Insurance Journal West 2022-02-07 by Insurance Journal

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February 7, 2022 • Vol. 100 No. 2

Contents

News & Markets

Insurance Agency M&As Jumped 30% in 2021: OPTIS

World’s First Crypto Mortgage? Homeowners’ Insurers Don’t Hate It

12 Loss Costs Outpace

Increase in Premiums for U.S. P/C Industry Through Q3

Insurers Deploy Predictive Analytics, Artificial Intelligence in Fraud Fight

Idea Exchange

Special Report

Special Report: 10 Emerging Risks to Watch

Special Report: Agents of the Year

Closer Look: A Look at Possible Negligence on the Set of Rust

38 Spotlight:

Why Management Liability Isn’t Enough in Today’s M&A World

Is It Covered?: All Additional Insureds Aren’t the Same

Top 10 Agency Growth Secrets

A Special Time for Specialty Markets

Minding Your Business: Perpetuation Tools of Gifting of Stock & GRATs

Closing Quote: How Agents and Insurtechs Can Work Together

U.S. Surplus Lines Premium Up 22% in 2021

Commercial Auto Among Lines With Flattening Rates in 2022, USI Forecast Predicts

Departments

6 Opening Note

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10 Figures

11 Declarations

16 Business Moves

20 People

INSURANCEJOURNAL.COM

Opening Note Write the Editor: awells@insurancejournal.com

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

ADMINISTRATION / CIRCULATION

‘The New Collars’

ne positive trend that could help fill the insurance talent gap is what Oliver Wyman Forum calls “The New Collars.” New Collars are blue-collar workers who used the pandemic to learn new skills so that they could find better jobs. Their transcendence of single-collar careers is helping lead a labor revolution, Oliver Wyman Forum said in a new study that found that the desire for more work flexibility was a key motivation for blue-collar employees to make the transition. “Many blue-collar workers lost jobs as the pandemic began. When working, they clocked hours in person — putting themselves and their loved ones at risk — while they watched white-collar employees migrate to safe remote setups, with their jobs and pay protected,” the report said. Rather than accept this fate, many New Collar workers began to set their eyes on greener pastures by reinventing their job skills. “They learned new skills to get the compensation and flexibility they crave and deserve, and their hard work has started to pay off.” Many are shifting to better jobs, creating an even tighter labor market as baby boomers also retire. A few key findings regarding New Collars, according to the survey:

‘They learned new skills to get the compensation and flexibility they crave and deserve, and their hard work has started to pay off.’

• • • •

70% of respondents were optimistic about their ability to find a new job. They’re heading towards future-proof industries. One-quarter of those that have switched jobs, have gone to software, electronics engineering, or IT/data processing. They’re taking advantage of online courses and are not going back to school. Some 49% took free courses and 40% took a paid course. Only 1% went back to traditional formal schooling. But they were also willing to stay in their blue-collar jobs, for the right reasons. Some 97%of New Collars said they would stay at their current job under the right conditions, such as receiving a pay raise, better work-life balance and more flexibility were most cited to make them stay.

Could this trend be an opportunity for the insurance industry which continues to struggle with talent shortages at nearly every sector? I think so.

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 William Rabb | wrabb@insurancejournal.com South Central Editor/Midwest Editor Ezra Amacher | eamacher@insurancejournal.com West Editor Don Jergler | djergler@insurancejournal.com International Editor L.S. Howard | lhoward@insurancejournal.com Columnists & Contributors Contributors: Bill Kuhn, Ed Largent, Angus Marshall, Kate Lyes, Amy K. O’Connor, Philip Charles-Pierre, Jim Sams Columnists: Tony Caldwell, Catherine Oak, Bill Wilson

SALES / MARKETING

Chief Marketing Officer Julie Tinney | jtinney@insurancejournal.com West Sales Dena Kaplan | dkaplan@insurancejournal.com Romeo Valdez | rvaldez@insurancejournal.com Kelly DeLaMora | kdelamora@wellsmedia.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 Sales & Marketing Strategist Laura Roy | lroy@wellsmedia.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 V.P. of Web Josh Whitlow | jwhitlow@insurancejournal.com Ad Ops Specialist Jeff Cardrant | jcardrant@insurancejournal.com Web Developer Terrance Woest | twoest@wellsmedia.com Web Developer Ryan Kleshinski | rkleshinski@wellsmedia.com New Media Producer Bobbie Dodge | bdodge@insurancejournal.com Videographer/Editor Ashley Waldrop | awaldrop@insurancejournal.com

ACADEMY OF INSURANCE

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

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Andrea Wells Editor-in-Chief 6 | INSURANCE JOURNAL | FEBRUARY 7, 2022

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News & Markets Insurance Agency M&As Jumped 30% in 2021: OPTIS

here were 1,034 announced insurance agency mergers and acquisitions in 2021, up 30% from 795 reported in 2020, according to agency consultancy OPTIS Partners. Also, the 384 deals during the fourth quarter of 2021 marked a 26% increase over the same period in 2020, which was a 68% increase over the same quarter in 2019. This was 32% more than the 290 transactions reported for the third quarter of 2021, as sellers once again looked to avoid a potential tax increase. Investors flush with capital continue to meet an increasing supply of business owners looking to take advantage of all-time high valuations while capital-gains tax rates are low, the firm said. Many sellers are aging owners. according to the authors. There were deals involving large agencies with $30 million or more in revenue. “If 2020 was a boom year for mergers and acquisitions, 2021 was a virtual explosion,” said Steve Germundson, partner at OPTIS Partners, an investment banking and financial consulting firm specializing in the insurance industry. “The fourth quarter rush to close deals by year-end clearly taxed the sellers’ deal teams, legal counsel, and due-diligence providers. We expect a bit of a first-quarter respite before the cycle picks up again.” OPTIS Partners 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. The report tracks activity by four buyer and seller types: 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.

Top Buyers

Acrisure continues to lead all buyers

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‘If 2020 was a boom year for mergers and acquisitions, 2021 was a virtual explosion.’

with 122 transactions in 2021, 17% higher than their five-year average. For the first time in many years, another buyer competed for the top spot. PCF Insurance completed 99 transactions (up from 36 in 2020). Other top buyers were Hub International with 61 acquisitions (down from 65 in 2020) and High Street Partners with 56 (up from 9 in 2020). Both PCF and High Street recapitalized in 2021. Assured Partners with 51 deals (up from 38 in 2020) rounded out the top five. Other buyers considered “most active” included World Insurance Associates with 49 (up from 42) and both Alera Group and BroadStreet Partners with 45 (up from 18 down from 58, respectively). Relation Insurance (33) and Patriot Growth (31) were the ninth and tenth most active buyers last year. Several other historically active buyers saw their transaction count drop somewhat in 2021, including Hub and Broadstreet, and OneDigital at 20 compared to 32 in 2020.

Private Equity

The private equity-backed/hybrid group of buyers continues to dominate the volume of transactions at approximately

76% of the total. Acquisitions completed by privately held firms and publicly traded companies slid somewhat to 15% and 6% of all deals, respectively. The most active privately-owned buyers in 2021 were Heffernan Insurance Brokers at 11 (up from 8 in 2020) and Liberty Company Insurance Brokers at 10 (up from 1).

P/C Agencies

Property/casualty agency sellers accounted for 547 of the total 1,034 transactions (53%), similar to their percentage of the totals in recent years. “The industry is in unprecedented times. We’re coming off a six-quarter stretch that heretofore seemed unthinkable,” said Tim Cunningham, managing partner of OPTIS Partners. “The brokerage industry continues to prove resilient to economic challenges ranging from terrorism to economic meltdowns and even COVID. Investors love this resiliency and predictability. While private-equity investors will likely be able to absorb increases in loan interest rates, we will be paying attention to their leverage. This has gone under-noticed for a couple of years but may become a hot topic if rates increase significantly.” INSURANCEJOURNAL.COM

News & Markets World’s First Crypto Mortgage? Homeowners’ Insurers Don’t Hate It By William Rabb

f homeowners’ insurance carriers weren’t facing enough issues this year, here’s one more to think about: A Miami company is now offering cryptocurrency-based mortgages. Some insurance representatives are cautiously optimistic about the idea, but a few are wondering what a Bitcoin mortgage could mean for policies and escrow accounts, particularly if the currency loses value. “As long as it’s a legitimate mortgage and follows the mortgagor versus mortgagee process, I would not foresee us having an issue with insuring homes with crypto mortgages,” said David Howard, president of Vyrd Insurance, a recently launched property insurance company in Florida. He added, though, that because this is such a new type of mortgage, further research is required. Milo, a fintech company with offices in Miami and principals based overseas, announced last week that it is now offering what appears to be the world’s first crypto-based mortgage. Clients will be able to pledge their Bitcoin assets and qualify for low-interest, 30-year loans – with no down-payment, Milo said in a news release. “The world is changing rapidly, with how consumers make and invest their $2 trillion in crypto wealth,” said Josip Rupena, CEO and founder of Milo. The company said it is a direct lender that is licensed, audited and insured and is “able to stand behind its commitment.” The news release did not address what might happen if the digital currency were to lose value, as Bitcoin and other cryptocurrencies are known to do. Company officials could not be reached INSURANCEJOURNAL.COM

for comment, but the statement said that conventional mortgages have been tricky for crypto investors, due to tax liabilities and fluctuations in value. “There are countless stories of people buying property with bitcoin proceeds only to see it increase in value and be worth millions more,” Rupena said in the statement. One Florida property insurance group initially questioned how it all would work. But after checking with board members, the president of the Personal Insurance Federation of Florida said that most insurers could live with crypto mortgages. “We probably don’t care how a mortgage is paid — we are only concerned with the insured value of the property, which won’t change because of crypto valuation changes,” Michael Carlson said. Others agreed. Paul Handerhan, president of the Florida-based Federal Association for Insurance Reform, noted that the source of the home loan may not matter much to insurers. “If it goes south, it probably wouldn’t affect the insurance policy,” he said, adding that most policies are paid on an annual basis.

Besides, Handerhan noted, the crypto mortgages may open up home ownership to more younger people who are more likely to invest in Bitcoin and other digital currencies, which could mean more policies placed. It’s not clear how Milo would pay the homeowners’ insurance companies from an escrow account – in Bitcoin or conventional currency. But some insurers are warming to the idea of accepting premium payments through crypto. AXA Switzerland announced last year it would allow non-life policyholders to pay with Bitcoin, and Universal Fire and Casualty said it would accept crypto for some types of business insurance, according to news reports. Metromile, an auto insurer, also said it would accept digital currency for premiums and would pay claims with it. Cryptocurrency, decentralized money designed to be used over the internet, has been gaining in popularity since Bitcoin appeared on the scene in 2008. Since then, a number of the digital currencies have cropped up, and most have seen significant and frequent fluctuations in value.

FEBRUARY 7, 2022 INSURANCE JOURNAL | 9

Figures

$580 MILLION

The amount in losses suffered by Louisiana’s fisheries and seafood businesses resulting from four hurricanes from August 2020 through August 2021. A report by the Louisiana Sea Grant and the Louisiana Department of Wildlife and Fisheries found that 75% of respondents said they did not have sufficient insurance to cover losses and only 10% said 50% or more of their losses were covered. Hurricane Ida accounted for 70% of the more than $300 million in fisheries infrastructure damages, while 2020 Hurricanes Laura, Delta and Zeta accounted for 30%.

$145,000 The amount in penalties an Illinois pizza manufacturer may have to pay after a worker suffered a fatal injury while cleaning a machine in July 2021. A U.S. Department of Labor Occupational Safety and Health Administration inspection found that Rich Products Corp. failed to implement control procedures at its Crest Hill location when a 42-year old employee died after being exposed to equipment hazards during cleaning operations. Rich Products operates about 100 locations globally and reports annual sales exceeding $4 billion.

2,000

That’s the number of cleanup workers who say they were sickened after clearing beaches of oily gunk following the BP Deepwater Horizon oil disaster in the Gulf of Mexico in 2010-2012. A federal judge found that Navigators Insurance, part of The Hartford companies, did not have to cover most of the workers’ claims. Two insurance policies could not be combined to satisfy the minimum amount specified in a contract between BP and two cleanup contractor companies, the judge said.

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$2.35 Million That’s how much the family of a tourist who died in Las Vegas after being strapped to a restraint chair in jail following his arrest on a trespassing charge has agreed to a settlement with the Las Vegas police department.

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Declarations

PG&E Probation

Onward and Upward

Unequal Settlements

“In these five years, PG&E has gone on a crime spree and will emerge from probation as a continuing menace to California.” — U.S. District Judge William Alsup said the utility poised to emerge from five years of criminal probation remains too dangerous to trust after years of devastation from wildfires ignited by its outdated equipment and neglectful management.

“Without these increases we would have to have substantial amounts of capital.” — Bryron Wells, co-CEO of Southern Fidelity Insurance Co., speaking at a Florida rate hearing in which the company requested property insurance rate hikes of 85% for homeowners’ policies and 111% for dwelling fire policies.

“At the end of the day, none of this is fair.” — Former University of Michigan football player Jon Vaughn told the Associated Press that the per-victim payout from the school’s settlement over a sexual abuse case involving a former athletic doctor should be much higher. Vaughn is one of more than 1,000 former Michigan students who stand to receive as much as $500,000 from the $490 million settlement. Victims of Larry Nassar, who sexually assaulted gymnasts at Michigan State University, averaged $1.2 million in payouts. Vaughn and fellow Michigan victims say race is a deciding factor in the smaller payouts.

Unexpected Visitors

Unfair Practices

Climate Crisis

“We are amping up our aggressiveness to utilize a tool that’s in our toolbox that … has been there for quite some time.” — Environmental Protection Agency Administrator Michael Regan will oversee aseries of enforcement actions to address air pollution, unsafe drinking water and other problems afflicting minority communities in Louisiana, Mississippi and Texas. The agency will conduct unannounced inspections of chemical plants, refineries and other industrial sites suspected of polluting air and water and causing health problems to nearby residents. The Gulf Coast region contains several hotspots where cancer risks are far above national levels.

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“With this bill, we are trying to give consumers the protection they deserve from the unfair business practices of insurance companies.” — Senate Judiciary Chair Nicholas Scutari said after the New Jersey Insurance Fair Conduct Act was signed into law by Gov. Phil Murphy. The new law gives motorists who are injured in car accidents the right to file civil lawsuits against auto insurers, without first waiting for the state insurance regulator to act. The law establishes a private cause of action for motorists against insurers for “unreasonably” denying or delaying claims for uninsured or underinsured motorist benefits.

“As extreme weather has become more frequent, the climate crisis has already increased insurance payments and premium subsidies. These costs are expected to go up even more, as climate change causes even more unpredictable weather conditions.” — The Environmental Working Group (EWG) stated last month in an analysis of federal data of insurance payments to U.S. farmers for crops lost to droughts and flooding. Losses have risen more than threefold over the past 25 years, according to an analysis. The report reinforces concerns that insuring the nation’s crops will get more expensive for insurance companies, farmers and taxpayers as climate change drives more erratic weather events that disrupt agriculture.

FEBRUARY 7, 2022 INSURANCE JOURNAL | 11

News & Markets Loss Costs Outpace Increase in Premiums for U.S. P/C Industry Through Q3 By Chad Hemenway

irect-premium production for the U.S. P/C industry through the third quarter 2021 improved as insurers increased rates, but adverse trends in loss costs for many lines of business continue to dampen profitability. Through the first nine months of 2021, the U.S. P/C industry recorded a 10% increase in direct premiums compared with the same period in 2020. The industry’s direct-loss ratio fell to 62.8 from 60.2, according to an AM Best special report. “Although premium volumes have rebounded with the pandemic slowdown, natural catastrophe insured losses in 2021 were nearly double that of 2020, mainly from Hurricane Ida,” said Christopher Graham, an AM Best senior industry analyst, in a statement. Natural catastrophe losses in 2021 could be the second-highest ever for the insurance industry. The rating agency said the insurance industry “showed extraordinary resilience” to produce positive results

while continuing to deal with the effects of COVID-19 as well as the effects of inflations, natural catastrophes, supply-chain disruptions, investment volatility, and socio-political challenges. “Growing inflation will likely affect the profitability of all major P/C lines of coverage, especially those insuring long-tail lines of coverage with significant outstanding reserves,” said David Blades, associate director of industry research and analytics at AM Best. “Trends related to social inflation and nuclear jury verdicts also could intensify those concerns.”

Inflation and supply-chain backlogs are driving up repair costs for private passenger and commercial auto insurers. Direct premiums written increased 3.1% and 21.1%, respectively, through the first three quarters of 2021, but AM Best said premium increases are trailing loss costs in each line of business. In homeowners multiperil, premiums increased 8.4% over the three quarters compared with the prior year, but inflation on lumber and other building materials are increasing losses. The loss ratio for U.S. homeowners insurers through Q3 was 75.6, up from 70.9. AM Best noted inflation will also increase home values but the “benefit will lag the increase in loss costs.” Direct premiums written increased 7.5% year-over-year in commercial multiperil but direct losses increased 5.1% during the same time. Also, AM Best said prior-year reserves in the this line of business went from “modestly favorable to modestly adverse” from 2018 to 2020.

Insurers Deploy Predictive Analytics, Artificial Intelligence in Fraud Fight By Jim Sams

nsurers are getting a larger share of suspicious claim referrals from fraud-detection technology and are increasingly using artificial intelligence to sift through data, according to a new study by the Coalition Against Insurance Fraud and SAS. The Insurance Fraud Technology Study found that 80% of respondents to a survey of Coalition members taken last October and November reported that they use predictive analytics to detect fraud, up from 55% in 2018. The use of

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text mining has doubled, jumping to 65% from 33% during the three-year period. “These findings prove that, even as COVID has fueled rampant fraud, insurers are agilely stretching their advanced analytics and AI capabilities to counter rapidly changing threats,” stated David Hartley, director of insurance solutions for SAS, a data analytics provider. The study found that 96% of survey respondents used some kind of fraud-detection technology. Eighty-eight percent used automatic red flags, 64% reporting capability, 61% case management, 51% exception reporting and 51% visualization/

link analysis. Fraud-detection technology generated more referrals than in past years. According to the study, 39% of respondents said that more than 30% of their referrals came from an automated system, compared to just 20% in 2018. Two technologies gained use in 2021: Identity verification and photo recognition and analysis. The study says 35% of respondents were using digital identity solutions, a technology that is expected to see further adoption in coming years. Photo-recognition technology was also

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U.S. Surplus Lines Premium Up 22% in 2021

urplus lines premium increased 22% and transactions rebounded almost 6.6% over their 2020 totals in the 15 states with designated surplus lines' stamping offices. The increases represented record levels of premium ($51 billion) and transactions (5.3 million) since the stamping offices began reporting aggregated data on an annual and semi-annual basis. Each state reported double-digit premium increases with Illinois leading the way at over 40%. David Ocasek, CEO of the Surplus Line Association of Illinois said, “Our numbers were incredibly strong, especially in the 3rd and 4th quarters. General and excess liability categories, including commercial general liability, cyber, pollution, products,

and employment practices liability, led the way with a 60% increase versus prior year. Property, including all risk, increased 23%.” North Carolina recorded the third highest premium increases of the stamping office states at almost 35%. “We saw greater than 100% increases in premium on classes of business such as cyber liability, excess personal liability and miscellaneous liability,” said Geoff Allen, Chief Operating Officer of the North Carolina Surplus Lines Association. “The largest increase in the number of transactions filed for a class of business in 2021 was primary residential flood insurance.” California, the country’s largest surplus lines insurance market, reported premium increases of 18% along with a 7% increase

used by 35% of insurers. The study says a growing number of insurers are looking to save costs by not doing in-person inspections of vehicle property damage claims and even on more minor residential and commercial property claims. The technology allows insurers to know whether a photo of claimed damage is real, has been digitally altered or had been submitted previously on other claims. Insurers are increasingly measuring their investment in anti-fraud detection against the bottom line. Forty percent of respondents said they analyzed the impact of technology on their loss ratio, up from 15% in the 2018 survey. The survey results suggest that insurers

are growing more confident in the results they are getting from fraud-detection technology. About 50% of survey respondents identified false negatives and false positives as a major challenge, compared to more than 60% in 2020 and 2019. Funding was also less of an issue. Only 1% of respondents said they experienced a decreased budget in 2021, compared to 2% in 2020 and 15% in 2016. Sixty-eight percent of respondents said there were no significant changes in funding and 19% reported additional funding was approved or anticipated. SAS and the Coalition are hosting a webinar about the survey results at 2 p.m. ET on Feb. 16.

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in transactions. David Kodama, executive vice president of the California SLA, said, “The SLA recorded significant increases in item count and average premium for various coverages, including cyber, property and commercial auto. This growth coincides with reported increased activity in data breaches, ransomware attacks, wildfires, increased auto loss severity and emerging social and cost inflation.” Even though transactions haven’t kept pace with premium, each state increased their total transactions over 2020, with the exception of Texas. Western states such as Idaho and Utah led the way with transaction increases of 23% and 13% respectively, likely due to their substantial increases in population growth. In all, the stamping office data indicates that the surplus lines industry continues to thrive as the economy recovers and inflation continues upward. “The data is quite telling and confirms what many industry leaders have been saying for the last two years,” said Dan Maher, executive director of the Excess Line Association of New York. “Premiums on renewals have increased substantially and at the same time the admitted market has retrenched in several areas, which is causing business to shift to the E&S market. The shift is across numerous lines of business, from property with CAT loss exposures to liability risks, such as excess, umbrella, D&O and cyber, where social inflation and new exposures are of serious concern. I see a lot of new capacity in the E&S market, which should moderate or stabilize pricing ... in 2022.” Stamping office states accounted for 63% of the total U.S. surplus lines premium in 2020. These statistics are reported individually by each state stamping office and the data is aggregated and summarized by the Wholesale & Specialty Insurance Association. FEBRUARY 7, 2022 INSURANCE JOURNAL | 13

News & Markets Commercial Auto Among Lines With Flattening Rates in 2022, USI Forecast Predicts

lthough it wasn’t the headline of a commercial insurance broker’s market pricing report last month, the report’s observation that “commercial auto liability coverage rates are starting to flatten” is telling. Robert Meyers, senior vice president and Property & Casualty Leader for USI Insurance Services, shared the insight about an insurance product line that had projected price hikes of anywhere from 5% to 10% at midyear (for fleets with good loss history) in the executive summary of the firm’s “2022 Commercial Property & Casualty Market Outlook.” The trend for commercial auto pricing exemplifies a general trend for many of the 31 commercial insurance product lines analyzed throughout the report — a trend of increased capacity helping to improve the insurance pricing situation from the

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insurance buyer’s perspective. In fact, 14 of 31 different product line categories tracked by USI now have a flat rate change as a possible outcome for buyers in 2022, compared to just seven based on a similar type of forecast published in June. First-half 2022 and midyear 2021 forecasts for a dozen product lines tracked by USI are shown in the chart below. “Commercial automobile liability coverage rates are starting to flatten out, due to the reappearance of insurers that have been dormant, along with the entrance of new telematics and usage-based insurers,” the 2022 report says. “Insurers are exceptionally competitive and are heavily pursuing accounts that deploy the use of technology and intensely focus on safety.” Still, however, underwriters continue to

heavily scrutinize these risks, and insurance prices for fleets with less than 200 vehicles and poor loss histories haven’t changed from midyear. Those are still seeing rate hikes in the 20% to 30% range, according to the report. The report notes that commercial auto fleets with adverse risk profiles, while still experiencing higher pricing, “can secure more favorable terms because of increased deductibles, self-insured retentions (SIR), and alternative program structures.” Overall, across more than half of the product lines for which USI provides a pricing analysis in its forecast reports, “an influx of new insurance carriers has helped expand overall insurance market capacity.” “Legacy markets, which have been deploying capital and surplus to compete for new business in certain lines of coverage, are also increasing capacity,” Meyers noted in the executive summary. Possible rate decreases are now indicated for five product lines. Not surprisingly, one of those lines is guaranteed-cost workers’ compensation, which has remained soft in recent years. But for workers' comp, the most favorable projected rate change for 2022 (from a buyer’s perspective) is a 5% decrease, which is less favorable than the buyers’ best-case 10% decline that USI professionals forecast in the second half of 2021. The language of the report doesn’t suggest too many reasons for the lower magnitude of price declines going forward, other than to note that combined ratios reported by the National Council on Compensation Insurance have been ticking up — rising from 85 in 2019 to 87 in 2020, and expected to be still higher when all the numbers are tallied for 2021. Workers’ comp is one of only five product categories moving at a less-favorable-than-expected rate, according to USI’s forecast. Others are cyber (network security), technology E&O, fiduciary and environmental contractors pollution. For public company D&O, a movement INSURANCEJOURNAL.COM

of price changes in the other direction now suggests a best-case forecast of 5% rate drop, driven by softening excess layers. The 2022 forecasted price changes in the excess layers range from 10% price drops to 10% hikes, according to a summary table in the report. For the primary layers, USI forecasts a range of rate changes extending from flat renewals (no change in rates) to increases of 20%. Beyond the emergence of new capacity targeting excess layers of coverage for public company D&O, USI attributes improvements in the pricing forecast for buyers to a significant decrease in federal securities class actions in 2021. Along with the rate comparisons, the report provides added information from USI practice leaders for individual lines. Among the insights are these: • For property, USI expects opportunities for carrier profitability in the first half of 2022, attributing this to rate and deductible adjustments put in place since 2019, especially for lower hazard occupancies and non-catastrophic regions. “The current environment and opportunity to shrink CAT portfolios will create competition among carriers trying to attain their 2022 premium growth targets. This, combined with a slowing impact of COVID-19 and strong investment opportunities, allows carriers to be aggressive on quality risk with quality data,” the report says, suggesting reasons for improved pricing in terms for buyers of non-cat property insurance • For environmental, USI notes that the marketplace continues to deal with the exits of “two long-time industry giants, AIG and most recently Zurich,” in recent years. “While the transition to other carriers has gone smoothly, structuring a large amount of capacity is not as easy,” the report says. In another trend expected to continue into the foreseeable future, insurers are pulling back coverage for PFAS, the report says, observing that many carriers are automatically including broad exclusions for cleanup and third-party coverage. • For both the cyber and tech E&O product lines, the report provides separate 2022 INSURANCEJOURNAL.COM

forecasts for “optimal” and “less optimal” risks. With ransomware attacks continuing to challenge cyber insurers in the second half of 2021, USI professionals witnessed carriers tightening terms and availability of some coverages for the “less optimal” buyers that could not demonstrate strong risk controls and overall cyber hygiene. Those buyers are now facing price hikes of 50% or, in the worst case, a doubling of insurance rates. “We saw a surge in insurers’ probes into information security controls and practices” in the second half of 2021, the USI report says, adding that optimal risks face rate increases of at least 40% in 2022 (compared to 25% at midyear 2021). • Fiduciary liability insurance is another product line for which some insureds could see rates double. Here, the report points to the impact of excessive-fee litigation, which drove double-digit percentage premium hikes in the latter part of 2021. Carriers are also pushing for significantly higher retentions as they look “to insulate themselves from claims alleging breaches of duty in the management of investment-related and recordkeeping fees,” the

report says, forecasting that some leading carriers will seek retentions in excess of $5 million in 2022. • For employment practices liability, some buyers — those without poor claims history or major changes in exposure due to acquisitions or layoffs — were able to renew their programs with single-digit increases. “Insurers were willing to compete on EPL renewals if the insured’s business conditions were improving, an effective return-to-work transition plan existed, and employment policies were keeping up with newer areas of exposure (e.g., gender identity discrimination, medical marijuana uses, and claims regarding social media use, etc.). Looking to 2022, USI expects moderate EPL insurance rate increases to continue, and the report said that increased focus on retention structures is likely — especially in certain states, like California. Another situation to watch: “In the face of resistance to vaccine mandates in the U.S., there may be an increase in retaliation and discrimination claims under the Americans with Disabilities Act and Civil Rights Act of 1964 (specifically, for religious discrimination).” FEBRUARY 7, 2022 INSURANCE JOURNAL | 15

Business Moves In addition, Foa & Son provides private insurance advisory and corporate benefits consulting services. Foa & Son's employees and management will continue in their existing roles. Alera Group, which has 130 offices throughout the U.S., is an independent, national insurance services firm with more than $850 million in annual revenue, offering employee benefits, property/casualty, and retirement plan services nationwide.

One80, PMC Insurance

National

Marsh McLennan, Affinity Agency

Association Member Benefits Advisors, a national affinity-based membership and marketing insurance agency, has agreed to acquire the associations business of Mercer, a business of Marsh McLennan. Mercer’s association benefits business, Mercer Affinity, includes insurance marketing, distribution and administration services to association groups such as retired teachers, educators, credit unions and public employees across the U.S. Benefits offered include medical, life and dental, as well as professional and small business coverages. The acquisition is expected to close in the second quarter of 2022. Steve Cardinal, CEO of AMBA, said this agreement will broaden the product offerings and enhance carrier relationships for his Austin, Texas-based agency.

East

Element, Hoffman, L&B, StoneburnerCarter

Pennsylvania-based Element Risk Management acquired two Pennsylvania insurance agencies and another in Virginia. The Pennsylvania agencies are W.S. Hoffman Insurance located in Phoenixville, and L&B Insurance and Financial Services, located in Collegeville. Element Risk additionally acquired Stoneburner-Carter Insurance, located in Front Royal, Virginia. W.S. Hoffman Insurance Agency 16 | INSURANCE JOURNAL | FEBRUARY 7, 2022

has been serving the five-county area surrounding Phoenixville for more than 50 years. The agency has been run for 25 years by Donald Diianni. L&B Insurance and Financial Services was established by Jerry Lynam in 1994 and serves the Collegeville and surrounding areas. Stoneburner-Carter Insurance was established in 1985 and is a three-generation family firm. Element Risk is an independent insurance agency with 17 locations across Pennsylvania, Virginia and Maryland.

Relation Insurance, Ginsberg Agency

Relation Insurance Services, a national insurance agency based in California, acquired the assets of New York-based Ginsberg Agency. Ginsberg specializes in commercial lines, particularly in the construction industry, as well as personal lines in New York. The agency has offices in Oceanside, New York. Johnathan Ginsberg will continue working with the agency.

Alera Group, Foa & Son

Alera Group acquired Foa & Son, an international insurance broker based in New York City. Founded in 1861, Foa & Son maintains commercial practice groups in multinational clients, food and beverage, real estate and construction, hospitality, supply chain, fine art and specie, manufacturers and distributors, professional service firms, not-for-profit, automotive, life science, technology and municipalities.

One80 Intermediaries, a specialty insurance wholesale broker based in Boston, acquired PMC Insurance Group, a workers’ compensation wholesale broker and program manager. With offices in Bedford, Massachusetts, PMC was launched in 1996 to help independent agents by providing workers’ comp specialty products. One80 Intermediaries is a privately held firm with offices in the United States and Canada. The firm said it offers placement services and binding authority for property and casualty, financial lines, personal lines, cannabis, life insurance, medical stop-loss, alternative risk, warranty, lender-based insurance, travel/accident and health risks.

Midwest

High Street, Hershey

High Street Insurance Partners in December 2021 acquired Hershey Insurance Agency, a full-service insurance firm based in Troy, Michigan. Founded in 1979, Hershey offers personal insurance, business insurance and group benefits. This acquisition is one of 17 finalized in December for Traverse City, Michiganbased HSIP. in terms of acquisitions. HSIP has a geographical footprint that includes 23 states.

South Central Relation, Davenport

California-based Relation Insurance Services Inc. acquired the assets of Wilson R Davenport & Associates LLC, headquartered in McAllen, Texas. INSURANCEJOURNAL.COM

Davenport provides employee benefits solutions to clients throughout South Texas. Wilson “Dusty” Davenport will continue with Relation and will strengthen Relation’s existing footprint in the South Texas marketplace.

USI, D&H Risk Services

USI Insurance Services acquired Longview, Texas-based D&H Risk Services LLC. Founded in 1936, D&H Risk Services is an independent risk management and employee benefits agency serving businesses and individuals throughout Texas. Terms of the transaction were not disclosed. Valhalla, New York-based USI delivers property/casualty, employee benefits, personal risk, program and retirement products and services to large risk management clients, middle market companies, smaller firms and individuals.

Alera Group, Heritage Risk Management

Alera Group, a national insurance and wealth services firm, acquired Amarillo, Texas-based Heritage Risk Management, a network of independent risk management agencies serving clients throughout Texas, Oklahoma, Colorado and New Mexico. Heritage Risk Management’s network of independent risk management agencies offer an array of products and services, tapping into expertise from across the organization to offer thought leadership in risk management across a myriad of industries including agriculture, banking, oil and gas, construction, transportation, professional services, technology, manufacturing, healthcare, medical malpractice and employee benefits.

Southeast

Gallagher, Five Points

Chicago-based Arthur J. Gallagher & Co., the global insurance brokerage and consulting firm, acquired Tennessee-based Five Points Benefits Solutions, an employee benefits provider. Five Points serves clients in Tennessee, Georgia and Kentucky. Marisa Combs Smith, Wes Dozier and associates will conINSURANCEJOURNAL.COM

tinue operating at their current locales and report to Jerry Roberts, head of Gallagher’s Heartland Region for employee benefits.

Gallagher, Risk Transfer Agency

Arthur J. Gallagher & Co. also acquired Florida-based Risk Transfer Agency. The 22-year-old agency, with offices in Orlando, offers insurance products for professional employer organizations and temporary staffing firms. Dino Fabrizio, Jennifer Robinson and associates will remain in their current offices, and will report to Peter Doyle, head of Gallagher’s Southeast region retail property/casualty brokerage operations, and to Chris Leisz, head of Gallagher’s U.S. wholesale brokerage, binding authority and programs division.

Acrisure, Appalachian

Acrisure, a fintech company and insurance broker, acquired Tennesseebased Appalachian Underwriters, a managing general agency, along with U.S. Administrator Claims, a third-party administrator headquartered in Oak Ridge. Tennessee. Appalachian, also headquartered in Oak Ridge, has more than $400 million in gross premium, from placing workers’ compensation, commercial specialty, personal lines and transactional wholesale policies, according to the acquistion announcement.

Liberty, Home Port

Home Port Insurance Group, in Pembroke Pines, Florida, has been acquired by The Liberty Company Insurance Brokers. Family owned Home Port is led by Mariano Demarin. Liberty calls itself one of the fastest-growing insurance brokers in the United States.

Gracey-Backer, Edwards Agency

Gracey-Backer Inc., a 97-year-old insurance agency in Delray Beach, Florida, acquired the Bob Edwards & Associates agency in West Palm Beach. Edwards owner Linda Pearson is retiring and the agency will be consolidated into

Gracey-Backer’s Delray Beach office, expanding the firm’s personal and commercial lines customers. Gracey-Backer was founded in 1925 by Matthew Gracey IV and Frank Gracey. The agency offers all lines of insurance, including professional liability, personal and commercial insurance. Ronald Backer and Barbara Backer are third-generation and John Backer, David Backer, and Katherine Backer Moyer are fourth-generation owners.

Hilb, Churchill Agency

The Hilb Group acquired membership interest in the Churchill Agency, based in Brentwood, Tennessee. The Hilb Group is a property and casualty and employee benefits insurance brokerage headquartered in Richmond, Virginia, and is part of the portfolio of the Carlyle Group, a global investment firm. Hilb Group seeks to grow through acquisitions and through organic growth in its acquired agencies.

Charles Taylor, Contego

Charles Taylor, a claims management and technology company, acquired Orlando-based Contego Investigative Services. Contego provides counter-fraud and special investigation services, including surveillance, social media investigations, background checks, medical facility canvasses, scene investigations and recorded statements. Charles Taylor is an independent, global provider of claims and insurance management services and technology for commercial property, workers’ compensation and auto/liability.

Charles Taylor, Underwriters Safety

Charles Taylor, the claims management and insurtech firm, additionally acquired Kentucky-based Underwriters Safety & Claims, a third-party administrator. US&C, headquartered in Louisville but with offices around the country, is a TPA for municipalities, utilities, school districts and private employers, specializing in workers’ compensation and liability. The

continued on page 18 FEBRUARY 7, 2022 INSURANCE JOURNAL | 17

Business Moves continued from page 17

firm also offers bill review, access to preferred provider organizations, utilization review, nurse triage and case management.

King, Martin

King Insurance added two more Florida insurance agencies to its rapidly growing stable of firms in the Southeast. Don Martin Insurance, known as DMI Agency, has offices in Orlando, Fanning Springs and Cross City. Michael Michaelis has managed the agency since he acquired it in 2000. The agency provides both commercial and personal lines of insurance. Employees will continue working at the DMI offices. Insurance Den is based in Homosassa and was founded by Dennis Dewees. Insurance Den focuses on commercial and personal lines business on Florida's west coast. Founded in 1974 and headquartered in Gainesville, Florida, King notes that it is a full-service insurance brokerage firm, providing property/casualty and employee benefits products.

High Street, Maritime Insurance

High Street Insurance Partners, a brokerage based in Michigan with offices in 23 states, purchased Maritime Insurance International in Charleston, South Carolina. Martime provides boat, yacht and commercial maritime insurance and has four East Coast offices. Nick McGinty is president. The acquisition is one of 17 finalized in December, part of High Street’s rapid-growth plan. HSIP offers business insurance and risk management, employee benefits and human capital management,financial and retirement services, and personal insurance products and services through local agencies. It has some 1,700 employees and consultants.

Relation, Allen Insurance Group

California-based Relation Insurance Services reached across the country to acquire trucking industry specialist Allen Insurance Group, headquartered in Georgia. 18 | INSURANCE JOURNAL | FEBRUARY 7, 2022

Based in Fort Valley, Georgia, Allen Insurance Group offers commercial lines, and daily rental and modular container programs. Gary Allen and Tricia Adams will continue with the merged company. Relation, with corporate offices in Walnut Creek, California, is backed by Acquiline Capital Partners, a private equity firm.

Hilb, Insurance Consultants

The Hilb Group, a national property and casualty brokerage firm, acquired Insurance Consultants of Central Florida. The Winter Park-based ICCF is a full-service broker offering individual, group and commercial insurance products. Agency principal John O’Donnell and his team will become part of Hilb’s growing presence in Central Florida. The Hilb Group is headquartered in Richmond, Virginia, and is part of the Carlyle Group investment firm.

Oakbridge, McNeal Sports & Wilson Risk Advisers

Oakbridge Insurance Agency, a large regional agency in the Southeast, announced that it has acquired McNeal Sports & Wilson Risk Advisers, an independent agency in Waycross, Georgia. Oakbridge CEO Robbie Smith said the move sets the stage for further growth of the firm into southeastern Georgia and northern Florida. Oakbridge Insurance Agency was founded in 2020 with the merger of four insurance and risk management firms in the Southeast.

Weston

Florida-based Weston Insurance Co. and Weston Specialty Insurance Co. merged to form Weston Property & Casualty Insurance Co. The new firm has been assigned an “A” rating for financial stability by Demotech and will specialize in covering natural catastrophe losses for residential and commercial properties, according to the company. Deanne Nixon is president and CEO. Weston saw heavy catastrophe losses in recent years and a downgrade in its finan-

cial ratings. Hudson Structured Capital Management took majority ownership of Weston in 2020, providing much-needed financing, according to reports. Weston is licensed in 14 states and operates in Florida, Louisiana, Texas and Mississippi. It has headquarters in Coral Gables, Florida.

West

Freeway, Can-Do & Showers Insurance Agency

Freeway Insurance, a division of Confie, acquired Can-Do & Showers Insurance Agency in Idaho. The acquisition is the first for Freeway Insurance in Idaho, and the 150th by the company since 2008. As part of the acquisition, Freeway Insurance will retain all Can-Do & Showers employees and maintain operations at all four retail locations across the state of Idaho under the Freeway Insurance brand. The acquisition gives Freeway Insurance 11 retail locations across Idaho, and more than 524 nationwide. Founded in Idaho in 1980 following a merger between Showers and Can-Do Insurance, Can-Do & Showers Insurance Agency specializes in auto insurance and personal lines insurance. In 2008, Freeway Insurance joined Confie, a national personal lines insurance distribution company.

Risk Strategies, Burke Insurance Group

Risk Strategies acquired Burke Insurance Group LLC, a New Mexico-based commercial retail insurance agency. The acquisition marks Risk Strategies’ first entry in New Mexico. Headquartered in Las Cruces, New Mexico, Burke Insurance Group was formed in 1980 by its founder, Will Burke. The agency specializes in the surety bond, construction and oil and gasoline sectors in the New Mexico and West Texas region. Risk Strategies is a specialty national insurance brokerage and risk management firm offering risk management advice and insurance and reinsurance placement for property/casualty, employee benefits, and private client services risks. INSURANCEJOURNAL.COM

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People National

Patrick Sterling will lead RIMS, the risk management

society, as president for the 2022 term. Sterling is vice president at the steakhouse restauPatrick Sterling rant chain Texas Roadhouse in Louisville, Kentucky, and is a 34-year veteran of the restaurant industry. He oversees executive and management staffing, benefits and compensation, human resource administration, risk management, asset protection and employee relations. A member of RIMS for 17 years, Sterling joined RIMS global board of directors in 2018 and has served as the secretary, treasurer and vice president.

Christopher J. Hampshire

will serve as president and chair of The Institutes CPCU Society for 2022. A vice president in Gallagher Bassett’s carrier practice, he succeeds Sharon A. Koches as president and chair. Brett Clausen moves from secretary/treasurer to 2023 president-elect of the Society. He is a leadership development vice president for Farm Bureau Financial Services. Kevin Seward serves as secretary/treasurer for 2022. He is an application development manager at Farm Bureau Financial Services.

East

DealerPolicy, an insurance marketplace for automotive retail, appointed Tom Super head of agency solutions. Super brings 15 years of experience in strategy, general management and leadership to DealerPolicy. Most recently, Super served

as head of property/casualty insurance for J.D. Power and Associates.

Cross Insurance, a subsidiary of Cross Financial Corp., promoted Mike Burton to senior vice president and general manager of Cross Benefit Solutions. He is based in Portland, Maine. An insurance industry veteran for more than 25 years, Burton most recently served as chief sales officer for Cross Insurance. Since its founding in 1954, Cross Insurance has grown through the acquisition of more than 120 insurance agencies throughout the Northeast. It now has offices in Maine, New Hampshire, Rhode Island, Massachusetts, Connecticut, New York and Florida.

Midwest

Pouch, based in Niles, Illinois, and specializing in commercial auto insurance, appointed Mitch Jawitz as chief sales officer. Jawitz is a veteran of the insurance industry and has led teams in sales marketing, product and IT at Progressive, The Hanover and The Hartford. Pouch’s product is aimed at contractors, landscapers, florists and other small businesses that depend on a fleet of vehicles.

Alliant has added employee benefits consultant Holly Waldhoff as vice president

within its Employee Benefits Group. Based in Chicago, Waldhoff will create a full range of strategic employee benefits solutions for a diverse portfolio of clients. Prior to joining Alliant, Waldhoff was a voluntary workplace benefits representative with an international insurance, employee

20 | INSURANCE JOURNAL | FEBRUARY 7, 2022

benefits, and consulting firm. She has more than two decades of experience in the fields of marketing, business development, sales training, and benefits consulting.

OMS National Insurance Co. appointed Matthew Nielsen president and CEO,

effective Jan. 1, 2022. Nielsen has worked at OMSNIC since 2015, serving as the company’s senior vice president of claims and underwriting. In 2018, he was elected to the boards of directors of OMSNIC and its subsidiary, Fortress Insurance Co. OMSNIC provides professional liability insurance coverage for oral surgeons and maxillofacial surgeons.

Southeast

Berkshire Hathaway Specialty Insurance promoted Atlanta-based Angela Meyer to

head of life sciences for North America. Meyer, previously head of life sciences for the Southeastern U.S., has been with Berkshire since 2014.

Doug Merriman was named president and CEO of Jacksonville, Florida-based CoventBridge Group, an investigations firm for the insurance industry. The firm’s founder, Dave Merrill, is stepping down as CEO and will serve as vice chairman of the company. Merriman will continue to work as chief operating officer, as well as CEO. Beth Linton, vice president of Environmental Underwriting Solutions since 2006, is the new president of the wholesale insurance broker. Birmingham, Alabama-based EUS specializes in complex environmental coverage.

Alliant Insurance Services

expanded its Florida team with the addition of William “Jib” Reagan as vice president over the employee benefits group, and Stephanie Grosso as assistant vice president. Reagan, based in Tampa, previously was assistant vice president with a global insurance brokerage and consulting firm. Grosso, also of Tampa, previously was a commercial lines agent with an international insurance brokerage and consulting firm. The Villages Insurance Partners added Marie Mesadieu to its team of

personal lines risk consultants in the agency’s Southern Trace office in Florida. Mesadieu began her career in the banking industry. She obtained her life/ health insurance license in 2016 and her property/casualty insurance license after that.

Kenneth Cook has been named senior vice president of sales and client relations at Miami-based Global Risk Solutions. Cook has worked with State Farm and the Hartford Financial Services, and as a business consultant, and as a vice president at EagleView Technologies. Vyrd Insurance Co., based in St. Petersburg, Florida, named industry veteran Elizabeth Bevelacqua director of sales and marketing. Bevelacqua has 15 years in the industry and previously worked with national and Florida carriers. Jonathan Habart

was named director of the

Jonathan Habart

INSURANCEJOURNAL.COM

Captive Insurance Section at the Tennessee Department

of Commerce and Insurance.

Habart formerly served as acting director of the section, as well as an assistant director.

Southern Insurance Underwriters, a managing

general agency based in Atlanta, named Whitney Griffith underwriter for garage insurance. Griffith, based in SIU’s Alpharetta, Georgia, office, has more than eight years’ experience in commercial underwriting. SIU, established in 1964, offers commercial transportation, property and casualty, workers’ compensation, inland marine and other products.

Orion180, a homeowners insurance provider based in Florida, named Ryan Jesenik chief operation officer. Jesenik joined Orion180 in 2020 as senior vice president for sales and operations, and has overseen significant growth for the company, which operates in seven Southeastern states. Orion said it employs technology to serve independent agents and enables real-time quoting, and binding. Greenwich Transportation Underwriters named Matt Grimm president. Grimm has

more than 25 years of transportation insurance management, including 10 years in private law practice. Most recently, he was president of Vanliner, serving the moving and storage industry. Greenwich is a managing general agency and program manager, specializing in commercial auto and logistics insurance. It is based in Brentwood, Tennessee. INSURANCEJOURNAL.COM

Wright Flood hired Angie LaTour as vice president of

sales and marketing. LaTour has 27 years’ experience in property/casualty insurance. She previously was sales manager at Florida Peninsula and Edison Insurance companies, and assistant vice president of operations at Fidelity National P&C, which is now part of St. Petersburg, Florida-based Wright Flood. Houston-based Skyward Specialty Insurance Group

named two Carolinians to executive positions. Tim Brewer, formerly vice president of commercial surety with Swiss Re, now holds a similar position at Skyward. Brewer is based in South Carolina. Dan Kearney will oversee the excess and surplus liability team. Kearney recently was with North Carolina-based IAT Insurance Group.

Summit Consulting,

a workers’ compensation insurance manager, named

Patrick Smyth

Patrick Smyth chief financial officer. Smyth has served as a financial executive with Liberty Mutual and as a managing director with PricewaterhouseCoopers. He succeeds Dave Conway, who is retiring in March. Based in Lakeland, Florida, Summit is part of the Great American Insurance Group. Joe McDonald, captive and risk finance product manager at IRMI, the International Risk Management Institute,

returned to South Carolina as head of the captive insurance division at the Department of Insurance. McDonald had previously worked as licensing coordinator for the SCDOI captive division.

West

San Francisco, Californiabased

Coalition

named

Jennifer Livingstone

Jennifer Livingstone head of strategic

agency management. Livingstone has more than 25 years of leadership experience in broker management, business development, marketing, underwriting, operations and sales, and was most recently chief marketing officer at CNA Insurance. Coalition provides cyber insurance and security. Reno, Nevada-based risk management and insurance brokerage firm, LP Insurance Services LLC, added Steve Cooper to the Truckee/ Tahoe commercial insurance team. With nearly 20 years of experience in financial services and insurance, Cooper has an emphasis on commercial risk, especially construction and outdoor industries. Lehi, Utah-based PCF Insurance Services named Colleen O’Hara vice president

of marketing and communications, Charles Banyai vice president of regional operations, and Lori Marino vice president and regional growth leader. O’Hara previously was an executive vice president at Acrisure. Banyai, also formerly with Acrisure, has more than 14 years of experience in

insurance. Marino has more than 25 years of experience in the insurance and financial space.

Allied American Underwriters, a division of

USG Insurance Services Inc., named Susan Altrock program manager in Scottsdale, Arizona. Altrock has more than 25 years of industry experience, most recently with National Program Administrators. AAU is a program manager that offers programs for commercial lines to USG retail agents and other distribution channels.

WTW named Jennifer Knox corporate risk and

broking leader for the Southern California market. Knox will oversee the Los Angeles, Irvine and San Diego corporate risk and broking teams. Knox has nearly 30 years of commercial property/casualty experience. WTW provides services in the areas of people, risk and capital. Colorado-based workers' compensation insurance provider, Pinnacol Assurance, named Jennifer Neppel chief investment officer. Neppel will succeed David Bomberger, who will retire on March 1 after nine years with Pinnacol. Neppel has a background in investment management, mostly for large healthcare organizations.

Alliant Insurance Services

named Collin Krickl vice president in Phoenix, Arizona. Krickl will serve a broad base of clients across the Southwest region. Alliant is a distributor of diversified insurance products and services.

FEBRUARY 7, 2022 INSURANCE JOURNAL | 21

Special Report: Emerging Risks

10 Emerging Risks to Watch

22 | INSURANCE JOURNAL | FEBRUARY 7, 2022

INSURANCEJOURNAL.COM

By Amy K. O’Connor and Andrea Wells

Insurance Journal examined industries experiencing changes and a few challenges due to the COVID-19 pandemic, economic forces and tough insurance market conditions in 2021. Here are 10 industry sectors that could see new and emerging risks in 2022 and beyond. Cyber

Like the risk itself, the cyber insurance market is constantly changing and keeping carriers on their toes thanks to new threats, exposures and government regulations. A market that was once brimming with capacity and soft rates is now experiencing tightening capacity and rate increases. Willis Towers Watson’s “Insurance Market Realities 2021 Spring Update” released in April noted average rates increases had jumped up to 25% to 50% from the 10% to 20% it reported in its previous update. Cyber experts cite the escalating frequency and severity

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of ransomware attacks as the primary driving force behind the current market hardening. According to a recent report from cyber analytics company CyberCube, global proliferation of ransomware is resulting in cyber claims outpacing premiums, and threatening insurer and reinsurer profitability. CyberCube said emerging threats associated with ransomware attacks, such as ransomware-as-a-service (Raas), have matured into “systemic issues.” “It is probably one of the bigger challenges that is not going to be solved in 2022,” said Christopher Grimes, a director in Fitch Ratings’ North American insurance rating group. “Experts around the world are trying their best to stay ahead, but it’s running uphill in this battle.” U.S. public finance (PF) entities, which have been hit particularly hard by ransomware attacks, are facing higher insurance costs and challenges in acquiring coverage, Fitch Ratings reported in November. “With some ransomware demands climbing to six and seven digits, PF entities are getting priced out of quality and comprehensive commercial cyber insurance policies,” Fitch said. Claims payouts accounted for about 73% of the premiums collected by insurers in 2020, up from 34% in 2018, Fitch said. Darren Thomas, CyberCube’s head of Cyber Security Strategy, warned that 2022 will be another active year for the global insurance industry.

“New levels of cooperation between nation state actors and criminal gangs will likely be emerging, and new thresholds of acceptable tolerances will be tested at the nation level,” he said. The healthcare, education, manufacturing and utility industries will be the prime targets of cyber criminals in 2022, CyberCube said, with ransomware threat actors likely to target software supply chains. Based on data from Microsoft, CyberCube said Russia was responsible for 58% of state cyber attacks in the last year, followed by North Korea at 23%, Iran at 11% and China at 8%.

Political Risk

Supply chain disruptions, economic uncertainty, and access to proper healthcare and vaccines caused by the COVID-19 pandemic has led to unprecedented levels of global instability. But insurance experts say emerging technology and climate change are other factors that could threaten the political risk landscape. The Willis Towers Watson’s “Political Risk Index Winter Update,” released in December,

noted social media as a key driver of political risk because of its ability to amplify disruptive events stemming from broader political changes. “It is possible that social media, which is in part a tool to forming new social groups, has made activist politics dramatically more effective,” the report states. “It is also possible that social media has empowered social groups that traditionally avoided political activism because of social discrimination, geographical dispersion, or a lack of political education.” The use of social media technology to organize large-scale demonstrations and protest movements is also leading to an increase in property damage losses, the report states. In a December webinar on the report, Samuel Wilkin, director of political risk analytics, financial solutions at WTW, said “hashtag” protests in the U.S. increased civil disorder losses from an average of less than $100 million a year for the past 70 years to $2 billion in the last two years. “Hashtag-enabled protest movements have evolved with extraordinary speed and scale,

continued on page 24

FEBRUARY 7, 2022 INSURANCE JOURNAL | 23

Special Report: Emerging Risks continued from page 23

leading to property damage at a level that we don’t usually associate with social unrest,” Wilkin said. Also being considered is the effect climate change could have on global security. Larger and more frequent natural disasters will displace vulnerable populations and disrupt economies, which could lead to more political instability and violence, experts say. Late last year, the National Consortium for the Study of Terrorism and Responses to Terrorism (START) formed a global partnership with the International Forum of Terrorism Risk (Re)Insurance (IIFTRIP) and Pools Re Solution to study the impact of climate change on terrorism. The entities plan to research and produce a series of reports examining “current and contemporary threats and global regional outlooks,” and will present their findings at the next IIFTRIP meeting in May. “This study represents a critical and pragmatic contribution focused on implications for

human and economic security,” Bill Braniff, START director, said in a statement. “In truth, we are already observing violence, criminality, and terrorism brought about directly and indirectly by climate change; this study will therefore serve as a call to action on an urgent issue.”

Telemedicine

The COVID-19 pandemic accelerated a trend in healthcare toward “virtual” doctor visits, also known as telemedicine, as healthcare entities were forced to scale down in-office appointments and procedures to free up resources and limit virus exposure. A September report by Amwins said the global telemedicine market is expected to grow to $52.3 billion this year, with the ongoing pandemic being a major driver of that growth. RPS Insurance Brokers’ “2022 U.S. Healthcare Market Outlook” cited a four-figure increase in the number of telemedicine visits during the

24 | INSURANCE JOURNAL | FEBRUARY 7, 2022

pandemic, noting the practice is being used more frequently as a diagnostic tool and in determining the need for in-person office visits. The pandemic also fueled private equity investments in telehealth, RPS said. But while telemedicine can be more convenient for both patients and providers, Amwins warned healthcare providers need to be adequately protected against exposures like cyberattacks. They also should ensure they are complying with state licensing requirements, and federal and state patient privacy laws, including HIPAA. According to RPS, medical professional liability claims related to telemedicine have been “historically low,” but the broker expects growth in the segment will lead to more incidents. “It is inevitable that claims will rise because MPL claims have a positive correlation to patient encounters,” the report states. RPS said rates and capacity

were tightening in the medical professional liability segment before COVID-19 began because of rising loss costs in the overall healthcare segment. What happens with virus-related medical malpractice claims is the “great unknown” for underwriters, the report states. It’s that unknown that is likely to lure carriers toward writing telehealth providers instead of other healthcare entities, and the booming sector will no doubt need help from agents and brokers understanding their exposures. Beazley, which first launched a “Virtual Health” policy for the telehealth sector in 2017, said results of a survey it commissioned of more than 350 telehealth and telemedicine company executives showed one-third of the respondents “didn’t know what types of risk they need to be covered for, while 36% have struggled to find the right insurance.” Last summer, Beazley enhanced its Virtual Health policy in response to increased demand for the product. INSURANCEJOURNAL.COM

The enhancements address telehealth provider coverage gaps, Beazley said, including adding affirmative bodily injury coverage as standard to its core policy lines and giving telehealth entities more choice over first and third-party cyber coverage and risk services.

Product Liability

The pandemic has dramatically increased the number of companies manufacturing, distributing and selling COVID-19 products, which has in turn increased the demand for life sciences insurance coverage, according to Willis Towers Watson’s “Insurance Marketplace Realities 2021 Spring Update.” The WTW report said underwriters in the life sciences space have been “inundated” with policy submissions. And while capacity hasn’t changed, carriers are being more selective about which risks they will entertain. “Those insureds with new COVID-19 products who are already in the life sciences space are viewed more favorably by underwriters than new entrants, given the likelihood of greater experience in dealing with the FDA,” WTW said. Many countries, including the U.S., temporarily authorized or lifted regulations allowing non-life science companies to produce and market items such as ventilators, personal protective equipment and COVID-19 tests as these items were in short supply at the start of the pandemic, Chubb said in a report issued last year. However, Chubb’s “Making medical devices during a pandemic” report

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noted that companies that stepped up to produce this equipment, such as car or alcohol manufacturers, may not have been fully aware of their legal risk and responsibility, including the required ongoing maintenance and lifetime monitoring of the products, Chubb said. “Some companies were perhaps a little naive as to what they were getting into,” says Alex Forrest, head of Life Sciences, Overseas General at Chubb. “They were running towards helping the war effort without really contemplating the potential consequences for their firms if they got things wrong.” The complex and urgent nature of the pandemic created new product liability exposures for established medical device manufacturers as well, Chubb said, as products and equipment were modified or used in ways that they were not intended, also known as “off-label” use. “You don’t really get any market surveillance in a pandemic. If you’re a manufacturer, good luck trying to ring up a hospital to understand what they’re doing with your products. They’re not interested in speaking to you at that point,” said Forrest. Chubb noted the significant strain

on the global supply chain will put more pressure on life science manufacturers. “Even when COVID-19 eventually goes into retreat, the industry will still have its work cut out ensuring the equipment built during an emergency is not used when healthcare systems resume normal service,” Chubb said.

Mobility & Transport

Transportation is yet another segment being disrupted by the pandemic and technology, as people shift away from traditional vehicles to new modes of transport, such as driverless cars or e-scooters. The emergence of new digital companies that provide “wheel-based” services has accelerated the demand and growth of gig workers during the pandemic, Marsh said in a recent report titled “Mobility in a post-pandemic world: From evolution to revolution.” Marsh said these trends will rapidly evolve for at least the next year, but insurance products designed to protect the income of these workers

are lagging behind. “If insurance can keep pace and evolve with this accelerating mobility shift, it can empower growth and possibility in this sector for many years to come,” said James Rose, head of Marsh’s U.S. Sharing Economy and Mobility Center of Excellence. Overall, challenges in the transportation sector are being exacerbated by the pandemic, according to Aon’s 2021 Global Risk Survey of 2,300 risk managers. Supply chain disruptions, concerns about cyberattacks and data breaches, and business interruption were identified as the top three risks for the segment. Allianz’s 2022 Risk Barometer report, which surveyed 2,650 risk management experts from small to medium-sized businesses in 89 countries, found 45% believed recent supply chain disruptions had had the biggest impact on their sector. And 30% of respondents are most concerned about their business being interrupted by major transportation/shipping delays. Aon said in the next three years, an aging workforce

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Special Report: Emerging Risks continued from page 25 and the increasing risks “associated with the industry’s dependence on others — for vessels, ports, logistics hubs, and more” will make supply chains more vulnerable. The Aon report also warned that greater focus by investors, customers and regulators on mitigating climate change will put more pressure on the transportation industry. “Companies need to understand what’s at stake due to climate change and set up a road map for decarbonization to comply with upcoming regulations,” the Aon report says. Supply chain and business interruptions caused by climate hazards like severe weather could also lead to more disruption and higher costs for the transportation industry.

Entertainment

The massive number of event cancellations in 2020 led to major losses for insurers and rates have risen across the board. But even as the entertainment industry continues to see a comeback, a shortage of experienced workers for live events has increased the potential for accidents and cancellations, according to a recent report by HUB International. “Even though demand has picked up for skilled labor in live events, there are not enough people to fill positions, and those who come back to the industry are rusty. Skills may have eroded from the time off — retraining crews can help ensure construction safety, whether that’s for building sets at a small venue or giant stages for music tours,” said HUB in its 2022 Entertainment Industry Outlook report. Nosediving revenues led to

furloughs, layoffs and an unemployment rate of 6.4% in December 2020, compared with 1.9% a year earlier. The concert industry alone took $30 billion in losses. HUB says 2022 will see escalating rates, less capacity and long approval periods in the live event space. “At a minimum, event cancellation coverage premiums will increase 20% but probably a lot more. Umbrella or excess liability insurance premiums are likely to have similar increases.” Other coverages for entertainment and live events are also rising, according to HUB. “Property insurance will rise as much as 20% for properties in catastrophe-prone areas, and cyber insurance premiums are likely to rise 20% or more, as increased online sales of merchandise and ticket sales has created more exposure.” The film industry has also taken a beating but brokers are optimistic. While entertainment insurance is tough, there is plenty of capacity for the sector, maintains David S. Nikolai, president of EverSports & Entertainment Insurance Inc., an Everest Re Group company. “The markets have reduced the limits on an individual basis, but the capacity has not completely left the building,” Nikolai said. He said the biggest change has been exclusions for communicable disease.

Commercial Real Estate

Despite suffering setbacks during the pandemic in 2020 and 2021, the commercial real estate industry overall has a positive outlook heading into

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2022. According to JP Morgan’s 2022 Commercial Real Estate Forecast, the year overall looks positive, with retail and multifamily classes of business rebounding and industrial classes continuing to thrive. Multifamily and retail real estate markets have largely recovered from the early days of the pandemic. “Multifamily vacancies hit 4.7% in the third quarter of 2021, reverting back to levels seen at the end of 2019,” said Victor Calanog, head of CRE Economics for Moody’s Analytics. However, the insurance market for some multifamily classes remains a challenge. In the shadow of the tragic Champlain Towers collapse and several natural disasters, residential property risk increased, HUB stated in a recent report on the real estate sector. “As a result, real estate owners with multi-family high-rises in their portfolio must layer policies to secure even baseline coverage needs.” The future of office real estate is still largely unknown. “Across industries, however, employers are embracing hybrid work,” the JP Morgan report stated. “Even tech giants, many of which were committed to 100% remote

work, are leasing office properties in major U.S. cities.” HUB says retail has rebounded somewhat, but the transformation of the sector, including innovative shifts such as repurposing empty storefronts or turning vacant shopping malls into warehouses, will accelerate this trend. The liability market for real estate is challenged, as well. “Excess liability for real estate companies remains challenged due to higher-than-expected settlements resulting from problematic claims,” USI Insurance Services’ 2022 Commercial Property & Casualty Market Outlook stated. “Many umbrella carriers refuse to offer capacity for certain real estate classes, due to crime-related claims, as well as geographies that are quick to file lawsuits against property owners and managers.” USI says that both cyber and excess liability coverage lines will not see any relief in the real estate arena in 2022.

Management Liability

The overall public company D&O marketplace continued to stabilize due to a significant decrease in federal securities class actions (SCAs) in 2021

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continued from page 26 and the emergence of new capacity targeting excess layers of coverage, said USI Services in its recent 2022 Commercial Property & Casualty Market Outlook. With some exceptions, moderate increases are now the norm with premium and retention increases moderating for private company/ not-forprofit (NFP) D&O as well. While pricing challenges remain for many D&O buyers, new capacity and new competition are finally on the way with a dozen new entrants to the D&O insurance market, according to Woodruff Sawyer’s 2022 D&O Looking Ahead Guide. One area seeing turmoil is the D&O insurance market for SPACs. “Unprecedented demand for D&O insurance combined with a surge in SPAC litigation and a surfeit of SPACs still looking to identify a merger partner have led to D&O premium increases of four to five times over 2020,” according to Woodruff Sawyer’s Guide, which suggests this trend will last through 2022. “Risk in the D&O market remains elevated with regulatory scrutiny on the rise and carriers continuing to seek increases on rates and retentions, although the increases are decelerating and we are starting to see a shift away from the hard market,” stated Carolyn Polikoff, Woodruff Sawyer’s National Commercial Lines Practice leader, in the report. “Given all that is going on, there is more pressure than INSURANCEJOURNAL.COM

ever to determine what is the right amount of D&O insurance to purchase.”

Employer Liability

For employment practices liability, some buyers — those without poor claims history or major changes in exposure due to acquisitions or layoffs — have been able to renew their programs with single-digit increases. That’s good news for employers. “In 2021, we continued to see premium and retention increases for Employment Practices Liability (EPL) insurance in the range of 10%–25%,” wrote Emily Loupee, area senior vice president, Gallagher, in a January “Employment Practices Liability Market Condition” report. “Early signs are showing that we may have reached an inflection point in this trend and that we can expect a flat to 10% increase for EPL renewals in 2022,” she said. Loupee wrote that the most significant cost drivers for EPL have been increased frequency and severity of lawsuits related to social movements and related social inflation. Also, COVID-19 has introduced a new category of EPL claims. According to Jackson Lewis, as of Nov. 24, 2021, almost 4,000 COVID-19-related EPL complaints have been filed. Another situation to watch: “In the face of resistance to vaccine mandates in the U.S., there may be an increase in retaliation and discrimination claims under the Americans with Disabilities Act and Civil

Rights Act of 1964 (specifically, for religious discrimination),” USI stated in its recent 2022 Commercial Property & Casualty Market Outlook. But overall, USI agreed, the EPLI insurance market is poised for continued moderation in 2022. “Insurers were willing to compete on EPL renewals if the insured’s business conditions were improving, an effective returnto-work transition plan existed, and employment policies were keeping up with newer areas of exposure such as gender identity discrimination, medical marijuana uses, and claims regarding social media use.”

Nonprofits

Already often overstretched on resources, nonprofit organizations have had to learn to do more with less during the COVID-19 pandemic, which has brought a range of new risks and challenges to the nonprofit sector. Many nonprofits adapted to virtual models and implemented creative solutions to combat the challenges they faced with the pandemic. In the past it’s been an industry that relied on in-person fundraising events and volunteer activities. The nonprofit workforce also took a significant hit due to the pandemic but improved with an average of 44,624 jobs recovered per month during 2021, according to PNC Insights. Researchers estimate the sector may not see a full return to pre-pandemic workforce levels until Fall 2022. Another area of risk is

liability, wrote Eric Schall, vice president and claims counsel for Chubb Executive Risk, in a post for the Nonprofit Risk Management Center. According to Schall, donors sometimes sue nonprofit organizations over how the nonprofits use their funds. “In today’s increasingly litigious society, nonprofits have to carefully account for how they spend their funds, especially if private donations make up a significant portion of their revenue,” he wrote. When it comes to purchasing insurance, nonprofit organizations rely on their insurance partners to guide them through though market challenges. Price is a key concern, according to a research report published last fall, titled “Challenges, Opportunities, and Insurance Buying Trends in the Nonprofit Industry — 2021.” The report by Philadelphia Insurance Companies, in partnership with NonProfit PRO and NAPCO Research, analyzed top priorities and insurance buying behaviors of nonprofits. The nonprofits responding reported that some 47% consider the price of insurance a significant barrier for their organization — that’s up from 13% in the 2019 survey. Some 20% reported significant challenges in understanding the difference between insurance policies — up from 15% in 2019. And 20% reported that responsiveness of sales reps/brokers is also a significant challenge — up from 8% in 2019.

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2021 AGENTS of the Year Welcome to Insurance Journal’s Agents of the Year report. This report features 25 agents who defined what it meant to be a successful independent agent in 2021. These agents are more than top sellers. While they have achieved impressive success in sales and demonstrated laudable business intelligence

and entrepreneurial skills, they also have shown they have a passion for what they do and a commitment to professionalism and, in many cases, specialization. For them, being an insurance agent is more than a job. Insurance Journal’s Agents of the Year come from all regions of the country, live

and work in cities or towns big and small, and know the importance of giving back. Information included in this report was voluntarily submitted online by agents and was supplemented by other public information sources. There are many more agents who deserve mention than are profiled here.

James Fritts Rice Insurance LLC Bellingham, Washington

In the 13 years since James Fritts took over as CEO of Rice Insurance LCC in Bellingham, Washington, the company has grown from a few million in annual revenue to more than $30 million in 2021. Fritts, who has been in the insurance industry for 16 years — all of them at Rice Insurance — focuses on private and public real estate REITs (Real Estate Investment Trusts), real estate investors and real estate syndicators. Founded in 1946, Rice Insurance is independently owned and now has more than 125 employees. “We have successfully grown year over year by more than 20% topline revenue,” Fritts says. “We now operate on a national level and have clients in all 50 states. I’ve scaled the process of selling insurance so that our growth does not flatten, allowing us to grow rapidly in short periods of time, but also do it consistently.”

Clark Morton Woodruff Sawyer San Francisco, California

After six years working in the financial services industry, particularly financial and insurance planning, Clark Morton joined Woodruff Sawyer in 2004 with a focus on directors and officers (D&O) liability. Morton works primarily with high growth, late-stage private organizations, companies in the process of going public through IPO, direct listing, SPAC or DeSPAC transactions, and publicly traded firms with a focus on the technology and life sciences sectors. In addition to his primary specialty areas, he also works with clients in the financial services, e-commerce, and consumer products industries. Morton says he most enjoys the freedom and entrepreneurial aspect of his career, and that the entrepreneurial spirit and autonomy to build his business was a major draw to working at Woodruff Sawyer. As a partner and senior vice president, Morton is known for providing guidance to solve clients’ most complex risk issues, mobilizing the right resources to address evolving exposures, fighting for coverage when a claim occurs, and delivering highly responsive service. His approach is centered on helping clients solve complex risk and insurance issues in a consultative manner. Morton is a national speaker on insurance and risk management topics, and has been faculty member at the Practicing Law Institute.

Patrick Thomas RSI Insurance Brokers Inc. Newport Beach, California

Trucking is big business for RSI Insurance Brokers Inc. in Newport Beach, California. Patrick Thomas, whose father, Ben Thomas, founded the agency in 1989, says RSI has “grown to be one of the premier transportation insurance agencies in the country.” With a diverse staff providing fluency in 10 languages, the agency offers “unique and exclusive products that greatly help our trucking clients. We find businesses in need for extra help and support, and provide them not only with financial tools but operational tools to elevate their businesses to the next level,” Thomas says.

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2021 AGENTS of the Year Eric Long Newfront San Francisco, California

A founding principal at Newfront in San Francisco, California, Eric Long specializes in risk management and strategic oversight for life science and technology clients’ global insurance programs. He focuses on complexity, and provides differentiated advice and insurance contracts including property/casualty, E&O/ cyber liability, IP, and management liability for IPOs and public companies. Now serving as executive vice president and practice leader, life science, at Newfront, Long has nearly 20 years of experience as a leader in the insurance industry providing trusted advice, creative cost-effective risk transfer solutions, and unparalleled service to clients. Long, who is often invited to speak at industry conferences, says he “leads a team to provide superior risk management strategy, expertise/insights, brokerage process, and claims advisory and advocacy. … Clients tell me that our practice is unique from other brokerages due to our proactive communication and collaboration through the various stages of their growth.”

Robby McGehee Smith McGehee LLC St. Louis, Missouri

At Smith McGehee LLC in St. Louis, Missouri, Robby McGehee specializes in real estate development and construction. He develops large construction OCIP and CCIP programs for international residential and hospitality developers, including high end residential communities/golf clubs, as well as large hotels with residential components. In addition, McGehee focuses on the back end, supporting legal counsel and working with the firm’s carriers through claim scenarios. Prior to working in insurance, McGehee pursued a professional racing career, highlighted by receiving Rookie of the Year honor at the 1999 Indianapolis 500. He retired from auto racing in 2004 and began working full-time in the insurance industry at Huntleigh McGehee Inc., where he led a team in the practice of risk management for a large international real estate developer. He joined Smith McGehee Insurance Solutions as a principal in November 2011. “I always believe that to be a good producer, you must be the smartest technical producer on the products that you represent. Many brokers these days use a ‘sales’ force, with supporting teams that [provide the expertise]. In my case, I still need the supporting teams, but feel that technical knowledge should come from the relationship broker, building a partnership that is beneficial to the insured,” McGehee says.

Chase Carlisle Carlisle Insurance (Acrisure) Corpus Christi Texas

Before Chase Carlisle began his career as an agent 15 years ago, he worked as a property adjuster for Travelers. Now, at Carlisle Insurance, he specializes in coastal property risks, specifically along the Gulf Coast, with a majority of his book of business consisting of public entity-related business, such as cities, counties, schools and port authorities. “Throughout the past 15 years I have been fortunate to be mentored by my father who taught me everything he has learned over 42 years in the business,” he says. His father’s mentorship “accelerated the growth in my book of business. Without the knowledge, you cannot be successful.” Carlisle says he has a competitive, driven personality, and strives to do everything within his power to win the business. He not only achieved the professional designations of CIC, CMIP and CPCU before the age of 35, he also has served as the president of his local IIAT association (IIACB). “In order to continue to grow and be successful you have to remain humble and driven. I constantly remind myself of where I started and how blessed I have been by God,” he says.

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2021 AGENTS of the Year Joel Berrian Berrian Insurance Group Inc. Lone Tree, Colorado

Before launching his independent agency, Berrian Insurance Group Inc., in Lone Tree, Colorado, Joel Berrian gained experience in varied and diverse segments of the insurance industry. He previously worked as a claims adjuster, risk manager, insurance broker and Lloyd’s of London Coverholder. Berrian also served as CEO at Crump Insurance Group and Price Forbes LLC. In addition, he completed the Wharton School Executive Insurance Program and earned the CPCU, CIC, ARM and AIC professional designations. He currently serves on the board of directors at Leavitt Group. Berrian’s book of business includes all middle market and risk management size risks, with special programs for CAT exposed property, food and beverage, product recall, global transit, trucking, and public entity. He concentrates on analyzing his clients’ coverage gaps to identify risk exposures and creating insurance protection to close the gaps. “Understanding the business goals and strategies of customers enables me to respond to their business needs,” Berrian says.

Eugene Podokshik First Fidelity Brokerage New York City, New York

As the head of First Fidelity Brokerage (FFB) with over 20 years of insurance experience, Eugene Podokshik has transformed the company from a general insurance broker to a specialist provider for a select group of industries. The agency’s areas of expertise include education, construction and real estate. Most of First Fidelity’s growth comes from referrals, which originate from providing excellent service, he says. “My vision evolved as I moved rapidly up the ranks in the industry working in various positions servicing middle market and national accounts. During the last 10 years, I’ve focused on growth of several niches by transitioning services rendered to be consultative in nature vs. transactional,” Podokshik says.

Erik Stenson Newfront San Francisco, California

Erik Stenson, senior vice president and founding principal at Newfront in San Francisco, is an insurance professional with more than 30 years of insurance and technology experience in Silicon Valley. Supported by what he deems “the best and brightest team in the industry,” Stenson works with a variety of companies from startup through IPO, providing risk management and strategic insurance placement. His insurance expertise includes D&O, professional liability (E&O), cyber liability, general liability, property, auto, and a variety of specialty coverages for both domestic and foreign risk exposures. Stenson began his insurance career at Fireman’s Fund Insurance Co. He later helped build several insurance technology startups, including InsWeb and BenefitPoint. Stenson also helped other ventures achieve funding and new growth in various markets, including employee productivity, wellness and email marketing. “With a solid understanding of insurance, especially within the technology industry, I co-founded a Silicon Valley based insurance brokerage firm, called ABD, which merged into Newfront Insurance in 2021. My job is to listen, interpret, educate and execute. Clients appreciate my problem-solving skills and no-nonsense approach to insurance strategy. Driven by high expectations for personal performance and team responsiveness, I am dogged in providing solutions.” Stenson says.

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2021 AGENTS of the Year Kevin Dougher Johnson, Kendall & Johnson Newtown, Pennsylvania

Networking to help others has been the most significant force driving the growth of his book of business, according to Kevin Dougher, who began his insurance career in June 2004. By 2010 he had developed the niche practices that currently comprise the bulk of his business at Johnson, Kendall & Johnson. His areas of expertise include nonprofit human services, sports and entertainment, complex workers’ compensation risks and captives. Dougher says 75% of his new business prospecting time is concentrated on his niches. That intense focus, coupled with a strong loyalty to his network, has been “incredibly rewarding,” Dougher says. “I put a lot of effort in connecting people in my network to one another. This has created a tremendous and loyal business network. Creating centers of influence and becoming a center of influence has been invaluable,” he says. Dougher commits his time to developing his expertise in the niches on which he concentrates. Acknowledging his ability to create and maintain new relationships, Dougher says “the hard work in learning the products that are important to my insureds in my niches is a significant reason that I have been able to achieve some success.”

Michael Cosgrave Renewable Guard Insurance Brokers LLC San Francisco, California

After entering the insurance business in 2003 with a concentration on personal lines, in 2012 Michael Cosgrove expanded into the commercial property/casualty insurance arena by joining Couch Braunsdorf, an Assurex Global brokerage. It was during his time at that brokerage that Cosgrove began to focus on the renewable energy business. “I always had a strong interest in the industry and believed in its role in the future of energy production. While I enjoyed great success working for my former brokerages, I saw a clear need in the renewable energy industry for a retail brokerage that was entirely committed to supporting the insurance needs for this rapidly growing industry,” Cosgrove says. With that need in mind, Cosgrove created San Francisco-based Renewable Guard Insurance Brokers in 2018, designed specifically to support the renewable energy industry. It is one of the few independent agencies dedicated to the industry and is now widely recognized as a top tier renewable energy insurance brokerage option, Cosgrove says. The agency’s success is driven by its “ability to absorb and react to each client’s individual needs with speed and precision. We pride ourselves in keeping at the forefront of industry trends and new insurance products, allowing us to keep our clients apprised.”

Brian Schneider Higginbotham Fort Worth, Texas

A managing director at Higginbotham in Fort Worth, Texas, Brian Schneider credits his success as an agent to the mentors and team that both support him and work tirelessly to exceed the needs of their clients. Schneider joined Higginbotham 11 years ago; his book of business is concentrated in the private equity, restaurant/hospitality and public sector industries. His middle market and large commercial accounts vary in complexity and are located both inside and outside the U.S. Finding ways to help clients beyond insurance placement and providing resources to better protect their business are keys to demonstrating the added value his team brings to a partnership with the client, Schneider says. Executing his goals has been Schneider’s main strategy for success: “Exceed client expectations and provide innovative solutions for risk management and risk transfer,” he says. “Referrals continue to be the main growth strategy, by maintaining a strong work ethic and putting clients’ interests first.” Schneider adds that he plans to continue growing his business by “utilizing our internal practice leaders and risk management resources to further deliver value to my clients.”

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2021 AGENTS of the Year Paul Bassman Higginbotham Dallas, Texas

Paul Bassman entered the music business after graduating from college and spent 15 years managing major label artists and talent scouting for Capitol Records. He transitioned to the insurance industry 16 years ago, leveraging his background in the music business to develop a book of business focused on live entertainment such as venues, concerts, festivals and sporting events. Entertainment and sports now represent 95% of his book. While he’s often tempted by large insureds outside of his practice area, Bassman says he remains focused on his specialties. “Fortunately, with Higginbotham I have a large team of experts where I can refer the non-entertainment business. I feel strongly that my real world, hands-on experience in the music business has set me apart from other agents trying to work in the entertainment space,” he says.

Gary Reshefsky Century Risk Advisors Boca Raton, Florida

Educated and trained as an attorney, and with a strong background in business, risk management and commercial property/casualty insurance, Gary Reshefsky founded his agency, Century Risk Advisors in Boca Raton, Florida, in 2013 after seeing an opportunity to provide clients with an advisor attuned to their specific needs. With industry specializations in transportation, not for profit organizations, subscription retail, aviation, financial services, public entity, and others, his main focus is outsourced insurance and risk management for middle market companies. Insurance was never foreign to Reshefsky, he grew up with it. His father Ron Reshefsky, who is chairman of Century Risk Advisors, founded Century Financial Services in 1983, growing it to become one of the largest independent agencies in Florida before it was sold to a national brokerage firm. Reshefsky says that with the creation of Century Risk Advisors, he “wanted a company that reflected our principles and approach to the business, which is prioritizing the client ahead of corporate directives. I also wanted our clients to enjoy the benefits of an outsourced risk management team dedicated” to their needs. Through the process of growing his agency, Reshefsky has developed new insurance products, become a tribunalized Lloyd’s coverholder, and created ways to distribute on-demand insurance over the internet. However, he says, “my passion is building and leading a team of professionals that becomes indispensable to our clients.”

Ivoree Reinaldo Newfront San Francisco, California

As senior vice president, P&C, at Newfront, and with a concentration in financial services, technology and fintech companies, Ivoree Reinaldo specializes in working with publicly traded and private companies that are modernizing business. These organizations have purpose, are positively impacting commerce and communities, are consumer-friendly, best in class, and leaders in their industry and segment, she says. In 2021, Reinaldo became the first Black female producer and principal/owner at Newfront. In addition to her role as property/casualty SVP, she is the lead broker on publicly traded organizations (notably public D&O). Reinaldo has been a commercial insurance adviser and risk management consultant for nearly 20 years, customizing insurance programs for complicated and large commercial risk and investment needs. Early in her career she worked extensively with nonprofits and social enterprise organizations. “In January 2020, I testified before Congress as a subject matter expert on insurance matters. My goal was to use my expertise and life experiences to help underserved organizations such as the nonprofit and social enterprise sectors,” she says. In 2021, the U.S. Department of Treasury called upon her to discuss “the impact of the hard insurance market on organizations who may struggle to absorb the impact, such as my client Black Lives Matter, the Martin Luther King, Jr. Family Nonprofits, and other high profile social justice organizations.”

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2021 AGENTS of the Year Brett Lascara The Huneycutt Group Wilmington, North Carolina

With a book of business concentrated on the new home market, Brett Lascara is fortunate to be located the rapidly growing area of Wilmington, North Carolina. A big part of his agency’s success has come from gaining market share in the new home market there. An agent with five years of experience, Lascara has grown his book by around 40% every year, and now has a dedicated team to help his continued growth and service of his existing book. “We have worked hard to be a true resource to our referral partners. We work with a lot of realtors and mortgage loan officers. We strive to be a true resource to them and help grow their business, which in return has helped grow ours,” Lascara says.

Russ Wardlaw Insuramax Louisville, Kentucky

Russ Wardlaw has been securing insurance for fast food restaurants for more than 35 years. A shareholder and president of Insuramax, Wardlaw is also the program director for a national fast food restaurant program. He says its partnership with their program carrier has allowed the agency to grow along with his own book of business. While his carrier’s competitive pricing and exceptional claims service has contributed to his agency success, Wardlaw believes the most valuable resource he and his team provide to their clients are “proactive quarterly service claims calls,” during which clients’ current open and closed claims are analyzed. “This allows our team to provide our clients with a proactive service, as well as grow our business relationship and friendship,” he says. After working for insurance carriers early in his career, Wardlaw transitioned to the independent agency side of the business in 1991, and has spent more than 30 years in sales production, management and training. He joined Insuramax in 2011. “My leadership skills combined with all of my employees and program team members have been the perfect blend of success,” he says. In addition, “I love my customers and take pride in providing them with the best product, service and pricing.”

Stephanie Bozzuto Cannabis Connect Insurance Campbell, California

A co-founder of Cannabis Connect Insurance, a partner of Acrisure LLC, Stephanie Bozzuto is an insurance professional with 14 years’ experience in business development, marketing strategy and insurance coverage analysis. Bozzuto has co-developed cannabis insurance product offerings and is utilized as a cannabis insurance expert for other Acrisure insurance brokerages nationwide. An active member of the insurance committee of the California Cannabis Industry Association and the chair of the risk and insurance committee of the National Cannabis Industry Association, she speaks on multiple platforms and panels about insurance, loss prevention and compliance in the cannabis industry. Her outstanding performance at Cannabis Connect has resulted in Bozzuto being named Producer of the Year in 2018, 2019 and 2020. “Being involved in associations, networking events, committees and other groups has elevated my career. I am involved with both the National and California Cannabis Industry Association, which has given me a larger platform to educate cannabis consumers on how to level up their buying experience in the emerging cannabis industry,” she says. Bozzuto adds that she has cultivated partner relationships throughout the U.S. and the majority of her book now comes from referrals. She is committed “to providing ethical, responsible insurance for the new emerging cannabis industry,” she says.

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2021 AGENTS of the Year Dan Vaughan Alkeme Insurance Services Inc. Ladera Ranch, California

A veteran of the insurance industry for more than 25 years, Dan Vaughn maintains a specialty in loss sensitive accounts. In 2012, he launched California-based Gallant Risk & Insurance Services, which ultimately joined forces with Alkeme Insurance Services Inc. in 2020. The firm was initially intended to focus on commercial clients but was eventually expanded into a full-service brokerage firm to support clients in all areas of their insurance needs. Vaughn says his mission is to understand the long-term goals of his clients and provide the necessary services to help them achieve those goals. At Alkeme, he has continued to service his clients with a renewed energy along with helping to develop younger producers. With a light-hearted personality that causes people to want to work with him, Vaughn says through his work at Alkeme he is able to attract the larger client organizations that really can utilize the loss sensitive model.

David W. Clausen Coastal Insurance Solutions Rocky Point, New York

David W. Clausen began his insurance career in a family-owned insurance agency located on the North Shore of Long Island, New York. He has 20-plus years of experience as a licensed independent agent focused on coastal home and flood insurance, and additionally maintains a niche focus on high-net-worth families. During the past five years, his agency has grown rapidly from serving just New York residents to now writing in more than 20 states. “Digitizing the insurance experience has helped me grow the most. I’ve invested significant resources in my technology stack to improve our new and existing customer experience by building and integrating Salesforce into my agency management system (Applied Epic),” he says. The technology has enabled the agency to improve its marketing initiatives, which produced 26% year over year premium growth, Clausen adds.

David DeLorenzo Ambassador Group Phoenix, Arizona

Hospitality is what David DeLorenzo loves. After launching his insurance career in 2000 as a general agent, two years later with the aim of becoming a specialist in the hospitality arena, he bought barandrestaurantinsurance.com and “never looked back,” DeLorenzo says. His agency, The Ambassador Group in Phoenix, Arizona, now has a staff of 12 and maintains one of the largest hospitality books in the state. By his own admission, DeLorenzo has taken “social media to the next level,” with an active presence on LinkedIn, Instagram, TikTok and Facebook. His podcast dedicated to hospitality can be accessed on his website, www.barandrestaurantinsurance.com, and he conducts seminars and roundtables to help his current clients and others with added value and education. “It is about connecting and protecting. … To be relevant is everything,” DeLorenzo says.

Jeremy Bryant Britton Gallagher (Acrisure) Cleveland, Ohio

With more than 25 years of experience managing multiple client portfolios with broad ranges of risks and exposures, Jeremy Bryant specializes in multiple risk management segments, including private equity programs, real estate, retail, manufacturing and construction risks. His expertise includes operations, best practices, commercial brokerage design and placement, reinsurance development, niche program coverage and development, and strategic insurance carrier relationships. Bryant has served as director of risk management for a large Real Estate Investment Trust (REIT). He also previously worked as an assistant risk manager for a large private, family-owned commercial property management and construction development operation with international exposures that included professional sports ownership, aviation exposures, equine and farming, estate planning, wrap-ups and master insurance programs. Bryant holds a business degree from Ohio State University, and has earned the Associate in Risk Management (ARM), Certified Risk Manager (CRM), Certified Programs Leader (CPL) and Certified Insurance Counselor (CIC) designations. 34 | INSURANCE JOURNAL | FEBRUARY 7, 2022

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2021 AGENTS of the Year Francesca Forlivio JMG Insurance Corp. Norwalk, Connecticut

Now specializing primarily personal lines insurance with a niche in high-net-worth clientele and habitational investments, Francesca Forlivio began her career in the insurance industry in 2014 as human resources manager at JMG Insurance Corp. Forlivo says she “fell in love with the sales/production aspect of the property/casualty industry,” an area in which she participated on a part-time basis while continuing in her full-time HR position. She earned her CPCU designation within a 12-month period and is now working on an MBA at the University of Connecticut, which she will complete this Spring. “I am always seeking ways of growing professionally and feel education is one of the most valuable ways to gain knowledge and continue adapting in an ever-changing industry,” Forlivio says. Valuing circles of influence, networking, and obtaining referrals from satisfied clients has helped her grow her personal book of business, according to Forlivio. “It is so gratifying to be able to advise and work with individuals and businesses throughout various stages of their lives and careers,” she says. “Gaining trust and continuing to provide reliable customer service with a top-notch team around me has been essential,” she adds.

Zach Marcus Marcus Insurance Wethersfield, Connecticut

It’s helpful that Zach Marcus is fluent in three languages — English, Spanish and Hebrew — as his agency, Marcus Insurance, an independent and family-owned enterprise in Wethersfield, Connecticut, that has been in existence for more than 80 years, works with clients around the world to insure their rental properties in the United States. Collectively, the team at his agency speaks seven languages, which empowers them to reach out and serve the diverse, international communities in which they specialize. “Being the 4th generation in the business, I have grown up around insurance, and for almost a decade have been working to insure the needs of our customers. Adapting and leveraging technologies has been very important, but nothing replaces the human element. This business is and will continue to be about relationships, responsiveness, and honesty,” Marcus says. Responsive, honest service, in addition to the insurance capabilities the agency offers, enables both Marcus and his agency to retain a competitive position in the marketplace for the coming years, he adds.

Clyde Wilberger FNIC Omaha, Nebraska

Commitment, a strong work ethic, and a dedication to becoming a coverage expert in his chosen field have helped Clyde Wilberger achieve success as an insurance specialist with a focus on the construction industry. He began his career in 2003, working with a small agency that had only nine employees. After his agency merged with a much larger one, Wilberger felt he needed to expand his knowledge of the coverages he was selling and set about to do just that by studying policy forms, asking questions and attending training classes. He obtained the CLCS (Commercial Lines Coverage Specialist) and CRIS (Construction Risk & Insurance Specialist) designations and has earned recognition as a coverage expert in the construction industry. As director of Sales at FNIC, a position to which he was promoted in 2016, Wilberger enjoys mentoring new agents. “It is exciting and rewarding to see them become successful,” he says. Wilberger says he never takes for granted the job of protecting the assets his clients work for years to obtain. Focusing “on delivering great service and knowing coverages is how I have grown my book over the years,” he adds.

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FEBRUARY 7, 2022 INSURANCE JOURNAL | 35

Closer Look: Liability

A Look at Possible Negligence on the Set of Rust By Patrick Wraight

ou can tell that you’ve been in insurance just about long enough when you look at a news story and you begin to think about liability coverages, exclusions, negligence, and who’s going to go to court. As I watched news coverage of the shooting on the set of the movie Rust, it struck me as a terrible and tragic event. No one wants to go to work and see their friends or peers shot, even accidentally. After taking a moment to pray for those involved, my insurance mind started to kick in. The questions began to come to mind. • Is there negligence?

• Who could be held legally responsible for damages? • Is there coverage? • What about workers’ comp?

[Editor’s Note: What follows is strictly an insurance analysis of the situation based on the publicly available information. It is not a legal analysis and therefore will not enter into discussion of any potential criminal charges, including criminal negligence, because insurance is not meant to cover criminal activity, even criminal negligence. It is also not meant to be a discussion of the political views of anyone involved.] Just in case you haven’t watched any interviews,

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reports, or reactions, here are some of the facts that we can know for certain. Certain crew members had raised complaints about safety issues, including the schedule, the distance that some had to travel to get to the ranch where they were shooting, and a relaxed attitude toward the use of firearms. Alec Baldwin was handed the firearm by “someone” who declared that it’s a cold gun. From his statement, we get that meant that it is not loaded. He stated that most often he would be handed a firearm by an armorer, or prop handler. He stated that he had been taught to trust the person who handed him a firearm, who

may or may not demonstrate that the firearm was actually loaded in the way that they expected that it should be. According to the way he stated that he had always done it, he did not take the time to verify whether the gun was loaded or not. At the direction of the cinematographer, he draws the gun and aims it toward the camera for the current shot. The cinematographer and director are standing in front of Baldwin and the firearm. They are looking at how this moment will appear in the movie. The gun discharges, firing a live bullet. Baldwin states that he did not pull the trigger. He pulled the hammer part way INSURANCEJOURNAL.COM

back, let it go, and the firearm discharged, according to his own statements. The bullet hits both people. The cinematographer dies at a local hospital. That is briefly what we know so far. Because we do not have complete information today, we cannot make any truly definitive statements. It’s going to be the purview of the court to sort out the facts and make actual determinations later, but for now we work with what we know.

Is There Negligence?

Before we can answer if there are any insurance implications, we must find out whether or not anyone acted negligently. The elements of negligence should be reviewed. For someone to be negligent, we need to show that (in the situation) they owed a duty to others, that they breached that duty in some way, that the breach of that duty was the proximate cause of injury, and that injury caused someone to sustain damages. With that, let’s work backward. We can say with certainty that there were injuries with damages suffered. Two people were shot. One of them died from their wound. We recognize that there are injuries with damages. Again, those damages are in the realm of the courts to determine. The existence of damages is enough for our purposes. That leads us back to what was the proximate cause of the injuries. It should be clear that the discharged firearm released the bullet, which caused the injury and damages. That checks off another aspect of negligence, but we still haven’t determined if there is any INSURANCEJOURNAL.COM

negligence yet. We still have to determine if there was a duty owed and a breach of that duty by anyone in the chain. Let’s look first at Baldwin. As the individual who was given a firearm, what is his duty that he owes to those around him? If we take him at his word about how he was trained from his early days in the movie industry (and we have to without evidence to the contrary), we based our judgment on that statement. If he acted this time as he did every other time that he handled a firearm on a movie set, in that he trusted what he was told regarding the status of the firearm (whether or not it was loaded), we could conclude that he had done his duty. There is, however, another line of thinking. One can make the argument that when you have control of an item that can pose a particular danger to yourself and others, you owe a heightened duty because of the inherent nature of the item that you’re controlling. We can make the argument that a person who handles a firearm ought to be first comfortable with its operation and should be required to verify whether it’s loaded or not and what sort of ammunition is in the firearm. Depending on the type of ammunition, there’s still the possibility of a projectile leaving the barrel and at the very least a concussive shockwave that leaves the barrel, both of which can injure someone. So, what we’ve come to so far is a solid maybe. Remember that we’re looking for a duty owed by someone where the breach of that duty caused the injuries. If you say that Baldwin had a duty to ensure that the firearm was safe before

doing anything with it, then it’s possible that we have a duty owed and a breach of that duty. If you say that Baldwin did his duty because he accepted a firearm from someone else, then we have to go back to who handed it to him. Whether or not Baldwin had a duty to inspect the firearm, one thing that he did not anticipate was that it would be loaded with live rounds. That leads us to look at the armorer, who would be responsible for loading the firearm and getting it to him. The armorer would be responsible for the safekeeping, maintenance, and operation of firearms on the movie set. She would also be responsible for any firearms training that should be conducted among the actors. So then if the armorer had a duty to ensure that the firearm was working properly, and that it was properly loaded for the use in the scene, we can connect the proximate cause of the injury to the armorer’s duty related to the firearm. In this case, the armorer did not ensure that the firearm was unloaded and did not catch that there was at least one live round loaded. With this, we can tie a breach of a specific duty that was owed back to the injuries sustained. If we consider either of these parties potentially negligent, then we ask the question about the negligence of the production company. Is the entity that was tasked with hiring cast and crew for this movie negligent? This takes us back to the breach of duty that was the proximate cause of the injuries. What would the potential duties of the production company be? They would have the duty to provide a safe

working environment, which for a movie set might include ways to mitigate certain risks inherent in the making of a movie. Since this was a western movie, there are several risky activities that the production company would need to be ready to mitigate, including horses, firearms, explosives, and the climate that they were operating in. The fact that two people were shot indicates a breach in the production company’s duty to provide a safe working environment and to mitigate the risks associated with inherently risky activities. There are a few places where we could see a breach of their duty. Someone was allowed to bring live ammunition on the set. I’m not an expert in how movies are made, but it seems that the need for live ammunition on a movie set is limited at best. In addition, if the armorer put live rounds in a firearm without realizing that they were live, that’s a breach in the duty to hire someone qualified for the job, to properly train them in their job, or to properly supervise them while doing their job.

Conclusion

At this point, we might have established individual negligence for one or two people and it’s possible that the entity in charge of the movie set is negligent, as well. It’s worth reminding all of us that we are looking at the facts as we know them today. We don’t have nearly enough information to say definitively whether there is any negligence or liability. Wraight is the director of Insurance Journal’s Academy of Insurance. Email: pwraight@ijacademy.com.

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Spotlight: Transactional Risks

Transactional Liability Insurance:

Why Management Liability Isn’t Enough in Today’s M&A World

fter a slight Covid-19 related dip in 2020,

M&A activity has reached unprecedented levels with By Kate Lyes and 2021 being the busiest year on record, resulting in significantly elevated demand Angus Marshall for M&A insurance. At the same time, M&A insurance claims activity has also increased with one leading broker reporting claims to be up 23% in 2020 versus 2019 and market data indicating no difference in the likelihood of a claim on deals with a small versus large enterprise value. There are multiple causes of this trend including a broadening of commercial terms in transactions, a more sophisticated understanding of M&A insurance and claims process by brokers and

insureds alike and a wide variability in business performance due to the continuing impact of the COVID-19 pandemic. However, while M&A (also known as transaction liability) insurance has become a widely adopted risk management and deal facilitation tool for transactions with an enterprise value between $100 million and $5 billion, it is only recently that similar solutions became available for those with an enterprise value less than $50 million.

portion of funds into escrow for several years to protect against any future losses in connection with a representation or warranty, or may negotiate to hold back a portion of the proceeds unless and until certain performance hurdles or other post-close conditions are achieved. Transaction liability insurance helps micro and SME sellers to avoid having to provide an escrow or be subject to a holdback. Up to this point, directors and officers buying micro

Small-to-Medium-Sized Enterprises and Risk

and SME businesses relied upon a misconception that they and the seller company were protected against transaction liabilities by their management liability policy. The reality is however very different. Management liability

The value of this to micro and SME businesses cannot be underestimated. While every seller wants to enjoy the full value of their deal as soon as possible, the buyer will usually require the seller to place a

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policies simply do not offer the same level of protection against the four most common types of representation breaches in sales contracts that we see — financial statements, compliance with laws, tax matters and material contracts because of the breach of contract (or contractual liability) exclusion almost universally included in all management liability policies. Management liability policies typically address three key D&O insurance clauses for private companies, commonly known as Side A (covering the directors and officers personally), Side B (covering the company for the indemnity given to the directors and officers) and Side C (covering the company for claims against the company). However, in an M&A transaction, the seller (a company or individual) and sometimes the management of the company will give representations and warranties to the buyer about the company which they are selling. If the buyer found the company they had recently acquired was not compliant with certain laws for example, and such non-compliance constituted a breach INSURANCEJOURNAL.COM

of a seller’s representation, then this would constitute a claim under a transaction liability policy (with defense costs also covered) but not under a management liability policy where the breach of contract exclusion would deny coverage. Without transaction liability insurance, sellers are at risk of financial loss if there is a breach of any of the representations they give to the buyer in an M&A transaction. To illustrate this point, here’s a real-life example of a claim that we managed. An independent fast-casual chain of restaurants in Arizona and California were acquired by private equity investors. Following the transaction closing, the chain was investigated for breaching the maximum allowable weekly working hours of its employees resulting in defense costs, fines and penalties. At the time the representations were given in the deal process, the seller had incorrectly thought they were in compliance with relevant employment laws. An investigation concluded otherwise and the resulting loss was $7 million (including damages, defense costs, and rectification costs). Fortunately, the seller had purchased transaction liability cover, fully indemnifying them for losses relating to the breach of representation. In the above claims scenario, a management liability policy may be triggered for directors’ costs and expenses in the underlying investigation, but the breach of contract exclusion will not cover claims brought by the buyer against the seller for the misrepresentation under the Sale and Purchase Agreement. This INSURANCEJOURNAL.COM

example shows that claims can be brought in the usual context of a D&O claim that relates to a pre-acquisition wrongful act. All management liability policies have a trigger when they are acquired, which generally states that in the event of a corporate takeover during the policy, the cover will continue to apply but only in respect of wrongful acts committed or alleged to have been committed prior to the effective date of the takeover. All companies should consider purchasing tail cover, as any go-forward cover will only be from the date of acquisition and will either fall under the buyer’s own management liability policy or, if it is a private equity purchase, the new go-forward policy will fall under a managed portfolio of business. Either way, it is important that directors and officers of the selling company ring-fence their historic exposure as they will no longer control their company, its insurance or indemnification provisions. To further demonstrate the benefit of having one fit-forpurpose transaction liability

policy versus an entangled web of different policies which may or may not cover a claim, here’s another example. A customer of a U.S. medical diagnostic company filed a suit against the company, its buyer and four of its directors for allegedly submitting fraudulent insurance charges for non-reimbursable medical services. The initial demand was for $20 million plus damages and attorney fees. The alleged fraud dated from 2014 to 2020.

‘Without transaction liability insurance, sellers are at risk of financial loss if there is a breach of any of the representations they give to the buyer in an M&A transaction.’ The medical diagnostic company had a management liability policy with a retro date of January 1, 2016, which excluded any claim or investigation arising out of any act,

error or omission occurring, in whole or in part, before that date. The company was acquired on December 31, 2019, and as its management liability policy went into run-off, it purchased a six-year tail period which only provided cover for claims arising out of wrongful acts prior to December 31, 2019. As well as the alleged wrongful act dating back to 2014 and after 2019, there were numerous other complexities in the claim, including allegations of fraud, as well as multiple policies in play that could respond (each with other insurance exclusions). Eventually all parties agreed to mediate and settle. The total claim paid was $3.5 million, shared by three different insurers. Had the medical diagnostic company purchased appropriate M&A cover, there would have been just one policy in place which would have addressed this specific exposure for the selling company and its directors. As M&A activity is increasing, so is the likelihood that brokers and agents will receive notification that their clients are selling their business. They have a duty of care to ensure their client is aware of the risks associated with an M&A deal but, more importantly, to ensure their client understands the limitations of a management liability policy in the context of a transaction and how they can mitigate risk by purchasing a transaction liability insurance which can specifically ring-fence and indemnify against such exposures. Lyes is the head of specialty lines and Marshall is the head of transaction liability at CFC.

FEBRUARY 7, 2022 INSURANCE JOURNAL | 39

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

All Additional Insureds Aren’t the Same

or at least the past couple of decades, it seems that in just about every contract, the upstream party wants to be an additional insured (AI) on the downstream party’s insurance. Most commonly, the request is for AI status under that entity’s commercial general liability (CGL) policy, though status on auto, umbrella and even (believe it or not) workers’ compensation insurance is often requested. In the case of CGL By Bill Wilson coverage, additional insured status is most often granted via endorsement, though sometimes automatic coverage is included in policies, especially businessowners forms, if certain conditions are met. In the more typical case of granting AI status by endorsement on a CGL policy, Insurance Services Office (ISO) offers over two dozen AI endorsements, many differing by the status of the business relationship between the parties such as contractor, vendor, etc. Agents and underwriters must be careful to use the proper AI endorsement for the specific business relationship in question and one that complies as best as possible with contractual requirements. Over the years, I’ve seen many examples of the wrong ISO AI endorsement being used or a particular AI endorsement used

‘When a customer is being contractually required to extend AI status to a business partner, it is critical to review the contract terms and match them with the proper AI endorsement.’ 40 | INSURANCE JOURNAL | FEBRUARY 7, 2022

where a different one would be better in the context of the insurance requirements calling for AI status. But even greater care must be used when a non-ISO additional insured endorsement is being provided by the insurer. The last time I checked, the International Risk Management Institute (IRMI) had copies on file of over 300 non-ISO AI endorsements. Many of these endorsements are poorly written and likely do not accomplish what the drafter(s) intended. For example, most AI endorsements today, including ISO forms, attempt to restrict the amount of coverage available to the AI to that specified in the insurance requirements of a contract if less than the limit available to the AI under the policy. Consider the language in the following two non-ISO endorsements that appear to invoke this limitation:

ification only to the additional insured. It says that “The insurance provided” when there is a claim involving the AI is limited to that required by the contract if less than the policy limit. That limitation is not expressly applicable only to the AI

Insurer X: “The limits of insurance applicable to the additional insured are those specified in the written contract or agreement or in the Declarations of this policy, whichever are less.” Insurer Y: “The insurance provided will not exceed the lesser of the coverage and/or limits of this policy or the coverage and/or limits required by said contract or agreement.” Insurer X’s form language is similar to that in ISO’s AI endorsements. By using the “applicable to the additional insured” language, this form clearly intends to limit the amount of coverage only to the additional insured … the full policy limit remains available to the named insured regardless of the insurance requirements in the contract between the parties. Insurer Y’s form language, on the other hand, does not apply the “lesser” qual-

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and could arguably be said to apply to all insured entities. Also note that the reference in Insurer X’s form to the limits of insurance “specified” in the contract is more precise than Insurer Y’s limits “required” by the contract. Contracts usually have very broad and unlimited hold harmless provisions. The insurance limit specifications are typically minimums and not “required” amounts per se. In addition, note that the “lesser than” requirement in Insurer X’s form applies only to written contracts, whereas Insurer Y’s requirement applies to any contract, written or not.

Another common contractual provision is that the downstream party’s general liability coverage must be primary and noncontributory to the upstream party’s coverage. The entire “primary and noncontributory” issue could merit an entire column, but lets just focus on one aspect. Consider the language in the following two non-ISO AI endorsements that appear to invoke this requirement: Insurer A: “This insurance shall apply as primary and not contributing with any insurance carried by such Additional Insured.” Insurer B: “Insurance provided under this policy shall apply on a primary basis

and shall not seek contribution from any other insurance available to an additional insured added to this policy.” Insurer A’s form language is similar to that in ISO’s CG 20 01 — Primary and Noncontributory — Other Insurance endorsement in that the “carried by such Additional Insured” language attempts to express that the downstream party’s coverage is primary only to the insurance of the AI and not to any other parties. Insurer B’s form language, on the other hand, says that the downstream party’s coverage is primary to any other insurance “available to an additional insured.” Consider a large construction site where the general contractor is an AI on dozens of subcontractor policies. Insurer B’s form effectively says that it is primary to any insurance available to the AI and that would include not only the AI’s own policy, but also that of any other sub involved in a claim in which the general contractor is an AI. It’s highly unlikely that the drafter(s) intended that their insured’s policy potentially be primary to every other policy on the job site, but that’s how the language might be construed. These are two examples of the potential differences between AI endorsements when the language in the form is parsed. One of my favorite seminars/webinars that I’ve presented over the years is called “The Additional Insured Illusion...And Other Feats of Contractual Risk Transfer Magic Even David Copperfield Couldn’t Pull Off.” In this program I give dozens of examples of pitfalls when risk is attempted to be transferred contractually or via insurance. When a customer is being contractually required to extend AI status to a business partner, it is critical to review the contract terms and match them with the proper AI endorsement. It is equally critical for drafters of these forms to carefully draft the language they are using to ensure that the form accomplishes what was intended by the carrier. Wilson, CPCU, ARM, AIM, AAM is the founder and CEO of InsuranceCommentary.com and the author of seven books, including “When Words Collide… Resolving Insurance Coverage and Claims Disputes.” Email: Bill@InsuranceCommentary.com.

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Idea Exchange: Agency Management Top 10 Agency Growth Secrets

have the privilege of speaking with many insurance agency entrepreneurs every year. Virtually all of them are interested in growing By Tony Caldwell their businesses, yet only a few actually do accomplish a growth rate above the rate of inflation. Though they want to grow they don’t. At the same time, some agency owners grow their businesses exponentially. Those that do have some things in common that I think constitute the “secrets” of their success. Here are the top 10 secrets that I see most often in agencies that manage double digit growth nearly every year.

Growing agencies set goals. Goal setting in a sales

culture seems like second nature. Everyone sets goals. Right? Wrong. In fact, most agency owners I speak

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with can’t tell me, with specificity, how much they plan to grow overall in the current year, or the next several years. They can’t tell me how much they plan to grow by line of business, carrier, geography, niche, etc. It’s been said that you can’t hit a target if you don’t aim (except by accident) and this is obviously true. So, why don’t more agency owners set goals? I think the biggest reason is fear. They are afraid if they set goals and they don’t achieve them, they will fail. Though this may be true, business owners who think this way are missing a key point. Even when they fall short of their goal, working toward that goal will likely drive them to higher performance than they would otherwise have had. Business owners

also avoid setting goals because they don’t know how they will accomplish them. Conversely, the most successful agency owners set big goals with the same uncertainties. They have learned from experience that the first step may be the hardest, but if they take it, the second step will be revealed. The answers have always been in plain sight. Just like you don’t notice gas stations until you need a refill, opportunities for growth are often invisible until you’re actively looking for them.

Growing agencies plan. One way to achieve ambitious goals is to build a logical plan that breaks needed activities into steps. The agencies I see who are beating the averages plan for operations, sales and marketing moves that will turn their goals into realities.

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Growing agencies execute.

It’s one thing to plan, but successful builders of growing enterprises do the things they say they will. They examine interim results and tweak. They don’t allow the enormity of a problem or the size of a goal to overwhelm them. Samuel Clemens, the famous author known as Mark Twain (and a successful entrepreneur who built an amazing sales business) said “the secret of getting ahead is getting started. The secret of getting started is breaking your complex overwhelming tasks into small, manageable tasks and starting on the first one.”

Growing agencies build a strong balance sheet.

As agencies grow, one of the biggest challenges is managing cash flow. Profits often show up on the income statement, but the balance sheet is challenged with receivables and often with excess distributions to owners. Owners who desire consistent strong growth know they must feed the company first so they must retain the working capital to not only pay bills on time, but to invest in the people, or acquisition opportunities, that fuel their growth. They know their personal lifestyle has to come second to the agency, not first.

Growing agencies continually invest in the business. This imperative

is related to the one before but is only possible when No. 4 is achieved. Growing agencies continually invest in up-to-date equipment, technology, and marketing, but most of all in people. They are continually hiring new talent and training their existing employees. High-growth agencies understand they won’t generate as much EBITDA as static ones because they are building future profits and wealth. Owners like this understand that even though their margins may be lower than an agency with flat revenues, their agency value is higher because potential acquirers value their growth. INSURANCEJOURNAL.COM

Growing agencies are willing to regularly go backwards. While this

sounds counterintuitive it isn’t. Michael Jans, a longtime coach of growing agencies, coined the “law of the short reverse” decades ago. This recognizes that it is necessary to crouch or back up to spring forward. Just as the basketball player crouches to shoot, a growing agency must occasionally recognize they have reached a point of diminishing returns on their current means of operating. They must retool and reinvest in new methods to continue their growth. As an example, today every agency is “paperless,” but it took the industry over two decades for that to happen. The agencies that adopted this strategy early benefitted compared to the late comers.

Growing agencies maximize the lifetime value of every relationship. These agencies

recognize the easiest sale to make is one to an existing customer. They work to sell their clients every policy and risk management solution available to them. They understand this practice not only raises revenue and profits but also increases retention, which drives growth rates still higher.

Growing agencies are always ready to pivot.

They know the business climate is dynamic. They will abandon a line of business, a customer niche, a marketing strategy or insurance carrier when bigger, better opportunities present themselves. They stand ready for change. For example, many high growth agencies were able to go virtual at the beginning of the pandemic while others floundered, lost momentum and opportunity because they weren’t prepared to adapt.

Growing agencies celebrate. People who are con-

tinuously successful don’t take their success for granted. They understand how and why they have achieved something,

and they are grateful for it. They know celebration reinforces the successful habits they’ve worked hard to build. Celebration fosters reward, too, where the entire team sees the benefits of victory. This reflection, teamwork, sharing of the success, wealth and fun that comes with celebration builds and fuels cultures that support continual achievement and growth.

Growing agencies never give up. I’ve met many

so-called “overnight successes. But as I had the chance to get to know them, I discovered most of these individuals actually worked for years to become successful. Ultimately, they triumphed because they didn’t quit. They allowed failure and setbacks to teach them rather than defeat them. They put into practice in their businesses the adage that “what doesn’t kill you makes you stronger.” These agency owners, as a group, also tend to develop the habit of forgetting the past and focusing on the future.

‘Growing agencies continually invest in up-to-date equipment, technology, and marketing, but most of all in people.’ These are the 10 most powerful secrets I’ve learned from watching and talking to agency owners who grow their businesses successfully over time. In my observation, those who use these secrets, most of the time, grow faster and more consistently than those who don’t. This is certainly not an exhaustive list, but it’s pretty comprehensive. Here’s hoping that 2022 is the beginning of the strongest, longest, and best period of growth that you and your agency have yet experienced! 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 7, 2022 INSURANCE JOURNAL | 43

Idea Exchange: Specialty

A Special Time for Specialty Markets

he specialty insurance marketplace always has been a vast laboratory for nascent products. It once was a tiny market. Those days are over. Today, with tens of billions in premiums in the U.S. By Ed Largent market, specialty is for more than unique and emerging risks. And it is attracting new carriers and underwriting talent. Specialty is a dynamic marketplace, and Jack Kuhn evolving and overlapping in the standard property/casualty area. Today, many commercial insurance operations such as Westfield write both admitted and nonadmitted business. As specialty categories expand, there’s less distinction between standard and nonstandard lines. There’s an ebb and flow, especially in larger customer accounts. An 44 | INSURANCE JOURNAL | FEBRUARY 7, 2022

account could show up in standard lines; other times you see it in E&S. Over the years, specialty has been poised to jump in and provide cover, risk transfer and other mechanisms for emerging risks. As the world changes — COVID-19 and cyber-related risks are excellent examples — specialty is better equipped than standard policies to initially move into those new areas. Complex business customers require specialty kinds of coverage, and there always will be an underwriting opportunity there. For example, directors and officers liability in the 1980s was a small business line offered by the London market and a handful of larger U.S. carriers. In 1985, the Trans Union court decision (also known as Smith v. Van Gorkom) attached liability to individual directors. That caused a panic because the typical pricing and limits weren’t adequate for the shift that was taking place. Much of the market retrenched, eventually driving a different proposition on limits usage and pricing. Today, D&O has mushroomed into a multibillion-dollar

insurance product area. Similarly, employment practices liability evolved as a new coverage for exposures that emerged from the standard casualty areas. These exposures were not underwritten and were not factored into the existing pricing models. These days, cyber exposures are evolving at a fast and furious pace. Looking back, the first major issues were data breaches. Hackers seemed to be focused initially on large retail clients — like credit card data being stolen. Then they went into financial areas. Several large financial institutions were hacked. Then politically driven hackers outside the U.S. got involved. Now we have ransomware. You see a number of carriers developing underwriting capabilities using outside firms for doing some analysis on internal and external controls. Underwriters are deploying capital to help manage a client’s risk, and they learn, adapt, flex and change as those risks continue to evolve. Every year we gather more data and learn how to manage this risk as much as we can. INSURANCEJOURNAL.COM

‘As the world changes — COVID-19 and cyber-related risks are excellent examples — specialty is better equipped than standard policies to initially move into those new areas.’

to see rate increases with weather losses still impacting carrier results. A lot of other areas, too, will see rate continuing to be pushed, but not at the same pace as last year. Some casualty lines are hardening because of social inflation issues and gigantic awards. So, carriers have retracted or reduced limits, which created the need for a harder market with higher rates. In short, if you look at the compounding impact of rate increases on certain product lines for three or four years, it’s a much healthier position to start with than if a carrier entered specialty back in 2013 to 2015. Thus, new carriers, new capital and new formations are making their way into the specialty segment. In turn, underwriting talent moves as well. They gravitate to firms that are financially able to take on those risks. Stability, high financial ratings, marketplace clarity and a set of strong core values all combine to attract quality underwriters.

Building Around a Strong Culture

More Recent Trends

Starting in 2018, companies raised rates and limited capacity on a number of different products. This created holes in some of the larger, traditional programs in the commercial marketplace. With this, some broker relationships have become strained with some standard P/C and specialty markets because the industry hasn’t experienced a hard market like this since 1985-1986 and 2000-2001. Many brokers need to adapt quickly as they deal with carriers reducing limits, increasing deductibles, nonrenewing lines of business and significantly increasing premiums. The last couple of years, we’ve seen a hard market emerge in most lines, which has created an opportunity to write business at very good rates. Today, we are still in the midst of a hard market. In certain lines, the rate increases are de-accelerating; the increases are not as high as they were through 2020 and the first part of 2021, but they’re still continuing. The property area will continue INSURANCEJOURNAL.COM

Westfield’s recent expansion into specialty is tied to the current hard market. But we will only enter particular lines of business where we can offer well-regarded underwriting expertise. We will initially be focused on excess positions on programs as we begin to build out our primary capabilities. We are looking to earn our way onto programs with our expertise — not undercut our way onto them. Most successful specialty companies are more focused on profitability than they are on premium growth. The focus must truly be on underwriting profitability and providing a very stable and consistent market for business partners and customers. That’s what brokers and customers are looking for from their carrier partners. When it comes to distributing specialty insurance, it typically has started with the larger brokers and wholesalers. Eventually, the products work their way into the standard property/casualty area through independent agents. Westfield is an underwriting-centric organization, and we believe we will fill those specialty needs for many of our valued partners in all areas of distribution.

The insurance industry offers tremendous opportunities for experienced underwriters. That is why focusing on workplace culture and business value is critical. Westfield is attracting superior talent because we aligned culture, transparency and clear communications, along with our understanding of each of the different lines of business. Underwriters want to go to a company where people are committed and working toward a common vision, and where deep expertise is valued and appreciated. They want an environment that resonates with them. Every insurance carrier is different, but at many carriers, the culture is driven by a single individual. You see directional changes when there are management changes. A lot of it is pressure for the financial performance and continuing to look for growth. For new talent looking at Westfield, this culture is not about one person. We’ve been managing our culture for 173 years, and it will sustain us for a long time. At Westfield, the stars are aligning. It’s a great opportunity to augment our portfolio and further strengthen our firm and achieve our vision. We’re putting the infrastructure in place for an operation with a broad brand portfolio, which deepens our expertise, helps grow our customer base and expands our presence in the P/C marketplace. And the distinct nature of the specialty market brings an aspect of diversification that will enhance our overall financial performance. Specialty is not a short-term play for Westfield. We’ve been around since 1848, and we’re not known for being nonchalant and going in and out of lines of businesses or markets. We’re looking to add real value to the client. From our view, it’s always an exciting time to be in the commercial insurance business, especially now. Largent is president, CEO and board chair of Westfield, a property/casualty insurer founded in 1848 by a small group of hard-working farmers who believed in the promise of the future and the power of the individual. Largent is based in Westfield, Ohio. Kuhn is president of Westfield Specialty. He is based in Morristown, N.J. FEBRUARY 7, 2022 INSURANCE JOURNAL | 45

Idea Exchange: Minding Your Business Perpetuation Tools of

Gifting of Stock & GRATs

or family businesses, the key is to understand everyone’s needs and expectations and then design a plan By Catherine Oak well in advance of the transfer of ownership. Two great ways to “leave your business” are gifting and the GRAT.

Gifting Amount

In 2022, an individual could possibly give up to $16,000 (up from $15,000 where it was stuck since 2018) to someone in a year and generally not have to deal with the IRS about it. However, if more than $16,000 in cash or assets is given (for example, stocks, land, a new car) in a year to any one person, a gift tax return must be filed. 46 | INSURANCE JOURNAL | FEBRUARY 7, 2022

Lifetime Gift Tax Exclusion Works

The official estate and gift tax exemption climbs to $12.06 million per individual for 2022 deaths, up from $11.7 million in 2021, according to new Internal Revenue Service inflation-adjusted numbers. “Think about buckets or cups,” says Christopher Picciurro, a certified public accountant and co-founder of accounting and advisory firm Integrated Financial Group in Michigan. Any excess “spills over” into the lifetime exclusion bucket. For example, if you give your brother $50,000 this year, you’ll use up your $16,000 annual exclusion. The bad news is that you’ll need to file a gift tax return, but the good news is that you probably won’t pay a gift tax. Why? Because the extra $35,000 ($50,000 - $15,000) simply counts against your lifetime exclusion. Next year, if you give your brother another $50,000, the same thing happens: you use up your

annual exclusion and whittle away another portion of your lifetime exclusion. The gift tax return keeps track of that lifetime exemption. So if a person doesn’t gift anything during their life, then they have their whole lifetime exemption to use against your estate when you die. If one is lucky enough and generous enough to use up their exclusions, they may indeed have to pay the gift tax. The rates range from 18% to 40%, and the giver generally pays the tax. There are, of course, exceptions and special rules for calculating the tax, so see the instructions to IRS Form 709 for all the details.

Which States Have Estate Taxes?

Several states and the District of Columbia have an estate tax. Many have lower asset thresholds than the federal government. Each state’s exclusion amount should be looked up. INSURANCEJOURNAL.COM

If one lives in a state with an estate tax, the good news is that (generally speaking) the estate tax bill is subtracted from the value of the taxable estate before calculating what is owed to the IRS.

Gifting to Transfer the Agency Business

Gifting could be a good approach to transfer ownership if the value of the business is the bulk of the estate and it falls below the $12.06 million combined total limit (husband and wife) or the $6.03 million limit per person. There can be no taxes with this approach. The downside is when an owner would still like to receive some money from the business after the transfer of ownership. If the owner continues to work after gifting the stock, then they can receive a salary. However, for tax purposes, defining any transfer of money becomes a problem after the owner is no longer involved with the business. Another issue with the gifting of the

DIRECT

Estate tax rates Tax rate 18% 20% 22% 24% 26% 28% 30% 32% 34% 37% 39% 40%

Taxable amount $0 to $10,000. $10,001 to $20,000. $20,001 to $40,000. $40,001 to $60,000. $60,001 to $80,000. $80,001 to $100,000. $100,001 to $150,000. $150,001 to $250,000. $250,001 to $500,000. $500,001 to $750,000. $750,001 to $1,000,000. $1,000,001 and up.

Tax owed 18% of taxable amount. $1,800 plus 20% of the amount over $10,000. $3,800 plus 22% of the amount over $20,000. $8,200 plus 24% of the amount over $40,000. $13,000 plus 26% of the amount over $60,000. $18,200 plus 28% of the amount over $80,000. $23,800 plus 30% of the amount over $100,000. $38,800 plus 32% of the amount over $150,000. $70,800 plus 34% of the amount over $250,000. $155,800 plus 37% of the amount over $500,000. $248,300 plus 39% of the amount over $750,000. $345,800 plus 40% of the amount over $1,000,000.

stock is that the owner’s tax basis for the stock is transferred to the new owners after it is gifted. This means there is no step-up in basis for the new owners to the current value the agency. When the new owner sells the business, their capital gains taxes are calculated from the difference between previous owner’s original basis amount

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and the value of the stock when sold. The capital gains taxes are just deferred until the new owners sell the their stock further down the road.

Gifting Options

If the owner still wants to receive money

continued on page 48

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MAINTAIN 100% OWNERSHIP And keep your agency’s unique style, familiar identity, and personalized customer service www.IAAnetwork.com 866-789-9712

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FEBRUARY 7, 2022 INSURANCE JOURNAL | 47

Idea Exchange: Minding Your Business continued from page 47 from the business after they transfer ownership, one approach is to not gift 100% of the stock. Instead, the owner can gift 51% (or more) of the stock. This allows the new owner to get control of the business, but it also allows the original owner the opportunity to receive dividends. The agency needs to be structured to let the profits drop to the bottom line, so that dividends are paid to the shareholders. Keep in mind that this is not the most tax-efficient way to pull money out of the business, since there will be both corporate and personal taxes on the dividends paid. However, if the original owner retains some fraction of the stock and keeps it until their death, the beneficiary will then receive a step-up in tax basis for that portion of the retained stock. This could help offset some of the taxes paid when the business issued the dividends. Planning also needs to happen if there are multiple beneficiaries for the estate and the business is gifted to only a portion

48 | INSURANCE JOURNAL | FEBRUARY 7, 2022

of them. First, it is important to designate who receives the stock. Next, the other beneficiaries that were not gifted the stock should have an equivalent value of the estate designated for them.

‘Gifting could be a good approach to transfer ownership if the value of the business is the bulk of the estate and it falls below the $12.06 million combined total limit (husband & wife) or the $6.03 million limit per person.’ GRAT to Transfer the Business

GRAT stands for Grantor Retained

INSURANCEJOURNAL.COM

Annuity Trust (GRAT) and is also an excellent tool that is used as a perpetuation vehicle between owners and key employees or family members. A GRAT is an irrevocable trust to which the Grantor transfers assets while retaining an annuity or unitrust payment for a set period of time. GRATS are used by wealthy individuals and startup founders to minimize tax liabilities. At the end of the payment period, which must be a minimum of five years, the assets in the trust pass to the trust beneficiaries. To determine the impact on the federal estate tax exemption, the value of the retained annuity is subtracted from the value of the property transferred to the trust (i.e., a share of the business). If set up properly, the retained annuity is zero, so there is no impact on the estate tax exemption. First, a valuation is done of the firm. Then, one or more GRATS are set up to transfer the stock. Annuity payments are determined by the value of the stock in the GRAT and the payment period, often five to 10 years. The payments are deductible to the corporation and are capital gains to the recipient. Assets are placed under the trust and then an annuity is paid out every year. When the trust expires, the beneficiary receives the assets tax-free. If the Grantor dies before the payment period ends, then the tax benefits are lost for the stock in any active GRAT. There are a number of idiosyncrasies about establishing a GRAT so it is best to use an attorney that specializes in this tool.

Summary

Gifting the business is a great way to transfer the ownership of a business. Based on the circumstance, there are options to change the tax burden and/or have the owner receive some money from the business. In some cases the GRAT may be a preferred vehicle to gifting, especially if the estate is large. Working with a CPA and a qualified attorney will provide the owners the answers they need to use one INSURANCEJOURNAL.COM

of these two vehicles properly. Oak is the founder of the consulting firm, Oak & Associates, based in Northern California and Central Oregon. Oak & Associates specializes in financial and management consulting for independent insurance agencies, including valuations, mergers acquisitions, sales and marketing planning as well as perpetuation planning. Contact Oak & Associates for an article outlining additional perpetuation vehicles and for getting a proposal for this assistance, as well as the agency valuation. Phone: 707-935-6565. Email: catoak@gmail.com.

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Amerigroup Insurance Company 2505 N Hwy 360, Suite 300 Grand Prairie, TX 75050

Chiron Insurance Company 808 Hwy 18 W., P.O. Box 370 Algona, IA 50511

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

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

Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, 1000 Washington Street, Suite 810, Boston, MA 021186200, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.

February 7, 2022 S. USA Life Insurance Company Inc. 100 West 33rd Street, Suite 1007 New York, NY 10001

Next Insurance US Company C/O Corporation Service Company 251 Little Falls Drive Wilmington, DE 19808

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

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

FEBRUARY 7, 2022 INSURANCE JOURNAL | 49

Closing Quote How Agents and Insurtechs Can Work Together the solution they are using. Most platforms have agent support and customer service personnel who will listen to feedback. If a vendor is unresponsive to input or reluctant to change, it might signal that the agency needs to rethink the solution provider.

Be proactive when it comes to the product. Don’t just sign up

By Philip Charles-Pierre

ndependent insurance agents today are different. They’re not your parents’ agencies. Yes, they still provide insurance and build strong client relationships. But they’re also relying on technology more and more. More agencies have adopted digital solutions and incorporated them into their workflows. And they’re not just using technology — they’re applying solutions in sophisticated ways. Agency management systems, for example, are adding new features that take the tools well beyond basic levels. It’s no surprise that technology is making a strong showing inside the agency. Agents are used to a variety of solutions in all aspects of their lives. The result: agents’ expectations about technology are growing. Insurtechs working

with agents need to step up to the challenge to work with them to solve real issues. Many insurtechs are started by entrepreneurs for the tech part, and not necessarily the insurance part. These founders see real problems and want to create solutions that can solve them. However, once the product gets into market, the real test begins. Sometimes the problem isn’t as big as they had anticipated, requiring little need for the tool in its current form. Or perhaps they discover that the way they approached solving the problem isn’t working for agents, and they need to readjust. This is where agents’ insights can steer the insurtech in the right direction. Agents are on the frontlines using the products. They know how a new solution fits into their workflows. Does it save them time? Do they need to develop workarounds because it doesn’t meet their needs? Is the tool adding any real value? If it doesn’t, are there changes that would make it more useful? These are all questions that an agent can answer.

50 | INSURANCE JOURNAL | FEBRUARY 7, 2022

Insurtechs have to be willing to listen. We’ve experienced this first-hand at Semsee. Our initial thesis was that agents needed a faster way to quote small commercial. This was a real problem; we were right about that. But we didn’t stop there. Through a continuous loop of feedback with our agent and carrier partners, we evolved the solution to make it easier to bring new products to market and find out which carriers have market appetite. Key to developing a strong symbiotic relationship is robust two-way communication, as well as recognizing that tool development is never done. It’s important for insurtechs to maintain a constant open dialogue with their customers. It’s equally critical for agents to be open with insurtechs about what’s working, what’s not and what they would like to see. Here are some of the ways agents can make their voices heard:

Maximize time spent in forums and demo sessions. It’s

important for agents to speak up about what they want from

for a solution, pay the bill, and reach out if there is a problem. You can ask for more frequent meetings with the vendor, biannually or even quarterly, to discuss how you’re using the product and features you’d like to see. This will also give the vendor a chance to show you what they’re working on.

Remember, feedback is a two-way street. The agency

team needs to be involved. Have a plan in place for implementation that includes training and internal huddles to talk about what’s working and what’s not. Make the huddles a regular thing, not just during implementation. All these insights can be shared with the vendor. No solution is perfect, especially on day one. But digital tools can’t improve without critical input from agents that are actively using the tools. With strong two-way relationships between agents and insurtechs, solutions that solve real industry challenges can be created.

Charles-Pierre is CEO of Semsee, an insurtech that provides automated small commercial quoting solutions for agents. INSURANCEJOURNAL.COM

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