create over 250 independent insurance agencies. Website: www.tonycaldwell.net. Email: tonyc@oneagentsalliance.net.

FEBRUARY 8, 2021 INSURANCE JOURNAL | 45

My New Markets All Lines Aggregate

Market Detail: RPS Signature Programs

(www.rpsins.com/programs/signature-programs) helps public entities manage costs of risk and unlock long-term savings. Its all lines aggregate program blends risk retention, risk transfer, and customized claims management. RPS’ experience with municipalities, schools, states, and others with exclusive package facilities with A-rated or better carriers spans more than 40 years. RPS offers broad coverage, underwriting expertise, and risk management resources. Its Signature Programs’ in-house underwriting capability offers quick turnaround provides a list of pre-approved third-party administrators (TPAs) to facilitate the control and management of claims for insureds. RPS Signature Programs team’s market relationships give it the ability to offer products for towns, villages, boroughs, counties, housing authorities, special districts, utility authorities, public K-12, and colleges/universities. Coverages include: All lines aggregate package limits available up to $10 million; clash coverage for multi-line losses; all lines loss fund including workers’ compensation; client control of the claims process; coverage provided as insurance or reinsurance to the client’s policy; and sexual abuse and sexual harassment. Target classes include larger public entities that have a self-insured retention of greater than $50,000 or entities that are seeking to go self-insured. Limits for all casualty lines are available for up to $10 million; higher casualty limits are available from our excess carrier partners. Limits to $1 million with options for excess property; self-insured workers compensation buffer limits available for up to $250,000 with additional options for statutory excess WC coverage. Available limits: As needed Carrier: Unable to Disclose States: All states Contact: Bob Lombard at 775-360-6626 or e-mail: bob_lombard@rpsins.com

Business Owners Policy

Market Detail: CorRisk Solutions (www.

corrisksolutions.com) now offers the ISO BOP specialized admitted coverages and 46 | INSURANCE JOURNAL | FEBRUARY 8, 2021

proprietary enhancements. Targe classes include, but are not limited to: retail, wholesale distributors, professional offices, beauty services, medical office, financial offices & advertising services. Eligible risks include: veterinarian; real estate agents offices; apparel stores; ticket agency; printing services; payroll service offices; labor unions; law offices; garden supplies; convenience stores (no gas); funeral homes; labor unions; packing stores; bicycles sales shops; grocery stores; florist shops; newsstands; insurance agents offices; decorators offices; and barber shops. Property coverage with TIV limits up to $10 million dependent on construction type; general liability coverage limits of $500,000/$1 million/1 million, $1million/$2 million/$2 million, $2 million/$4 million/$ million; revenues up to $6 million annually. Professional liability available for only beauty parlor, barber shops & hair salons; veterinarians; optical & hearing establishments. ISO coverages and extensions endorsements are available for property and casualty. Available limits: As needed Carrier: Unable to disclose, admitted States: All states except La., Okla. Contact: Michelle Akacki at 631-393-1010 or e-mail: marketing@CorriskSolutions. com

Special Events for the Education and Municipality Industry

Market Detail: Wright Specialty (www. wrightspecialty.com) offers a special event insurance product to municipality and education clients for third parties renting from their facilities. When an operation opens facilities to outside groups, they open themselves up to potential damages and liability from their renters’ activities. Requiring renters to purchase insurance protection to cover their activities and having it include additional insured language ensures that the municipality or school has the right protection as well. Premiums start at $90 for hundreds of event types. Sports events, camps, social and holiday events, clinics, concerts, fundraisers, craft bazaars, festivals, conferences, and meetings are just a few

of the eligible events. If an event is not specifically listed, the renter can simply call (877) 976-2111 to discuss options to secure coverage. Available limits: As needed Carrier: Unable to disclose, admitted States: All states Contact: H Diamantidis at 877-976-2111 or e-mail: hdiamantidis@wrightinsurance. com

Satellites - Space

Market Detail: Wholesale Aerospace Insurance Broker, part of Plimsoll Specialty Markets (www.plimsollspecialty.com) is made up of experienced aerospace insurance placing everything from an airline to a light aircraft, from an airport to a baggage handler and from a major airframe manufacturer to a small non-critical component manufacturer. The team can provide assistance with coverage placement for: space products coverage; satellite or satellite component manufacturers; launch liability satellite launch coverage; in-orbit coverage; satellite builders risk and inland marine coverages. Available limits: Minimum $1 million, Maximum $2 billion Carrier: Unable to disclose States: All states except Florida Contact: Michael Clark at 770-298-2806 or e-mail: mclark@plimsollspecialty.com

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Idea Exchange: Surplus Lines The Myth of the

‘Surplus Lines Agent’ I

ncreasingly, the world of insurance distribution has become highly specialized, utilizing technology and a multitude of parties to reach customers worldwide. The surplus lines industry is no exception. Surplus lines brokers are not merely intermediaries between insureds and eligible surplus lines insurers that may be interested in servicing a specialty insurance market. Rather, surplus lines brokers increasingly work with retail insurance producers who themselves need not necessarily hold surplus lines broker licenses but nevertheless bring together the insurance customer and the surplus lines broker. Producers will even take over some of the surplus lines broker’s duties, such as the collection of premium tax or the completion of the “diligent search” of admitted insurers on behalf of the surplus lines broker. Yet, the term “surplus lines broker” is itself a bit of an oxymoron. Under the laws of every state, any placement of surplus lines insurance must utilize the services of a surplus lines producer, and many states specifically refer to this intermediary as a surplus lines “broker.” This requirement, of course, will require surplus lines insurers that wish to bring their products to market to engage with a surplus lines broker. This relationship will sometimes begin to look like a traditional insurer-agent partnership. Indeed, a growing number of nonadmitted insurers have been engaging surplus lines brokers in order to legally distribute their products but, perhaps paradoxically, the fiduciary duties owed by these brokers to their customers may cause inherent conflicts of interests. INSURANCEJOURNAL.COM

‘Can a surplus lines broker act in an agent capacity on behalf of a surplus lines insurer, notwithstanding being labeled as a broker under applicable law?’

So then, can a surplus lines broker act in an agent capacity on behalf of a surplus lines insurer, notwithstanding being labeled as a broker By Zach Lerner under applicable law? The answer is not as simple as putting a label on it. Below we take a look at a few state examples, as well as the role of a managing general agent in a surplus lines transaction.

New York

On June 16, 2020, the Excess Line Association of New York (ELANY) (empowered under New York law to regulate surplus lines business in numerous ways, including stamping excess line insurance documents and reviewing eligibility of unauthorized insurers) published a new issue of ELANY Elaborates, What’s In A Name (the EE) which eloquently discusses New York’s view on the role of surplus lines agents. The simple rule in New York is that they don’t, and cannot, exist. In particular, the EE notes that “[i]nsurance agents have no role in excess [surplus] line placements.” But the rule comes with pretty big caveats that certainly give surplus lines brokers an “agent” feel. For example, N.Y. Ins. Law § 2118(f) allows surplus lines brokers to be granted binding authority on behalf of a surplus lines insurer, provided that the binding authority agreement is filed with ELANY. It would seem to follow that if a surplus lines broker can receive binding authority from a surplus lines insurer, the binding

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Idea Exchange: Surplus Lines continued from page 47 authority agreement must then be subject to pretty strict standards in order to avoid an “agent” classification, correct? Well, not particularly. For starters, the EE and past ELANY guidance suggest that in order to avoid being designated as an impermissible agent under a binding authority agreement, the surplus lines broker needs to . . . not call itself an agent. Moreover, N.Y. Ins. Law § 2118(f) expressly deems the surplus lines broker “an agent of the insurer” for issuing notices of cancellation. The EE plainly recognizes that surplus lines broker activities may, in practice, “certainly sound like the duties of an agent." Nevertheless, there is an important consideration when determining if a surplus lines broker impermissibly acts as an agent. Surplus lines brokers still, first and foremost, owe duties to the insured over the insurance carrier. The EE notes that granting a surplus lines broker binding authority or otherwise allowing it to engage in agency activities facilitates “the transaction of excess [surplus] lines business, but does not chang[e] the legal duty of loyalty an excess [surplus] line broker owes to an insured.” As such, a surplus lines insurer and its surplus lines broker counterpart should not simply assume that

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they can act as one, cohesive unit with unified interests as the broker will ultimately owe its fiduciary duty to the underlying insurance customer and, therefore, it may be prudent to identify that the surplus lines broker owes fiduciary duties to its insured customers in an applicable binding authority agreement.

California

California is perhaps the strictest state when it comes to the regulation of surplus lines insurance. For example, a number of states generally allow for the presence of surplus lines insurers, but California expressly prohibits the transaction of any surplus lines in the state except through a surplus lines broker, subject to narrow exceptions under applicable law.

‘Surplus lines brokers still, first and foremost, owe duties to the insured over the insurance carrier.’ But even if a surplus lines broker can transact surplus lines business within California, the activities it can actually perform in the state are themselves limited

to many traditional “broker” functions. The primary guidance is derived from California Bulletin 96-04 (the “California Bulletin”). While nearly a quarter-century old, the California Bulletin remains mostly in full force and effect and, among other things, largely bars surplus lines brokers from acting in an agent capacity. For example, the CA Bulletin notes that “[t]he ultimate decision as to rate setting and establishing underwriting guidelines must be performed by the nonadmitted insurer outside the State of California.” The CA Bulletin also generally prohibits the compilation of surplus lines insurance policy forms in the state or otherwise issuing a surplus lines insurance policy in the state (although the surplus lines broker can of course deliver the policy to the insured when issued by the surplus lines insurer from outside the state). Further, the CA Bulletin bars the performance of “certain key management functions” by a surplus lines broker on behalf of a nonadmitted insurer, including placing reinsurance, managing investments, handling payroll and personnel matters and adjusting disputed claims (although obtaining a separate insurance adjuster license may permit the surplus lines broker to adjust disputed claims as well.)

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If the foregoing sounds like a prohibition on a surplus lines broker acting in an “agent” capacity, that’s pretty much the intent of the CA Bulletin. Indeed, the EE notes that “California does not even permit surplus lines risks to be bound within the state by insurers or producers.” Yet, like New York, California does allow surplus lines brokers to push the envelope just a little bit. For example, California also allows surplus lines brokers to be granted binding authority, and the CA Bulletin allows for surplus lines brokers to be affiliated with a surplus lines insurer, provided conflicts of interests are mitigated, specifically the avoidance of having officers and salaried employees of the surplus lines broker also hold similar roles with the non-admitted insurer.

What About Managing General Agents?

As a legal matter, most states do not recognize the term “managing general agent” or “MGA” in the context of surplus lines transactions. In particular, MGAs are usually defined under applicable state law as persons who (i) manage all or part of the insurance business of an insurer, (ii) produce premiums more than 5% of the insurer’s policyholder surplus in any given year or calendar quarter, and (iii) either adjust claims of the insurer or binds

reinsurance therefor. Typically, the term “insurer” is defined as an authorized or licensed insurance company, as opposed to surplus lines insurers that are typically deemed eligible in the state but are neither licensed nor authorized. Yet, from a practical standpoint, the term "MGA” is often loosely used to refer to a wholesale agent of an insurer that helps facilitate the underwriting and binding of insurance and its placement through its retail producer counterparts. So then, can these MGA-esque entities be involved in surplus lines transactions? The short answer is yes, but with caveats. First, these entities must also be careful not to trip local laws, such overstepping California’s bar on surplus lines activities occurring within the state other than permissible surplus lines broker activities. Second, many state surplus lines laws can be interpreted to require wholesale agents themselves hold surplus lines broker licenses in order to facilitate the placement of surplus lines business, even if the retail surplus lines broker completes the legally-required surplus lines procedures for the placement of the policy as they too are engaging in the sale of insurance into the insured’s home state.

Lerner is a partner in the Regulatory and Transactions Insurance Practice Group in Locke Lord’s New York office. The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for general information purposes only and is not intended to be and should not be taken as legal advice.

Lessons Learned

The rise of insurtech and the app-based

February 8, 2021

ARI Insurance Company 125 Pheasant Run Newtown, PA 18940

ManhattanLife of America Insurance Company 425 West Capitol Avenue, Suite 1800 Little Rock, AR 72201

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

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

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

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modes of insurance distribution have resulted in specialized means of reaching consumers and insurance carriers alike. The desire to quickly enter the surplus lines market – one that is largely exempt from state rate and form filing and approval standards – is often efficiently achieved through the utilization of a knowledgeable and connected insurance producer that can use its platform to facilitate binding and distribution of surplus lines insurance policies. But, while some states do recognize the concept of a surplus lines agent, many states do not have a place for agents within their surplus lines frameworks. It is incumbent on insurance producers and surplus lines carriers involved in the placement of a surplus lines insurance policy to study the laws of the state where a policyholder resides to determine how to proceed when establishing a business partnership.

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Closing Quote What the Recessionary Environment Means for E&O Exposures

020 was a year of disruption, change and challenges. Businesses were forced as never before to adapt in order to survive. With these changes, many businesses took on new exposures that potentially threaten their By Gregory W. Leffard businesses and their livelihoods. Following are five of the most common changes businesses have made, often resulting in new or increased errors and omissions (E&O) exposures.

1. Expansion into providing professional services. Many

businesses are expanding into new areas, including providing advice, consulting services or training. While these new revenue streams can help offset lost income, businesses may not be aware of the potential implications to their insurance policies. Often, services of this nature would not be covered under general liability policies.

2. Reduced client-spend for services. Many businesses

have seen sharp declines in revenue, as their customers too have been impacted by economic pressure. As a result, customers increasingly have been reducing or delaying payments, or even terminating service contracts early. Often, this creates added pressure on ongoing projects or long-term service agreements and leads to increases in contract disputes. For example, a recent study of more than 500 U.S.

professional services businesses, conducted by The Hanover Insurance Group and Zogby Analytics, indicated 44% of businesses surveyed had customers withhold payments due to contract disputes in the past two years, which may only increase in today’s environment.

3. Diminished ability to meet contractual deadlines or performance metrics. Service

providers may be challenged to meet deadlines that were agreed upon pre-pandemic. Additionally, they may not be able to deliver on contractual performance metrics which were based upon pre-pandemic levels. Nearly half of businesses experience allegations of non-performance in the usual economic market, according to The Hanover’s research. Whether a result of staffing changes, finances or general business disruption, these businesses may now find themselves facing more allegations of non-performance of their products or services.

4. Accelerated adoption and usage of technology.

Historically, service providers have been traditional in their approach to office-based work, relying heavily on face-to-face interaction with their clients. But the pandemic has forced providers to find new ways to interact and has accelerated the adoption of technology

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advice – a testament to the important role agents play in this complex industry. In addition to providing experienced counsel themselves, independent agents also partner with insurers that are able to offer the following: that enables them to continue their business remotely. It’s likely we will see this continue. With the introduction of new technologies, providers may also be introducing new data privacy and security risks to their organizations that they may not realize.

5. Increased use of independent contractors. The

economic downturn has put pressure on operating costs, forcing many businesses to be more efficient, while accounting for fluctuating demand for their services. Service providers may choose to leverage independent contractors to reduce payroll costs and nimbly scale staffing up or down depending on the demand. This can come with challenges – a service provider may have less control, influence or oversight of independent contractors, which can adversely impact service and put the provider’s reputation and profitability at risk.

The Role of Agents

With businesses changing their operating models as never before, the good news is an overwhelming majority of professional service providers rely on independent agents for

Robust stand-alone coverage. Some clients can get

the insurance coverage they need through an endorsement, but an increasing number require higher limits and broadened coverage that is only available through a standalone professional liability policy.

Independent contractors as insureds. Any contractors or

temporary employees working on behalf of a client should be explicitly named as insureds in policy terms and conditions. This helps protect the small business.

Strong risk management solutions. Regardless of the

size of the business, carriers should offer risk management capabilities to insureds. This is especially important for smaller businesses that often do not have a dedicated risk management function. Small businesses can benefit from training resources or discounts on background checks. In today’s uncertain economic environment, E&O coverage is more important than ever. Leffard is president, professional and executive lines at The Hanover Insurance Group Inc. INSURANCEJOURNAL.COM

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.