Insurance Journal West 2022-03-21 by Insurance Journal

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March 21, 2022 • Vol. 100 No. 5

Contents

News & Markets

Idea Exchange

Special Report

Funds Transfer Fraud Skyrockets in 2021; Small Businesses Hit Hard

Spotlight: ‘Essential’ MGAs, Other DUAEs Face Inflation, Staffing Pressures

Protecting Businesses Against Global Supply Chain Issues

Inflation Outpacing Premium Increases for Auto and Homeowners Lines

Special Report: Reimagining Restaurants and Risk

My Story of Failure: Moving Forward by Looking Back

U.S. Issues New Safety Rule Governing Driverless Vehicles

Closer Look: On the Water: Boats

Minding Your Business: Why Strategic Business Planning Works

42 44 47

Researchers Say New FEMA Flood Maps Underestimate Flood Risk

4 Ways to Help Clients Get Smart About Insurance Shopping

Purdue Pharma Judge Overrules DOJ to Approve $6 Billion Opioid Settlement

Closing Quote: Why Continuous Improvement Requires Psychological Safety

More Price Increases for US Commercial Insurance in Q4 2021: WTW

Zywave Agrees to $11 Million Fund to Settle ITC Data Breach Lawsuit

Departments

6 Opening Note

4 | INSURANCE JOURNAL | MARCH 21, 2022

20 Figures

21 Declarations

22 Business Moves

24 People

46 My New Markets

INSURANCEJOURNAL.COM

Opening Note Write the Editor: awells@insurancejournal.com

Parity in the Board Room

he percentage of women serving as board members has increased by more than a quarter, according to an industry report. But the pace at which boards have brought more women to the table has slowed, and it’s likely to be a decade before boards are evenly split by gender. The percentage of women on Russell 3000 boards increased from 26.1% to 26.7% during Q4 2021, according to the latest Equilar Gender Diversity Index (GDI). Equilar is a provider of corporate leadership data solutions, recruiting, executive compensation and shareholder engagement for companies of all sizes, including 70% of the Fortune 500. As a result of the slight growth, the needle on the GDI inched from 0.52 to 0.53 in the last quarter, where 1.0 represents complete gender parity on Russell 3000 boards of directors. The progress of gender diversity on boards in recent years can be attributed to several factors, Equilar says. “Most notably, the increase is due to the accelerating pace at which women fill open board seats. During 2021, 45.5% of open board seats were filled by women, up from 21.4% in 2016,” Equilar noted. At the current rate of growth of women on boards, Russell 3000 boards would reach gender parity by 2032. While this pace has remained consistent since 2020, it has slowed, the company said. From 2016 to 2019, the anticipated date of parity fell from 2055 to 2030. As companies address the gender gap in the boardroom, it has become more evident that boards are looking outside of the traditional pool of candidates. “Boards are less frequently insisting on recruiting only from the ranks of CEOs and CFOs and instead are building boards with diverse sets of experiences to bring new lenses to the boardroom discussion, such as technology, culture, ESG, talent, crisis leadership, and public policy expertise, among others,” said Susan Angele with KPMG’s Board Leadership Center. The Q4 2021 GDI also revealed that 103 companies have achieved equal representation of male and female directors. “While this is still a meager figure in the grand scheme of the Russell 3000, it is a vast improvement from the 21 companies to have achieved this feat in Q4 2016,” Equilar wrote with the release of its GDI report. “All-male boards also fell from 96 to 80 during the past quarter.” A few highlights, according Equilar: • Women made up nearly half of all the new directors who joined boards during the last three months of 2021, at 47.7%. • Bigger, more valuable companies tend to have more female directors, perhaps because they’re also usually under more scrutiny. Among companies with a market value of greater than $10 billion, 29.7% of directors are women. That compares with 27.2% for companies worth between $2 billion and $10 billion. For the smallest companies, it’s 24.3%. • Utility companies tend to be the most likely to have women on their board, with 31.1% of their directors female. Companies that sell products directly to consumers also are more likely to have more women on their boards than others, with roughly 30%. • Energy companies tend to have the most male-dominated boards. Only 22.3% of directors at these companies are women.

‘During 2021, 45.5% of open board seats were filled by women, up from 21.4% in 2016.’

Andrea Wells Editor-in-Chief

6 | INSURANCE JOURNAL | MARCH 21, 2022

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

ADMINISTRATION / CIRCULATION

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

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: Alfred Bergbauer, Dax Craig, Tom Hals, Dietrich Knauth, Al Mele, Laura Oleniacz, Jim Sams, Susanne Sclafane, Kenneth Travers, Andrew Zarkowsky Columnists: Tony Caldwell, Catherine Oak

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 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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Outside the US, call (847) 400-5951 Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published 22 times annually by Wells Media Group, Inc., 3570 Camino del Rio North, Suite 100, San Diego, CA 92108-1747. Periodicals Postage Paid at San Diego, CA and at additional mailing offices. SUBSCRIPTION RATES: $7.95 per copy, $12.95 per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this publication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended to be legal, accounting, tax, technical or other professional advice. Readers are advised to consult competent professionals for application to their particular situation. Copyright 202 Wells Media Group, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. Insurance Journal is a publication of Wells Media Group, Inc. POSTMASTER: Send change of address form to Insurance Journal, Circulation Dept, PO Box 708, Northbrook, IL 60065-9967 ARTICLE REPRINTS: Contact (800) 897-9965 x125 or visit insurancejournal.com/reprints

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News & Markets Funds Transfer Fraud Skyrockets in 2021; Small Businesses Hit Hard

By Chad Hemenway

yber claims from small and midsize businesses saw a “material uptick” in 2021, with funds transfer fraud a main culprit, according to cyber insurance and security firm Coalition. According to its 2022 Cyber Claims Report, Coalition concluded that from 2020 to 2021, losses from funds transfer fraud (FTF) increased 69% overall, and among enterprises with revenue under $25 million, frequency went up 21%. Initial losses from FTF among small businesses jumped 102% to more than $309,000 in the second half of 2021. The news was also not good for businesses with revenue of between $25

8 | INSURANCE JOURNAL | MARCH 21, 2022

million and $100 million, where FTF frequency shot up 68%. “Organizations of this size are likely especially vulnerable to [FTF] attacks,” Coalition’s experts said in the report. “They often have a smaller digital footprint than larger organizations, leaving threat actors with fewer options to pivot inside a network and less infrastructure and data to hold hostage in a ransomware attack.” Indeed, ransomware garnered many of the headlines again in 2021 but Coalition warned against sleeping on FTF. The firm said time is a major factor in recovering the money and, unfortunately, organizations were slower to report losses in the second half of the year.

Coalition was able to recover funds in 61% of cases during the first half of 2021 but that fell to 39% during the second half. This news is not to say ransomware has taken a backseat. In 2021, ransom demands and the frequency of attacks each increased. Coalition said its policyholders saw ransomware demands go up 20% to over $1.8 million in 2021. Ransomware events are complex, in part because of the federal government’s tighter rules on ransomware payments and the fact threat actors require cryptocurrency. However, Coalition said claims severity “started to plateau” last year, and the firms saw a 16% decrease in ransomware payments in the second half of 2021. INSURANCEJOURNAL.COM

How Good Became Great At Great American, our yesterdays tell an important story about our tomorrow. From rivets to robotics, our specialized insurance solutions have helped protect those who power our economy for the past 150 years. That’s an unwavering commitment you can count on.

News & Markets Inflation Outpacing Premium Increases for Auto and Homeowners Lines

By Jim Sams

S Insurers — already hammered by extraordinary losses caused by natural disasters — are failing to raise premiums at a pace that matches the inflation rate, according to the American Property Casualty Insurance Association. APCIA said private property/casualty insurers experienced an $11.3 billion underwriting loss in the third quarter of 2021. Incurred losses and loss adjustment expenses increased by 17.8% during that quarter, compared to the prior year. Yet direct written premium increased only 3.1% for auto and 8.4% for homeowners. The claims inflation rate far surpassed the 7.5% increase in the Consumer Price Index that the Bureau of Labor Statistics announced in January, which was the highest inflation rate in 40 years. APCIA issued two reports on March 4 that explain how rising costs are impacting the personal auto and homeowners lines. For auto, inflationary pressure is increasing the cost of repairs, car rentals and vehicle replacements. At the same time, the volume of traffic has roared back and was within 1% of pre-pandemic 2019 levels 10 | INSURANCE JOURNAL | MARCH 21, 2022

for six of the final seven months of 2021, according to Department of Transportation data. Motorists apparently acquired bad habits during the pandemic, causing increases in claim frequency throughout 2021. The vehicle crash fatality rate jumped 12% in the first nine months of 2021 compared to the same period in the prior year, to 1.36 deaths per 1 million miles driven, according to the National Highway Safety Administration. “Since the start of the pandemic, Americans have embraced riskier driving behavior, such as impaired driving, speeding and failure to wear seatbelts,” stated Robert Passmore, vice president of auto and claims policy for APCIA. “This concerning trend is leading to more crashes at a time when the cost of medical care and vehicle repairs are escalating.” For the homeowners’ line, skyrocketing increases in building material costs follow a two-year spree that saw the highest natural disaster losses in history — $176 billion 2020 and 2021. According to a report by Aon, 2021 was the fourth most extreme catastrophic loss year in history. At the same time, home construction

increased to the highest level since 2006, rebounding after a short pause during the COVID-19 lockdowns in early 2020. The demand to build new homes while also replacing homes damaged or destroyed by floods and wildfires in the past two years pushed up the cost of lumber. An analysis by the National Association of Home Builders in January found that the aggregate cost of residential construction materials has increased almost 19% since December 2020. Shortages caused by supply chain bottlenecks in the supply chain exasperate the upward pressure on prices, the report says. Price increases lead to higher claims costs. According to AM Best, the homeowners multi-peril direct losses incurred increased 40.3% over the last two years. “Insurers are strongly encouraging property owners to harden their homes and businesses to reduce potential loss and damage,” stated Karen Collins, assistant vice president for APCIA. “In addition, during the current cycle of extreme inflation, policyholders are encouraged to make sure they have enough insurance and are financially prepare should disaster strike.” INSURANCEJOURNAL.COM

Dear Reader:

very business has a story to tell. For many corporations, small and large, that story ties closely to the personal lives of their founders. Throughout Insurance Journal’s history, we have come to know and a ppreciate many of the unique stories in our industry. And year after year, we have watched as our advertisers’ and readers’ companies have grown and changed.

As a leading industry news and information source, we are not able to profile all of the corporations that cross our path. Our position as journalists sometimes makes it difficult as well. Consequently, we have created this special supplement to allow our clients, and some of the corporations you may work with on a daily basis, to tell their story ... in their own words. We hope you find this supplement interesting and informative. Best wishes from all of us at Insurance Journal.

INSURANCEJOURNAL.COM

MARCH 21, 2022 INSURANCE JOURNAL | 11

SMART SUCCESS STORY #8627 superhero agent profile

Jeremy’s Story

THIS SCRATCH AGENCY WENT FROM ZERO TO A $1.6 MILLION DOLLAR BOOK IN JUST 18 MONTHS. Big city success story? Nope, Jeremy is in a small town. Big marketing budget?

No, he didn’t spend a dime.

But, after ten years as a captive agent, he knew a thing or two. Jeremy explained, “Everyone was completely flabbergasted when I told them I was leaving to go independent. I was doing very well and had a great, comfortable job, but unfortunately, I had reached a plateau and couldn’t go any higher unless I decided to leave and be an agency owner myself.” After meeting with a few networks, Jeremy partnered with Smart Choice. “Having access to their advisors was an amazing resource – helping me put a strong foundation in place so my agency could succeed immediately.” Jeremy has earned his agency 165 Five Star Google reviews, in under two years. His close ratio has gone from 30% to 85-90% since his transition to the independent world.

His retention ratio for core clientele hovers

around the 98% mark. “Early on, Smart Choice set me up with a major carrier who hadn’t appointed anyone in the state in two years, and the carrier rep met with me solely because his relationship and history with Smart Choice was so solid that I was able to get that meeting simply because they vouched for me.” Truly heroic! want to learn more about how smart choice can help you start or grow your own agency, then give us a call at

888.264.3388 or visit us online www.smartchoiceagents.com.

SMART SUCCESS STORY #7921 superhero agent profile

Lee Ann’s Story

THIS FORMER AGENCY EMPLOYEE PURCHASED THE AGENCY SHE WORKED AT, AND THEN THREE MORE WITH CAPITAL BASED ON FUTURE REVENUE. After 15 years working for an agency, Lee Ann transitioned from employee to owner with the help of Smart Choice. After a financial analysis of the transaction with her regional Territory Manager and the support of Smart Choice partners, the acquisition was made with a cashflow loan – eliminating the need for Lee Ann to borrow against personal assets. Eight years later, Lee Ann purchased three more agencies. A few years later, three more – all with the Smart Choice team by her side assisting with financing, M&A guidance and operational collaboration. “The top reasons I like working with Smart Choice is that I have access to markets I would not otherwise have so I can do what’s best for my clients, I have access to a full team of experts that can answer virtually any question we ask, and they have programs such as Smart Start Commercial that make it easy for us to write policies where we lack experience. I just love the support I have from them.” Truly heroic!

want to learn more about how smart choice can help you start or grow your own agency, then give us a call at

888.264.3388 or visit us online www.smartchoiceagents.com.

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Figures

1,173%

The percentage increase of catalytic converter theft claims reportedly paid by State Farm. According to State Farm, $62.6 million was paid for 32,265 catalytic converter theft claims nationally — a 1,173% increase from 2019. Metal thieves in search of platinum, rhodium and palladium are stealing catalytic converters in ever-greater numbers, sending auto insurance claims soaring across the U.S.

$17,500

The amount a Hannibal, Missouri, cement company will pay in penalties for shorting the pay of a worker. A Mine Safety and Health Act investigation determined that Continental Cement paid the worker the hourly rate of a laborer on multiple days in March and April 2020 when she accompanied inspectors at the Hannibal mine, instead of the wages she should have received as a mobile equipment operator, the work she would have been doing had she not been acting as a miners’ representative. As a result, the company shortchanged the worker $388 in wages. The company must pay the penalty to the U.S. Treasury.

$634 Million The amount a pension fund for teachers in Arkansas has settled for with Allianz and over losses in a multibillion-dollar trading debacle at the German insurer’s funds arm, according to a court document. The Arkansas Teacher Retirement System agreed to drop its lawsuit against Allianz. The teachers’ group, which had $1.6 billion in three Structured Alpha funds at the end of 2019, said in its July 2020 lawsuit that it had lost at least $774 million due to “negligent mismanagement” of the funds. 20 | INSURANCE JOURNAL | MARCH 21, 2022

$22 Million That’s how much a California judge has ordered an online, for-profit university and its former parent company to pay in penalties, saying they mislead students about the costs of their education, among other things, the state’s attorney general announced. The San Diego Superior Court ruled in favor of the state of California in its 2017 lawsuit against Ashford University and its then-parent company Zovio Inc. INSURANCEJOURNAL.COM

Declarations

Bad Habits

“Since the start of the pandemic, Americans have embraced riskier driving behavior, such as impaired driving, speeding, and failure to wear seatbelts.” — Robert Passmore, vice president of auto and claims policy for the American Property Casualty Insurance Association, said regarding a “concerning trend” that is leading to more crashes at a time when the cost of medical care and vehicle repairs are escalating. Motorists apparently acquired bad habits during the pandemic, causing increases in claim frequency throughout 2021. According to the National Highway Safety Administration, the vehicle crash fatality rate jumped 12% in the first nine months of 2021 compared to the same period in the prior year — to 1.36 deaths per 1 million miles driven.

Chrysler Game Changer

“What Chrysler did was they had a safety system that the Insurance Institute of America has studied that says it will prevent 60% of rear end collisions. It’s a massive game changer in terms of automobile collisions.” — Brent Ghelfi, an attorney for the family of a little girl who was killed when her mother’s car was rear-ended by a Jeep on a Phoenix freeway, applauded an Arizona Supreme Court ruling that the family can sue the SUV’s manufacturer for wrongful death because it did not install automatic emergency braking devices that were available as optional equipment.

The Color of Money

Earthquake Awareness

Climate Change Looms

Insurance Capital

“Because it hasn’t happened, and with people’s busy everyday lives, it kind of falls into the background.” — Robbie Myers, emergency management director for Butler County, Missouri, warned of a potential catastrophic earthquake in the New Madrid zone, a fault line in southeast region of the state. Experts believe there is a 7% to 10% chance of a magnitude 7.0 or greater earthquake in the next 50 years within the New Madrid zone, and a 25% to 40% chance of a smaller but still potentially devastating magnitude 6.0 quake. In addition to thousands of deaths, bridges crossing the Mississippi River could fall, major highways including Interstate 55 could buckle, and oil and gas pipelines could break, causing nationwide disruptions, experts said. INSURANCEJOURNAL.COM

“The hurricanes that we get, there’s a higher probability that they can bloom up into major hurricanes.” — Louisiana’s state climatologist Barry Keim on a recent United Nations report warning that extreme weather is becoming more common along the U.S. Gulf Coast. From Texas to Florida, which has the longest coastline of any state, the entire Gulf Coast is under serious threat from rising seas as the planet’s polar ice caps melt, the U.N. report says. In Louisiana, the state’s Coastal Protection and Restoration Authority has a plan with “very specific projects,’’ the U.N. report said, such as dredging to replenish wetlands and rebuilding barrier islands damaged by storms.

“If a loss requires replacement of items and the replaced items do not match in quality, color, or size, the insurer shall replace all items in the area to conform to a reasonably uniform appearance.” — From Georgia House Bill 1310, which would require insurers to replace entire roofs and other sections of a home if a repair job does not match up in color. The issue arose after thousands of homeowners purchased a type of Atlas roofing shingle that has been discontinued. Supporters of the bill pointed to Florida, where full replacement for roofs has been required for most homeowner policies for years. But Florida insurance advocates said the bill is the last thing Georgia needs, and that the full-replacement requirement has invited fraud in Florida and has driven claims and costs through the roof.

“There’s a reason we’re known as the Insurance Capital of the World.” — Connecticut Insurance Commissioner Andrew N. Mais said on March 10, 2022, as the UK Government announced a formal agreement with Connecticut Insurance & Financial Services (CT IFS), the MetroHartford Alliance (MHA), the Connecticut Insurance Department, and Insurtech UK to launch a new “Insurtech Corridor.” The InsurTech Corridor is now officially open and set up to support companies in the UK and Connecticut.

MARCH 21, 2022 INSURANCE JOURNAL | 21

Business Moves Hub provides risk management, insurance, employee benefits, retirement and wealth management products and services.

East

Keystone, Strategic Insurance Partners

National

Liberty Mutual, State Auto

Liberty Mutual Insurance has completed the all-cash deal of about $1 billion for super-regional insurer State Auto Group. The transaction was originally announced in July 2021. Now that it gained all required regulatory approvals, Liberty Mutual said it adds $2.3 billion in premiums and becomes the second-largest carrier in the independent agent channel with State Auto’s network of about 3,400 independent agencies across 33 states distributing personal and small commercial insurance. More than 2,000 State Auto employees will join Liberty Mutual's Global Retail Markets US business unit. The companies will continue to operate as separate businesses throughout most of 2022. Kim Garland was appointed president of State Auto. Garland was senior vice president of personal and commercial lines at State Auto and managing director of State Auto Labs, a part of the insurer that connected startups with capital, technologists and insurance industry experts. Mike LaRocco’s contract as State Auto president and CEO was extended in July 2020 and runs through 2022. Under the terms of the agreement, State Auto mutual members became members of Liberty Mutual. Also, Liberty Mutual will acquire all the publicly held shares of common stock of State Auto Financial for $52 per share in a cash deal of about $1 billion. Liberty Mutual acquired specialty insurer Ironshore in 2017 and Safeco in 2008. 22 | INSURANCE JOURNAL | MARCH 21, 2022

Hub, Bold Penguin, Insureon

Hub International Ltd. and insurtech Bold Penguin have agreed to acquire digital agency Insureon Holdings. Chicago-based Insureon calls itself the top independent marketplace for online delivery of small-business insurance. Pending the closings of two separate transactions, Hub, also based in Chicago, will acquire the Insureon digital insurance agency and brand. Bold Penguin will acquire the Insureon technology platform. Hub will then enter into an enterprise agreement with Columbus, Ohio-based Bold Penguin to license Insureon’s technology platform. Jeff Kroeger, chief commercial officer at Insureon, will join Hub along with the digital agency and front-end ecommerce technology and product teams. Last year during a podcast, Kroeger told Insurance Journal that the market size for online sales of small business could grow to $12 billion by the end of 2025. At Hub, the Insureon operations will be part of Hub holding company Specialty Program Group. The team will report to SPG CEO Chris Treanor. Bold Penguin, a subsidiary of American Family Insurance, will acquire Insureon’s cloud-based technology platform with 24/7 monitoring and flexible API integration to connect to carriers. Bold Penguin will continue to serve Insureon’s enterprise software and SaaS clients, expanding Bold Penguin’s depth of products, carriers, and clients. Insureon’s platform technology, carrier integration and enterprise/SaaS teams will join Bold Penguin.

The Pennsylvania-based insurance brokerage platform Keystone Agency Partners (KAP), added Strategic Insurance Partners, an independent insurance agency based in Nutley, New Jersey, to its network. Founded in 1900, SIP is licensed to sell insurance in 30 states with the majority of its business centered in New Jersey, New York, Connecticut, Pennsylvania and Delaware. Commercial lines is the largest business line with a focus in the construction, professional services and municipality sectors. The company specializes in servicing Hispanic business owners, with more than half of SIP’s employees being bilingual, according to the announcement. SIP will retain its two offices in Nutley and North Bergen, New Jersey, and a third office in Camden, Delaware.

Eastern Insurance, Michals Agency

Natick, Massachusetts-based Eastern Insurance Group acquired the operating assets of Michals Insurance Agency, an insurance agency in nearby Watertown. Since 1993, Michals Insurance has served both individuals and businesses, and has developed a specialty focused on the national fine arts sector. Bradly Michals, president of Michals Insurance, said he and his family will be joining the Eastern Insurance family.

Element Risk Management, Ross Insurance

Element Risk Management acquired Ross Insurance, a personal and commercial lines agency in Lancaster, Pennsylvania. Ross Insurance was founded in 1960 by Bill Ross Sr. and Sondra Ross. Brothers Richhi Ross and Bill Ross Jr. have grown the agency to serve more than 7,000 clients in Lancaster County and surrounding areas. Richhi Ross retired in 2018. Bill Ross and his staff will continue to serve clients from their office located in Lancaster. INSURANCEJOURNAL.COM

Earlier this year, Element Risk Management acquired two other 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 also acquired StoneburnerCarter Insurance, located in Front Royal, Virginia. Element Risk now has 17 locations across Pennsylvania, Virginia and Maryland.

Hub, Kuhl Insurance Agency

Hub International Ltd. acquired the assets of Kuhl Insurance Agency Inc. Located in Morton, Illinois, Kuhl Insurance is an independent agency providing commercial and personal insurance, and employee benefits services. Kuhl Insurance specializes in the manufacturing, healthcare, social services and construction industries. Mike Kuhl, president of Kuhl Insurance, and the Kuhl Insurance team will join Hub Midwest West. Chicago-based Hub is an insurance broker and financial services firm providing risk management, insurance, employee benefits, retirement and wealth management products and services.

South Central

Georgia. It now operates in 17 states. Founded by insurance industry veterans Ty Harris and Matt Wielbut, Openly said it uses data and technology to offer a new approach to home insurance. The firm also said it is recruiting for remote positions.

Liberty, Strategic

The Liberty Company Insurance Brokers added a Clearwater, Florida, firm to its network. Strategic Insurance Services is led by CEO Doug Levi. It specializes in business, property, home, auto, health and life insurance services. Liberty notes that it provides producers and agency leaders a platform to serve clients and create equity. Liberty has offices in California.

Hub, Taylor

Global insurance brokerage Hub International acquired Kentucky-based Taylor Advisors, a financial consulting and investment firm. Taylor has offices in Louisville. Todd Taylor is principal and Sasha Antskaitis is managing partner. They will now be part of the Hub Financial Services team. Chicago-based Hub provides risk management, insurance, employee benefits, retirement and wealth management products and services.

Cadence

Brown & Brown Inc. has entered into an agreement to acquire CrossCover Insurance Services. The transaction is expected to close before April 2022, subject to certain closing conditions. CrossCover provides E&S commercial property solutions for customers across the U.S. CrossCover will continue to operate under the direction of Scott Hanson from offices in Cypress, Texas.

Cadence Bank, a commercial bank headquartered in Tupelo, Mississippi, merged two of its own subsidiaries, BXS Insurance and Altera Payroll & Insurance. The merger will provide customers with a wider range of financial, human resource and insurance services, the company said. Cadence Bank was formerly known as Bankcorp South, and now has offices in 10 states. BXSI is the second-largest bank-owned insurance broker in the U.S., according to the merger announcement.

Southeast

West

Openly, a data-focused homeowners insurer based in Boston, has expanded into

Hub International Ltd. acquired the assets of Niedermeyer Risk Management

Brown & Brown, CrossCover

Openly

INSURANCEJOURNAL.COM

Hub, Niedermeyer Risk Management

LLC in Beaverton, Oregon. Jon Niedermeyer, CEO and managing partner of Niedermeyer Risk Management, and the Niedermeyer Risk Management team will join Hub Northwest. Niedermeyer Risk Management provides employee benefits consulting, commercial and personal insurance. Niedermeyer Risk Management specializes in the hospitality and construction industries. Chicago-based Hub is an insurance broker and financial services firm providing risk management, insurance, employee benefits, retirement and wealth management products and services.

Hub, Pacific Northwest Insurance

Chicago-based Hub International Ltd. acquired the assets of Pacific Northwest Insurance Inc., based in Kirkland, Washington. Robert James, principal of PNI, and the PNI team will join Hub Northwest. PNI provides property/casualty, and personal insurance solutions to individuals and families, businesses, and high net worth individuals.

Hub, Western Assurance Corp.

Chicago-based Hub International Ltd. also acquired the assets of Western Assurance Corp., located in Albuquerque, New Mexico. Chris Williams, president of Western Assurance, and the Western Assurance team will join Hub Southwest. Western Assurance is an independent agency providing insurance services, including commercial and personal insurance, and employee benefits services. Western Assurance specializes in the non-profit sector and the construction, transportation industries.

ALKEME, Chergey Insurance

ALKEME acquired Chergey Insurance in Thousand Oaks, California. Chergey Insurance offers services including workers’ compensation, property, general liability, and commercial auto. ALKEME is a brokerage operating in 50 states, specializing in workers’ compensation, property, liability and commercial auto. MARCH 21, 2022 INSURANCE JOURNAL | 23

People National

Nebraska-headquartered specialty insurer Applied Underwriters expanded its Applied Financial Lines unit with several key appointments. Kim Noble has been named vice president, Applied Financial Lines. Prior to joining Applied Kim Noble Financial Lines, Noble was a senior vice president at Thompson Flanagan in Chicago where she advised law firms on coverage, claims and risk management issues. Before that, Noble led the lawyers’ and accountants’ programs at Argo Pro. She has more than 25 years of professional liability experience including managing errors and omissions programs at OneBeacon, GE Westport and St. Paul Companies. Thomas Owen is now vice vice president of Errors & Omissions, Applied Financial Lines. Owen has three decades of experience underwriting and managing teams writing professional liability, environmental liability and contractor’s business. Prior to joining Applied Financial Lines, Owen managed the Specialty Casualty Division at specialty MGA DUAL North America.

Keith Dau

has been named vice president, Keith Dau Applied Financial Lines. Before joining Applied Financial Lines, Dau was the senior managing director for Navigators Insurance

where he was responsible for private management liability lines/wholesale distribution channel. He has 20 years of experience in professional and management liability including positions with Great American Insurance and Travelers. Applied Underwriters operates throughout the U.S., United Kingdom, the European Union and the Middle East.

Sandbox Insurtech Ventures

added Charles (Chuck) Chamness, former CEO of the National Association of Mutual Insurance Companies (NAMIC), as an advisor. Based in Indianapolis, Chamness will collaborate closely with the Sandbox Insurtech leadership team and its portfolio companies to provide strategic counsel across the insurance industry. Chamness has more than 27 years of experience across board governance, executive management, government affairs, regulatory affairs, and public affairs. In July 2021, he concluded an 18-year tenure as president and CEO of NAMIC. Sandbox Insurtech Ventures is the insurance investing arm of Sandbox Industries, a venture capital firm that manages funds across insurance, healthcare and sustainable food and agriculture.

Munich Re Specialty Insurance (MRSI) named long-

time Zurich North America executive Sabrina Hart as president of its excess and surplus lines business. Hart is charged with expanding E&S specialty product offerings, particularly in the U.S. middle markets. She is also responsible for executing the overall underwriting strategy,

24 | INSURANCE JOURNAL | MARCH 21, 2022

product and program development and further building out the team for the E&S business. Hart joins MRSI following a 25-year career with insurer Zurich North America, the last seven years as executive vice president, Midwest region. She has also held senior positions with AIG and Marsh during her career. Hart is based in Atlanta and reports to MRSI President and CEO Michael Kerner.

AXA XL’s Design Professional insurance business promoted Michaela Kendall to the newly created

role of strategic partnerships manager. The AXA XL Design Professional team serves architects, engineers and other design professionals. Kendall will lead a team directing business development, marketing, and industry partnering. Her responsibilities include supporting AXA XL’s national program partnerships with key associations, including the American Council of Engineering Companies, The American Institute of Architects, and the Engineers Joint Contract Documents Committee. Her team will also liaise with agent partners in the Professional Liability Agents Network and assume management of the Design Professional Risk Control Group program. Kendall previously served as an underwriting manager. She transitioned to Design Professional underwriting after spending three years as a senior claims specialist. Prior to joining AXA XL in 2015, she spent nearly a decade in private legal practice. Based in AXA XL’s Atlanta office, she reports to Douglas

Strong, chief underwriting officer, Design Professional.

East

IAT Insurance Group

in Connecticut welcomed Heidi Bendick as senior vice president of Claims Operations. Bendick joins IAT Insurance from CNA where she was vice president of Claims Operations, leading a team of 300 employees. She brings more than 20 years of insurance experience, including with claims operations, payment management, customer service/customer experience, and quality assurance programs. IAT Insurance Group is a privately owned, specialty insurance company featuring seven business units — commercial transportation, programs, inland marine, excess & surplus, reinsurance, surety and management liability. Insurance broker and consultant NFP hired David Clarke as senior vice president. In this role, Clarke will assist global clients in the energy and natural resources industries to address complex risks through custom insurance placements. Clarke joins NFP from Willis Towers Watson, where he most recently served as executive vice president, liability advocate. Prior to that, he worked in the marine and energy division of Marsh McLennan and at the U.S. Department of Defense. In total, Clarke brings nearly 40 years of experience to his new role with NFP.

Midwest

Erie Insurance named Jorie Novacek as the company’s new senior vice president and controller. Novacek, who previously

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served as vice president for corporate accounting and reporting, succeeds Julie Pelkowski, who was appointed SVP of ERIE’s newly created Enterprise Office in January. Novacek has more than 20 years of experience in corporate financial reporting in the insurance and health care sectors, in addition to six years of experience in public accounting with Big 4 and regional firms. Prior to joining ERIE in 2008 as a supervisor in investment accounting and reporting, she managed the accounting, payroll and accounts payable functions for Parma Community General Hospital in Parma, Ohio.

J.M. Wilson promoted Elise Hamill to senior property/

casualty underwriter and vacant property specialist in its Portage, Michigan, office. Hamill is responsible for underwriting a wide variety of new and renewal property and casualty risks, as well as strengthening relationships with independent insurance agents and company underwriters in Michigan. She joined JM Wilson in 2020 as a P&C underwriter. Prior to joining JM Wilson, she was a claim team manager with a focus on homeowners and PIP claims, as well as a Peace Corps volunteer in Kyrgyzstan. Founded in 1920, J.M. Wilson is a managing general agency and surplus lines broker.

Holmes Murphy hired Jay Reimers as a senior client

advocate in its Minneapolis, Minnesota, office. Reimers will advise clients in managing risk and help them prepare for challenges. INSURANCEJOURNAL.COM

He has 10 years’ experience in the insurance industry. Prior to joining Holmes Murphy, Reimers served as senior vice president of business development for Hays Companies, where he also specialized in strategic client advocacy.

Pinnacle Actuarial Resources Inc. promoted Greg Fears Jr. and Radost Roumenova Wenman to senior consulting actuary and Trenton Lipka to consulting actuary. Fears has been in the property/casualty insurance industry since 2001, and serves on the Casualty Actuarial Society (CAS) and American Academy of Actuaries (AAA) Casualty Loss Reserve Seminar (CLRS) Joint Program Committee. Wenman joined Pinnacle in 2016, and has worked in the property/casualty industry since 2006. She has specialized in pricing and product development, with a focus on developing homeowners, private passenger auto and commercial lines pricing solutions via advanced predictive models. Wenman serves the CAS as a member of the CAS Actuarial Review committee. Lipka is Pinnacle’s newest consulting actuary. He has experience in assignments that include loss reserving and loss cost projections, among others. Lipka joined Pinnacle in 2017 and served most recently in an associate actuary role.

Southeast MedMal Direct Insurance Co., a

direct-to-physician medical professional

Marc Hammett

liability insurer based in Jacksonville, Florida, named Marc Hammett president and CEO. Hammett most recently served as chief financial officer of the company and president of its sister company, Physicians Trust Inc. MedMal Direct now operates in nine states. The company was established in 2010 and has a financial stability rating of “A, exceptional” from the Demotech rating firm.

West

PCF Insurance Felix Morgan Services named Felix Morgan chief financial officer

and chief operating officer. Morgan will oversee the business’s operational functions and guide the development of support resources, oversee expense, performance and IT management, legal, human resources, and lead PCF’s tech-enablement initiatives and data pursuits. Since joining the company as CFO in early 2021, Morgan led the strategic expansion of shared services and finance functions to support PCF’s rapidly expanding network of agencies. PCF also named Leah Jakaitis vice president, marketing science. Jakaitis will Leah Jakaitis oversee data governance and strategy, marketing science initiatives, and data products. She most recently was director of business intelligence for Carrot Fertility. Prior to that,

she was head of marketing science at Acrisure Technology Group and was a founding member of Altway Insurance. Lehi, Utah-based PCF Insurance Services is a consultant and insurance brokerage firm offering commercial, life and health, employee benefits and workers’ compensation services.

EPIC added Juliet Lucero

in Newport Beach, California. Lucero will Juliet Lucero work with schools to identify the benefits strategies to meet short-term and long-term goals, while establishing programs to address the needs of school employees. Lucero previously was assistant vice president with Keenan, where she provided employee benefits consulting for charter schools, conducted enrollment and education seminars for HR and staff, and successfully leveraged technology for benefit enrollment, eligibility, benefit administration, employee communication and participant self-service.

CLARA Analytics named Gabe Cossio vice president of sales. Cossio was most recently with Duck Creek Technologies. He began his career at Gabe Cossio Accenture. CLARA, a provider of artificial intelligence technology in the commercial insurance industry, is headquartered in California’s Silicon Valley.

MARCH 21, 2022 INSURANCE JOURNAL | 25

News & Markets US Issues New Safety Rule Governing Driverless Vehicles By Andrew G. Simpson

he Biden Administration has issued a final rule intended to ensure safety of occupants in automated vehicles. This rule updates the current Federal Motor Vehicle Safety Standards to account for vehicles that may be equipped with automated driving systems (ADS) and do not have the traditional manual controls associated with a human driver. Prior to this 155-page rule, occupant safety standards were written for common, traditional vehicle features including steering wheels, driver’s seat and various manual controls. The rule, issued by the National Highway Traffic Safety Administration, clarifies what is required of manufacturers if and when they build vehicles without steering wheels or other traditional features. The final rule seeks to assure that, despite their innovative designs, vehicles with ADS technology must continue to provide the same levels of occupant protection as current passenger vehicles. “As the driver changes from a person to a machine in ADS-equipped vehicles, the need to keep the humans safe remains the same and must be integrated from the beginning,” said Dr. Steven Cliff, NHTSA’s deputy administrator, in announcing the rule. Companies such as Argo, General Motors and Waymo are testing driverless vehicles — some have traditional features and some do not. Other firms like Nuro are testing vehicles for transporting cargo, not passengers, that lack traditional driver features. The new rule affects only passenger vehicles. NHTSA said it knows of dozens of testing activities taking place in more than 40 states and the District of Columbia, many of which involve ADS-equipped vehicles that lack manually operated driving controls. The agency said the rule should provide some certainty for manufacturers of vehicles with ADS that lack some traditional features and potentially reduce costs slightly by eliminating the need to install redundant traditional features like driver 26 | INSURANCE JOURNAL | MARCH 21, 2022

seats and steering wheels. At the same time, cost savings are likely to be partially offset, for example, by the equipment needed to make the left front seating position as safe as the right front seating position. In response to some criticisms around how cars without these traditional features are not yet being made, the agency acknowledged that “uncertainty continues to exist around the development and potential deployment of ADS-equipped vehicles.” However, NHTSA said it believes it is “appropriate to finalize this action at this time in anticipation of emerging ADS vehicle designs that NHTSA has seen in prototype form.” These current designs considered by NHTSA generally involve forward-facing row seating and vehicles without manual driving controls. NHTSA said it hopes the final rule “provides regulatory certainty that, despite their innovative designs, vehicles with ADS technology must continue to provide the same high levels of occupant protection that current passenger vehicles provide.” NHTSA said it received 45 comments on the rule from vehicle and equipment manufacturers, ADS developers, industry associations, consumer advocates, advocates for persons with disabilities, states, insurance organizations, a university, an oil independence advocacy group, and members of the general public. Many commenters supported the proposal while others argued that the agency’s focus on

this issue was premature. The Center for Auto Safety (CAS) argued that NHTSA should not permit traditional manual controls to be removed from vehicles “until at least equivalent safety [of ADS-equipped vehicles] is proven.” The National Safety Council (NSC) called the rulemaking “premature” and “hasty” since most ADS vehicle designs that might benefit from the revised standards “are still on the drawing boards and unforeseen issues are certain to arise.” Consumer Reports also “question[ed] the present focus of the agency on ‘removal of regulatory barriers’ rather than on developing and implementing standards for proven safety technologies.” However, Consumer Reports also stated that the narrow scope of the rule “is appropriate.” The Insurance Institute for Highway Safety (IIHS) expressed concern that the current process creates a path for introducing into the market ADS-controlled vehicles “without regulations that establish the ground rules for the safe behavior of ADS.” The IIHS also stated that the “modifications proposed by NHTSA likely will be helpful to the entities developing automated driving systems (ADS) and the vehicles that will be controlled by ADS” and that the “changes answer some questions about how the occupants of ADS-controlled vehicles should be protected in the event of a crash.” The rule goes into effect 180 days after it is published in the Federal Register. INSURANCEJOURNAL.COM

News & Markets California Spraying Company Found Liable for Pesticide Drifts

Northern California pesticide spraying company was negligent on at least five occasions its helicopter pilots allowed the toxic chemicals to drift onto neighboring orchards, children playing soccer and a woman standing in her backyard, a judge ruled. Alpine Helicopter Service Inc. violated the law when it carelessly released the harmful chemicals on at least five occasions between 2014 and 2020, endangering the public’s health and safety, San Joaquin County Superior Court Judge Barbara Kronlund ruled. “Defendants have had the proper training to apply aerial pesticides, yet repeatedly acted irresponsibly in applying the harmful substances, despite knowing the law, rules, risks and established protocols,” Kronlund wrote. The ruling found Lodi-based Alpine, its owner, Joel Dozhier, and three of its employee pilots liable. Phone messages left by The Associated Press at the company’s voicemail were not immediately returned. Pesticide drift is prohibited under Food and Agricultural Code. Civil penalties and a permanent injunction against the defen-

dants will be determined during the second phase of the trial, Kronlund said. The California Department of Justice and the California Department of Pesticide Regulation and San Joaquin County officials filed two suits against the company, Dozhier and three employees. The suits were consolidated into one case that included five pesticide drift incidents, including one in 2014 when a pesticide drift in San Joaquin County caused at least five people health problems and led to substantial crop losses. In 2017, the company’s toxic chemicals landed on a special education school in Lodi. Turner Academy staff discovered corrosive pesticides on school buildings and other areas. In 2019, pesticides being sprayed by a company’s pilot on a pumpkin field drifted onto children playing soccer at a sports complex in Stockton. Another pesticide drift happened on the

same site days later. A year later, pesticides from an aerial application drifted onto a woman in Isleton in Sacramento County. “We have a duty to hold accountable those who act with reckless disregard for the safety and health of our community,” said San Joaquin County District Attorney Tori Verber Salazar. “Responsible applications of pesticides are paramount to protecting our environment while sustaining a vibrant agricultural economy." Copyright 2022 Associated Press. All rights reserved.

Medical Access in California Workers’ Compensation Examined

California Workers’ Compensation Institute study shows injured worker access to medical care for initial treatment was relatively consistent between 2010 and 2020. CWCI used data from more than 1.5 million job injury claims from accident years 2010-2020 to measure changes in the amount of time that elapsed between an employer’s notice of injury and the first treatment, and the average distance that injured workers traveled to receive their initial care. Wait times to the first visit were calculated for all types of treatment, with results also broken out for evaluation and management visits, physical medicine visits, and for the five most heavily utilized INSURANCEJOURNAL.COM

workers’ comp surgical services. CWCI calculated the average distance to the first treatment in the study sample, with more detailed results comparing average distances traveled by workers. The average wait time from employer notice to initial treatment varied across the 11-year span, from a low of 3.3 days for 2011 claims to 4.4 days for claims from 2020, but the median number of days to first treatment showed no change, as the median values across indicated initial care rendered on the same day that the employer was notified of the injury, the study shows. The average time from the employer’s notice to the first E&M visit also rose slightly over the 11-year span, but again the

median values for all years indicated that the initial E&M visit occurred on the same day that the employer was notified of the injury, according to CWCI. The average wait time for some specialty services showed greater variation over time. The average wait time to a first PM visit rose from 31.8 days for 2010 claims to 37.5 days for 2015 claims, but then trended back down to 31.2 days by 2020. The median number of days to first PM visit showed a similar pattern, climbing from 15 days to 20 days between 2010 and 2015, then falling back to 15 days by 2020, according to CWCI. Most of the increase in the number of days to the first PM visit began in 2013, coinciding with legislative reforms and emergency regulations impacting workers’ comp medical provider networks and the utilization review process. MARCH 21, 2022 INSURANCE JOURNAL | W1

News & Markets Investigation Blames California Zip-line Worker Fatality on Safety Failures

federal workplace safety investigation found that a 34-year-old worker’s fatal fall might have been prevented had the operator of a Pauma Valley, California, zip-line attraction implemented required safety measures. A U.S. Department of Labor Occupational Safety and Health Administration investigation of the Oct. 30, 2021, incident determined that after grabbing a zip-line harness on a customer to as they landed on the tower platform, the worker and the customer were both pulled off the zip-line tower. The worker let go of the harness and fell about 50 feet to the valley floor. Inspectors found La Jolla Zip Zoom Ziplines failed to install a guardrail, safety net or personal fall arrest system. The company also did not train employees

on fall hazards and how to recognize them, as required, the investigation showed. Additionally, OSHA determined that the company failed to assess the workplace to determine the presence of hazards and did not report a work-related hospitalization within 24 hours. OSHA cited the company for four serious safety violations and proposed $24,861 in penalties. The company has 15 business days from receipt of its citations and penalties

to comply, request an informal conference with OSHA’s area director, or contest the findings before the independent Occupational Safety and Health Review Commission.

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News & Markets Los Angeles Suing Monsanto, 2 Others for Toxic PCBs in Waterways By John Antczak

he city of Los Angeles is suing Monsanto and two other companies for past and future costs of dealing with contamination of waterways by longbanned chemicals called polychlorinated biphenyls, or PCBs, the city attorney announced earlier this month. Long-lasting PCBs were used in numerous products and applications for decades and are linked to a wide range of negative health impacts including cancer, City Attorney Mike Feuer said in a news conference outside City Hall. The lawsuit was filed March 4 in Los Angeles County Superior Court and names Monsanto Co., and two others, Solutia Inc., and Pharmacia LLC, that resulted from a series of corporate acquisitions and consolidations that spun off the original Monsanto’s businesses, according to Feuer’s office. The lawsuit seeks compensation for past costs incurred by the city in cleaning up PCB contamination and an abatement fund for future costs. Feuer would not specify a dollar amount. “The city has expended millions and millions of dollars so far and is going to continue to expend millions and millions of dollars to remediate this issue,” he said. PCBs were used for decades in industrial

and electrical equipment, hydraulic fluids, fireproofing, paper products, ink and paint. They were banned in the United States in 1979 under the Toxic Substances Control Act but remain the subject of extensive litigation. Monsanto manufactured 99% of the PCBs used or sold in the U.S. between 1929 and 1977, according to the city attorney’s lawsuit.

Feuer said that despite the ban, stormwater and wastewater systems continue to drain PCBs into Los Angeles Harbor, Santa Monica Bay, lakes and other waterways as well as soils associated with those areas. “We’ve had to dredge soil from locations, for example,” he said. Eating fish or swimming can cause exposure to PCBs, Feuer said, but he did not quantify how much exposure would raise health risks. Monsanto is now a subsidiary of Bayer

AG. Pharmacia is a subsidiary of Pfizer Inc. and Solutia is a subsidiary of Eastman Chemical Co. The Associated Press sent emails requesting comment from all the parent companies on the lawsuit’s claims. Bayer said in a statement that it was reviewing the lawsuit and believes it is without merit. “Monsanto voluntarily ceased its lawful manufacturing of PCBs more than 40 years ago, and never manufactured, used, or disposed of PCBs into Los Angeles’ waters, and therefore should not be held liable for the contamination alleged by the city,” the statement said. “Where it has been determined that those cleanups are necessary, federal, and state authorities employ an effective system to identify dischargers and allocate clean-up responsibilities,” Bayer added. Pfizer spokesperson Pamela Eisele said the alleged activity at issue predated Pfizer’s acquisition of Pharmacia, and noted that Pfizer is not a named defendant. “Pursuant to the Separation Agreement between Monsanto and Pharmacia, Monsanto is required to indemnify Pharmacia for any liabilities primarily related to Monsanto’s legacy Agriculture or Chemicals Businesses,” Eisele wrote. Copyright 2022 Associated Press. All rights reserved.

Agency Says Hawaii Helicopter Nose Dived Before Crash Killed Four

he National Transportation Safety Board ruled that a helicopter that crashed in Hawaii last month and killed all four people on board nose-dived from 200 feet above ground after it unexpectedly stopped while making a shallow left turn. The agency’s preliminary report on the Feb. 22 crash on Kauai said U.S. Navy contractor Croman Corp. was using the Sikorsky S-61N helicopter to retrieve inert training torpedoes from the Pacific Ocean at the time. The crew’s job involved locating a trainW4 | INSURANCE JOURNAL | MARCH 21, 2022

ing torpedo in open waters and retrieving it using a recovery basket or cage. The helicopter then was expected to return the torpedo to the nearby Pacific Missile Range Facility using a sling load, which is cargo carried beneath a helicopter. The agency said multiple witnesses reported the helicopter “gradually pitched

nose down and impacted nose first, in a near vertical attitude.” A fire then “incinerated much of the helicopter’s structure,” the report said. The aircraft was returning to an ordnance recovery cage area when it crashed. Two pilots and two crew members on board the helicopter died. Copyright 2022 Associated Press. All rights reserved. INSURANCEJOURNAL.COM

News & Markets Researchers Say New FEMA Flood Maps Underestimate Flood Risk By Laura Oleniacz

esearchers have used artificial intelligence to predict where flood damage is likely to happen in the continental United States. The findings suggest that recent flood maps from the Federal Emergency Management Agency do not capture the full extent of flood risk. In the study, researchers found a high probability of flood damage — including monetary damage, human injury and loss of life — for more than a million square miles of land across the United States across a 14-year period. That was more than 790,000 square miles greater than flood risk zones identified by FEMA’s maps. “We’re seeing that there’s a lot of flood damage being reported outside of the 100year floodplain,” says Elyssa Collins, a doctoral candidate in the North Carolina State University Center for Geospatial Analytics and lead author of the Environmental Research Letters paper. “There are a lot of places that are susceptible to flooding, and because they’re outside the floodplain, that means they do not have to abide by insurance, building code, and land-use requirements that could help protect people and property.” It can cost FEMA as much as $11.8 billion to create national Flood Insurance Rate Maps, which show whether an area has at least a 1% chance of flooding in a year, according to a 2020 report from the Association of State Floodplain Managers. Researchers say their method of using machine learning tools to estimate flood risk offers a way of rapidly updating flood maps as conditions change or more information becomes available. “This is the first spatially complete map of flood damage probability for the United States; wall-to-wall information that can be used to learn more about flood risk INSURANCEJOURNAL.COM

in vulnerable, underrepresented communities,” says Ross Meentemeyer, professor of geospatial analytics. To create their computer models, researchers used reported data of flood damage for the U.S., along with other information such as whether land is close to a river or stream, type of land cover, soil type and precipitation. The computer was able to “learn” from actual reports of damage to predict areas of high flood damage likelihood for each pixel of mapped land. They created separate models for each watershed in the United States. “Our models are not based in physics or the mechanics of how water flows; we’re using machine learning methods to create predictions,” Collins says. “We developed models that relate predictors — variables related to flood damage such as extreme precipitation, topography, the relation of your home to a river — to a data set of flood damage reports from the National Oceanic and Atmospheric Administration. It’s very fast — our models for the U.S. watersheds ran on an average of five hours.” The actual flood damage reports they used to “train” the models were publicly available reports from NOAA made between December 2006 and May of 2020. Compared with recent FEMA maps downloaded in 2020, 84.5% of the damage reports they evaluated were not within the agency’s high-risk flood areas. The majority, at 68.3%, were located outside of

the high-risk floodplain, while 16.2% were in locations unmapped by FEMA. When researchers ran their computer models to determine flood damage risk, they found a high probability of flood damage for more than 1.01 million square miles across the United States, while the mapped area in FEMA’s 100-year flood plain is about 221,000 square miles. Researchers say there are factors that could help explain why the differences were so large, including that their machine-learning-based model assessed damage from floods of any frequency, while FEMA only includes flooding that would occur from storms that have a 1% chance of happening in any given year. “Potentially, FEMA is underestimating flood damage exposure,” Collins says. One of the biggest drivers of flood damage risk was proximity to a stream, along with elevation and the average amount of extreme precipitation per year. The three Census regions with the highest probability were in the Southeast. Louisiana, Missouri, the District of Columbia, Florida, and Mississippi had the highest risk of any state or district in the continental U.S. Of the 30 most highrisk counties, North Carolina had three: Dare, Hyde and Tyrrell. In their model, researchers used historical climate data. In the future, they plan to account for climate change. In the meantime, researchers say their findings, which will be publicly accessible, could be useful for helping policymakers involved in land-use planning. The U.S. Geological Survey Southeast Climate Adaptation Science Center and the North Carolina State University Sea Grant program funded the work.

Oleniacz writes for North Carolina State University. This article originally appeared in Futurity, a source of research news for universities. MARCH 21, 2022 INSURANCE JOURNAL | 27

News & Markets Purdue Pharma Judge Overrules DOJ to Approve $6 Billion Opioid Settlement By Dietrich Knauth and Tom Hals

he judge overseeing Purdue Pharma’s bankruptcy has approved a $6 billion opioid settlement funded by its Sackler family owners, overruling objections from the Department of Justice and 20 states that opposed the deal. Under the settlement, the Sacklers would pay between $5.5 billion and $6 billion to a trust that will be used to pay the claims of states, victims of addiction, hospitals and others who have argued that the Purdue painkiller OxyContin played a central role in the U.S. opioid epidemic. The revised settlement must still be written into a new reorganization plan before getting final approval in bankruptcy court. Members of the Sackler family have denied wrongdoing. They said in a statement that they “sincerely regret” that OxyContin “unexpectedly became part of an opioid crisis.” There have been nearly 500,000 U.S. opioid overdose deaths over two decades, according to the U.S. Centers for Disease Control and Prevention. U.S. Bankruptcy Judge Robert Drain in White Plains, New York, called the settlement an “extraordinary” improvement on

previous offers from the Sacklers, and he blasted the U.S. Department of Justice as “reprehensible” for its continued opposition. The Justice Department’s Office of the U.S. Trustee, which oversees bankruptcy administration, said that the bankruptcy court does not have authority to approve the settlement because an appeals court must first decide whether the Sacklers can receive sweeping legal immunity in exchange for the payment. “Why are we even here?” Justice Department attorney Nan Eitel asked at the hearing, arguing that the deal was premature. Drain repeatedly raised his voice at Eitel, saying that the Justice Department appeared uninterested in improving the deal and was only interested in “throwing out ways to kill it.” “I find this reprehensible,” Drain said. An attorney for Purdue’s official creditors’ committee said the Justice Department appeared willing to risk a multibillion-dollar settlement so that it could strengthen its argument that bankruptcy courts should not use their authority to protect non-bankrupt entities like the Sacklers. A Justice Department spokesperson said

after the hearing that the agency stands behind its attorney and her argument, and will continue its appeal. The Sacklers’ payment is contingent on ending their exposure to opioid lawsuits. But a U.S. district judge ruled in December that the protections they seek fall outside the bankruptcy court’s authority. Purdue is appealing that decision in the U.S. 2nd Circuit Court of Appeals. The new agreement replaces an earlier $4.3 billion settlement, which was upended after nine attorneys general and others argued that the Sacklers should not receive such sweeping legal protections. After agreeing to the prior deal, 20 states objected to the new settlement because it includes a $277 million payment exclusively to states that negotiated the $6 billion deal. Some have said it would unfairly reduce the percentage of funds dedicated to addressing the opioid crisis in their own states. The states still have time to negotiate, Drain said, and may be forced to accept terms they do not like rather than inviting the “dog eat dog” litigation that would result if the settlement fails. Purdue said the settlement would provide additional funding for opioid abatement programs, overdose rescue medicines and for victims, while putting the company on track to resolve its bankruptcy case on “an expedited schedule.” Victims of the opioid epidemic will be able to address members of the Sackler family in a hearing overseen by Drain. The hearing will be conducted by Zoom and the Sacklers will not be able to respond. Purdue filed for bankruptcy in 2019 in the face of thousands of lawsuits accusing it and members of the Sackler family of igniting the opioid epidemic through deceptive marketing of OxyContin, a highly addictive pain drug. Purdue pleaded guilty to misbranding and fraud charges related to its OxyContin marketing in 2007 and 2020.

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More Price Increases for US Commercial Insurance in Q4 2021: WTW

.S. commercial insurance prices rose again in the fourth quarter of 2021, according to WTW’s latest Commercial Lines Insurance Pricing Survey (CLIPS). The aggregate commercial price change reported by carriers was above 7%. The survey compared prices charged on

policies underwritten during the fourth quarter of 2021 with those charged for the same coverage during the same quarter in 2020. Price changes were similar to those reported in the third quarter of 2021, with data for most lines showing significant price increases. Professional liability

continued to indicate the largest increases. Cyber, a new line for the survey, showed a significant rate increase, but the volume was much smaller than all other lines.

'Professional liability continued to indicate the largest increases.' “The aggregate price increases continue to be strong in the fourth quarter, though for some lines the price increases have tempered to a level similar to 2019,” said Yi Jing, director, insurance consulting and technology, WTW. Consistent with previous quarters, workers ’ compensation showed rate decreases, though lower than prior quarter. When comparing account sizes, reported price changes were lower than the prior quarter for all, with the exception of specialty lines. CLIPS is a retrospective look at historical changes in commercial property/casualty insurance (P&C) prices and claim cost inflation.

Zywave Agrees to $11 Million Fund to Settle ITC Data Breach Lawsuit

nsurance technology provider Zywave has agreed to offer an $11 million fund to settle a class-action lawsuit related to a data breach at a company it acquired in 2020. A proposed class-action suit was filed against Insurance Technologies Corp. (ITC) following a data breach that occurred on Feb. 27, 2021. ITC, which was acquired by Zywave in November 2020, began notifying customers and attorneys general of the breach on May 10, 2021. The class-action lawsuit was filed in June 2021. It alleged that the ITC breach gave hackers access to names, Social Security numbers, driver’s license numbers, dates of birth, and log-in credentials of thousands of ITC customers, potential customers, and other individuals. Carrollton, Texas-based ITC had more INSURANCEJOURNAL.COM

than 250 insurance companies and more than 9,000 agencies as clients when it was bought by Zywave. It claimed to be the largest provider of insurance agency websites in the United States and supported more than two million monthly auto and home quotes through its comparative rater TurboRater. Court documents said hackers gained access to ITC’s AgencyMatrix application, a cloud-based agency management system. According to allegations outlined in the court documents, ITC said it contained the data breach on March 4, 2021. “However, despite first learning of the data breach in February 2021 and concluding the investigation in March 2021, [ITC] did not take any measures to notify affected class members for over two

months, on or about May 10, 2021,” the lawsuit alleged. According to settlement agreement documents filed in U.S. District Court for the Northern District of Texas by one of the plaintiffs’ lead attorneys, Zywave will pay to notice potential class members, reimburse up to $5,000 per class member for out-of-pocket losses including compensation for lost time, and provide one year of free credit monitoring services. Plaintiffs’ counsel intends to present fees of one third of the settlement fund — about $3.7 million — plus expenses not to exceed $30,000, to be paid out of the fund. MARCH 21, 2022 INSURANCE JOURNAL | 29

Spotlight: Managing General Agencies ‘Essential’ MGAs, Other DUAEs Face Inflation, Staffing Pressures

Segment Report

DUAEs

‘The entrepreneurial MGA market has gained traction and MGAs are specialized insurance agents/brokers that represent (re)insurance companies, acting as intermediaries among (re)insurers, retail agents, and wholesale brokers or agents. MGAs take onproven to be formidafunctions ordinarily handled only by insurers, such as binding coverage, underwriting and pricing, ble enough to attract appointing retail agents within a particular area, and settling claims. Unlike MGUs, MGAs can be involved in the claims process (paying and/or adjusting claims) or the loss control process. MGUsunderwriters with have been less involved with claims or loss control than MGAs. MGAs are usually involved with risk excellent track records classes or lines of coverage that require specialized expertise. from larger, well MGUs have many of the same characteristics as MGAs but are typically granted broader underwriting responsibilities than MGAs because of their expertise with the risk class, program, or established insurers.’

Exhibit 1 Delegated Underwriting Authority Enterprise Descriptions

Managing General Agent

Managing General Underwriter

line of business. (Re)insurance companies will contractually allow MGUs to underwrite and bind coverage on risks that fall within specific guidelines or parameters established by the (re)insurer. The MGUs' responsibilities can extend to pricing, crafting policy wording, appointing retail agents, By Susanne Sclafane segments of the US commercial carriers is another positive and occasionally handling and adjusting claims and claims payments.

($ billions)

factor for MGAs, the report lines market drove MGAProgram A program synonymous with an MGA and termsnoting are used interchangeably. aking a deepadministrator dive into is often that a lot of new produced premium growth of the says, Administrator Program administrators will handle similar functions as MGAs for specific programs of the world of managing insurance company startups almost 15% from 2017-2020, homogeneous risks, generally providing services such as underwriting, binding, policy issuance, and general agents and They alsoincluding have stepped the market year-over-year premium collection. provide back office support to insurers, helping theminto better manage other delegated underwriting withexpertise, fronting(re)insurers models over the growth 5.5%. While rate the program from their end. Given the of depth of program administrators’ may extend them certain loss control and claims well.five years, following Markel authority enterprises, AM Best increases are management stabilizing orduties, aslast reports that premiums generat- decreasing, near-term momenCorp.’s 2017 acquisition of Underwriting Agencies given underwriting and policy writing authority by an insurer. The authority given allows the tum in commercial are fronting carrier State National. Agency ed by DUAEs agency to climbing, underwrite,and price, and issue the physical auto, policy to the insured. For the scope of services in MGA acquisitions liability and cyber bode interest rendered, More generally, insurers the agency receivesgeneral increased commissions. remains high. well for MGAs. struggling to innovate are benSource: AM Best data and research efiting from MGA relationships, In a March 1, 2022, report New capacity from fronting titled, “Delegated Underwriting The growing number of MGAs Exhibit 2 Authority Enterprises Gaining US P/C Industry: Managing General Agent Direct collaborating with insurers to write Market Traction,” AM Best Premiums Written, 2017-2020 specialty business is helping to fuel analysts note that DUAEs have 50 the increase in US P/C premium “become an essential part of generated by MGAs. AM Best 49.4 the insurance ecosystem,” 48 identified 663 distinct MGAs from going on to describe market its review of Notethat 19 of conditions areinsurers’ tailwinds 46.8 46 2020 NAIC statements. This does for ongoing growth. not represent the analysts entire universe also note,of AM Best 44 MGAs since many MGAs produce however, that MGAs and other annual DUAEs premiums for insurers like carriers and other 43.4 43.0 42 market that fallinsurance below the 5% ofparticipants surplus faceAs thethe headwinds ofand inflation threshold. premium the staffinghave pressures to in 40 numberand of MGAs grown growthso going recent years, has forward. the number of On the plus side, according 38 different carrier-MGA relationships, 2017 2018 2019 2020 to the report, hardening from 890 in 2019 to 970 in 2020. Source: AM Best data and research insurance rates in different

This reflects new players, including insurtechs, taking advantage of an improving market, along with established MGAs growing their 30 to | INSURANCE JOURNAL | the MARCH 2022 premium a level exceeding 5% 21, threshold.

the report suggests. “MGAs and the other types of DUAEs are far more entrepreneurial by nature. MGAs that have the capital resources to introduce and implement new technologies have a competitive advantage,” the report says. On the other hand, “insurance companies have at times struggled with incorporating technological advancements that best serve their business needs, and the financial investment for new technological tools can be a significant headwind — trial-and-error can be costly.” When insurers find the right MGA partners and successfully integrate new technologies into their operations, they can expand their product and geographic capabilities, the report notes. “Insurers that have developed partnerships with DUAEs have been better able to diversify risks in line with their risk appetite.” Still MGAs and other DUAEs face the headwinds of economINSURANCEJOURNAL.COM

ic inflation and a talent crunch just like the rest of the industry. DUAEs that do not have adequate staffing and lack a strong pipeline for new hires could face tough times if they lose key management or staff members, especially if there is not a good succession plan in place, the report says. While also noting that efforts to retain top talent could inflate the expenses of “lean, newer DUAEs,” the report suggests that the depth and quality of talent entering the MGA/DUAE market may, in fact, be significantly better than the talent that entered at different times in the past, attributing this assessment to “some market observers,” without identifying them. “The entrepreneurial MGA market has gained traction and proven to be formidable enough to attract underwriters with excellent track records from larger, well established insurers,” the report says. Turning to inflation and the impact it could have on expenses, the report says DUAEs that find their profit margins squeezed may try to counter that by raising commissions and fees. Lower profits could also bring down contingent commission levels. DUAEs with diversified fee and commission sources should fare better in withstanding the difficulties of inflationary trends, the report suggests. If expenses begin to grow faster than revenues, DUAEs may try to expand their product bases to stay on par with increasing expenses.

Premium Growth, Top MGAs

The report begins with some basic definitions, first noting that the broad term DUAE INSURANCEJOURNAL.COM

includes MGAs, managing general underwriters, coverholders, program administrators, program underwriters, underwriting agencies, direct authorizations and appointed representatives. It provides specific descriptions of each of these types of DUAEs and notes MGAs are the most common form in the US market. The growing number of MGAs collaborating with insurers to write specialty business is helping to fuel the increase in premium generated by MGAs, the report says, going on to summarize figures from an analysis of Note 19 of P/C carriers’ annual statements. NAIC reporting regulations for Note 19 require that companies disclose individual MGA premium data only for those MGAs whose premium constitutes more than 5% of the carrier’s policyholders’ surplus, the report notes, concluding that the $49.4 billion of MGA-generated direct premiums tallied from the notes is an understatement. Not only does the analysis exclude premium figures for smaller MGAs or individual programs that do not meet the 5% threshold, it excludes a considerable amount of premium written through MGAs by Lloyd’s syndicates. In spite of these limitations, aggregate premiums for both MGAs that are affiliated with carriers and those that are unaffiliated demonstrate a growing US P/C MGA market overall. For 2020, $30.6 billion of the $49.4 billion total came from affiliated MGAs, representing 62% of the total. Affiliated MGA premiums grew 6.4% over the four-year study period that began in 2017, but unaffiliated

MGA premiums grew faster — jumping 32% to $18.8 billion in 2020 from $14.2 billion in 2017. The $18.8 billion figure represented 38% of all MGA premiums in 2020, compared to 33% in 2017. Several charts and graphs in the report illustrate the premium changes and set forth direct written premium rankings for both types of MGAs. The top five unaffiliated MGAs, according to AM Best are: 1. Hagerty Insurance Agency Inc. 2. Arrowhead General Insurance Agency Inc. 3. Travelers Texas MGA Inc. 4. AMRISC LLC 5. E-Risk Services LLC The report lists the Top 20 and identifies the individual insurers that wrote the premiums and listed these MGAs in their statutory blanks for each of the 20 US P/C unaffiliated MGAs. According to the report, the top five carriers listing premiums meeting the NAIC statement requirement threshold that they wrote through one or more affiliated MGAs are: 1. Philadelphia Indemnity Insurance Co. 2. American Agri-Business Insurance Co. 3. Scottsdale Insurance Co. 4. ACE Property & Casualty Insurance Co. 5. Universal Property & Casualty Insurance Co. Finally, the report lists the top 10 US MGAs overall, also ranking them by direct written premiums. The following six with more than $1 billion each are shown in the report:

1. Maguire Insurance Agency Inc. 2. Rain and Hail LLC 3. ASI Underwriters Corp. 4. Evolution Risk Advisors Inc. 5. Diversified Services Inc. 6. United Insurance Management LC Philadelphia Insurance reported $3.4 billion in direct premiums written through its affiliated MGA, Maguire Insurance Agency, while American Agri-Business Co. reported $2.1 billion through Rain and Hail. The next four US insurers with affiliated MGAs on the top 10 list — Scottsdale Insurance Co. (Nationwide), ACE Property & Casualty Insurance Co. (Chubb Limited), Florida-domiciled personal property insurer Universal Property & Casualty, and American Strategic Insurance Corp. (Progressive) — each generated between $1.0 billion and $1.5 billion in premium. AM Best said it identified 663 distinct MGAs from its review of Note 19 of insurers’ 2020 NAIC statements. The growing number of MGAs collaborating with insurers to write specialty business is helping to fuel the increase in US P/C premium generated by MGAs, the report said. In fact, AM Best identified 970 carrier-MGA relationships in 2020, up from 890 in 2019. The report also describes ways in which DUAEs pivoted and embraced opportunities during the pandemic, charts the roles and responsibilities that carriers are granting to DUAEs, reviews the M&A landscape and discusses the use of MGAs in life and annuity businesses.

MARCH 21, 2022 INSURANCE JOURNAL | 31

Special Report: Restaurants & Bars

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INSURANCEJOURNAL.COM

By Andrea Wells

upply shortages, rising inflation, higher food costs and labor shortages, along with the COVID-19 pandemic, are challenging the food services industry today. It’s likely these challenges will subside eventually — but not this year. Restaurants and bars have shown they are a resilient bunch. In the face of these challenges, they adapted by changing their business models. They moved food services off-premises. They even sold alcohol to go. They adapted to a new environment and those that survived are better for it. The food service establishments that were already in a strong financial position prior to the pandemic became stronger during the pandemic. “If you were in a good position before, you’re in a better position now because the weak folks have largely left the industry,” said Zach Kuperman, senior vice president and the National Restaurant Practice Leader for broker Hub International. Smaller operators were hit the hardest simply because they didn’t have the scale to survive, according to Kuperman. Single unit operators, those operating a restaurant on the corner in Austin or on the corner in Los Angeles or wherever, didn’t have the ability to pivot to an online takeout delivery program, and it was harder for them to make it through the toughest parts of the pandemic, he said. Roughly 90,000 restaurants have temporarily or permanently closed since the start of the pandemic, according to the National Restaurant INSURANCEJOURNAL.COM

Association. While that estimate is high, as many as 61% of independently operated restaurants fail within three years of opening even in normal economic conditions, according to some reports (2005 analysis from Ohio State University). What’s left is a strong and resilient restaurant industry and the operators who remain in business face less competition. “The pandemic was positive for the restaurant industry in one way because it forced about 10 years of innovation into two years,” Kuperman said. “If you were thinking about doing off-premise (services), you immediately pivoted to it in a month. If you were thinking about using third-party (to deliver food and beverages), you immediately did that. All those areas where you could find ways to use less labor or change your model, you did.” The food service industry feels good about its prospects

in 2022. While the industry lost $186 billion in sales from 2019 ($864 billion) to 2020 ($678 billion), the sector grew to $799 billion in 2021 and anticipates reaching $898 billion in sales this year, surpassing pre-pandemic sales levels, according to the “State of the Restaurant Industry Report” published by the National Restaurant Association in February. At the same time that sales are up, costs are also up for both labor and supplies. That means 2022 profit projections, when adjusted for inflation, will remain below pre-pandemic levels, the association said.

Challenges and Opportunities The adaptations that restaurant and bar operators made over the past two years have altered the restaurant risk landscape permanently and that’s not a bad thing, according to Kuperman. “A lot of that off premise [service] is not really going away, it’s clearly here to stay,” he said. Whether the food

and beverages are delivered through third-party delivery providers, such as Uber Eats, or ordered directly via an operator’s website for pick up, the convenience of off-premises serving is a growing revenue source for restaurants today. Even restaurants new to the idea are growing in take-out dining and today they count on that revenue stream, he added. Heidi Strommen, senior vice president, Primary Hospitality Programs, for Distinguished Programs, agrees. She has seen a number of higher-end eating establishments increase their revenue through takeout business. “There are more restaurants and more specifically higher-end restaurants who now have a takeout business who never did before, and they have figured out that it is actually a stabilizing revenue stream for them,” she said. “Even some of the higher-end restaurants that have traditionally thrived only on the on-premise dining

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Special Report: Restaurants & Bars continued from page 33 experience can offer some pretty compelling takeout options, and they want to keep that going,” Strommen said. They are not doing the same level of off-premise service as during the pandemic shutdowns but they’re keeping the service as a part of their business going forward, Strommen said. Another adaptation that changed due to COVID — outdoor dining. “A lot of restaurants that had small outdoor dining space, or no outdoor dining space, expanded it, or developed it,” she said. What they found is that people like eating outdoors, COVID or no COVID. “So we’ve seen a lot of restaurants that have been able to expand their capacity by having these outdoor spaces … that’s been another where I think is a pretty permanent change for a lot of restaurants.” According to a recent survey by the National Restaurant Association, consumer demand for alcohol to go and outdoor dining will continue with nearly four in 10 consumers saying the availability of outdoor seating would make them more likely to choose one restaurant over another similar one. Roughly half of U.S. restaurant operators think the availability of seating on a sidewalk, parking lot or street will become more common within their segment this year. Seventy percent of Gen Z adults (age 21-plus) and 62% of millennials say the option of including alcohol with a takeout or delivery order would make them more likely to choose one restaurant over another. Another change — restau-

rants moving to no dining on premises at all, including higher-end operators using “ghost kitchens,” Strommen said. Ghost kitchens are a restaurant without any on-premise dining options. While ghost kitchens existed prior to COVID, like other off-premise food service, ghost kitchens ramped up during COVID. “It’s a kitchen with the business model completely built on delivery, and usually exclusively through third-party delivery services,” she said. “It’s the kitchen staff and whoever is fulfilling the orders and handing them to the delivery service … that’s the extent of the staffing that’s needed, and you don’t have any customer traffic in or out.” Ghost kitchens can be an attractive option for people looking for convenience, with meals delivered to their door. “That’s a pretty nice option for a lot of people and we’ve seen some pretty sophisticated chefs enter this model,” Strommen said. “Some of those that have

been successful have gone into franchising, as well, so there’s a lot of growth potential.” Ghost kitchens can range from just one location to multiple locations with larger business operations, she said. Ghost kitchens lack one exposure that often produces a claim scenario in the restaurant world, too, according to Strommen said. “That would be people on-premises, tripping and falling,” she said. Trips and falls are a common claim in restaurants but in the absence of customers that risk is significantly reduced, she said. On the other hand, ghost kitchens see heightened risk in cyber, she added. “There’s definitely a need for cyber coverage in ghost kitchens because their entire business is being conducted through an app, or over the internet.” However, Strommen noted, in reality all restaurants need cyber coverage. While more restaurants and bars are buying the coverage, there are still too many that don’t buy it.

“I’m amazed by how many restaurants still don’t buy cyber coverage … unless you have an old-fashioned cash register and only take cash, every restaurant has this exposure,” she said. “It’s just very naive to think that you don’t have the exposure and that you can regard this as an optional coverage. No restaurant should think of cyber as an optional coverage.” The National Restaurant Association found that more than eight in 10 restaurant operators say that the use of technology has helped provide them with a competitive advantage, especially during the pandemic. They report that many of their members plan to ramp up investments in technology this year. “Many operators will devote their resources to online or app ordering, reservations, mobile payment, or delivery management, in addition to back-of-the-house technology,” the association says. Technology may help some newer, start-up restaurants and

‘Most restaurant operators are optimistic about 2022, and there’s still pent up demand. … People want to get out there and eat out.’

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smaller independent operators secure insurance. Pathpoint, a digital E&S technology platform, recently launched its new restaurant offering for non-admitted coverage for restaurant owners. “We spend a lot of time with agency clients and market partners to figure out what products to focus on bringing online first,” said Alex Bargmann, Pathpoint’s CEO and co-founder. “Adding restaurants is just the start of some of this hard work paying off for our partners.” According to Bargmann, smaller, independent restaurants are commonly declined through admitted carriers for various reasons. “From the amount of alcohol they’re selling to past claims history … it’s a long list of reasons,” he said. Pathpoint’s restaurants product is built for these types of risks. Like all Pathpoint offerings, the restaurant product is delivered through Pathpoint’s online platform, with Pathpoint serving as the surplus lines agent and handling all servicing and compliance on the back-end. Pathpoint’s restaurant offering is available in all U.S. states — but not in D.C. — and covers any restaurants operated by concessionaries, including BYOB establishments, restaurants that don’t serve alcoholic beverages, and those with alcohol sales less than 75% of total sales. Appetite includes general liability from $500,000 to $2 million and property TIV up to $2.5 million.

Labor and Supply Shortages

Not unlike the rest of the U.S. economy, restaurants and bars face tough conditions when it INSURANCEJOURNAL.COM

comes to labor shortages and supply chain challenges. While the food service industry gained back 1.7 million jobs during 2021 for an end-of-year total of 14.5 million employees, many restaurants remain severely understaffed, and this will continue to constrain industry growth in 2022, according to the National Restaurant Association. “Seven in 10 operators across all major segments say their restaurant currently does not have enough employees to support customer demand and most operators expect their labor challenges to continue through next year,” the association reports. The report also revealed that 96% of restaurant operators experienced supply delays or shortages of key food or beverage items in 2021 and expect these challenges to continue in 2022. “Labor is now more expensive than it ever was, but so too are commodities,” Hub’s Kuperman said. The cost of chicken recently was at an all-time high, he added. “Chicken usually has been shielded from high pricing, which normally runs at 25 basis points of food cost, but it was running at 43-44% for some of the large national chains two months or three months ago,” Kuperman said. “That makes it hard to make money when food commodity pricing goes up.” And many restaurants struggle to run a full house with tight labor conditions today. Roughly 50% of restaurant operators in the full service, quick service, and fast-casual segments of the sector expect recruiting and retaining employees to be their top

challenge in 2022, according to the National Restaurant Association. “I still regularly go to restaurants and they’re not seating all the tables, no matter how long their wait is and it’s because they can’t hire people to serve those tables,” Kuperman said. That labor shortage impacts risk as well. “I’m definitely seeing a trend in higher workers’ compensation claims.” However, so far the workers’ compensation insurance market remains one of the more competitive areas of the insurance market in this space. Kuperman attributes some of that trend to higher wages, which translates to more premium but with fewer workers to insure. “Let’s say 30% of top line sales is payroll and if you have $3 million in sales, that leaves about $1 million in payroll, just on a simple explanation,” he said. In today’s higher wage market, the restaurant is now paying payrolls of $1.2 million in this scenario, where it used to be $1 million. “So now it’s the same man hours being worked, but it’s more exposure in terms of payroll to the carrier. In theory the carriers are getting more premium.” If they had a $2 rate for per $100 in payroll before the pandemic, they still have a $2 rate per 100 in payroll, but now they’re getting $1.2 million in payroll instead of $1 million, but there’s no more risk to them. “The employees aren’t doing more work, it’s just they’re being compensated higher.” Other areas of insurance have seen more rate pressure in the sector, Strommen said. “Certainly, for a bar, liquor liability is an issue,” she said.

“For a restaurant, if it’s truly a restaurant and not straddling that line (between bar and restaurant) like some do, I think that there’s enough options where there’s liquor included in the package policy.” The most change in insurance market conditions has been in the excess liability line, she added. “There’s been more change and more hardening in the excess line, which of course is across other industries, as well. That’s just been an area where we’ve seen a lot of rate being taken because of increased claims settlements and social inflation,” she said. Fortunately, she said, a lot of restaurants recognize that the days of not carrying an umbrella policy, or only carrying a $1 million umbrella, are behind them. “If they haven’t they should because they’re really not adequately insured if they’re not buying more limits on their umbrella.” But overall, the insurance market for restaurants is pretty steady right now, she added. That’s good news for operators looking at a 2022’s projections. “Most restaurant operators are optimistic about 2022, and there’s still pent up demand,” she said. “People want to get out there and eat out.” While nobody knows what’s going to happen with the next COVID variant, it looks like it’s going to be a really good year for restaurants, she added. “We’re seeing a lot of our clients expanding, adding locations again, or reopening locations that they have closed,” Strommen said. “I think a lot of people are optimistic, including myself, that things are looking up for restaurants.”

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Closer Look: Boats & Marinas On the Water: Boats & Risk

eople who like the water like boats. This might be a gross misuse and the mariners among us might get offended by it, but I’m going to use the term boat to refer to any kind of watercraft that an individual might own, except for personal watercraft. I’ll call By Patrick Wraight personal watercraft, personal watercraft, so we can be clear and use the same language today. I’ve been told that the best day in a boat owner’s life is the day you buy the boat, and the second-best day is the day

you sell the boat. I take that to mean that boat ownership has its issues. Of course it does. As insurance and risk people, we understand that everything has its issues. We look at the risks involved with everything we do before we do it. We understand that everything has its own risks and troubles. Yes, boats and personal watercraft are fun and useful. People use boats for fishing. People use boats for waterskiing. There are people who take their boats out on lakes, rivers and oceans. Some boats are simple to pilot and navigate because of the size of the boat and the waterway being navigated. Some boats are more complicated because of the size of the boat and the

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waterway being navigated. People use personal watercraft to ride around on the water, like riding a motorcycle, except you get water rash rather than road rash if you have an incident. Since it’s spring and the weather is getting warmer, now is a good time to talk about boats, their risks, their risk management, and their potential insurance implications. Hopefully, you read this before you end up at that party your friend is throwing on his new boat.

Risks of Boats

It occurred to me to start with insurance, even though I didn’t plan to write about the insurance piece of this until

later. Reading different boat insurance policies reminded me of reading auto policies. That made perfect sense as I was thinking about it because a boat is a vehicle and vehicles have certain risks that come along with them. So, what are the risks related to boats? There is the risk of damage to the boat. Whether a person is operating the boat, it’s sitting on a trailer, or it’s on a trailer behind a vehicle headed down the road, something may happen to the boat to damage it. It might collide with another boat, a dock, or run aground, which as we all know means that it hit the ground under the water and got stuck and potentially damaged in the process.

INSURANCEJOURNAL.COM

Of course, there is a difference between damage to the boat while it’s on the water and damage to the boat while it’s behind the truck, headed down the road, but we aren’t looking at the insurance policies right now. We’re dealing with risks. Someone could get hurt by the boat. Whether they are operating the boat, a passenger on the boat, or a bystander (or by-swimmer), they can get hurt. Operating a boat can be a lot of fun for someone who loves boats but because it’s a vehicle, people can get hurt while operating it. Boats also have the additional risk that a person can get hurt while waterskiing, tubing, or some other way that they are towed behind the boat. That’s a risk that you don’t normally see with land vehicles (unless you live in Florida, but that’s another matter). Whenever there is a risk of bodily injury, there’s also the risk of property damage. The pilot could get distracted, be inexperienced, or otherwise unable to control the boat. This could cause the boat to collide with another boat or personal watercraft. Lakes and rivers also have docks that extend out into the water. Some extend quite a way out into the water. Some waterways have some very expensive docks and boats out there that if they are collided with, the damage could be extensive and expensive. There are probably more things that we haven’t addressed directly, but this will do for now.

Risk Management for Boats

So how do you manage the risks associated with boats? That’s a worthy question to ask INSURANCEJOURNAL.COM

U.S. Boating Boom Continues

onsumer interest and demand for boating continue to reach near record-highs as more Americans seek out boating as an outdoor activity. Recreational boat, marine engine and accessory manufacturers show that U.S. new powerboat retail unit sales are expected to surpass 300,000 units for the second consecutive year, closing 2021 an estimated 4% to 6% below record highs in 2020 and 7% above the five-year sales average, according to the National Marine Manufacturers Association (NMMA). 2022 is expected to be another strong year for new boat sales, which are projected to surpass 2021 totals by as much as 3%, according to

the association. Recreational boating and fishing are the highest contributors to the $689 billion outdoor recreation economy, surpassing RVing, hiking, and several other outdoor recreational activities, according to the U.S. Department of Commerce’s Bureau of Economic Analysis. The economic contribution from boating and fishing was up nearly 30% in 2020, compared to 2019. “We expect strong momentum for boating and new boat sales to endure through 2022 as Americans from all walks of life explore the great outdoors and turn to the unique joys of being on the water,” said Frank Hugelmeyer, NMMA president.

The NMMA reported that: Annual U.S. sales of boats, marine products and services totaled $49.3 billion in 2020, up 14% from 2019. It’s not just new boats being sold; an estimated 1.1 million pre-owned boats were sold in 2021. The recreational boating industry supports more than 690,000 jobs and 35,000 U.S.-based businesses. 61% of boat owners have an annual household income of $100,000 or less. Leading the nation in sales of new powerboat, engine, trailer and accessories in 2020 were: Florida, Texas, Michigan, North Carolina, Minnesota, Wisconsin, New York, California, and South Carolina.

and answer because once we identify the risks associated with something, we have to work on ways to mitigate those risks. Of course, the simplest way to manage and mitigate the risks of boats is not to have boats in your life in the first place, but if the risk does not overwhelm the benefit you receive from the boats, you will have to deal with the risk. One way to manage the risks of boats is education. The new boat owner should learn about their new passion before setting out on the open seas, lakes, or down the river. I’ve mostly hinted that I’ve been dealing with boats that operate by some kind of motor, but there are several different ways that boats can be operated and each of them take a certain amount of education, practice and skill.

Operating a small sailboat is different than operating a competition sailboat. Operating a canoe is different than operating a kayak. A small jon boat is very different than a 25-foot fishing boat, which is really different than operating a yacht that’s bigger than Delaware. Some boats really need a licensed captain, while others don’t, but even without a license, there’s much to learn. Another avenue of education to manage the risks of a boat is learning how to respond in the event of an emergency. That might mean learning how to swim or stay afloat until help comes. It also might mean learning rescue breathing in the event that someone ends up in the water too long or can’t swim. There’s clearly more to be considered but let that be

enough for now. Let’s explore what owning or operating a boat might mean for clients’ insurance policies.

Insurance Implications

The short version of this conversation is that a client that has a homeowners (any of the homeowners series of policies) policy and an auto policy is going to find that they need to pay attention to how they read them regarding boats because here’s the spoiler. Maybe there’s some coverage, but don’t bet the farm on it being the right coverage, or enough coverage. Let’s look at the most likely edition of the ISO Homeowners 3 – Special Form, the HO 00 03 05 11. We aren’t looking at the 2022 edition because it’s not available right now and it

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Idea Exchange: Supply Chain

Protecting Businesses Against Global Supply Chain Issues

By Alfred Bergbauer

Kenneth Travers

and Andrew Zarkowsky

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ompanies around the world are facing unprecedented inventory and supply chain issues, which has been brought on by the ongoing COVID-19 pandemic. In the western United States, ports are filled with cargo ships, and once easyto-get supplies now require long waiting periods. It’s an issue that has caused and continues to bring significant challenges for many industries. Unfortunately, it is also likely that these complex global supply chain problems will continue for the foreseeable future. However, despite the challenges many businesses and consumers face right now, today is the perfect opportunity to make changes that will pay off in the future. This includes insurance and how businesses make coverage decisions after taking an in-depth look at supply chains. For instance, it is important for manufacturers to step back and understand how their supply chains operate and where critical operations exist. In addition, it is imperative for them to better recognize how their supply chain might need to change if critical operations become negatively impacted.

Global Chip Shortage

Today, microchips have become commonplace in the global economy and daily life. These small intuitive electronic circuits are ingrained in much of society – from cell phones, cars, computers, electronics, and appliances. However, the pandemic, as well as two serious chip manufacturing foundry fires, have unfortunately caused disruption in the supply chain that supports the development and usage of these consumer products. In addition, it has highlighted the need for businesses that incorporate microchips to truly understand their dependencies within the supply chain and design agile contingencies that can account for consumers’ fluid usage and demand for microchip technology in the world. The chip shortage is one of the main reasons why car dealerships lack inventory, and it’s also a main reason behind low inventories for electronics and appliances at retail stores. In today’s global economy, chips are fundamental building blocks. They’re like currency, wood, or metal, and if any of those components are pulled out from the economy, there are deep impacts across the globe. With the COVID-19 pandemic, many INSURANCEJOURNAL.COM

businesses changed how they normally operate. Many in-office workforces shifted to a remote work environment. Factories around the world shut down as demand decreased in the early days of the pandemic. Factories also temporarily shut down because of supply shortages. As the pandemic continued, more people bought electronics like computers, tablets and even cars. As demand increased, reduced manufacturing capacity couldn’t keep up. However, while manufacturers saw a cooling in the automotive industry at the outset of the pandemic, there was a tremendous surge in consumer product demand as people shifted to remote work arrangements. With what capacity they had, manufacturers turned to consumer products. This left little capacity within automotive, especially within automotive electronics, when demand for new automobiles roared back. Scalability was further hindered by the fact that many manufacturers meaningfully reduced their workforces in the early days of the pandemic.

Fires Shut Down Factories

Many businesses also rely on a centralized region for chip manufacturing such as Southeast Asia. Therefore, if something happens to these factories, it can significantly impact a business’ production,

and it causes a domino effect. When a manufacturing plant in Asia is unable to produce chips or other supplies, it can then affect other vendors in the business’ supply chain. For example, in October 2020, a fire broke out at Asahi Kasei Microdevices (AKM) in Japan. The fire also caused part of the facility’s building to collapse. This event caused a temporary shutdown and was responsible for creating a shortage in semiconductor chips that car manufacturers around the world needed. Then, in 2021, a fire broke out at Renesas, another Japanese chip manufacturing facility, which impacted over 30% of the global market for chips.

Shipping Container Delays

Another contributing factor to supply chain issues is the delays in shipping containers at ports in the United States. In the second half of 2021, there was a backlog of cargo ships and shipping containers at the Ports of Los Angeles and Long Beach. Both ports account for 40% of imported goods into the country, and a lot of these goods come from Asian-based raw material producers, as well as component and finished goods manufacturers. Because of the congestion at the ports, it created a delay in the return of shipping containers to home ports of origin for new shipments.

Therefore, since there are only so many containers in the supply chain system, if a container can’t get back to fill up for the next delivery, it causes delays. Prior to the pandemic and supply chain issues, the average transit time from Asia to berth at a port in the Western United States was about 30 days. Now, it’s about 50 to 75 days due to increased wait times for berth openings. Some retailers are taking measures to try to prevent delays by hiring their own ships to help with shipping and product shortages, but not all business have that luxury. Businesses and consumers are now discovering that it all has to do with how globally connected people are, and as a result, if something disrupts the system like a pandemic, it affects the entire process.

Insurance and The Supply Chain

It’s common for businesses to ask if a large supply chain issue affects production and operations, then can large business insurance, like multinational insurance or global insurance, help mitigate costly losses. While it depends on the cause of loss, when it comes to shipping or cargo delays, the answer is typically no. In an insurance contract and policy, supply delays are usually excluded because there needs to be a specific loss. For example, with regards to the fires in Japan, that would generally be a covered loss, which would be triggered through business interruption coverage.

The Need to Review Supply Chains

The pandemic and current supply chain issues have created an opportunity for businesses, insurance agents and brokers to map out and review their supply chains. While it’s a process that many businesses should do every 18 months, most business forgo this aspect of their operation, which is a mistake that’s being proven today due to the pandemic and supply chain issues. Businesses should be reminded that insurance is a purpose-specific tool, and what’s important is for businesses to understand their balance sheets, cash flow and how those things will be affected if there’s an interruption in business from

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Idea Exchange: Supply Chain continued from page 39

their supply chains. More than anything, the pandemic and current issues put an emphasis on a need to step up and deeply understand supply chain dependencies. It is imperative for companies to map out their supply chains and truly understand where any risks may be lurking. From there, they can make changes and address the potential issues.

‘In today’s global economy, chips are fundamental building blocks. They’re like currency, wood, or metal, and if any of those components are pulled out from the economy, there are deep impacts across the globe.’ Equally important in protecting against supply chain risks is the need to complete a business interruption worksheet. While it may take time, this can be valuable especially if it’s been a while since a business last did one. The dilemma is that some businesses think they can keep the same business interruption limit they chose in the past. However, the world has changed a lot in the last few years, and whatever 40 | INSURANCE JOURNAL | MARCH 21, 2022

the limit was a couple of years ago, it is not a starting point anymore. The new starting point is now starting from scratch and completing the worksheet.

How to Weather Supply Chain Impacts

It’s impossible to predict when the current supply chain issues will get fixed, and experts don’t know if there will ever be another global event like a pandemic to significantly impact so many industries. Despite the unknowns, there are measures that businesses can take to protect their companies. One of the best defenses against a disruption to supply chains due to an infectious disease outbreak or natural disaster is a strong business continuity plan. Creating a plan with a focus on the largest peril event, can help companies be better prepared in the future. It is essential to partner with sophisticated, experienced brokers and insurers that understand and have experience handling the entire process. This includes looking at the business’ supply chain location by location and identifying what risks may be prevalent to help prepare and mitigate significant risk to operations resulting from these disruptions. It is also important to identify critical suppliers, understand tier level structure in the supply chain,

and quantify the risk from a group of credible scenarios. (For best practices The Hartford’s Risk Engineering team offers a

technical paper on supply chain risks.) While every situation is unique, businesses should be making preparations today to mitigate any future issues because at the end of the day businesses of all sizes have complex global supply chains that need protecting. Bergbauer is the head of captives, multinational, programs and TPA services at The Hartford. He has more than 25 years of executive, risk management, and underwriting experience in international property and casualty and specialty insurance. Travers is technical manager – property and product specialist for The Hartford. He has more than 43 years of experience in the risk engineering field developing and delivering loss control engineering services and assessment tools for complex businesses with a focus in natural catastrophe, business impact, supply chain and fire protection engineering applications. Zarkowsky is technology industry practice leader at The Hartford. His focus is on underwriting execution inclusive of growth, profit and product innovation for the technology industry. He has nearly 20 years of experience in underwriting technology companies. INSURANCEJOURNAL.COM

Closer Look: Boats & Marinas continued from page 37 will be a year before a larger number of clients actually have this form, if their carrier is using it. This is meant as an example anyway, so read the whole policy before making any recommendations to anyone at any time. It starts with a definition that we need to be aware of. Watercraft means a craft principally designed to be propelled on or in water by wind, engine power or electric motor. So, we start by broadly defining what a watercraft is. This is so that we can either create a broad exclusion and then put exceptions in to create some coverage or so that we can create broad coverage and whittle it down with exceptions that create exclusions. In this case, it’s the former. There is a broad exclusion with some exceptions. Rather than focus on the exclusion, let’s look at the exception and see what coverage might exist for the boat owner or user. The first thing we note is that there is a little bit of coverage for damage to the watercraft

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itself. Under the Special Limits of Liability, we find this. The special limit of liability for each category shown below is the total limit for each loss for all property in that category. These special limits of liability do not increase the Coverage C limit of liability.

c. $1,500 on watercraft of all types, including their trailers, furnishings, equipment and outboard engines of all types. A quick online search showed that a trailer that could be used to haul a small boat can cost over $1,500 and that’s not including the boat itself. A small fishing boat that can carry two people (with an outboard engine and trawling motor) runs over $20,000. You might ask about something “simple” like a kayak. That’s a good question. On the same website, they run from $600 to “call for pricing.” It’s time to look at that liability exclusion and find out what it tells us. Coverages E and F do not apply to any “watercraft

liability” if, at the time of an “occurrence,” the involved watercraft is being: a. Operated in, or practicing for, any prearranged or organized race, speed contest or other competition. This exclusion does not apply to a sailing vessel or a predicted log cruise; b. Rented to others; c. Used to carry persons or cargo for a charge; or d. Used for any “business” purpose. That’s an interesting place to start the exclusion. So, we have certain activities that we don’t want to insure, which makes sense. A homeowners policy doesn’t anticipate these activities and would certainly exclude certain business uses. So far this makes sense. This is as easy as it gets though. If Exclusion B.1. does not apply, there is still no coverage for “watercraft liability” unless, at the time of the “occurrence”, the watercraft is ... We aren’t going to dive into the complexities of the rest of the exception to the exclusion. It details

exactly what kind of watercraft are excluded and what aren’t. It’s complicated in this edition of the homeowners forms and honestly, it isn’t much better in the latest update. It’s a little better, but only a little. Let’s just say that the liability coverage is intentionally limited to a very specific set of watercraft. Take that in connection with the very limited coverage for damage to the watercraft and associated property, we can say that many owners won’t have the proper coverage without considering a policy specific to the type of boats that they intend to purchase. When you have clients that have an interest in sailing the high seas or trolling a river looking for the mythical fish everyone tells stories about, make sure that you have a conversation about their risks and how they plan to deal with them. Wraight, CIC, CRM, AU, is director of Insurance Journal’s Academy of Insurance. He can be reached at pwraight@ ijacademy.com.

MARCH 21, 2022 INSURANCE JOURNAL | 41

Idea Exchange: Agency Management My Story of Failure:

Moving Forward by Looking Back

t comes upon you suddenly, and without warning. Fear. The kind of fear that strikes you physically like electricity running through your body. You resist the urge to be physically ill. Death would seem merciful, but this isn’t going to kill you. It’s just going to embarrass and humiliate you. It will lay bare the truth: You are not what you seem. At least you are not the person you want others to see and believe in. You are a failure. I hope you’ve never actually experienced this. I have and it’s awful. Like so many other entrepreneurs, I couldn’t understand how this happened. I was busy building a business and doing so involves so many things. It’s about chasing an idea and taking risks, endless work, slow and sometimes spurting By Tony Caldwell progress. It’s about fighting yourself and sometimes your employees. And it’s about scratching, clawing — even begging for business — something to sell and someone to believe in you enough to write a check. Slowly, over time, I found success. With it came money, employees and more resources. All of this had an insulating effect that led me to forget what it was like to worry about cash, paying bills and making payroll. I had people — multiple people — to manage cash flow and profitability while I focused on growth and my vision for the business. Then, for the first time in my career, I 42 | INSURANCE JOURNAL | MARCH 21, 2022

took my eye off the ball. One evening I received an email from my new controller. ACH’s would be done in the morning. And we were short — quite a bit short. How could this happen? Why was it happening? Could I do anything about it? What if I couldn’t? After regaining my composure, I studied the cash analysis carefully. We were in trouble. I was in trouble. And, there was nowhere to hide. People were, and would be, looking to me for answers and solutions. Now, what could we do about the problem? What could I do? I developed a plan to address the shortage that required collecting receivables, drawing on a line of credit I had set up years ago and never used, focusing on paying payroll first and the other bills when we could. Would it work? What would my team think? What would others think if they found out? Was it over or just a steep hill in the never-ending climb to business success? Needless to say, I didn’t sleep at all that night.

The Elements of Failure

By early Monday morning, with my plan in motion, I asked myself again — how did this happen? Here is what I learned: 1. We had too many people on our payroll who weren’t producing to the level we had expected. 2. I was overly optimistic about our future and no one was willing to tell me. 3. Our team did a poor job of recognizing the peril and failed to make timely adjustments. 4. Larger than expected bills came in. 5. I did not have excess cash on hand due to an investment I had made earlier in the year that depleted our reserves. Those five elements were contributing factors. But I was the cause. If I had not taken my eye off the business’ cash flow, this could have been avoided. Although it is fair to say my operations, accounting and senior management team should have seen this coming and taken appropriate steps to avoid the crisis, I was ultimately responsible and to blame. INSURANCEJOURNAL.COM

‘Growth is awesome, tremendously fun and satisfying to the ego, but it should not replace adequate profitability.’ As I have reflected on this terrible time in my entrepreneurial career and shared it with others, I’ve realized that my experience is not unique. Many times, similar experiences have been fatal, and I was fortunate that we survived. I have learned that entrepreneurs are endlessly optimistic risk takers but the very things that make success possible can set us up for failure: 1. Optimism makes it difficult to hear contrary views of the future. When we don’t hear them, really hear them, it is easy to fail to prepare for potential reversals. 2. No one can do two things at once. Anyone can do multiple things in sequence. The trick as an entrepreneur with more than one business, or even business activity, is to keep your attention moving and fully focus on each thing frequently enough to fully understand what is happening and why. 3. Business failure is intensely personal.

Takeaways for Future Success

Fortunately, I survived this failure and lived to tell the story. What have I learned? 1. As the owner of the business, you can never take your eye off cash flow. Though it’s fine to trust people to watch it for you, you must challenge your team, and yourself, endlessly. Ask: Do we have the cash reserves we need to sustain any unexpected situations? 2. Growth is awesome, tremendously fun and satisfying to the ego, but it should not replace adequate profitability. Trying to expand in too many directions or too rapidly is risky and demands even larger cash reserves. Without adequate cash reserves, expansion into new products or businesses shouldn’t even be considered. 3. Growth and strong cash flow encourage sloppiness. At least it did for me. I failed to recognize a team that was too large

and riddled with underperformers. This is unacceptably poor management and can quickly lead to serious trouble. Consistent fiscal discipline is the key to long-term growth and success. Forget that at your peril. 4. Have a “plan B.” And a “plan C.” And a “plan D.” Like me, you’ll need all of them eventually. 5. Keeping a sharp eye on cash and operations through times of growth, as well as times of hardship is critical. It is the key to moving your business forward and avoiding failure. 6. If you’re going to be in business for yourself, grit is required. When the crap hits the fan, you alone must deal with it. Your employees can help, but you must provide the leadership. Sometimes that means making very difficult decisions. 7. Success isn’t permanently assured. Ever. Any business can fail at any time even at the height of its success. And the causes of failure are common and can be summarized as taking your eye off the ball. There are many things that can become the proximate cause of business failure and the entrepreneur must know what each of them is for his or her business, ceaselessly monitor them and adjust. Those six things are all important. In fact, they’re critical. But, the most important lesson I learned is that failure is part of life and a critical learning tool. And when I learn from failure, it changes its character and its power. It becomes transmuted into tuition for something else. My worth as a person shouldn’t be based on my business success or failure. I have both failed and enjoyed many successes. I have learned from both and I’ve survived. On balance I’d rather avoid failure if possible, but I have learned that what doesn’t kill you does indeed make you stronger and more capable. It also makes you humble. Caldwell is an author, speaker and mentor who has helped independent agents create over 250 independent agencies. Website: www.tonycaldwell.net. Email: tonyc@oneagentsalliance.net. MARCH 21, 2022 INSURANCE JOURNAL | 43

Idea Exchange: Minding Your Business Why Strategic Business Planning Works

strategic business plan is very important to make sure that the business is successful. So why is it that only 15% of small businesses actually have a plan? It may seem like a daunting task to write out the firm’s strategic business plan but after reading this article it will be understood why the firm has to have one. Strategic planning owes its development to the military. It is the science or art of long-range planning and directing large-scale operations. Tactics, on the other hand, relate to the specific use or deployment of resources to meet a shortterm objective. Too often business plans contain only tactics. An effective business plan should be based on a strategic plan. Strategic business plans are essential to By Catherine OakI proper agency man44 | INSURANCE JOURNAL | MARCH 21, 2022

agement and are now often necessary to receive “preferred” status with carriers. In today’s changing climate, to be a successful high-performing firm, an agency must have a strategic business plan.

Big Picture

An agency’s strategic direction is the big picture, or the vision, needed to guide the firm along the way. The best way to start the process is to create a mission statement. The agency’s mission statement is a clear and specific summary that describes the firm’s purpose. This exercise is a crucial first step to map out the direction of the firm’s future and assist in the planning process. The next step is to determine the current status of the agency. Owners and key employees need to look within the firm — a self-assessment of the agency and its resources including an inventory of strengths and weaknesses. This allows the planning team members to create meaningful and reachable goals using appropriate tactics.

Well-written strategic business plans capitalize on the strengths of the organization and strive to minimize or eliminate the weaknesses. The major weaknesses identified can be turned into opportunities for improvement. These opportunities then become the agency’s goals of the coming year.

What’s Important

So why is it important to go through all the steps to have a strategic business plan? Well, there are many reasons, but we are only going to touch on the ones that seem to be most important for an agency. The first reason to have a strategic business plan is that it helps managers set specific goals and objectives for the business. When the firm knows what the plan is and what the firm wants to accomplish over the next year or so it makes it easier for management to make sure these tasks are completed. Good management needs to set goals and objectives and they need to have a INSURANCEJOURNAL.COM

detailed plan to follow up on them. Bonuses can be attached to making goals and objectives by depart-

ment. Another reason why an agency needs to have a strategic business plan is to see how much the agency is worth. This is also called the valuation of the business. Once all the steps in a strategic business plan are done, the valuation of the business can be completed. This means that there will be a detailed plan of where the business is now and how much it is worth. Goals can then be set for the firm as to how much growth is wanted over the next year or so and how much the firm could potentially be worth once the goals are met. In order for the agency owner to be able to merge or sell a business, then the agency needs to have a strategic business plan and valuation. If a book of business is trying to be sold to another agency, the better the business plan the more the buyer is going to want to buy the book of INSURANCEJOURNAL.COM

business. If the buyer can see clearly how much the agency is worth the buyers are more likely to purchase this agency. Seek the help of a professional consultant, as well, to help in the valuation process and in creating a profile for buyers.

Growth

One of the last and most important reasons to have a strategic business plan is to grow the existing business. From the strategic business plan an owner would know where the business could grow over the next year or so. This process allows owners to focus on sales, acquiring new clients, and making sure existing clients are using the firm to its full potential. By doing these things the owners are making the most money in the most efficient and effortless way. Competition is keen. Expenses need to be well controlled. Market cycles continue to cause havoc and agency value is at stake. This annual planning process and self-assessment is the key to success. If

owners don’t know where they are going, how can one possibly plan for tomorrow and know how to get there? Agencies without a plan are totally reactive to their environment and have little control over their future. Firms that incorporate an annual planning process are more efficient, more profitable and highly valued businesses. Make a choice. Take the time to plan ahead and be successful. Or be at the mercy of the winds of change. Next month, Minding Your Business will outline specific steps to achieve a one-page business plan. 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. Phone: 707-935-6565. Email: catoak@ gmail.com. MARCH 21, 2022 INSURANCE JOURNAL | 45

My New Markets Contractor General Liability

Market Detail: Smart Choice Express Markets offers independent insurance agents access to broad portfolio of excess, surplus and specialty carriers for contractor general liability coverage. This market targets landscapers, general contractors, painters, roofers, handyman, electricians, plumbers, tree trimming and more. Where do you turn when standard markets fail? Every agent knows there are some risks standard carriers just won’t write. What if you had a place you could go for those out-of-the ordinary requests from your clients? Agencies pay no fees to participate in Express Markets, and earn 100% of their commissions, paid directly from the carriers. The online sign-up process is easy, fast, and has no production requirements. You receive guaranteed access to direct appointments with carriers who will help you place the business. Available Limits: As needed Carrier: Not disclosed States: All states except North Dakota, South Dakota and Wyoming. Contact: Rusty Perry at 336-217-4650 or email: rperry@smartchoiceagents.com

Competitive Product Recall Insurance

Market Detail: Breckenridge Insurance offers markets for product recall insurance. Product recalls are occurring on a regular basis making the need for coverage even more critical as a recall event can be debilitating to an insured’s balance sheet. At Breckenridge Insurance, we have ready-access to diverse carrier markets for your insureds product recall needs. Classes: Manufacturers; Parts; Ingredient Suppliers; Distributors; Co-Packers; Retailers; Wholesalers; Importers; Exporters; Bottlers; Assemblers; Lines of Business: Recall Costs (both insured and Third Party); Consultant Costs (Pre- and Post-Incidental). Endorsements Available: Replacement Costs; Loss of Gross Profit; Consequential Damages; Extra Expenses; Rehabilitation Expenses; Extortion Costs (Consumer and Consumable Product Recall); Adverse Publicity (Consumable Product Recall) Available Limits: As needed 46 | INSURANCE JOURNAL | MARCH 21, 2022

Carrier: Not disclosed States: All states Contact: Breckenridge Marketing at 855-

728-8822 or email: solved@breckis.com

Construction Managers

Market Detail: Hall & Company provides professional liability insurance to architects, engineers, land surveyors, construction managers, and environmental consultants. We currently provide professional liability insurance to over 4,000 design firms nationwide. We also offer a full array of business insurance products including a customized businessowner’s package that meets the property/casualty coverage needs of engineers and architects. Hall & Company also provides professional liability and E&O insurance to all types and sizes of design firms, including marine surveyors and design build/firms. Clients are design firms that range in size from one person firms to firms listed on the ENR 500. We work with a wide variety of insurance companies but also offer a number of PL and E&O insurance programs that are exclusive to Hall & Company and are not available through any other broker. Available Limits: As needed Carrier: Not disclosed, admitted and non-admitted States: All states Contact: Barbara Marty at 360-598-3700 or email: barbara.marty@assuredpartners. com

Local/Intermediate Trucking

Market Detail: Guardian Insurance

Wholesalers Inc. offers markets for motor truck cargo, physical damage, non-trucking liability, and general liability. New ventures with experienced drivers

are welcome. Seeking risks with 1-25 trucks, drivers must be 25 years old or older and have two years verifiable experience with a Class A CDL. Coverage can be written as a package or monoline. Competitive rates, quick turnaround. Fleet submissions are also welcome. Available Limits: As needed Carrier: Not disclosed, admitted and non-admitted States: All states except Alaska, District of Columbia, Hawaii, and New York. Contact: David Huff at 800-325-9059 or email: dlhuff@guardian-ins.com

KidGuard: Student Accident Insurance

Market Detail: KidGuard Insurance offers private schools and public school districts several unique solutions for protecting students with basic accident insurance coverage in the event of school-related injuries. KidGuard Insurance can also be offered on a voluntary student enrollment basis provided schools meet specified minimum enrollment requirements. Available Limits: $2 million max; 15,000 mimimum Carrier: Reliance Standard Life, rated A+ by AM Best States: Arkansas, Colorado, Florida, Illinois, Kentucky, Missouri, Ohio, and Virginia Contact: Lane Smith at 800-432-6915 or email: lanes@lesmith.net

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Idea Exchange: Small Business 4 Ways to Help Clients Get Smart About Insurance Shopping

he ongoing global pandemic has driven up costs across the board for small business owners — unpredictable shipping costs, stock By Dax Craig shortages and labor scarcities have created an environment of crushing uncertainty. According to a recent NFIB Small Business Jobs Report, 47% of small businesses experienced job openings that they were unable to fill. On top of this, healthcare costs are exploding for small businesses across the country, forcing many employers to cut benefits and shift a more significant share of the expenses to their employees. These sharply increasing business costs make it more critical than ever for small business owners to have an insurance agent they can trust to help protect their bottom line, ensure they understand their insurance needs, and shop around for the right insurance provider. The priority for you and small businesses should be finding an insurance carrier that deeply understands what a company does to ensure accurate coverage and cost savings.

Small businesses are the backbone of the US economy and deserve to be supported by their insurance companies. If your agency serves small businesses, there are several ways to support your clients, ultimately allowing them to save money, time, and resources they can put back into their organizations. Ensure your customers have the right type of insurance for their business. If companies don’t have insurance, or the correct type of insurance for their business, the financial, health and safety risks can be devastating. For example, without workers’ comp insurance, workers who have life-threatening accidents may not be able to pay for the healthcare they need, and employers open themselves up to enormous legal battles. The security of insurance — the right insurance — enables small businesses to take risks, grow and hire safely. Help your small business clients navigate the many types of insurance in order to determine what best meets the needs of their business. A very small business, like one operated by only one person out of their home, may not need workers’ compensation coverage, but it

often requires more property and liability insurance than is provided in a simple homeowners’ policy.

Shop around and explore options.

As you may know, shopping around can unlock significant savings on insurance and make a real impact on your clients’ bottom line. With workers’ comp insurance, for instance, there is a common misconception that insurance costs are fixed, but it’s actually variable and by shopping around you can unlock more affordable rates for your clients. We’ve found many small businesses overpay for workers’ comp by up to 30%, a difference that has an even greater impact today as small businesses navigate the challenges of COVID-19. One Pie customer, a New York-based outdoor contracting company’s previous insurer changed their business classification during their annual audit, hitting them with a $50,000 bill that threatened to end their business altogether. The company’s trusted insurance agent helped them shop around for a new provider, which brought them to Pie where the company was accurately classified, resulting in the savings they needed to continue operating and even grow their business. Whether your clients are in a similarly dire situation or simply curious about possible savings, you can add immense value simply by shopping around.

Take advantage of flexible billing.

Flexible payments have seemingly taken over how consumers make decisions on everyday purchases. These newer options have finally made their way to commercial insurance and are something you and your clients should consider taking advantage of. Often called pay-as-you-go, many companies now offer the opportunity for policyholders to pay for their insurance on an individual payroll cycle which can reduce upfront

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Idea Exchange: Small Business continued from page 47 costs, improve overall cash flow, and simplify the audit experience. Pay-as-yougo helps make the commercial insurance experience even more cost-effective and stress-free for small business owners.

‘A very small business, like one operated by only one person out of their home, may not need workers’ compensation coverage, but it often requires more property and liability insurance than is provided in a simple homeowners’ policy.’ Talk to your clients and understand their billing needs. Especially if your client has seasonal staff, paying based on their actual workers’ comp needs for that payroll cycle — rather than based on an estimate

made at the beginning of the policy period — could not only improve their cash flow, it could reduce the risk of a financial hit when their annual audit comes around. So, when shopping around for insurance, ask each carrier what flexible billing options are available to your clients.

Work with providers who put small businesses first.

Historically, small businesses have been underserved and neglected when it comes to finding commercial insurance. Small business premiums have typically been too small for traditional carriers to insure them. With the spread of digital technology and the adoption of data-driven pricing, modern-day insurtech companies are fully embracing the small business client, even solely focusing on their insurance needs. Through technology, intelligent and granular pricing and underwriting have greatly improved. Better pricing, coupled

with easy-to-navigate agent tools designed with speed in mind, means savings can be passed on instantly to your clients, and you can quickly bind policies for more of

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your clients than ever before. Do your research and partner with forward-looking, innovative carriers that not only care deeply about the small business customer but your efficiency as an agent as well. As uncertainty in the US economy continues, these are a few simple ways you can support small businesses and ultimately enhance your business, as well. Craig is co-founder and president of Pie Insurance.

Advertisers Index Applied Underwriters www.auw.com Foremost Insurance Group www.foremoststar.com Golden Bear Insurance www.goldenbear.com Great American Insurance Group www.gaig.com Guard Insurance Companies www.guard.com JM Wilson www.jmwilson.com Leavitt Group Enterprises, Inc. www.leavitt.com M.J. Hall & Company www.mjhallandcompany.com Midlands Management of Texas Inc. www.midlandsmgmt.com Omaha National Underwriters www.omahanational.com SIAA www.siaa.net Smart Choice Agents Program www.smartchoiceagents.com Texas Mutual www.texasmutual.com

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2, 3, 52 7 5 9 14,15 W2, S2, M2 12, 13 W3 SC2, SC3 N1 16, 17 18, 19 SC1

March 21, 2022

BlueShore Insurance Company 1720 W. Rio Salado Parkway Tempe, AZ 85281

LIO Insurance Company 300 Conshohocken State Road, Suite 235 Conshohocken, PA 19428

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

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

March 21, 2022

The Penn Insurance and Annuity Company 600 Dresher Road Horsham, PA 19044

Allstate North American Insurance Company 2775 Sanders Road Northbrook, IL 60062

The above company has made application to the Division of Insurance to amend their Foreign Company License to transact Variable Life or Variable Annuities in the Commonwealth of Massachusetts.

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

March 21, 2022

American Summit Insurance Company 325 N. St. Paul, Suite 900 Dallas, TX 75201

Jet Insurance Company 11440 Carmel Commons Blvd, Suite 207 Charlotte, NC 28226

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

MARCH 21, 2022 INSURANCE JOURNAL | 49

Closing Quote Why Continuous Improvement Requires Psychological Safety challenges that may not have been clear to their managers.

Psychological safety as a prerequisite to innovation.

By Al Mele

ontinuous improvement is a widely known quality management concept used by numerous organizations in the insurance industry. It’s an essential mindset for insurance companies who aim to continuously enhance their operations. In my work, it’s job No. 1. Through my work as a head of underwriting innovation, I have learned that continuous improvement can occur only if teams work in an environment of psychological safety. Psychological safety, a concept based on the work of Harvard Business School Professor Amy Edmondson, is “a belief that one will not be punished or humiliated for speaking up with ideas, questions, concerns or mistakes.” Put another way: Every employee faces a “fear hurdle” as they run the daily work race. Psychological safety can lower or eliminate it. Psychological safety is essential to organizations that value innovation and want to create a culture of continuous improvement. Dr. Edmondson’s research came to my attention at a point when I was frustrated with my inability to coach my teams into actively pointing out opportunities for improvement. My ambition was to empower people to give open, honest feedback about

Even with SCOR’s emphasis on agile work processes, we would go months living with inefficiencies that could have been resolved quickly if those issues had been brought into the open and freely discussed. After reading Dr. Edmondson’s book, “The Fearless Organization,” I realized the psychological safety to bring out these obstacles on our teams needed development. Team members feared they might be blamed for problems, worried that managers might take constructive feedback as personal criticism, and felt unsure if they had their leaders’ trust. This was a powerful revelation to me. Is this concept really important when the industry faces so many other challenges? Extremely, especially when you consider that insurance companies, like any industry where knowledge work is important, thrive when innovative ideas come from all levels. Leaders need to prioritize psychological

50 | INSURANCE JOURNAL | MARCH 21, 2022

safety explicitly if innovation is important to them. They can be either the greatest champion of psychological safety or its greatest impediment. “Permission to fail,” “permission to speak up” and “diversity” often come up when discussing psychological safety, how to achieve it and what outcomes may result by increasing it. The concept that failure may be acceptable in certain situations is a complex one, and part of establishing psychological safety is making sure everyone has the same expectations about where there is permission to fail and where there isn’t. Many insurance organizations value diversity. But a diverse workforce where employees don’t feel like they belong or can speak up won’t be able to fully realize the benefits of their diversity. Psychological safety helps create a foundation of belonging for all individuals in an organization.

What can an organization do to promote psychological safety?

Psychological safety doesn’t come from a single meeting

or a workshop. It requires a cultural shift in the way leaders empower others. At SCOR, beginning in 2019, leaders brought the elements of “The Fearless Organization” book forward for discussion as a concept and then implemented them in practice. One example of how psychological safety has made a difference in our business is an underwriting process that requires us to “rescore” business by running the past six months of activity through our technology platform to compare the reality of the business with the expectation created during underwriting. This rescore required manual interventions that took up to three days. It was inefficient, and it frustrated those running the process. Yet, our team didn’t feel empowered to openly discuss how tedious the manual interventions were. Once they got comfortable that it was OK to talk about this, we reduced the time for rescores to just four hours. Awareness of psychological safety has created a slow but steady virtuous cycle across the organization. Much of the change has come from evaluating managers on how they foster and participate in a culture of psychological safety and continuous improvement. This is vital to setting the stage for innovation and achieving meaningful organizational improvements. Mele is senior vice president of Underwriting Innovation for SCOR Global Life Americas, which reinsures $1.9 trillion of in-force life insurance as measured by death benefit amount. INSURANCEJOURNAL.COM

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