Insurance Journal West 2022-04-04 by Insurance Journal

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April 4, 2022 • Vol. 100 No. 6

Contents News & Markets

Special Report

Insurers Urged to Stress Test Cyber Portfolios for Russian Attack Potential

Spotlight: CMS Rules on Settlement Reporting May Sting Insurers and Claimants Both

8 9

25 28

Will Companies Exiting Russia Be Able to Recoup Losses With Insurance?

Special Report: Employers Adapting to New World of Worries

The Remaking of Verisk as an Insurance-Focused Firm Underway

14 Congress Approves Cyber Attack Reporting Requirement

15 Drop in Cargo Thefts Follows Spike

Spotlight: Drones in Agriculture and More

Closer Look: How Talent Chiefs Led Through the Pandemic

During Pandemic Lockdowns

Idea Exchange

Why Political Risk Coverage Is Needed Now

Is It Covered?: What Is a Pedestrian?

Ask the Insurance Recruiter: 10 Questions to Ask When Conducting a Reference Check

Russian Invasion of Ukraine, Cyberattacks and War Exclusions in P/C Policies

Closing Quote: How AI Can Help Agents, Brokers and Insurers Build Empathy

Tesla, Other Car Makers Have Edge Over Incumbent Auto Insurers

Judge Reinstates Trump Independent Contractor Rule Withdrawn by Biden

Consumer Group Demands Probe After New York Times Reports on Alleged Bias at State Farm

Aviation Re/insurers Face Claims as High as $10B From Planes Grounded in Russia

Departments

6 Opening Note

4 | INSURANCE JOURNAL | APRIL 4, 2022

10 Figures

11 Declarations

18 People

21 Business Moves

27 My New Markets

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Opening Note Write the Editor: awells@insurancejournal.com

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

ADMINISTRATION / CIRCULATION

Toxic Culture

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

any of today’s employees are enjoying the continued perks of remote and hybrid work. And while some employers are gearing up to cutback on remote work, they may want to reconsider. Not only does remote and hybrid work give employees greater flexibility and save money on office space, it could also help to reduce toxic work behaviors such as bullying, racism and sexual harassment. That’s according to a recent study by Capterra, which showed that a significant number of HR leaders (70%) at organizations that transitioned to hybrid or remote work saw fewer complaints of toxic behavior after the shift, and felt their culture became less toxic overall. The number of HR leaders calling their culture “somewhat” or “extremely” toxic also dropped by nearly half after the shift (47%). Capterra found that employees agreed with that assessment, as well. The survey found that 38% of employees who have transitioned to hybrid/remote work have noticed less toxic workplace behavior compared to before the transition. Only 13% have noticed more toxic behavior. Capterra also found that fully remote businesses benefited the most from this shift, with 74% of HR leaders at remote businesses reporting receiving fewer complaints, compared to 65% of hybrid businesses. Corporate culture is important for any business and in today’s highly competitive insurance talent market that’s something agency owners should consider. In a 2019 study, SHRM found that one in five U.S. workers had left a job in the previous five years because of a toxic work environment, bleeding those organizations of an estimated $223 billion in turnover costs. In addition to the cost of attrition, the employees that stick around in a toxic environment are notably less productive. Another recent study by MIT Sloan Management Review found that toxic cultures are a leading cause of The Great Resignation. More than 40% of all employees were thinking about leaving their jobs at the beginning of 2021, and as the year went on, workers quit in unprecedented numbers. Between April and September 2021, more than 24 million American employees left their jobs, an all-time record. The report found that a toxic workplace culture is 10.4 times more likely to contribute to an employee quitting. The analysis identified three elements of a toxic culture: • Failure to promote diversity, equity and inclusion; • Workers feeling disrespected; and • Unethical behavior.

‘HR leaders at organizations who transitioned to hybrid or remote work saw fewer complaints of toxic behavior after the shift.’

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: Ilya Filipov, Kevin McPoyle, Amy O’Connor, Jim Sams, Susanne Sclafane, Alan Suderman, Eric Tucker, Vincent Vitkowsky Columnists: Mary Newgard, Bill Wilson

SALES / MARKETING

Chief Marketing Officer Julie Tinney | jtinney@insurancejournal.com West Sales Dena Kaplan | dkaplan@insurancejournal.com Romeo Valdez | rvaldez@insurancejournal.com Kelly DeLaMora | kdelamora@wellsmedia.com South Central Sales Mindy Trammell | mtrammell@insurancejournal.com Southeast and East Sales (except for NY, PA, CT) Howard Simkin | hsimkin@insurancejournal.com Midwest Sales Lisa Whalen | (800) 897-9965 x180 East Sales (NY, PA and CT only) Dave Molchan | (800) 897-9965 x145 Advertising Coordinator Erin Burns | eburns@insurancejournal.com Insurance Markets Manager Kristine Honey | khoney@insurancejournal.com 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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At a time when talent is perhaps more valuable than ever, should managers consider letting employees work from home to help make a company’s culture less toxic? Perhaps. What do you think?

Andrea Wells Editor-in-Chief 6 | INSURANCE JOURNAL | APRIL 4, 2022

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News & Markets Insurers Urged to Stress Test Cyber Portfolios for Russian Attack Potential

By Chad Hemenway

yber risk and analytics firm CyberCube said it has seen cyber attacks on Ukrainian government services, infrastructure and other industries, and it urges the insurance industry to reevaluate exposures. Russia’s invasion of Ukraine “will undoubtedly push the boundaries of acceptable behavior in cyberspace,” said William Altman, CyberCube’s principal cybersecurity consultant, in a statement. “What’s worrying is that the cyber elements of this conflict could escalate quickly,” Altman continued. “We have the potential for unprecedented cyber-physical impacts, including attacks on critical infrastructure.” The firm said in a new report, “War in 8 | INSURANCE JOURNAL | APRIL 4, 2022

Ukraine creates fundamental shift in the cyber threat landscape,” that it recommends insurers and reinsurers — especially those with books of business in Eastern Europe — to stress test portfolios because as the conflict progresses, potential cyber attack scenarios become more serious. These include, according to CyberCube, attacks on offshore oil rigs, utilities, mobile phone networks, hospitals, airlines, the banking system, and widespread use of wiper malware intended to erase data from the hard drives it infects. CyberCube said attacks such as wiper malware, denial-of-service attacks, and misinformation campaigns are already happening to Ukraine and Russia, with some spillover into neighboring countries. Companies in countries such as the U.S., U.K., Japan, and European Union, which

have imposed sanctions on Russia, are at risk of retaliatory attacks, CyberCube said. “The risk of a cyber disaster impacting (re)insurers’ portfolios is higher as a result of Russia’s intent, opportunity, and capability to compromise [single-point-offailure] targets that give them widespread and unfettered access to critical computer networks and data,” added Darren Thomson, head of cybersecurity strategy at CyberCube. “Hacktivist coalitions and cyber criminals are taking sides, with prolific groups pledging services to aid the Russian government’s war machine.” Ukraine and Russia have each “openly recruited a global volunteer cyber force” to help attack each other’s networks and IT systems. CyberCube counts 22 cyber threat-actor groups assisting Ukraine and nine doing the same for Russia. INSURANCEJOURNAL.COM

News & Markets Will Companies Exiting Russia Be Able to Recoup Losses With Insurance? By Tom Hals

undreds of companies have said they are withdrawing or suspending operations in Russia after its invasion of Ukraine, from energy producer Shell Plc to carmaker Hyundai Motor Co. to PwC, a global professional services firm. The following is a look at how insurance and international arbitration might soften the blow to those companies, which stand to lose billions of dollars:

Does Standard Insurance Provide Coverage?

No, but companies can purchase political risk as an add-on to trade credit, property and aviation insurance. It covers government seizures of property and forced abandonment, cancellations of government licenses for operations such as mines, and the inability to convert foreign currency. The insurance typically covers long-term energy or infrastructure projects, but can be purchased by other types of businesses. Policies are confidential, insurance experts said, and disputes are resolved in private arbitration. Berne Union, a trade association representing political risk insurers, estimated that $1 billion in new political risk insurance was written in Russia in 2020, its most recent data. Much of the insurance is written by non-commercial agencies such as the Overseas Private Investment Corp. of the United States and the Multilateral Investment Guarantee Agency, part of the World Bank. INSURANCEJOURNAL.COM

Will Companies Leaving Russia Have Claims?

Companies that leave and abandon their business without any action taken by the Russia government to seize control of their assets will have a tough time collecting insurance, according to legal experts. “You see companies saying, ‘We’re leaving because we support Ukraine.’ The question is then whether the policy covers a voluntary departure,” said Micah Skidmore of the law firm Haynes and Boone. Insurers are most likely to pay claims for revenues earned in Russian rubles that are no longer convertible to foreign currency, said legal experts.

‘You see companies saying, ‘We’re leaving because we support Ukraine.’ The question is then whether the policy covers a voluntary departure.’ What Might Help Companies Recoup Their Losses?

Russia could take actions that would support claims that assets are being seized. Russia’s President Vladimir Putin has signed into law a measure that allows the country to place planes leased from foreign companies on Russia’s aircraft register. Air Lease Corp. said the Russian law demonstrates Moscow’s intent to confiscate planes and the company expected the move to help the company

collect on its insurance. Sanctions gave the aircraft leasing industry until March 28 to sever ties with Russian airlines. If more than 400 jets in Russia are not repossessed, the industry stands to lose almost $10 billion. Russia’s ruling United Russia party said in early March it is considering a proposal to nationalize foreign-owned firms that leave the country. If enacted, this measure could also support claims for insurance.

Are There Other Avenues for Compensation?

A company can look to trade agreements signed by Russia that provide for arbitration when government actions damage

foreign investment. The Steptoe & Johnson law firm said in a note to clients that classic international arbitration claims include failure to protect intellectual property rights, refusal to release aircraft and expropriation of assets. At least nine companies from Ukraine used trade agreements to seek billions through arbitration from Russia after Moscow annexed the Crimea region of Ukraine in 2014. However, the international arbitration process can take years and Russia does not voluntarily pay awards, according to legal experts. Franz Sedelmayer, whose German security equipment business was expropriated by Russia in 1996, won a $2.3 million arbitration award in 1998 but spent more than a decade fighting in numerous courts trying to collect the money. A company would not be able to collect on both insurance and arbitration.

Figures

$107 MILLION

The amount Rhode Island reached in a settlement with the drugmakers Teva Pharmaceutical Industries and AbbVie’s Allergan unit to resolve claims over their roles in fueling an opioid epidemic in the state. Attorney General Peter Neronha said the settlements include $28.5 million in cash, plus the delivery to Rhode Island of anti-overdose treatments — 1 million Naloxone sprays and 67,000 bottles of Suboxone pills — over 10 years.

$11.6 Billion The amount that Warren Buffett’s Berkshire Hathaway said it reached in an agreement with Alleghany Corp. to buy the New Yorkbased property/casualty insurer. Omaha, Nebraska-based Berkshire will acquire all outstanding Alleghany shares for $848.02 per share in cash in a transaction unanimously approved by both boards of directors. Berkshire said the acquisition price represents a multiple of 1.26 times Alleghany’s book value at Dec. 31, 2021.

$3.8 Million

That’s how much the Los Angeles County Board of Supervisors agreed to pay to the family of a man who died after a sheriff’s deputy shocked him with stun gun seven years ago. Relatives of Brian Pickett alleged in a lawsuit that deputies used excessive force during the 2015 incident.

10 | INSURANCE JOURNAL | APRIL 4, 2022

-$166 Million/ $81 Million The first number is Citizens Property Insurance Corp.’s underwriting losses for 2021. The second is the state-run insurer’s net income for the year. The black ink, rare in Florida’s property insurance market these days, was the result of investment income from more than $6 billion in surplus that Citizens holds. Citizens’ surplus is much larger than most other Florida property insurers, three of which posted net income losses of more than $100 million for 2021, according to financial reports compiled for Citizens’ quarterly board meeting in March.

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Declarations Greater Consensus

Bee Sting Immunity

Wind and Waves

“With this agreement in place, we have even greater consensus as we progress toward confirmation.” — The Scouts said in a statement regarding a settlement with members of a committee representing 10 Catholic dioceses and archdioceses, and the Catholic Mutual Relief Society of America, under which virtually every Roman Catholic entity nationwide involved with Scouting would be considered a “participating chartered organization” in the BSA bankruptcy. It would release them from liability for Scouting-related child sex abuse claims from 1976 to the present, and for all pre-1976 claims subject to coverage by insurance companies that reached their own bankruptcy settlements. They also would be granted 12 months to negotiate financial contributions to a settlement fund for abuse victims in exchange for a full release from liability for all Scouting-related abuse claims.

“We visited with industry insurance carriers, and they confirmed they’ve seen lawsuits on such natural situations as bee stings and mosquito bites.” — Mary Arlington, executive director of the South Dakota Campground Owners Association, testified in favor of a bill, headed for the governor’s desk, that provides immunity for campground owners whose guests encounter the inherent risks of outdoor camping. Both chambers of the South Dakota Legislature approved the bill that cuts the risk of lawsuits for campground owners who say they’ve been sued for acts of nature beyond their control. The owners say the coronavirus pandemic and the South Dakota’s open invitation to visit have resulted in an influx of novice campers who don’t understand the unpredictability of nature.

“Hurricane Dorian really got my freaking attention.” — Professor Richard Olson, director of the Extreme Events Institute and hurricane research at Florida International University in Miami, said about Hurricane Dorian. The attention-grabbing storm, with extreme winds, hit the Bahamas in 2019, just miles from crowded South Florida. It became part of the impetus behind a plan to build a stadium-size facility that could test buildings and materials against 200-mph winds, storm surges and waves. FIU will lead the research for the facility, thanks to a $13 million grant from the National Science Foundation.

Under Review

California Bill

Safety in Youth Sports

“I don’t like how we got here, but we’re here.” — Louisiana State Police Col. Lamar Davis told a legislative oversight committee the department is undergoing an outside review to help restore public trust following a string of high-profile beatings of Black motorists. The $1.5 million review comes amid federal grand jury investigations into the beatings, including the deadly 2019 arrest of Ronald Greene. The outside review will proceed whether or not the U.S. Justice Department conducts a “pattern and practice’’ investigation of potential racial profiling by the overwhelmingly white male force, Davis said.

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“It is absolutely bonkers that Commissioner Ricardo Lara attempted to auto-delete all Department of Insurance emails while simultaneously fighting in court to subvert the California Public Records Act.” — California state lawmaker Marc Levine explained the need for his bill, which an Assembly committee unanimously approved in late March, designed to improve transparency from the commissioner and the California Department of Insurance.

“We need to make sure that in our passion for protecting our youth, that we get experts to look at the issues and to come up with sound, appropriate ways of protecting athletes.” — Sen. Saud Anwar, a South Windsor physician and Democrat, said at a Connecticut legislative committee hearing, which approved a bill calling for a study of youth sports safety including the use of hockey neck guards, in response to the death of a 10th grade hockey player. Benjamin Edward “Teddy” Balkind, 16, died after his neck was accidentally cut by a skate during a Jan. 6 hockey game. The bill would create a task force that would study safety protocols and injury prevention measures. APRIL 4, 2022 INSURANCE JOURNAL | 11

News & Markets

The Remaking of Verisk

as an Insurance-Focused Firm (Again) Is Underway By Andrew G. Simpson

nformation services firm Verisk has said it has taken steps that align with one investor’s call for the firm to commit to being a standalone insurance-focused business. Verisk recently promised several additional changes and publicly committed to a “pure-play” insurance path after the private equity firm D.E. Shaw said the previous steps were not enough to reverse what it says is a “longstanding pattern of underperformance.” “If Verisk is to reach its full potential and generate significant value for all of its shareholders, further change is necessary,” D.E. Shaw said in a March 17 letter to members of the Verisk board. “We believe that with the right set of changes, including an unequivocal commitment to positioning the company as a standalone insurance-focused business, a commitment to organic growth acceleration and profit margin expansion

within that business, and credible board oversight, Verisk’s stock price could appreciate by over 70%, which would equate to more than $20 billion of value creation for shareholders,” D.E. Shaw wrote. Responding to D.E. Shaw, Verisk, which has subsidiaries in the insurance, financial services, real estate and energy sectors, noted that it sold its financial services business (for $515 million to TransUnion) and separated the role of chairman and CEO. Verisk also has agreed to sell its 3E business, a part of its energy and specialized markets segment, for $950 million. “These actions are contributing to significant progress in the company’s ongoing efforts to generate strong performance for shareholders, deliver mission-critical solutions to customers, and position the company for sustainable growth and success,” Verisk said.

Jeffrey Dailey, an insurance industry veteran who currently serves as chief executive officer of Farmers Group Inc.; Wendy Lane, a member of the Willis Towers Watson board of directors and a former director at MSCI and Corelogic; and Kimberly S. Stevenson, a senior operating executive with expertise in technology, finance and digital innovation, and an experienced independent board member at publicly traded technology companies. In February, Verisk also acted on an investor recommendation in announcing that Scott G. Stephenson, chairman, president and CEO, will be retiring. Stephenson will be succeeded as CEO by Lee M. Shavel, who is currently chief financial officer and group president. At the same time, Mark V. Anquillare, currently chief operating officer and group president, will become president of Verisk.

New Verisk Board Members

‘As it continues its ongoing and comprehensive bottom-up review of Verisk’s non-insurance businesses and overall portfolio composition, the company has determined that moving towards being a global insurance-focused data analytics solutions provider represents the optimal path towards enhancing shareholder value.’

Verisk’s newly-nominated directors are:

In late March, Verisk stepped up its response, agreeing that becoming an insurance-focused data analytics firm is the best route and vowing to develop a plan to divest its remaining energy sector holdings by September. The firm has indicated this energy 12 | INSURANCE JOURNAL | APRIL 4, 2022

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sector repositioning might include creation of a stand-alone public entity. “As it continues its ongoing and comprehensive bottom-up review of Verisk’s non-insurance businesses and overall portfolio composition, the company has determined that moving towards being a global insurance-focused data analytics solutions provider represents the optimal path towards enhancing shareholder value,” Verisk said in a statement.

Underperformance

D.E. Shaw’s analysis shows Verisk’s organic revenue growth has missed the 7%-8% benchmark in each of the last six years. Also, over the same period, Verisk shareholders have experienced profit

Verisk’s insurance business.

Intelligence Ireland, Emergent Network Intelligence and 4C Solutions.

Ongoing Review

Verisk said it is continuing an “ongoing and comprehensive bottom-up review of Verisk’s non-insurance businesses and overall portfolio composition.” It also committed to achieving margin expansion through “sustainable cost efficiencies” that reflect the focus on insurance and it nominated three new independent directors to its board.

Back to Its Roots

In remaking itself as an insurance-oriented organization, Verisk is going back to its roots in a way. Verisk was established to serve as the parent holding company

2021 Results

For the full year 2021, Verisk reported consolidated revenue growth of 7.7% and adjusted EBITDA growth of 6.8%. That quarter saw the impact of acquisitions including Jornaya, Data Driven Safety, Roskill and Whitespace. On an organic basis, Verisk grew revenue 5% and adjusted EBITDA 4.7%. In its insurance business, it reported 6.9% organic revenue growth and 6.5% adjusted EBITDA growth. The company said it “experienced exceptional new sales growth across the broad range” of insurance products including underwriting,

Scott G. Stephenson

Lee M. Shavel

Mark V. Anquillare

margin declines while information services peers with similar business models expanded margins by well over 100 basis points annually. The private equity firm said Verisk has acquired several non-core businesses that have distracted management and diluted the quality of Verisk’s insurance assets. It cites the example of Verisk’s Wood Mackenzie acquisition, which it says has generated only a 4% return on invested capital. Wood Mackenzie is a data analytics firm for the energy, chemicals, metals and mining sectors. D.E. Shaw previously said that Verisk had agreed to many of its recommendations privately, including to committing to becoming a “pure-play insurance business” through separation of all non-insurance assets; however it believes the most important changes had not been pursued. These other changes included forming an operations review committee to pursue a “no stone unturned” review of

of Insurance Services Office Inc. upon the completion of the initial public offering in 2009. ISO was formed in 1971 as an advisory and rating organization for the property/ casualty insurance industry to provide statistical and actuarial services, develop insurance programs, and assist insurance companies in meeting state regulatory requirements. Verisk remains a leading provider of statistical, actuarial and underwriting data for the U.S. property/casualty insurance industry. However, over the past decade, Verisk has entered a number of new markets, placed a greater emphasis on analytics, and pursued acquisitions. Its acquisitions have included Data Driven Safety, ACTINEO, Jornaya, Franco Signor, FAST, BuildFax, Genscape and Keystone Aerial Surveys, Rulebook, PowerAdvocate, Sequel, LCI, Fintellix, G2 , Greentech Media, Validus-IVC, MAKE, MarketStance, Arium, Healix Risk Rating, The GeoInformation Group, Analyze Re, Risk

claims, extreme events and international software, and strong uptake for new insurtechs. Discussing 2021 insurance results, CEO Stephenson said Verisk has been seeing see strong demand for its ESG-related services for corporate customers, including its country, climate and human rights data and analytics solutions. It grew its statistical agent database to support ratemaking, expanded its library of real-time images of damaged property in autos for claims settlement; expanded its data use rights for automated underwriting, analytics and subrogation; and experienced exponential growth in its small business database, “which should fuel future opportunities across the small business lines of Insurance.” Anquillare said on the year-end analyst call that Verisk enjoys a “great nurturing type of relationship” with insurtechs and that they have helped bolster new sales and growth.

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APRIL 4, 2022 INSURANCE JOURNAL | 13

News & Markets Congress Approves Cyber Attack Reporting Requirement for U.S. Companies By Eric Tucker and Alan Suderman

ompanies critical to U.S. national interests will now have to report when they’re hacked or they pay ransomware, according to new rules approved by Congress. The rules are part of a broader effort by the Biden administration and Congress to shore up the nation’s cyber defenses after a series of high-profile digital espionage campaigns and disruptive ransomware attacks. The reporting will give the federal government much greater visibility into hacking efforts that target private companies, which often have skipped going to the FBI or other agencies for help. “It’s clear we must take bold action to improve our online defenses,” said Sen. Gary Peters, Sen. Gary Peters (D-Michigan) a Michigan Democrat who leads the Senate Homeland Security and Government Affairs Committee and wrote the legislation. The reporting requirement legislation was approved by the House and the Senate and is expected to be signed into law by President Joe Biden. It requires any entity considered part of the nation’s

critical infrastructure, which includes the finance, transportation and energy sectors, to report any “substantial cyber incident” to the government within three days and any ransomware payment made within 24 hours. Ransomware attacks, in which criminals hack targets and hold their data hostage through encryption until ransoms have been paid, have flourished in recent years. Attacks last year on the world’s largest meat-packing company and the biggest U.S. fuel pipeline — which led to days of gas station shortages on the East Coast — have underscored how gangs of extortionist hackers can disrupt the economy, and put lives and livelihoods at risk. State hackers from Russia and China have had continued success hacking into and spying on U.S. targets, including critical infrastructure targets. The most notable was Russia’s SolarWinds cyberespionage campaign, which was discovered at the end of 2020. Experts and government officials worry that Russia’s war in Ukraine has increased the threat of cyberattacks against U.S. targets, by either state or proxy actors. Many ransomware operators live and work in Russia. “As our nation rightly supports Ukraine during Russia’s illegal unjustifiable assault, I am concerned the threat of Russian cyber and ransomware attacks against U.S. critical infrastructure will increase,” said Sen.

Rob Portman, a Republican from Ohio. The legislation designates the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency as the lead agency to receive notices of hacks and ransomware payments. That caused concern at the FBI, which had openly campaigned for tweaks to the bill in an unusually public disagreement over legislation endorsed overall by the White House.

‘It’s clear we must take bold action to improve our online defenses.’ “We want one call to be a call to us all,” FBI Director Christopher Wray said at a cyber event at the University of Kansas. “What’s needed is not a whole bunch of different reporting but real-time access by all the people who need to have it to the same report. So that’s what we’re talking about — not multiple reporting chains but multiple access, multiple contemporaneous action, to the information.” The FBI also expressed concern that liability protections that would cover companies that report a breach to CISA would not extend to reporting a breach to the FBI, an issue the bureau believes could unnecessarily complicate law enforcement efforts to respond to hacks and to aid victims. Lawmakers who helped write the bill pushed back against the FBI, saying the bureau’s concerns about being notified of hacks and liability concerns were adequately addressed in the bill's final version. The new rules also empower CISA to subpoena companies that fail to report hacks or ransomware payments, and those that fail to comply with a subpoena could be referred to the Justice Department for investigation.

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Drop in Cargo Thefts Follows Spike During Pandemic Lockdowns

rash of railcar thefts in the Los Angeles area may have given a different impression, but nationally the number of reported cargo thefts dropped by 15% in 2021 compared to the prior year, according to CargoNet’s annual Supply Chain Risk Trends report. The company, a division of Verisk, tracked 1,285 cargo thefts in the United States and Canada last year with reported losses of $57.9 million. That was down from 1,517 thefts and $66 million in losses in 2020. Images of empty boxes pilfered from rail cars and strewn across railroad tracks received national attention in February. Union Pacific reported that rail thefts increased 160% in Los Angeles County in 2021 compared to the previous year. But Keith Lewis, director of operations for CargoNet, said it is impossible to say how much that widely reported crime spree contributed to overall cargo theft numbers. He said the railroads have their own police departments and don’t always report thefts to law enforcement. The number of reported cargo thefts in California, however, did show an uptick: 276 thefts in 2021 compared to 244 in 2020. The CargoNet report shows that electronic goods were taken in 99 of those thefts. INSURANCEJOURNAL.COM

No other state or province had anywhere near that number. Texas and Florida were the next highest, with 12 electronics cargo thefts each, according to the CargoNet report. Electronics was the favorite target of cargo thieves last year, accounting for 180 of the 1,285 thefts in the U.S. and Canada. Household goods were the No. 1 target in 2020, with 202 reported cargo thefts. That dropped to 171 in 2021. The food and beverage category accounted for 125 cargo thefts in 2021, down from 194 in the prior year. The CargoNet report shows one form of cargo theft declined sharply in 2021: The number of fictitious pickups — where a fraudster posing as a legitimate truck driver makes arrangements with a brokerage to pick up a load — dropped to 16 from 62 in 2020 and 36 in 2019. Lewis said the COVID-19 pandemic likely contributed to the jump in fictitious pickups in 2020. He said the brokerages that match trucking companies with businesses that need to move freight don’t typically do a lot of screening because they have to move cargo fast. He said there was even less scrutiny during the 2020 lockdowns. “Everybody’s working from home so

the boss isn’t looking over your shoulder asking what are you doing,” he said. Lewis said brokerages have learned that they shouldn’t assign a load of cargo to anybody who calls in with a Department of Transportation number, but mistakes still happen. He said he’s not sure fictitious pickups are always reported. “They are getting better at vetting and when they do get hit they are embarrassed and don’t want to tell anybody,” he said. They suck it up and move on.” Security appears to be a greater concern throughout the supply chain. Steve Diebold, export manager for American Casting and Manufacturing Corp., said in an email that there is a movement away from plastic and lighter stamped metal seals among shippers, especially those that are moving hazardous cargo, food and high-value goods. “The users are just trying to replace something easily broken with a stronger seal that would force a would-be thief to bring bigger tools or pass by their truck or container because it is harder to open,” Diebold said. “Easier targets with less to cut are the most likely to be hit by thieves. Essentially that stronger ‘barrier’ seal becomes a one-time disposable lock and a visible theft deterrent.” APRIL 4, 2022 INSURANCE JOURNAL | 15

News & Markets Tesla, Other Car Makers Have Edge Over Incumbent Auto Insurers: Moody’s

By Susanne Sclafane

esla and other car makers represent a growing threat to incumbent auto insurers, even though they have little direct impact on the insurance market today, Moody’s Investors Services said. In a report titled, “Tesla’s insurance

16 | INSURANCE JOURNAL | APRIL 4, 2022

venture puts incumbents under added pressure to innovate,” Moody’s reviews the competitive advantages of Tesla’s insurance business — mainly, the advantage of having data generated by Tesla cars that can monitor driver behavior. With the data, Tesla has the ability to offer substantial premium savings to safe

drivers. In addition, Tesla likely has much lower operating expenses than traditional insurers, who incur costs of 20%-30% of premiums for marketing and claims handling, Moody’s analysts noted in the report. In-car cameras and sensors can detect accident causes, lowering claims handling costs. Furthermore, Tesla’s established relationships with customers cut market expenses, the report said. Tesla’s ability to estimate collision frequency with a high degree of accuracy translates into savings for drivers ranging between 20% to 40% vs. traditional insurers — and 30% to 60% for the safest drivers, Moody’s added. Although the report doesn’t offer any attribution for the discount percentages, Tesla does make the same statement on its website. The Moody’s report also offers an illustration of how Tesla calculates a monthly “safety score,” which is a key factor in calculating premiums — and savings. The “safety score” calculation, also described INSURANCEJOURNAL.COM

on Tesla’s website, considers forward collision warnings per 1,000 miles, hard braking, aggressive turning, unsafe following time and forced Autopilot disengagement (a measure of inattentiveness when using Tesla’s Autopilot advanced driver assistance system). During a third-quarter earnings conference call last year, Tesla’s Chief Financial Officer Zach Kirkhorn told analysts and investors that the “safety score” was actually a feature for Tesla’s Full-Service Driving beta enrollment program, and that 150,000 cars were using a “safety score” at the time of the call. Adding that Tesla had analyzed 100 million miles of driving data, Kirkhorn said the probability of a collision for a customer using a safety score is 30% lower than one not using the safety score. “It means that the product is working and customers are responding to it,” he said. The CFO also said the predicted collision frequency in the safety score lines up well with actual driving Tesla data. “Most notably, if you’re in the top tier of safety compared to lower tiers, there’s multiple X difference in probability of collision based upon actual data.”

Google Not A Threat; Car Makers Are

The Moody’s report notes that Tesla doesn’t pose a direct threat to incumbent auto insurers today because Tesla insurance is only available for Tesla cars. But

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demand for battery-power electric vehicles is taking off, a graph in the report shows. If other smart EV makers join Tesla in entering the insurance business, incumbents could face serious competitive risks. Even though factors like a high capital burden and thin underwriting margins have kept other “data-rich tech groups,” like Amazon and Google, out of the insurance business, car makers have already dipped their toes in insurance waters — with captives offering car finance and warranties, making auto insurance a next logical step.

‘Tesla’s ability to estimate collision frequency with a high degree of accuracy translates into savings for drivers ranging between 20% to 40% vs. traditional insurers — and 30% to 60% for the safest drivers.’ If they do not move into auto insurance

markets, the car makers have control over the driving data — putting them in the driver’s seat to partner with incumbents who would have to fork over some profits to access data and customers, the Moody’s report said. The report goes on to list various reasons why other EV makers might want to jump into the insurance game, putting them at the center of connected car digital ecosystems, while outlining factors why these car manufacturers might stay away from insurance (accumulation risk in the event of a cyber attack, for instance). Whether car makers dive into auto insurance, emerging trends point in the direction of increased take-up of connected cars, which will force incumbents to innovate, the report said. Business model innovation for traditional insurers could involve moves in the direction of risk prevention rather than risk transfer, and even more radical ones — like acquiring a smart car maker to gain continued access to customers and driving data, the report concluded. Sclafane is executive editor of Carrier Management, a publication of Wells Media Group serving property/ casualty insurance carrier executives. She is a media professional with deep background in the P/C insurance industry including 25 years as editor and reporter for trade magazines, online news services, digital journals. Her prior experience includes 14 years as a casualty actuary.

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People National

Berkshire Hathaway Specialty Insurance (BHSI) announced Sanjay Godhwani

has been named president, North America region, and David Bresnahan is taking on the role of global chief operating officer. Godhwani is responsible for all North America region underwriting and underwriting support groups, customer and broker engagement, and BHSI’s global catastrophe engineering and analytics group. He has more than 25 years of industry experience and is a fellow of the Casualty Actuarial Society. Godhwani continues to be based in Boston. Bresnahan has more than three decades of insurance industry experience. In his new role he oversees real estate and administration, finance, audit, information technology and operations throughout BHSI’s global platform. He continues to be based in Boston. BHSI provides commercial property/casualty, healthcare professional liability, executive and professional lines, transactional liability, surety, marine, travel, programs, accident and health, medical stop loss, homeowners, and multinational insurance.

The Big “I” reported that Madelyn Flannagan, vice president of agent development, education and research, retired on March 31. Flannagan dedicated her 26-year career to providing data and research to the insurance industry and

independent agents, leading education and advocacy programs, and serving the independent agency channel in general. During her tenure, Flannagan led the association’s advocacy programs for education, Best Practices, technology, diversity and inclusion, talent recruitment, development and young agents, as well as the Trusted Choice Disaster Relief Fund and the Trusted Choice COVID-19 Relief Fund. Her research of ongoing industry trends included the biennial Agency Universe Study, a comprehensive picture of the independent agency system, as well as the annual Market Share Report and other studies with various carrier partners. Flannagan was an independent insurance agent for 15 years before joining the Big “I” in 1995.

Aon named Mike Merlo as claims leader for U.S. and Bermuda. In his new role, Merlo will work with the firm’s claims leaders across all product lines. He also will be a primary contact for chief claims officers at insurers in the U.S. and Bermuda to support clients on difficult claims. Merlo has worked at Aon for 18 years. He most recently was part of the firm’s U.S. national casualty coverage advocacy and claims resolution practice, working with clients on complex claims. He will report to both Neil Harrison, Aon’s global chief claims officer, and Joe Peiser, head of commercial risk, North America.

18 | INSURANCE JOURNAL | APRIL 4, 2022

Midwest

POWERS Insurance & Risk Management hired Kelly McDowell as

a producer and Kaylee Rucker as an administrative Kelly McDowell assistant. McDowell will handle new and existing accounts, as well as provide Kaylee Rucker excellent customer service and communication with her clients. She has more than 10 years of insurance industry experience. Prior to joining the company, McDowell served as a licensed sales professional for local insurance agencies. Rucker will provide administrative and clerical support for the insurance agency. She previously worked at various customer support-related businesses. Based in St. Louis, Missouri, POWERS Insurance & Risk Management provides personal and business insurance, surety, and risk management.

SECURA Insurance

named Sarah Krause as vice president - human resources. Krause returns to SECURA from Sarah Krause Integrity Insurance Co., where most recently she served as assistant

vice president enterprise transformation operations, leading the selection and execution of new strategic partnerships to co-create solutions that would accelerate business transformation. Prior to this, Krause was assistant vice president, talent management and operations, with responsibility for all functions of human resources, facilities and support services. SECURA, headquartered in Neenah, Wisconsin, is a regional group of property/ casualty insurance companies operating in 13 states.

Root Inc. hired Rob Bateman as its new chief

financial officer, effective April 11. Bateman joins Columbus, Ohio-based Root as CFO with over two decades of broad strategic, financial and operational experience across the insurance industry, most recently as president and CFO of Ategrity Specialty Insurance Co. He has built and led multiple teams that have successfully driven profitability and forward momentum in the auto insurance space. Prior to Ategrity, Bateman served as CFO of Infinity Property & Casualty Corp. His experience also includes roles as CFO at COUNTRY Financial, multiple progressive leadership roles at The Hartford, and a senior manager role at KPMG. In September 2021, Root announced that previous CFO Dan Rosenthal would be taking on the role of chief revenue and operating officer. He has served in both roles as the national INSURANCEJOURNAL.COM

search for the new CFO was conducted.

South Central

USG Insurance Services Inc. hired Greg Howard as

producer/broker, commercial lines, in the Houston branch. Howard brings 30 years of industry experience to the USG team, most recently from Burns & Wilcox. As producer/broker at USG, Howard will expand his industry relationships and book of business, and assist in developing USG’s southern footprint. USG is a national wholesale broker and managing general agent with 20-plus offices across the country.

Watkins Insurance Group

added eight staff members to address growing demand for the Austin, Texas-based company’s insurance services and risk management solutions. Among the new hires are five property/casualty agents: Reed Carlton, Reid

Reynolds, Tye Hardin, Travis Kelley and Will Peckham. Additionally, Watkins expanded its group benefits department by hiring two senior benefits consultants: Joe Morales and Jeff Kloc. Watkins also announced it hired Moises Guedes as the agency’s new claims manager.

Southeast

Universal Insurance Holdings, parent company

of Florida’s largest private insurance carrier, announced the appointment of three people to key positions. Arash Soleimani, who was formerly executive vice INSURANCEJOURNAL.COM

president and director of investor relations at Heritage Insurance Holdings, was named chief strategy officer at Universal. Rob Luther, Universal’s vice president of corporate development and investor relations, has been elevated to chief investment officer. Gary Ropiecki, the senior vice president and controller at Universal, has been made principal accounting officer.

Bart has been with Crawford for 18 years, recently as CEO in Australia and the Pacific region. Prior to moving into management, he worked as an adjuster on large and complex claims for property, mining, business interruption, product liability and product tamper claims. He will now focus on international growth for the company.

Lockton, a national provider of insurance, benefits and financial services, named Nick Evancho vice president and senior account executive in the firm’s Southeast aviation practice, based in Atlanta. Evancho joins Chris Latta in Atlanta and Carl Shephard in London, who were appointed to the aviation group earlier this year. Evancho, a licensed pilot, began his career in 2006 at AIG. Latta was named vice president and account executive. He joins Lockton from Starr Aviation, where he recently was assistant vice president, Northeast U.S. He has more than a decade of experience in aviation underwriting.

McGriff, a Charlotte, North Carolina-based insurance broker and a subsidiary of Truist Holdings, announced new appointments and new roles for managers at the company. Kyle Samuel , who previously was president of M&T Insurance Agency in Buffalo, New York, has been named chief operation officer at McGriff. Before M&T, Samuel was a managing director for USI Kyle Samuel Insurance Services and its predecessor, Wells Fargo Insurance Services, and was with Aon Risk Solutions for 17 years. Rocco Orlando was named carrier relations executive, with responsibility for coordinating McGriff’s P/C carrier contracts. Mike Breedlove has been appointed national director, middle market, and will work closely with the business’ specialty and industry practice leaders to provide middle market clients with access to subject matter specialists when needed.

Crawford & Co., one of the world’s largest publicly traded providers of claims management and outsourcing for brokers, carriers and corporations, named Andrew Bart CEO of international operations. The move comes after a restructuring at Atlantabased Crawford, the company said.

Patrick Maguire is assuming the role of national director, specialty practices, in addition to continuing to lead McGriff’s energy practice. Carolyn Littlefield has been named director, strategic projects, with responsibility for overseeing large corporate projects. Robert Plummer has rejoined McGriff’s national construction practice, based in Birmingham. Plummer previously spent 19 years with the Robert Plummer company in construction risk management and property insurance. The Tennessee Department of Commerce and Industry named Daniel Clements as assistant direc-

tor of the Captive Insurance Section. Clements is a licensed, certified public accountant and has done risk examinations in Daniel Clements the public and private sector. Clements recently served as director for regulatory, audit, and internal controls for AIG/FortitudeRE, where he led regulatory efforts for a third-party administrator that oversaw 4.5 million insurance policies. He also worked as financial audit lead analyst for Cigna

continued on page 20

APRIL 4, 2022 INSURANCE JOURNAL | 19

People continued from page 19 Health. Tennessee is ranked as the sixth-largest captive domicile in the United States, with 149 captive insurance companies and 352 protected cells, with an annual gross written premium exceeding $1.7 billion, the department said.

Franklin Street , a commercial real estate and insurance services firm, named Robert Allen president of its insurance division, based in Tampa, Florida. Allen will oversee a national team that provides Robert Allen commercial insurance offerings, including program design, market placement, portfolio administration, lender compliance, risk management and claims advocacy. Allen began his career as an insurance broker in South Florida in 1988, with a company that would eventually become Marsh, one of the world’s largest insurance brokerage and risk management firms. He also spent 25 years with Willis, including years as managing partner of its Tampa office. In 2015, he was named president of Willis Towers Watson’s Atlanta division. In 2019, Allen joined USI, where he was a practice leader in the company’s property/casualty division.

West

Woodruff Sawyer named

John Neuhalfen director of

operations in commercial lines. He previously spent 15 years at Chubb, where he was most recently John Neuhalfen a regional vice president. Neuhalfen is based in Woodruff Sawyer's San Francisco office. Woodruff Sawyer also named Lenin Lopez vice president, corporate securities attorney, for its management liability practice. Lopez is based in San Diego, California. Lenin Lopez Lopez previously served as lead U.S. corporate counsel at Takeda, where he was in charge of SEC and NYSE compliance, as well as governance functions. He also served in similar senior counsel roles at Sempra Energy, Shire, Baxalta and CareFusion. Woodruff Sawyer is based in San Francisco and has offices throughout the United States.

Sharon Thaler, national

director of workers’ compensation field underwriting operations at AF Group/ CompWest , has been elected to chair the California

Workers’ Compensation Institute board of directors

for 2022. Thaler was elected at CWCI’s 58th annual meeting

20 | INSURANCE JOURNAL | APRIL 4, 2022

in Walnut Creek. She was first elected to CWCI’s board as a representative of AIG in 2017 and has been a member of the institute’s executive committee since 2020, serving as vice-chair for the past year. Others serving on CWCI’s 2022 executive committee will be Eric Belk of Travelers; Martin Brady of Schools Insurance Authority, an associate member; Eric Hansen, Preferred Employers Insurance; Kris Mathis, CopperPoint Insurance Cos.; Vernon Steiner, State Compensation Insurance Fund; and Matthew Zender, AmTrust North America, who chaired the Institute’s Board for the past two years. Also elected to serve on CWCI’s 2022 board were Ira Feurlicht, AIG; Mary Beth Pittinger, Chubb; Christopher M. Thurman, CNA; Dwight Robertson, Employers; Robert L. Hughes, The Hartford; Amanda Granger, ICW Group; Carolyn Turpin, Liberty Mutual Insurance; Jim Hurley, Republic Indemnity; Carmen Sharp, The Hanover Insurance Group; Christine Closser, WCF Insurance; Michael Cunningham, Zenith Insurance Co.; Neil DeBlock, Zürich North America; and Peggy Sugarman, with the City and County of San Francisco, an associate member. The California Workers’ Compensation Institute is a private, nonprofit association whose members include 23 insurer groups, along with 30 large public and private self-insured employers in the state.

Alliant Insurance Services

named Kerstin VanZanten vice president within its employee benefits group. She is based in Orange County, California. VanZanten’s background includes experience in benefits communication and enrollment, and leadership roles with various large insurance carriers. VanZanten previously was with EOI Service Co., and was with Transamerica Employee Benefits before that. Newport Beach, Californiabased Alliant Insurance Services is a distributor of diversified insurance products and services.

Burns & Wilcox added several new associates specializing in architects and engineers insurance, and management liability to its professional liability practice group. Maria Small joins as a professional liability broker and is based in San Francisco. Small has 15 years of industry experience. She most recently worked at Sequoia Consulting Group. The others joining Burns & Wilcox are Tameka Livatino and Erin Pritchett . Livatino joins as underwriting director of architects and engineers, and is based in Chicago. Pritchett joins as a professional liability broker and is based in the company's Detroit/Farmington Hills corporate headquarters in Michigan. Burns & Wilcox is a member of the H.W. Kaufman Group, which operates in over 60 offices. INSURANCEJOURNAL.COM

Business Moves as an exclusive partnership with more than 600 partner offices.

Southeast

NSI, HoneyQuote.com

East

Hillb Group, Cohen Insurance

The Hilb Group acquired E.B. Cohen Insurance and Risk Management, with offices in Roseland, New Jersey, and New York, New York. E.B. Cohen provides insurance and risk management services with a focus on hospitality, real estate, and small businesses. Agency principals David and Neil Owens and their employees will join the Hilb Group’s tri-state regional operations. The Hilb Group is a property/casualty and employee benefits insurance brokerage and advisory firm headquartered in Richmond, Virginia. The company has completed more than 130 acquisitions and now has more than 100 offices in 22 states. Hilb Group is a portfolio company of The Carlyle Group.

Midwest

Arthur J. Gallagher, Commercial Insurance Underwriters

Arthur J. Gallagher & Co., headquartered in Rolling Meadows, Illinois, acquiredSpringfield, Missouri-based Commercial Insurance Underwriters Inc. Founded in 1984, CIU is a surplus lines agency offering commercial, personal and professional lines coverages for businesses and individuals with complex, unique or hard-to-place risks, primarily throughout the upper and lower Midwest. Kim Moore and her associates will remain in their current location under INSURANCEJOURNAL.COM

the direction of Matt A. Lynch, head of Central Region-Binding for Risk Placement Services Inc., Gallagher’s U.S. wholesale brokerage, binding authority and programs division.

South Central

Assurex Global, Watkins Insurance Group

Austin, Texas-based Watkins Insurance Group has joined Assurex Global, which now includes 97 independent agency partners. Watkins Insurance Group was founded in 1949 as R.B. Lewis Agency. In 1965, the agency became Lewis-Watkins-Farmer Agency. David Watkins became the sole owner in 1985 and renamed the company Watkins Insurance Group. David Watkins’ son, Patrick, joined the agency in 1994 after attending college at Texas A&M. Patrick Watkins became president of the agency in 2002. The firm has grown from five employees in 1994 to more than 100 employees in four Texas locations — Austin, Georgetown, Marble Falls, and Waco. Its specialties include biotech, condos/ townhomes, construction, contractors/ contracting, EB-life, management liability, nonprofits, private client, real estate/ developers and restaurants. Founded in 1954 and based in Columbus, Ohio, Assurex Global is a privately held commercial insurance, risk management and employee benefits brokerage group. Assurex Global operates

NSI Insurance Group, one of the largest privately owned brokerage firms, acquired Florida-based HoneyQuote.com, a startup insurtech company that matches users with property insurers carriers in real time NSI, headquartered in Miami, said HoneyQuote’s machine-learning algorithm is being used increasingly in the insurance marketplace. The insurtech began operating in 2019, is licensed in Florida and Texas, and has worked with 30 insurance carriers to find coverage for property owners. The acquisition will help HoneyQuote’s service expand nationwide and offer new products, the company said.

Hub, Midland Agency

Hub International has continued its growth spurt with the acquisition of of Midland Agency Insurance in Columbia, South Carolina. Matthew Flemming, president and owner of Midland, and the rest of the Midland team will join Hub Carolinas. Midland provides commercial and personal insurance, and specializes in the agribusiness, which adds to Hub’s specialty practices. Hub International is a global insurance broker headquartered in Chicago. The company said it has more than 14,000 employees.

West

ALKEME, VPIS Financial Services

ALKEME acquired VPIS Financial Services in Ladera Ranch, California. VPIS is a financial services firm that specializes in wealth management and corporate retirement services. ALKEME is also based in Ladera Ranch, and is backed by GCP Capital Partners. ALKEME provides services including property/casualty, benefits, surety, risk and wealth management. APRIL 4, 2022 INSURANCE JOURNAL | 21

News & Markets Judge Reinstates Trump Independent Contractor Rule Withdrawn by Biden

federal judge in Texas has nixed the Biden Department of Labor’s withdrawal of a Trump administration rule governing whether a worker is an employee or an independent contractor. U.S. District Court Judge Marcia A. Crone reinstated the Trump independent contractor rule, finding that the DOL violated federal administrative procedures in the way it delayed and then withdrew the rule. Judge Crone agreed with the plaintiffs — the Coalition for Workforce Innovation, Associated Builders and Contractors of Southeast Texas, Associated Builders and Contractors and Financial Services Institute — that DOL failed to provide sufficient notice, consider alternatives, and give time for meaningful comment before withdrawing the rule that was to go into effect shortly after the Biden team took office. The Trump rule was published on Jan. 22 | INSURANCE JOURNAL | APRIL 4, 2022

7, 2021, with an effective date of March 8, 2021. The Biden administration delayed the effective date of the rule in January, and then on May 6 withdrew it entirely. The judge’s ruling means the Trump independent contractor rule remains in effect dating back to March 8, 2021, and the ball is back in the Biden court. The DOL argued that the 19-day comment period for comment on the proposed delay was adequate as it received more than 1,500 comments compared to the approximately 1,800 comments received in response to the rule when it was published in September 2020. However, the judge noted that while the Administrative Procedures Act (APA) does not mandate the minimum number of days necessary for adequate comment, circumstances warranting a comment period of less than 30 days are “rare” and generally require “good cause.” She found that the defendants failed to

establish that any “serious, imminent harm” would result if the Trump independent contractor rule were to have gone into effect on March 8, 2021. “The court surmises that had the rule gone into effect, some employees may have been reclassified as independent contractors, but it is unlikely that the Independent Contractor Rule would have caused grave harm to the safety or security of American workers,” she wrote. She also found that DOL failed to consider alternatives to the total withdrawal of the rule and, in so doing, failed to “consider important aspects of the problem before it — the lack of clarity of the economic realities test and the need for regulatory certainty.” The independent contractor rule was an effort to provide clarity to the economic realities test — the multi-factor test used by courts to “determine whether, as a matter of economic reality, an individual is in business for himself or herself as an independent contractor, or is an employee of another” under the Fair Labor Standards Act (FSLA). The economic realities test has evolved over time in courts but has typically included five or six factors. The factors courts have applied under the economic realities test have included: the nature and degree of control exercised by the company over the worker; the worker’s opportunity for profit or loss; the worker’s investment in the business; the permanence of the working relationship; the degree of skill required to perform the work; and the extent to which the work is an integral part of the company’s business. The Trump rule sought to have two of the factors — the nature and degree of control over the work and the individual’s INSURANCEJOURNAL.COM

opportunity for profit or loss — carry more weight than the other factors, with the reasoning being that if they both point towards the same classification, there is a “substantial likelihood that is the individual’s accurate classification.” Advocates for the Trump rule argued that this approach would clarify the status of workers in an age of app-services firms like Uber, DashDoor and Instacart by narrowing the review and prioritizing certain factors to be weighed in deciding if a worker is an employee or an independent contractor. The plaintiff Coalition for Workforce Innovation maintains that current workforce and labor laws are “woefully outdated.” Its members include Uber, Lyft, the American Staffing Association, Kelly Services, Amway, Mary Kay, Intact Insurance and other firms, According to the Biden DOL, the Trump rule’s prioritization of two “core factors” for determining employee status under

the FSLA would have undermined the “longstanding balancing approach of the economic realities test and court decisions requiring a review of the totality of the circumstances related to the employment relationship.” The Biden administration sought to restore the previous approach to enforcing the FSLA that allows companies to classify their contractors as independent but requires a broader analysis. The Biden administration contends that the Trump rule narrowed the definition of employee and could result in workers losing federal protections for minimum wage and overtime compensation, as well as jeopardize their unemployment insurance and workers’ compensation benefits. Workers classified as independent contractors could also face more difficulty forming unions than employees. “By withdrawing the independent contractor rule, we will help preserve essential worker rights and stop the erosion of

worker protections that would have occurred had the rule gone into effect,” said Secretary of Labor Marty Walsh in announcing the Martin Walsh, withdrawal. U.S. Secretary of Labor Asked whether the Biden administration would appeal the court ruling or begin a new rulemaking process, Seema Nanda, the lawyer for the DOL, said the administration “is evaluating all legal options, including the potential need for rulemaking.” “When employers misclassify workers as independent contractors, workers lose key rights and protections, hurting labor standards across the board and making it harder for law-abiding employers to compete on an even playing field,” Nanda said in a statement to Insurance Journal.

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News & Markets Consumer Group Demands Probe After New York Times Reports on Alleged Bias at State Farm By Jim Sams

national consumer rights group in late March called on state insurance commissioners to investigate racial bias in claims handling after the New York Times reported on discrimination lawsuits filed against State Farm by a Chicago policyholder and a former employee assigned to the insurer’s special investigations unit in Michigan. The Consumer Federation of America specifically urged regulators to look into whether the algorithms that insurers used to flag potential fraud produce biased results because of racism. Doug Heller, director of insurance for the consumer group, said CFA’s research has shown that insurance pricing models have the effect of discriminating against communities of color. “There’s no reason to suspect that systemic bias would somehow stop at the claims handling door,” he said. State Farm denied charges that racial bias impacts its claims decisions and said it will vigorously defend itself in court. “We will not attempt to litigate these issues in the media,” the company said in a statement. “At State Farm we believe in fostering an inclusive environment where everyone — including our customers — feels respected and valued. We’ll continue to engage in open, honest dialogue to find actionable and meaningful ways to continue advancing diversity and inclusion at State Farm and in neighborhoods and communities.” A spokeswoman for the Association of Property and Casualty Insurers said the industry as a whole “is proactively committed to promoting and creating a more diverse, equitable and inclusive industry through its employment practices.” A March 18 New York Times article reported on a lawsuit filed by Carla Campbell-Jackson, a Black woman in Kalamazoo, Michigan, who worked for State Farm for 28 years before being fired in 2016. The insurer says Campbell-Jackson 24 | INSURANCE JOURNAL | APRIL 4, 2022

shared confidential information outside the company, but she denies that charge. Campbell-Jackson filed a complaint with the federal Equal Employment Opportunity Commission saying her termination was part of a campaign by State Farm to discredit her after she raised concerns that the insurer was using fraud as a pretext to deny claims by Black policyholders. Her lawsuit alleges State Farm managers urged investigators to regularly meet with claims adjusters and encourage them to refer more claims to the fraud unit. She says they used the term “fill the cups” as a means of increasing the number of SIU investigations in order to deny more claims.

State Farm reportedly offered CampbellJackson a $175,000 severance payment if she agreed not to discuss her experience with the company. She refused. Last year, the EEOC agreed that State Farm had discriminated against Campbell-Jackson because of her race. The agency recommended that State Farm pay $300,000 in punitive damages, plus back pay, according to her court filing. The EEOC was unable to reach an agreement with State Farm and issued a right-to-sue letter to Campbell-Jackson last year. The Times report noted that one of State Farm’s policyholders, Darryl Williams of Chicago, also filed a lawsuit in 2019 accusing State Farm of discrimination. Williams, who is Black, is the former owner of the Connectors Realty Group in South Chicago. He says he filed a claim

with State Farm after a pipe burst in a six-unit apartment building in January 2017, forcing him to foot the bill for hotel rooms for his displaced tenants. Williams filed claims seeking more than $400,000, of which State Farm paid only $56,000, the Times reported, citing court filings. Campbell-Jackson has agreed to testify as a witness in Williams’ lawsuit. State Farm has objected to a discovery request by Williams’ attorneys that specifically requests emails and documents that use the term “fill the cup.” The insurer’s filing says Williams has “a personal ax to grind” and was not working for State Farm at the time Williams filed his claim, so her deposition has no bearing on the lawsuit. State Farm said the term “fill the cup” — which is no longer used — referred to a method of allocating referrals among claim-handling teams. “There is nothing nefarious about the fact that State Farm engages in efforts to identify and investigate potentially fraudulent claims, and that those efforts include assigning such claims to a Special Investigations Unit and ensuring that the resources available to that unit are fully utilized,” the filing states. State Farm’s press office did not respond to a request for comment. The Times reported that it had received a video of a presentation that State Farm managers gave to employers. “Discrimination played no role in Campbell-Jackson’s termination,” Michael Trout, the chief human resources officer of State Farm, said in the video, according to the Times. Campbell and her sister, Lisa Campbell, filed a discrimination suit against Radisson Hotels & Resorts in 2005, alleging that the chain’s hotel in Bloomington, Illinois, refused to provide proper accommodations to her and other African-American guests when she hosted a women’s conference for the Alpha Kappa Alpha sorority in 2001. The case was settled in April 2007. Sams is the editor of Claims Journal. Email: jsams@ wellsmedia.com. INSURANCEJOURNAL.COM

Spotlight: Claims CMS Rules on Settlement Reporting May Sting Insurers and Claimants Both

By Jim Sams

or years, the federal agency that runs Medicare has been building a trap to snag any settlements that would force taxpayers to pick up the tab for medical care that should have been paid by others. The Centers for Medicare and Medicaid Services is now on the verge of setting the snare. Claims managers who are caught unaware could cause a claimant to lose access to health care, or worse, bring hefty penalties against their employers. On March 1, the Office of Information and Regulatory

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Affairs received rules proposed by CMS that would establish civil monetary penalties of more than $1,000 per day against individuals or organizations that fail to report settlements with Medicare beneficiaries that set aside money for future medical care, as required by the Medicare Secondary Payer Act. The office’s approval is the final step before final adoption of the rules, which CMS first proposed more than two years ago. But penalties are only one part of CMS’ enforcement stratagem. A CMS spokesman confirmed a report by settlement adminis-

trator Tower MSA Partners that the agency is placing markers in the common working files of Medicare beneficiaries when it receives notices of settlement agreements that weren’t transmitted through the CMS reporting process. The agency then sends letters warning the beneficiary that it may deny payment for treatment of the injury until the entire settlement agreement is exhausted. And if there was any doubt that the government will follow through with that threat, a study by Ametros found CMS has been denying payment for care to Medicare beneficiaries when it believes that the money should have come out

of settlement funds. Based on a random sample, Ametros estimated there were more than 100,000 such denials from 2018 to 2020. “This is a wake-up call for everyone involved in settlements to make sure that Medicare’s interests are considered and that the injured person receives professional administration support with their annual MSA reporting to Medicare after settlement,” stated Ametros Chief Executive Officer Porter Leslie in a press release. Section 111 of the Medicare Secondary Payer Act, adopted in 2007, requires insurers and

continued on page 26

APRIL 4, 2022 INSURANCE JOURNAL | 25

Spotlight: Claims continued from page 25

other entities that enter into settlement agreements with Medicare beneficiaries to notify CMS if the amount is more than $25,000. Notice is also required if the claimant will become eligible for Medicare within 30 months (age 62 1/2) and the amount of the settlement is more than $250,000. The agency also encourages workers’ compensation insurers to submit proposed future-medical settlements to its contractor for review to ensure the amount is sufficient. That process is voluntary, but CMS can sue to recover funds from insurers and even the attorneys involved in a settlement if the set-aside is exhausted and a claimant turns to the Medicare program to care for the injury. In January, CMS gave notice through an update to its guidelines that claimants whose settlements were not voluntarily submitted for review will be expected to spend the entire amount of their settlement — not just the amount allocated for medical care — before seeking reimbursement from Medicare. While CMS said that has been its policy all along, the agency raised alarm bells by putting it into writing. Numerous consulting firms have been crafting “non-submit” or “evidence-based” Medicare set-asides that are not submitted for review, but deemed by experts to be sufficient to protect Medicare’s interests and avoid future litigation. Dan Anders, chief compliance officer for Tower MSA Partners, said the policy provides ample reason not to notify CMS of any information

that isn’t required to be reported. He said there is no up side for the claimant. Giving notice will alert CMS and give the agency an opportunity to deny care until the entire settlement amount is spent.

‘This is a wake-up call for everyone involved in settlements to make sure that Medicare’s interests are considered and that the injured person receives professional administration support with their annual MSA reporting to Medicare after settlement.’ Nonetheless, Anders said non-mandatory submittals are common in his industry. Often, settlement fund administrators will notify CMS of the settlement amount, even though the law only requires them to give notice that there has been a settlement. Anders said sometimes administrators even send CMS a copy of the settlement agreement. Anders obtained a copy of a Jan. 13 letter from CMS to a workers’ comp claimant that shows what can happen when voluntary notice is given. The letter explains that Medicare will not pay for treatment of the claimant’s work-related condition until the “net settlement proceeds” are exhausted. It states that “net” means the entire settlement amount minus attorney fees and any funds already repaid to Medicare.

26 | INSURANCE JOURNAL | APRIL 4, 2022

Anders said he would not give CMS notice of a settlement agreement when not required by law without assurance from the agency that the amount set aside is sufficient. “I believe it is a mistake to provide CMS the non-submit or evidence-based MSA amount,” Anders said. “The only one that benefits from this is CMS who, now aware of an MSA, will deny medical care.” A spokesman for CMS confirmed when asked by the Claims Journal that the agency places markers in the files of Medicare beneficiaries when it receives notice of workers’ compensation settlement agreements. The agency is prohibited by law from making payments for medical care when money has been set aside for that purpose, said a CMS spokesperson, who asked not to be identified by name. Curiously, CMS does not place similar markers in beneficiaries’ files when it receives mandatory notices of settlement agreements. The spokesperson said those notices say only that a settlement exists but don’t necessarily disclose that money has been set aside for future medical care. “CMS may explore expanding the application of similar markers where a WC settlement has only been reported via S111 reporting,” the spokesperson said. Even though the Section 111 reporting requirement has been in effect for nearly 15 years, there is as yet no enforcement mechanism. That may change soon if the Office of Information and Regulatory Affairs, a division of the White House, approves the CMS’ proposed penalty rules. As originally written, the law

called for penalties of $1,000 for each day an applicable settlement was not reported. Congress amended the law in 2013 to require penalties of up to $1,000 and required CMS to adopt formal rules before issuing any civil monetary penalties. The law requires annual adjustments for inflation, so the maximum penalty is now $1,247, according to the CMS. Most of the infractions included in CMS’ rule notice call for the maximum penalty, which currently amounts to $575,685 a year for a failure to report violations. CMS has proposed a “tiered” penalty structure for violations that involve submitting more errors than the agency’s tolerance level, currently set at more than 20% of the items submitted. Those penalties start at 25% of the maximum penalty amount and increase incrementally to 100% for subsequent violations. CMS is proposing a five-year statute of limitations in the rule, meaning any mistakes made more than five years ago won’t be used against the violating insurer. In a blog posted, NuQuest Vice President Bridget Smith said now is the time for claims organizations to review the process they use to report settlement agreements to CMS. “Do not assume that because you are not getting any errors on submission, or because you utilize a reporting agent, that the information being reported is accurate,” Smith wrote. “Education, training, and assessment of your current process is an essential part of a healthy reporting program.” Sams is the editor of Claims Journal. Email: jsams@wellsmedia.com. INSURANCEJOURNAL.COM

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News & Markets Former Licensed California Agent Faces Insurance Fraud Charges

former licensed California insurance agent has been charged with 11 felony counts including identity theft, grand theft and embezzlement after allegedly writing 162 fraudulent policies in an attempt to gain unearned commissions. The California Department of Insurance began an investigation into Paul Kirton, 51, of Bozeman, Montana, after an insurance company was reportedly notified by one of their insureds that they were

not employed by the company listed on their policy. The investigation reportedly revealed that Kirton wrote 162 policies for 38 policyholders under “company groups” who were never employed with the companies, making the individuals ineligible to be placed on the company group accounts. This caused the insurance company to allegedly pay out more than $182,376 in unauthorized claim

benefits on fraudulent policies, according to the CDI. Investigators also reportedly discovered Kirton submitted other policy applications for individuals who did not

authorize the policy applications, and provided false personal information for individuals which resulted in Kirton being paid more than $35,000 in illegal advance commissions. Kirton was arrested in late March in Bozeman, Montana and is currently awaiting extradition. His lawyer appeared in court this week on his behalf. The case is being prosecuted by the Orange County District Attorney’s Office.

Amazon Cited for Unsafe Work Practices at Washington Fulfillment Center

mazon is facing a willful serious violation and a $60,000 fine for knowingly putting workers at risk of injury at its fulfillment center in Kent, Washington. A Washington Department of Labor & Industries inspection at the e-commerce giant reportedly found 10 of the 12 processes L&I evaluated create a serious hazard for work-related back, shoulder, wrist and knee injuries. L&I ergonomists reportedly found that many Amazon jobs involve repetitive motions, lifting, carrying, twisting, and other physical work. Workers are required to perform these tasks at such a fast pace that it increases the risk of injury. The citation requires

Amazon to submit a written plan to L&I within 60 days, detailing methods the company will use to abate the safety issues. Because L&I has reportedly cited Amazon for similar violations at three Washington locations, the most recent violation is classified as a willful violation and comes with a significantly higher penalty than those issued as a result of earlier inspections. The company has not yet made necessary changes to improve workplace safety and has consistently denied the association between pace of work and injury rates. Amazon has 15 working days to appeal the latest citation and fine. The company has active appeals in the three previous cases. Fines paid as a result of a citation go into the workers’ compensation supplemental pension fund, helping workers and families of those who have died on the job.

W2 | INSURANCE JOURNAL | APRIL 4, 2022

Pinnacol Distributes $50M in Dividends to 51K Colorado Companies

innacol Assurance is distributing general dividend checks to its customers totaling $50 million. Pinnacol has also lowered premium rates by an average of 11%. This is the seventh consecutive year of general dividend distributions. Nearly 95% of Pinnacol’s policyholders are eligible to receive a dividend, encompassing more than 51,000 employers in all counties throughout the state. The average 2022 dividend check amount is $974. Checks will be mailed to employers beginning March 22.

Pinnacol operates as a mutual insurer, which customers eligible for an annual dividend based on Pinnacol’s financial performance. Eligibility is based on customers’ commitment to safety with timely claims reporting and investments in safety education, technology and equipment. With this year’s declaration, Pinnacol has returned $370 million in total dividends to Colorado’s business community since 2015, which equals nearly 9% of premium. Pinnacol is Colorado’s largest workers’ compensation insurance carrier. INSURANCEJOURNAL.COM

News & Markets Arizona Auto Insurance Rates Rising on Heels of COVID By David Wichner

s if spiraling gas prices weren’t enough, motorists across Arizona and the nation are paying more for auto insurance as repair costs and more crowded roads push premium rates higher. After giving customers premium credits and refunds in 2020 as insurance claims plummeted due to the pandemic, auto insurers are raising rates to help cover higher claims costs driven by increased driving and other factors. Several large insurers including implemented auto-premium rate increases since mid2021, filings with the Arizona Department of Insurance and Financial Institutions show. Geico Casualty Co. posted an 8% rate increase in November. State Farm Mutual filed an 0.4% rate increase for its Arizona private-passenger auto customers. Progressive Advanced Insurance Co. and sister Progressive Preferred posted Arizona auto-policy rate increases ranging from 2.5% to 6.9% since mid-2021, while Farmers of Arizona filed for increases totaling more than 8%. Allstate Fire & Casualty filed a 7% increase effective this month. Arizona does not require auto insurers to get state approval before changing rates. Insurers say they need higher premiums to offset higher claims losses since the height of the pandemic, citing factors including increased driving and higher repair costs driven by supply-chain issues and labor shortages. Insurers moved to provide premium discounts and other relief to policyholders starting in March 2020, when it was apparent insurance claims were plummeting as shutdowns kept many people off the roads. “No question that at the beginning of the pandemic, miles driven and claims fell off a cliff and during that unique period of W4 | INSURANCE JOURNAL | APRIL 4, 2022

time insurers did a lot of things to try to provide some relief to their policyholders,” said Robert Passmore, vice president of auto and claims policy at the American Property Casualty Insurance Association. Passmore said people are back to normal driving levels, citing data from the National Highway Transportation Administration showing miles traveled reached near-pandemic levels and fatalities increased in 2021. At the same time, Passmore noted, the severity of accidents including fatalities have risen and repair costs have increased State Farm provided over $4 billion in dividends and rate cuts to its auto-insurance customers at the onset of COVID-19 in early 2020. The company pared back a special premium discount in February 2021 with a 3% rate increase in Arizona. “Our approach is to make incremental adjustments based on driving behaviors to help minimize the impact to customers,” said company spokesman Sevag Sarkissian. “Auto claim costs are increasing in part due to a rise in the cost of labor, materials and supply chain-related issues. Although miles driven, claim volume and severity have increased, State Farm auto rates remain below pre-COVID-19 levels.” A report issued by the APCIA in February said higher claims costs are being driven by increased driving and worse driving behavior, higher medical costs, increased injury-claim settlements, increased injury severity in auto crashes and skyrocketing auto repair and replacement costs. While Arizona has no power to preapprove auto insurance rates, the state insurance department reviews rate filings to make sure they are not unfairly discriminatory and meet other legal requirements, said Erin Klug, assistant director of product filing and compliance division at the

Arizona Department of Insurance and Financial Institutions. “The department can’t find a rate excessive as long as there is ample competition,” Klug said. While California was the only state to require insurers to give auto policyholders a break on premiums amid COVID-19 shutdowns, Arizona was among many states that encouraged insurers to offer premium relief, Klug said. Industrywide, insurers refunded or discounted about $14 billion in response to falling claims, according to the insurance association. But some consumer advocates say the industry should have given policyholders a much bigger break and ended up pocketing much of that savings from the steep decline in auto losses in 2020. Insurers should have returned about $30 billion more to policyholders, based on lower losses, including $648 million in Arizona, says a report last August by the Consumer Federation of America and the Center for Economic Justice. “Since the pandemic, driving has mostly rebounded, but we strongly believe that Arizona consumers and consumers in every state were overcharged by insurers,” said Michael DeLong, research and advocacy associate for the Consumer Federation. The APCI’s Passmore disputed the consumer advocates’ report and said premium relief is no longer warranted amid rapidly rising claims costs. “They’re still talking about a period of time that existed basically two years ago,” he said. “We’re in a very different time now.” Passmore said regulators and insurers must ensure that rates are not unfairly discriminatory and that there’s sufficient rates to ensure the solvency of the carriers. In the face of rising auto insurance costs, consumers can save money by shopping around for lower premiums, Klug and DeLong said. Copyright 2022 Associated Press. All rights reserved.

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My New Markets Pawnbroker’s Package Policy

Market Detail: First Class Insurance offers

a pawn shop insurance program that includes liability for items leased, owned and pledged, or held on consignment, outof-safe items, glass, and stock to include guns and jewelry. We insure: Pawned & Owned Jewelry & Guns and /or Other Stock; Employee Theft; Building Coverage; Business Personal Property; Business Interruption & Extra Expense; Auto Pawn Vehicles (property coverage); Personal Conveyance of Jewelry; FedEx, UPS, Armored Car Shipments; Cash On & Off Premises. Property: All Owned Premises; All Operations — unless excluded; Products — Completed Operations; Personal and Advertising Injury; and Medical Payments. General liability: Products Completed Operations on Guns, Firearms, and Ammunition up to $1,000,000; Employee Benefits Liability; Hired and Non-Owned Auto Liability; Employment Practices Liability; Cyber Liability; Gun Liability. Available Limits: As needed Carrier: Not disclosed, admitted and non-admitted States: All states Contact: Todd Russo at 954-241-4680 or email: trusso@firstclassins.com

Mining & Quarry Operators

Market Detail: Skyward Specialty Insurance Group-Energy offers coverages for mining and quarry operators. Coverages include: General Liability; Commercial Auto; Inland Marine; Property; Excess Liability; Workers’ Compensation Insurance for surface and underground Mining and Quarry risks. This includes related Machine Shops as well as Engineers and Consultants. Available Limits: As needed Carrier: Skyward Specialty Insurance Group, admitted, rated A-FSC 15 by AM Best States: All states except Alaska and Hawaii Contact: Jim Godfrey at 205-332-8118, or email: jgodfrey@skywardinsurance.com

Manufactured Home

Market Detail: CoverTree offers a

Manufactured Home program that provides the flexibility to customize a INSURANCEJOURNAL.COM

policy that best meets a customer’s needs and budget. Multiple peril selections available and a wide underwriting appetite for nearly any type of manufactured home (Mobile home, modular, tiny, stationary travel trailer, and ADUs). Occupancies: owner; seasonal; rental/landlord; vacant; renter’s/tenant. Available Limits: As needed Carrier: Not disclosed, admitted, rated A by AM Best States: Arizona, Indiana, Michigan, New Mexico and Ohio Contact: Dillon Kirby at 248-417-5589, or email: Dillon@covertree.com

Cyber Risk

Market Detail: Brooks Insurance Group covers nearly anything and everything that relates to cyber incidents and technology failures. And unlike other cyber insurance policies, ours was built by security experts. We cover up to $15 million in financial, tangible, and intangible damage to businesses: Stolen Funds; Loss Business Income; Breach Response Costs; Cyber Extortion; Computer Replacement; Bodily Injury; Pollution Damage; Reputational Harm Loss; and Reputation Repair. Third Party Liability Coverages: Network & Information Security Liability; Regulatory Defense & Penalties; Multimedia Content Liability; and PCI Fines & Assessments. First Party Loss Coverages: Bodily Injury & Property Damage Pollution; Pollution; Computer Replacement; Fund Transfer Fraud; Service Fraud; Digital Asset Restoration; Business Interruption & Extra Expenses; Cyber Extortion; Breach Response; and Crisis Management & Public Relations. Available Limits: As needed Carrier: Not disclosed, rated A by AM Best States: All states except Hawaii Contact: Michael McCluskey at 615-4005522, or email: mmccluskey@brooks-ins. com

TRICHOME Cannabis Program

Market Detail: Trichome offers the first

pure risk-bearing captive insurance model in cannabis. TRICHOME was established in 2020 to deliver the essential, industry-specific, and risk management anchored

insurance products that the cannabis vertical needs to expand and sustain their business. As the National Cannabis Risk Management Association (NCRMA) endorsed captive, TRICHOME initially offers GL Premises, Product Liability and Property coverages for dispensaries and those with associated grow facilities. TRICHOME delivers the first cannabis-specific business insurance product that has risk management at its core. TRICHOME is available only to NCRMA members. By combining a pure captive insurance structure with innovative and focused cannabis risk management, TRICHOME offers the long-term sustainability desperately needed in cannabis. This powerful combination promises to deliver the financial reserves and premium and product stability necessary to assure a long-term presence in the growing cannabis market. The National Cannabis Risk Management Association (NCRMA) established TRICHOME as a captive+risk management model to create an industry-specific business insurance solution that fills a critical need for its members. As the endorsed captive product, TRICHOME delivers the following major benefits to NCRMA members: Accurately priced premiums; A holistic approach to underwriting; Appointed brokers vetted by criteria established by NCRMA members; Insurance products birthed by cannabis risk management (NCRMA); and Short term profit taking replaced by long term stability and reward. Available Limits: As needed Carrier: The Clipeum Group States: All states Contact: Michael Malloy at 724-779-9700, or email: michael@clipeumgroup.com

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Need a Market? Find It. FAST APRIL 4, 2022 INSURANCE JOURNAL | 27

Special Report: Employment Practices Liability Employers Adapting to New World of Worries Insurers Seek Policies on Diversity, Pay Equity, Social Media, COVID, Even Facial Scans By Andrea Wells

he past few years have been filled with newer exposures when it comes to employment practices liability insurance (EPLI). Along with significant disruptions in workplaces due to COVID-19, employers have been attempting to manage discrimination concerns around race, pay equity, gender identity, social media use, biometrics and more. The biggest cost drivers for EPLI have been increased frequency and severity of lawsuits related to social movements and social inflation, according to Emily Loupee, area senior vice president, Gallagher, in a January report titled, “Employment Practices Liability Market Condition.” Also, COVID-19 introduced a new category of EPL claims. According to the law firm Jackson Lewis, which specializes in employment law, there are 332 total employer vaccine mandate suits nationwide. In these suits, employees are challenging employers’ vaccination mandates both on their face — contending the policy itself is unlawful — and as applied, particularly with respect to employers’ failure to grant accommodations or exemptions to the vaccination requirement. The law firm states that complaints typically allege multiple legal claims, including constitutional claims against public and private employers, accommodation/discrimination for both religion and disability, wrongful discharge/retaliation, privacy violations and labor disputes. EPL underwriters have to worry about COVID vaccine mandates, as well. “In the face of resistance to vaccine mandates in the U.S., there may be an 28 | INSURANCE JOURNAL | APRIL 4, 2022

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increase in retaliation and discrimination claims under the Americans with Disabilities Act and Civil Rights Act of 1964 (specifically, for religious discrimination),” according to USI’s 2022 Commercial Property & Casualty Market Outlook. Insurers are willing to compete on EPL renewals if the employer’s business conditions are improving, brokers specializing in EPL coverage say. That means a business should be addressing the current issues affecting today’s workplace. “I think right now there’s plenty of capacity,” Joni Mason, senior vice president, National Executive & Professional Risk Solutions claims practice leader at USI Insurance Services based in New York, New York. Manny Cho, executive vice president of RPS Executive Lines, agrees there are more carriers in the market right now, especially over the past 12 to 18 months. “There’s quite a few new carriers out there that are really trying to take advantage of a really good rate environment in the D&O/EPLI space.” That’s a good thing, he said. “Insurance can definitely benefit from more competition in this area.” While there are more insurers now, Cho says by and large, most of them have fixed their books and business in terms of the types of classes they feel comfortable writing. USI’s Mason finds that carriers are seeking additional insight when underwriting, and that includes information about return-to-work transition plans, and employment policies representing newer areas of exposure such as gender identity discrimination, and even social media use. INSURANCEJOURNAL.COM

“In the last year or two, we’ve seen new claims, but what we are seeing from carriers is more granular scrutiny during the underwriting process,” she said. That means supplemental questionnaires around newer workplace issues, such as vaccine mandates, return to work policies and protocols, and diversity, equity and inclusion culture. Employment claims are still the “workplace torch,” she added. While the number of claims in the EPL line has remained steady, the circumstances that lead to claims have changed dramatically, even while the EPLI coverage itself has remained relatively stable, she said. However, Mason added, she has seen exclusions surrounding use of biometrics in the workplace as more employers seek coverage under their EPL policies for violations of the Biometric Information Privacy Act (BIPA). BIPA is an Illinois law that regulates the retention, collection, disclosure, and destruction of “biometric identifiers,” such as fingerprints, iris scans, facial scans and voice prints, and creates a private right of action for violations. In October 2021, a federal district court in Illinois held that an EPL policy can provide coverage to an employer when defending allegations in violation of BIPA. As a result, Mason says insurers are trying to push BIPA exposures to the cyber policy by adding exclusions. EPL insurers are also seeking higher retentions but that is also happening in most other areas of commercial insurance. “That’s driven by the increase in defense costs, but we’re also seeing some separate reten-

‘There’s quite a few new carriers out there that are really trying to take advantage of a really good rate environment in the D&O/ EPLI space.’ tions for loss drivers like class actions, high wage earners and higher exposure jurisdictions like California,” Mason said. Carriers are closely scrutinizing COVID vaccine mandate policies. “We’ve seen a number of supplemental questionnaires surrounding the vaccine,” she said. “Do you have a vaccine mandate? Do you have a policy? What is your protocol in implementing the policy? Have you consulted with outside council regarding your policy?” Those are the questions being asked today, she added. While COVID hasn’t yet generated the claims that were

originally expected in EPL, it’s not over, Mason added. “I do think we’re going to see continued activity related to the COVID-19 mandates,” she said. Mason anticipates future accommodation claims related to the Americans with Disability Act (ADA), as well as religious accommodation claims. But this isn’t anything new, she says. The sector has always had claims around ADA and religious accommodations, only now the circumstances leading to these claims are different. The USI executive noted that in these cases, an employer’s best defense is in how they respond to their employees seeking accommodations, she said. For example, the employer under the ADA is required to “engage in the interactive process.” That means having a conversation with the employ-

continued on page 30

Employment Practices Liability Rates

ven with all of the change and disruption, employment practices liability insurance market experts say the market is competitive and poised for moderation in rates throughout 2022. For employment practices liability insurance, some buyers — those without poor claims history or major changes in exposure due to acquisitions or layoffs — have been able to renew their programs with single-digit increases. That’s the good news. “In 2021, we continued to see premium and retention increases for Employment Practices Liability (EPL) insurance in the range of 10% to 25%,” wrote Emily Loupee, area senior vice president for Gallagher, in a January 2022 report on market conditions. “Early signs are showing that we may have reached an inflection point in this trend and that we can expect a flat to 10% increase for EPL renewals in 2022.” According to Joni Mason, senior vice president, National Executive & Professional Risk Solutions claims practice leader at USI Insurance Services based in New York, New York, most EPL accounts will see moderate rate increases between 5% to 20% in 2022 unless there is a claims history on the account.

APRIL 4, 2022 INSURANCE JOURNAL | 29

Special Report: Employment Practices Liability continued from page 29 ee and discussing why they believe they should have an accommodation. That allows the employer to suggest what might be appropriate as an accommodation. “The act of failing to have that conversation, actually can get you in trouble with a violation under the ADA,” she explained. Employers are also being asked about how social media use intersects with the workplace. While not a new issue, employee misuse of social media is an area that has led to EPL claims in the past. “They can engage in discrimination, harassment, talking about their employer, disclosing proprietary information, security breaches, union organizing,” Jennifer Reno, risk manager at the shopping network QVC, said at the 2021

annual RIMS Conference. Privacy rights violations are among the most common risks. Remote working during the pandemic has heightened concerns over employees’ use of social media, Jason Binette, AmTrust EPL product manager, told Insurance Journal. “When an employee is at home and they’re posting things on social media that may not be acceptable in the workplace, and that somehow gets back around [to the employer],” then the employee gets terminated, he said. “We’re seeing that type of unique exposure where someone might make a political post, or say you saw the employee at the January 6th Capitol riot on social media,” he said. If their employer terminates them, that could be a possible retaliation claim, according to Binette.

30 | INSURANCE JOURNAL | APRIL 4, 2022

Employment retaliation continues to be a source of claims. The percentage of charges filed with the Equal Employment Opportunity Commission alleging retaliation has increased every year since 2002 — rising from 27% of EEOC charges in 2002 to 56% of annual EEOC charges in 2021. This trend has been partly driven by the 2006 U.S. Supreme Court case Burlington Northern & Santa Fe Railway v. White, which made retaliation lawsuits easier to bring against employers, Chris Williams, employment practices liability product manager for Travelers, told Insurance Journal. “The Supreme Court held that an employee does not necessarily have to be demoted or have their pay reduced, but that more nuanced forms of punishment, such as less favorable assignments, can also

be considered retaliation under the law,” Williams said. “The U.S. Supreme Court decision has made it easier for a plaintiff to prevail on a retaliation claim because they do not have to allege that they were demoted, denied a promotion, or denied wages.” Plaintiffs only need to show that they have suffered an adverse employment action to prevail. Nearly anyone can bring a retaliation claim against an employer. “Unlike a discrimination claim, one does not necessarily need to be a member of a protected class (such as over the age of 40 or being disabled) in order to bring a retaliation claim,” he said. For example, employees who file workers’ compensation charges, or discover financial irregularities and report those, can bring retaliation claims if their employer takes an adverse action against them. Retaliation claims are on the rise in part because employees are more aware of their rights in the workplace, according to Williams. But employers can take steps to mitigate their exposure to retaliation claims. “It’s important for the employer to consult with outside counsel to go over the possibility of receiving a retaliation lawsuit, and what steps they can take to prevent a retaliation claim,” he said. “In particular, it is prudent to consult with an attorney before terminating or taking any adverse action against an employee.” Williams suggests that employers thoroughly review the situation before taking action. “What does the personnel file say? Do prior reviews and salary and bonus history suggest the employee was INSURANCEJOURNAL.COM

performing below the required standard, or is the opposite the case? If the employee has complained of impropriety, what is the timing between the underlying complaint and any corresponding action taken?” he asked. Williams also suggests that employers develop and review anti-retaliation policies. “Encourage employees to report unsafe practices that help create a culture that values safe and ethical behavior,” he said. “Provide more than one channel for employees to complain. Train supervisors to encourage an anti-retaliation policy and culture. Ensure that employees who complain are protected against retaliation.” Plus, make sure insureds have the right insurance to help protect them from this risk, he added.

‘Concerted Protected Activities’

USI’s Mason says employers should use caution when addressing what an employee posts on social media. If the social media post is disparaging to the employer, employers need to be careful in the context of their response, she said. Federal law protects an employee’s right to engage in not only union activity, but also “protected concerted” activity. That means employees have the right to address work-related issues and share information about pay, benefits and working conditions with other co-workers, and with a union. Using social media can be a form of protected concerted activity. “The NLRB (National Labor Relations Board) says that employees are allowed to INSURANCEJOURNAL.COM

engage in concerted protected activities, so if an employee posts something on social media regarding the conditions of their employment, then they should not be retaliated against,” she said. And with the blurring of the lines between employees and other coworkers, it’s likely that other employees will be a part of each other’s social media networks. “So, it can be considered as a concerted protected activity,” Mason says. Five or six years ago, Mason saw an uptick in claims related to concerted protected activities. “While I haven’t seen a lot of them currently, I do think that it’s something that we’re going to continue to talk about later with regard to pay disparity,” she said. The gender-based pay gap in the United States has narrowed in recent years, but disparities remain, according to the U.S. Census Bureau’s 2019 American Community Survey (ACS), which reveals national median earnings for civilians who worked full-time, year-round in the past 12 months was $53,544 for men compared to $43,394 for women. Many factors may contribute to earnings differences between women and men, including age, number of hours worked, presence of children, and education. But as pay becomes more transparent, so will the awareness of disparity, Mason believes. There are now seven jurisdictions — California, Colorado, Connecticut, Maryland, New York City, Toledo, Cincinnati and Rhode Island — with requirements over transparency in regard to salary range. That transparency could spark future EPLI claims, she added.

As of May 15, New York City will require employers with more than four employees to disclose salary ranges related to advertising positions in an effort to close the gender pay gap. “I’ll be very curious to see if some of the discussion around pay disparity and pay transparency plays into employees’ use of social media,” Mason said. “I think that with that transparency will likely come more claims, unless employers start taking a hard look at gender pay disparity and get ahead of it.”

Longtail COVID Issues

While much of America is returning to the workplace and relaxing protocols around COVID safety measures, concerns remain about future EPL claims related to vaccine mandates. “So far, there haven’t been very many claims but the claims that [have] come in, were all upheld by the courts. So, the courts were siding with the employers,” noted AmTrust’s Binette. “Now, the concern is, will the courts continue to support businesses that are requiring vaccines now that the federal government isn’t? That hasn’t been challenged yet, but I would imagine it’s only a matter of time before it is.” Binette advises businesses, especially those in industries such as healthcare or education where vaccines are mandated, to secure EPLI coverage if they do not already have it. Mason pointed out that possible claims related to COVID vaccine mandates have a long tail. “So we may not even see the claims related to vaccine mandate and return to work protocols,” she said.

‘We’ve seen a number of supplemental questionnaires surrounding the vaccine.’ However, lawsuits related to an employers’ enforcement of vaccination policies, including alleged failure to accommodate a religious belief or medical condition, are expected to increase. Communicate, and communicate clearly, advised Casey Roberts in a recent Academy of Insurance webinar titled “COVID and EPLI Challenges and Concerns.” Roberts, the founder of Laurus Insurance Consulting in Lincoln, California, says employers must “treat all employees fairly, and equally.” That means properly training managers regarding the company’s COVID 19 policy for reasonable accommodations, Roberts said. “Reasonable accommodation is the phrase you are always going to hear when it comes to EPLI. Could the employer have reasonably accommodated that employee? That’s the question. That is always a very significant question,” Roberts added. That will be important as this issue moves forward, he said. “And make sure to purchase a well-designed EPL policy,” he said. “That’s up to the agents and brokers in the world to make certain that they’ve done their job properly.”

To watch the on-demand webinar with Casey Roberts on “COVID and EPLI Challenges and Concerns” visit: www.ijacademy.com

APRIL 4, 2022 INSURANCE JOURNAL | 31

News & Markets Aviation Re/insurers Face Claims as High as $10B From Planes Grounded in Russia

nsurers and reinsurers could face claims as high as US$10 billion in a worst-case scenario due to the grounding of planes in Russia, Fitch Ratings said. More than 500 planes that are financed or owned by non-Russian lessors are stranded in Russia due to sanctions imposed by numerous western countries in response to Russia’s invasion of Ukraine, a Fitch commentary states. The lessors have hull and liability insurance, as well as specific aviation war cover, and will call on their insurance to be indemnified against expropriation of their planes, Fitch explained. Most aviation policies are underwritten through Lloyd’s of London, and Fitch estimated that 30%–40% of primary insurers’ exposure is ceded to reinsurers. Industry experts estimate the total insured residual value of the grounded aircraft at US$13 billion, said Fitch. “Hull

insurance will typically have aggregate loss limits in place, which means that potential hull insurance claims should be significantly below US$13 billion: we estimate US$5 billion–$6 billion in a realistic scenario,” Fitch added. “However, we believe total insurance claims could be as high as US$10 billion in a worstcase scenario, which would be by far the largest annual claims in the history of aviation insurance.” Even with such a scenario, Fitch believes most insurers and reinsurers would only suffer a hit to earnings, rather than capital depletion, and there would not be material ratings implications. “There might be rare exceptions among specialized Lloyd’s carriers, where aviation losses in combination with other large claims could lead to modest capital depletion,” the ratings agency added. For comparison purposes,

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Fitch pointed to the fact that the pandemic has resulted in non-life insurance claims of about US$30 billion, and, during 2021, natural catastrophe claims were over US$100 billion. “Insurers’ and reinsurers’ credit profiles were resilient to both sets of claims, helped by very strong capital and healthy underlying earnings,” Fitch continued. Re/insurers’ strong balance sheet also should help mitigate losses from aviation insurance and from indirect underwriting exposures to the RussiaUkraine war, including the insurance of trade credit, cyber, marine and political risks, Fitch continued. Aviation insurance exposure is more concentrated among insurers than business interruption and event cancellation insurance, those lines that brought the most pandemic-related claims, Fitch said, adding that aviation is also more concentrated than property

catastrophe insurance. Some Lloyd’s underwriters are likely to suffer above-average losses, which would make their credit profiles more vulnerable to further large losses or external shocks, Fitch continued. Multi-billion-dollar aviation insurance claims could cause insurers and reinsurers to respond by increasing premiums, incorporating more exclusion clauses in their contracts, and cutting their exposure, the commentary went on to say. Fitch noted that it is hard to quantify ultimate claims with a high degree of certainty as outcomes are likely to be subject to legal disputes over the cover that applies, said Fitch. In particular, there may be disputes over whether certain coverage automatically expired once sanctions were imposed, or was cancelled in time by the carrier before the actual claims event — the expropriation of planes.

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Spotlight: Aviation/Drones

Drones in Agriculture and More By Andrea Wells

rones have become big business in the world of aviation. Today, drones represent the fastest-growing segment in transportation, with more than 853,000 drone registrations and more than 270,000 certified pilots at year-end 2021, according to the Federal Aviation Administration. Certain sectors of the U.S. economy, such as the agricultural industry, are steadily expanding the use of drones. The agriculture drone market alone is predicted to be worth US$32.4 billion, said Benjamin Pinguet, product and solution manager at senseFly, a company that produces high performance fixed wing drones for professional use, in an article on PrecisionAg. Drones have become big business in aviation, according to Camille Knight, a senior broker with CRC Group. Increased use of drone technology to perform standard farming tasks, such as INSURANCEJOURNAL.COM

spraying crops with pesticides and fertilizer, is driving growth in this sector. And the prospect for using drones for aerial mapping of growing areas and other cost-saving, productivity-enhancing tasks is pushing agriculture professionals toward new technologies. In addition to growth in the agricultural sector, the pandemic has pushed the growth of commercial drones for many other business operations, even in the insurance industry, to perform tasks such as inspections or post-storm damage adjustments. While drone usage is rising, the insurance market for aviation in general, which includes drones, remains a small bunch, according to Knight, who says there are only about 18 to 20 carriers outside the Lloyd’s syndicate market. The aviation market includes everything from the smaller aircraft to big charter operations to even some airlines, Knight said. It also includes drones, she added. These are not the everyday drones purchased at

the hobby store. Commercial use drones can be hundreds of thousands of dollars in value. The majority of drone claims are around physical damage, she said. “Their payloads can be like $100,00 or $200,000,” she said. When insuring a commercial drone it’s important to understand that coverage is almost always written on an agreed amount, she said. “So it’s very important that you are insuring your aircraft at the right value.” Also, make sure that pilots are complying with the FAA, she said. “Are the drones registered? Are they being operated for commercial use? If so, do the drone operators have the remote pilot certificate that’s required?” she said. “Just things like that you need to make sure that you’re in compliance with the FAA.” It’s important to remember, as well, that aviation insurance market is a challenging one. Five or six years ago there were a few more carriers and excess capacity in the market, she said. Nowadays, she often

finds it necessary to write coverages with multiple carriers. Camille Knight “It’s more like quota shares today where, one company is going to write 25% and want to be the lead insurer. And then you have to find other markets to follow that line.” Some carriers do not want to be a lead carrier and will only follow another company, she added. “So it’s a big web of additional things that you have to think about in addition to the already existing underwriting factors on the risk.” But there’s always a way to get the coverage, she said. Aviation insurance is a market where expertise really matters. An experienced broker can help insureds navigate the complexities of this unique market and help clients find the most appropriate coverage, she added.

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Closer Look: Talent

The People Behind the People How Talent Chiefs Led Through the Pandemic By Amy O’Connor

or insurance leaders tasked with managing their organization’s human capital, the COVID-19 pandemic presented myriad challenges around employee safety and wellness, and transformed their workplace responsibilities in ways they never anticipated.

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From navigating the shift to fully remote work, to return-to-office uncertainty, to mask and vaccine mandates, and employee burnout, as well as maintaining company culture, there’s been a lot for top talent leaders to handle over the last two years. The experience also helped underscore the importance of the HR position and why HR leaders must be considered a true business partner in leading an organization, particularly as it relates to employee health and safety, executives in these positions told Carrier Management, sister publication to Insurance Journal. “The pandemic has truly changed

how we do business and the relationship employers have with their employees, and so much of it sits in the HR function,” said Laura Rock, chief human resources officer for Zurich North America. “It’s such an exciting time to be in this seat.” “It’s really enlarged our role — for everybody on the HR team — to help manage the pandemic, everyone from benefits to employee relations,” said Caryn Angelson, chief legal officer and chief human resources officer of Tokio Marine North America and general manager of Global Talent Management Group for Tokio Marine Holdings. There’s an adage comparing HR leaders

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to the elementary school principal. Now “we’ve also become the school nurse,” Angelson said. In many ways, workplace safety was taken for granted prior Tracey Schweitzer to the pandemic, said Tracey Schweitzer, chief people officer for Wisconsin-based American Family Insurance, but these days it’s on the forefront of everyone’s minds. Still, she noted, “I certainly never joined HR thinking that a good percentage of my time over a two-year period would be spent on things like vaccines or testing or masking or extended office closures.” Through it all, Schweitzer said HR leaders like herself never wavered from prioritizing the needs of their people. “We really needed to make sure that we led with our values, and first and foremost kept our employees safe,” she said. “There was never a question. We take care of our customers; we take care of our employees.” The talent leaders from American Family, Tokio Marine and Zurich North America, as well as Florida-based American Integrity Insurance, Nationwide Insurance, Westfield, and startup homeowners insurtech Slide, shared how they guided their organizations through a once-in-a-lifetime pandemic and their priorities moving forward.

A ‘Flexible’ Approach

The pandemic transformed the workplace in a short period of time, and companies had to adapt quickly, said Tokio Marine’s Angelson. Staying flexible and in constant communication with employees and company leadership has been key, especially given the everchanging threat of the virus, as evidenced by the recent Delta and Omicron variants. Companies have had to alter, or completely scrap, their plans for employees to return to the office full time, and many employees now prefer to have the option to work from home at least a few days a week. “Where we ultimately land when the INSURANCEJOURNAL.COM

pandemic becomes more endemic is likely a hybrid workplace where some days you’re in the office and some days you’re at home,” said Angelson, who Jennifer Palmieri has been with Tokio Marine since 2001. Jennifer Palmieri, chief people officer for Westfield, said the company is not taking a “one-size-fits-all approach” to bringing employees back into the office. The leaders value having people work in person, she said, but know that things can be accomplished remotely as well. The company is checking in and surveying employees regularly and making decisions based on that feedback, she said. “We realize that different employees will have different needs and expectations, wants and desires as they return to work, and we’re going to work with them to try to accommodate as much as possible,” Palmieri said. About 25% of American Family’s workforce was working remotely when the pandemic hit, said Schweitzer. So, the company was already leveraging technology to connect with its employees. However, the situation has accelerated the remote work trend, she said. The company is now developing and testing different options and precautions so people can work safely. “As long as we continue to meet business, customer and employee needs, we feel we’re going to be able to continue to test and iterate what we learned,” she said. Slide, started last year by Bruce Lucas, the former chief executive officer and founder of homeowners insurer Heritage Insurance, opened a physical office in Tampa when it launched last fall, according to Chief People Officer Shannon Gougis. Though employees have the option to be remote or in person, most are coming into the office regularly. “Everyone appreciates the ability to be in person and collaborate because we are building something from scratch. So, it’s really beneficial to be able to have that face time,” she said.

The ‘Great Resignation,’ Diversity and the Talent War

The “Great Resignation” is something HR and talent leaders across Caryn Angelson all industries are intimately familiar with as the pandemic prompted people to re-evaluate their current careers and pursue new job opportunities. “The pandemic certainly has been a time where everyone just paused; there was a lot of time to reflect and rethink what was important to them and their families. They’ve developed more of a sense of purpose and passion, and they want their work to be meaningful to them, not just a job,” said Angela Bretz, senior vice president, and chief diversity and talent acquisition officer for Nationwide. Workplace flexibility, for example, is no longer considered a perk but the number one job requirement by potential candidates, Bretz said. Organizations must adjust and be open to new ways of doing things if they want to attract and retain talent, she said. Nationwide sees the current employment movement as “The Great Attraction,” Bretz said, and has had to “rethink and reimagine” its talent strategy. “How we are recruiting and retaining folks looks and feels different today than how it did a couple years ago because what’s important to them has shifted,” she said.

‘How we are recruiting and retaining folks looks and feels different today than how it did a couple years ago because what’s important to them has shifted.’ The Great Resignation opened the door for a new company like Slide to attract top talent, according to Gougis, who became the company’s second employee in September and has 25 years of experience in HR. “If

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Closer Look: Talent continued from page 35 you take a step back and look at it, it really is just about employees wanting a good workplace environment that’s optimal for them, as well as fair pay and recognition,” she said. “It’s left this space for Slide to come in and kind of be the hero, or the winner, because it’s allowed us to really have those conversations about [Slide’s] culture, and then they see it in action.” Gougis said the company currently has about 20 employees and plans to hire at least 13 more. The company is looking for a diverse group of people who are “willing to step outside their comfort zone in order to help push us forward,” she said. Attracting those kinds of employees hasn’t been a problem so far because people want to be part of something “innovative and exciting.” The insurtech is being flexible in how it builds its team by allowing company leaders to craft their staffing strategy, rather than focusing on hiring for specific job titles. “We can’t approach the talent portion of the business in old, archaic ways and never change. A more modern approach is necessary for both the business and employees to be successful,” she said. Recruiting diverse talent remains a key focus for HR and talent leaders, the executives said, as companies realize the necessity — and benefits — of employing people of different backgrounds. To that end, Nationwide combined its HR and diversity, equity and inclusion organizations early last year. Bretz, who has worked for Nationwide for 36 years and has led its DEI efforts since 2019, joined the company’s human resources team as head of talent acquisition at that time. She said Nationwide is “very intentional” in looking at the current makeup of its teams and hiring for what is missing, whether it be a certain personality, race or gender. “What we understand and we get wholeheartedly is that diversity, equity and inclusion begins with recruiting,” she said. Palmieri joined Westfield as chief people officer in July 2020 and has focused on reorganizing the carrier’s HR functions to include DEI and its HR technology group 36 | INSURANCE JOURNAL | APRIL 4, 2022

Shannon Gougis

since then. She said the goal of integrating these teams into the HR function was to make the organization less transactional and more strategically focused on achieving Westfield’s business goals and anticipating

its future needs. Her team’s efforts to bring in new and strong talent are intrinsically linked to Westfield’s DEI strategy, she said. Westfield is working with organizations like historically black colleges and universities (HBCUs) to introduce young people of color to the insurance industry to align with that strategy. “We want to help educate and inform them about the industry and the great work that we do and how you can have a really meaningful career,” she said. Talent and DEI are built into American Family’s strategic plan, Schweitzer said, because of the company’s belief that having diverse teams and inclusive environments produce better business results. The company views “The Great Resignation” as an opportunity to be more intentional in its DEI recruitment efforts, and in how it develops current talent within the organization. “It isn’t like we talk about business and then talent and DEI is on the side. Those things are integrated together, which makes my role even more exciting because everybody cares about talent and its part of our strategic leadership perspective,” she said. Tokio Marine’s Angelson said work flexibility is easing talent attraction and retention efforts, but she is consciously aware of not overlooking remote workers when it

comes to new opportunities and assignments. This is especially true for women, who are opting to do remote work with increasing frequency and are Angela Bretz already underrepresented in the senior ranks of the insurance industry. “We all, as management, have to be much more deliberate in terms of ensuring that equal opportunities for advancement are given to everyone irrespective of where their office may be,” she said.

Maintaining, Rebuilding a Company’s ‘Secret Sauce’

One of the most important elements of attracting and retaining employees is company culture, the HR leaders said, which has been hard to maintain with the shift to remote work. Tokio Marine’s Angelson said the ongoing hybrid work environment may also impact the engagement of new talent. “Culture is the secret sauce, and making sure that people really understand the culture if they’re new to the organization is going to be a challenge for all organizations,” she said. The executives stepped up their efforts to keep

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people engaged and connected to each other and their organizations throughout the pandemic. Angela Quinn, senior vice president and chief human Angela Quinn resources officer for Florida homeowners insurer American Integrity, said her team organized a variety of fun activities to bring people together safely, including virtual coffee breaks, field trips and games. “It takes more effort to keep a relationship or develop a relationship when you’re not in person, so we were very creative,” said Quinn, who has led HR for American Integrity for 10 years. While there was a paradigm shift in terms of how people formed relationships during the pandemic, particularly newer employees, Quinn believes the relationships at her company are stronger than before. “There was an intentionality about getting to know our employees and each other,” she said. Schweitzer said it’s been a challenge to create connections with new employees of American Family, which once housed thousands of people at its main campus in Wisconsin. “A good chunk of our workforce has never set foot in one of our buildings because they were hired during the pandemic,” she said. “Their relationships were built over Zoom.” Improving the onboarding experience for new employees so they can build those relationships if they continue to work remotely is a big priority for her team, she said. They are also working on how to bring people together safely. For example, rather than have people leave for meals or have them delivered, the company now offers fully subsidized breakfast and lunch. This also offers the opportunity for what she called “accidental collisions” among employees. “Food always brings people together,” she said.

Post-Pandemic Priorities

The human resources leaders know

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there’s a strong feeling of burnout among employees two years into the pandemic, so communication and employee well-being are top priorities moving forward. They’ve instituted several initiatives for employees to express their concerns or ask for support, including regular checkins, wellness surveys, access to outside resources and job flexibility.

‘We all, as management, have to be much more deliberate in terms of ensuring that equal opportunities for advancement are given to everyone irrespective of where their office may be.’ “We are very intentional about having those conversations and setting expectations, [communicating] that while we know this is a difficult time, … we expect them to walk away, take breaks and pause because their mental health and just overall wellness is priority No. 1,” Nationwide’s Bretz said. The pandemic has changed the dynamic between employees and managers over the last two years, said Zurich’s Rock. HR leaders now look to managers to connect with their employees at a much more basic level in terms of their safety, health and family situation. It’s been very rewarding for her team to be able to support that work, she said. “It’s a huge priority for us to make sure that our people feel at their best working

with us,” Rock said. Palmieri said managers and leaders should be having frequent check-ins with their employees to see how they are feeling. Not only does it help the employee and the HR organization but also the overall business. “It’s really important for leaders to have open lines of communication with their employees and to share with us any findings that they have,” she said. American Family’s Schweitzer said the core function of HR is taking care of people, but she knows her team of 450 must take care of themselves as well during this demanding time. Her team is working on prioritizing what needs to get done right away and what can wait. “One of the ways that we’re helping really all employees, but I would say HR employees especially, is to be really intentional about when we engage and not creating fires,” Schweitzer said. “Fire drills are always going to exist, but not creating fires when they don’t need to be.” As the immediate pandemic challenges shift, Rock said her team is ready for whatever happens next and she’s grateful for the partnership and support of company leaders. “My department feels appreciated by our employees, appreciated by the company, and feels like we’ve really been able to deliver and make a difference,” she said. O’Connor is a veteran freelance and insurance journalist based in California. APRIL 4, 2022 INSURANCE JOURNAL | 37

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Idea Exchange: Political Risk Why Political Risk Coverage Is Needed Now

eemingly endless machinations of the Russian leadership affecting Ukraine and its citizens have prompted multiple By Kevin McPoyle Western-based businesses to shut down, suspend or greatly curtail their Russian operations as part of their sanctions and in solidarity with the Ukrainian people. More than 300 companies have so far withdrawn from their Russian operations at the point of time of this writing. The diversity of companies and services withdrawing from Russia is as broad and deep as 3M, which is suspending operations in Russia, to NASDAQ, which is cutting off Russian access to capital markets, to McDonalds. While a significant number of companies have joined the process, there remain a few notable Western organizations whose operations remain open in Russia, including Halliburton, Cargill, Air Products and Mohawk Industries, according to the Yale School of Management, which is compiling the list. In reaction to the cessation of operations, a statement from Russian authorities indicates they may seize Western companies’ assets, including trademarks. In addition, corporate leaders may be arrested due to their decision to withdraw from Russia. Russian authorities claim to see these business closures as tantamount to criticism of their government, rather than as a reaction to their unprovoked invasion of a sovereign nation. There is pending legislation in Russia to nationalize the operations of Western companies exiting the country. Whether or not the legislation comes to pass, there is a business toll taken as organizations seek to understand how this will impact them and how they might protect themselves from the Russian government’s actions.

provides insurance to organizations in the event a business suffers a financial loss due to decisions or actions undertaken by a government. This insurance can provide coverage for expropriation of assets (confiscation of property), the inability to repatriate currency due to government and financial markets, debt default or at times, acts of terrorism or war. There are other causes which might also trigger coverage such as political violence or the calling of on-demand guarantees. All of these examples of incidents or circumstances leading to the use of political risk coverage are currently “on the table” as a result of the sanctions and the current state of the Russian economy.

Who Nees Political Risk Insurance?

Political risk insurance is a great risk management addition for many multinational corporations, banks, shipping lines, developers of infrastructure, other non-bank financial institutions, export/ import companies, technology companies

and others in this highly connected and volatile world. There is no other policy within a standard portfolio that provides the coverage insureds might seek if they have assets in Russia. Coverage is non-typical, meaning there is no one “standard” form used. Policies are written and customized to suit the particular needs of the insured. As we emerge from a two-year worldwide pandemic and now face the horror of a potentially extended invasion of Ukraine by Russia, inflation realities and continued supply chain issues, brokers should conduct a careful review of insureds’ risk management programs to determine how they may need to alter their coverages to more closely align with the world in which we live. McPoyle, CIC, RPLU, CPLP is president of KMRD Partners Inc., a risk and human capital management consulting and insurance brokerage firm serving clients worldwide. He can be reached at kmcpoyle@ kmrdpartners.com

Enter Political Risk Insurance

Simply put, political risk insurance

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Idea Exchange: Is It Covered?

Logic & Language and Forms & Facts

What Is a Pedestrian?

he first time I can recall asking this question was in 2010 and it involved a claim denial under personal auto uninsured motorists and medical payments coverages for someBy Bill Wilson one who was hit by a car while sitting on a snowmobile on the side of a street. Medical payments coverage was identical to that under the ISO Personal Auto Policy (PAP) and applied to the named insured(s) and resident family members while occupying “or as a pedestrian when struck by” a motor vehicle designed for use on public roads or a trailer of any type. The state-specific underinsured motorist coverage, unlike the countrywide ISO coverage, also required that the insured 40 | INSURANCE JOURNAL | APRIL 4, 2022

be a “pedestrian” if not occupying a motor vehicle at the time of the accident. So, in order to recover medical or, in some states, uninsured motorist or no-fault payments, what constitutes being a “pedestrian,” a term not defined in the ISO PAP or most other auto forms.

Pedestrian Definition

There are statutes that define “pedestrian” within the governance of said statutes. For example, federal Title 23 U.S.C. 217, which deals with the accommodation of bicycle and pedestrian traffic for transportation projects, defines “pedestrian” to mean “any person traveling by foot and any mobility-impaired person using a ‘wheelchair.’” The term “wheelchair” means a mobility aid, usable indoors, and designed for and used by individuals with mobility impairments, whether operated manually or motorized.

Massachusetts Annotated Laws Title XIV, Chapter 90, 34A, which also governs transportation issues, defines “pedestrian” to include “personal operating bicycles, tricycles and similar vehicles and persons upon horseback or in vehicles drawn by horses or other draft animals.” One of the reasons often cited for a lack of a definition of “pedestrian” in auto policies is the variety of state and federal laws that define this term. However, few of these statutes appear to directly govern how the term may be defined in an auto insurance contract. So why not define the term? Why, you say? A Nevada insured was struck by an auto while skateboarding, incurring medical expenses of $24,000. The claim was denied on the basis that he was not a “pedestrian.” The insurer interpreted “pedestrian” to require that the claimant literally be on foot. INSURANCEJOURNAL.COM

A bicyclist in Ohio was hit by an auto and taken to a local hospital. The agent turned in a medical payment claim which was denied because the claimant was not on foot. According to these carrier interpretations, a “pedestrian” would not include someone sitting down or on a skateboard, bicycle, roller skates, snow skis, horseback, and the list goes on. What about a scooter, Segway, e-bike, etc.? If, for example, the e-bike is deemed to be a motor vehicle designed for use on public roads and the claimant is “occupying” it, then there would appear to be coverage under many, if not most, auto policies. But not for a regular bicycle? One could argue that this makes no logical sense. As for the courts, decisions are all over the place. For example, in State Farm Mut. Auto Ins. Co. v. Stein, 940 P.2d 383 (Colo. 1987) and in Cole v. Auto-Owners, 272 Mich. App. 50, 723 N.W.2d 922 (2006), the courts opined that a bicyclist was not a pedestrian as required to trigger uninsured motorist coverage. On the other hand, in Tucker v. Fireman’s Fund, 308 Md. 69, 517 A.2d 730 (1986), the court ruled that someone who was sitting on a stool was a pedestrian and that the undefined term “pedestrian” could be ambiguously applied to different sets of facts and circumstances.

That being said, courts often reference dictionaries to determine the common meaning of terms and, if you examine most dictionaries, you’ll find that they define “pedestrian” to mean a person “on foot.” The Cambridge Dictionary defines “pedestrian” to mean “a person who is walking” and gives an example of its use in a sentence: “Bicyclists and pedestrians use the path.” Clearly, this dictionary is distinguishing pedestrians from bicyclists. No doubt there are dozens, if not hundreds, more judicial examples of how the undefined term “pedestrian” may be interpreted. It is usually a good thing to remove ambiguity from an insurance contract. A good example is the Washington state Supreme Court case of McLaughlin v. Travelers Commercial Ins. Co. In this case, the court considered dictionary definitions, as well as at least two state statutes. For example, motor vehicle statute RCW 46.04.400 stated that “‘Pedestrian’ means any person who is afoot or who is using a wheelchair, a power wheelchair, or a means of conveyance propelled by human power other than a bicycle.” On the other hand, casualty insurance statute RCW 48.22.005(11) stated that “‘Pedestrian’ means a natural person not occupying a motor vehicle as defined in RCW 46.04.320.” The court found that this variance in definitions created an ambiguity with

regard to the meaning and intent of the word “pedestrian” and, therefore, found in favor of the insured claimant. Regardless of ambiguity, one would think that an insurance-specific definition should prevail anyway over a motor vehicle definition.

‘One of the reasons often cited for a lack of a definition of pedestrian in auto policies is the variety of state and federal laws that define this term.’ Another issue is, if an insurer interprets “pedestrian” to include someone on foot but not in a wheelchair, is that potentially discriminatory under insurance or Americans with Disability Act-like laws? Not being an attorney, I can’t answer that, but as a matter of fairness and equity, it doesn’t seem right. Even if legal, is it ethical?

Equity and Consistency

My personal opinion, as a matter of equity and consistency, is that auto medical payments coverage should apply in the same way that un(der)insured motorist coverage under the ISO Personal Auto Policy applies — to named insureds and resident family members when struck by a vehicle designed for use on public roads without regard to whether the insured is on foot or occupying a vehicle of any type. What do you think? Feel free to engage in a conversation about your experience with these types of claims or your opinions on coverage by expressing your thoughts either in the comments section on www. insurancejournal.com or via email. And, with kids hopefully headed off to college this fall, check out next month’s column about insuring college students so you can address these issues on your upcoming home and auto renewals. Wilson, CPCU, ARM, AIM, AAM is the founder and CEO of InsuranceCommentary.com and the author of seven books, including “When Words Collide… Resolving Insurance Coverage and Claims Disputes.” Email: Bill@InsuranceCommentary.com.

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APRIL 4, 2022 INSURANCE JOURNAL | 41

Idea Exchange: Ask the Insurance Recruiter 10 Questions to Ask When Conducting a Reference Check

n efficient process is essential to successful recruiting in today’s job market. Any part of your process that creates delays chips away at your ability to compete for top talent. Reference checking is one area where a lot of insurance organizations need to improve. Start with these three questions to determine if references are a valuable hiring resource or a cog in the wheel: • Do references lead to new information that you didn’t previously have about the candidate? • What is the average time it takes you to complete reference checks? Has that time helped or hurt your ability to bring the hire to completion? • Do you use reference information for any reason other than deciding to make a hire, say to increase new employee onboarding, training, management or retention success? If you believe reference checks are very important, then you want to extract maximum value from the process. This starts with asking the right questions. When Capstone is asked to conduct reference checks for a client, here are the 10 questions we use to gain valuable

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insight into the person and their potential.

Culture Questions

Your goal is to find out what the candidate is like on a day in, day out basis.

1. What comes to mind when you think

about your experiences working with this person? 2. What kind of environment or structure do they thrive in? 3. How do they typically interact with other employees including colleagues, subordinates, and managers within the office? 4. Tell me a little about their general personality, and how is that received by clients as well as internal and external partners? 5. How do you think their peers would describe them?

Professional Development Questions

Start by sharing information about the job to get the reference’s opinion on the candidate’s potential success.

6. Can you give an example when you saw this person encounter a difficult situation? How did they handle conflict resolution?

7. Was there a time

when this person went above and beyond to get the job done? 8. What should their future manager know about ways to help this person grow professionally?

By Mary Newgard

Endorsement Questions

You need to know if this person’s first-hand insight makes for a valuable recommendation.

9. With what I’ve shared about the job,

plus what this person brings to the table, do you think this position is a good match for them? 10. If given the opportunity, would you hire/rehire this person? Why or why not?

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

APRIL 4, 2022 INSURANCE JOURNAL | 43

Idea Exchange: Cyber

Russian Invasion of Ukraine, Cyberattacks and War Exclusions in P/C Policies

he Russian invasion of Ukraine may result in cyberattacks causing widespread and severe losses in Ukraine and beyond. By Vincent J. Vitowsky Even before the current invasion, some Russian cyberattacks aimed at Ukraine spread to other nations. The most prominent of these was the NotPetya attack in 2017. NotPetya was the name given to a strain of one of the most destructive types of malware, known as “Wiper” malware, which is designed to functionally destroy computers by wiping their contents completely. It was designed to spread to other computer networks, and did. It caused an estimated $10 billion in losses throughout the world. (NotPetya will be discussed in 44 | INSURANCE JOURNAL | APRIL 4, 2022

greater detail later in this article.) The current threat matrix is multidimensional. Russia may intentionally target companies in the United States, Europe, Australia, Japan and elsewhere, in response to support given to Ukraine, and in retaliation for the economic sanctions that have been imposed. If the war drags on or escalates, Russia may seek tactical or strategic benefit by increasing the overall level of distress in other nations. After the conflict ends, however it ends, Russia will be the object of extreme resentment and suspicion. It may launch cyberattacks to increase disorder, believing that an environment of disorder would best serve its position as a significant power. In addition to the nations in conflict, cyberattacks could be launched by groups

affiliated with them, as well as independent groups sympathetic to one of them. Cybersecurity analytics firms estimate that approximately 10 hacking groups are currently assisting Russia. And Ukraine has publicly called for an international “IT army” of volunteer hacker groups. It is estimated there are at least 22 such groups currently assisting Ukraine. The threat is enhanced by the increased availability of “zero click vulnerabilities.” These are cyberattacks that can enter networks without the victims doing anything, such as clicking on a link, or without using compromised credentials. They include vulnerabilities such as Solarwinds, Log4j and Pegasus. Compounding this threat, researchers have discovered a Russian cyberweapon called HermeticWizard, which is a new strain of software designed to autonomously spread another strain, INSURANCEJOURNAL.COM

HermeticWipe, to other computers in a network. That is, it has capacities similar to the NotPetya malware. Even without intentional design, malware can break “into the wild,” infecting other networks and causing the kind of “collateral damage” to innocent parties that is a feature of traditional warfare. Property/casualty insurers face potential exposure to losses from cyberattacks that directly target or indirectly reach their insureds in the United States and elsewhere in the world. This article addresses the extent to which War Exclusions may mitigate that exposure.

Modern ‘War Exclusions’

The term “War Exclusion” is a misnomer. Over the years, War Exclusions have come to apply to much more than traditional war between sovereign nations. There are countless variations in title, language and the scope of coverage in provisions used by different insurers, and in different lines of business. Several exclusions are used broadly. Others are bespoke. Yet with this understanding, for ease of reference, when referring to these provisions in general or collectively, this article will use the term “War Exclusions.” Any analysis of the issues addressed must focus on the specific War Exclusion at issue. Some of the frequently used terms and phrases used in War Exclusions of potential relevance here include the following: war; hostilities; warlike operations (whether declared or not); military operations; military or usurped power; damage to property by or under the order of any government; acts of foreign enemies; any action taken to hinder or defend against these events, [or alternatively]; and action in hindering or defending against an actual or expected attack by any government, sovereign or other authority using military personnel or other agents. There is one commonly used form of special interest, because it appears in many all-risk property policies that might be implicated in cyber losses. It is at issue in the two prominent pending litigations described below. It provides in relevant part as follows. INSURANCEJOURNAL.COM

Hostile/Warlike Action Exclusion

Loss or damage caused by hostile or warlike action in time of peace or war, including action in hindering, combatting, or defending against an actual, impending, or expected attack: 1. by any government or sovereign power (de jure or de facto) or by any authority maintaining or using military, naval or air forces; 2. or by military, naval, or air forces; or by an agent of such government, power, authority or forces. 3. This policy does not insure against loss or damage caused by or resulting from [the perils in the Exclusion above] regardless of any other cause or event contributing concurrently or in any other sequence to the loss.

Current Prominent Litigation

Both of the prominent cases currently in litigation address the application of the Hostile/Warlike Action Exclusion to cyberattacks. Both arose out of the NotPetya cyberattack in 2017. In the NotPetya cyberattack, Russia sent malware to at least several dozen Ukrainian companies. It was disguised as ransomware, similar at first view to an earlier ransomware attack called Petya. But the new strain was really “wiperware.” That is, it automatically encrypted the victim’s data, permanently and inalterably. Essentially, it obliterated the data in the victim’s systems. It was designed to spread to other networks automatically, rapidly and indiscriminately, and it spread throughout the world. It was so indiscriminate that it infected the network of the Russian state oil company, Rosneft. It is estimated that NotPetya caused approximately $10 billion in losses, including more than $1 billion in losses to three separate organizations in the United States. The first prominent litigation is Mondelez Int’l, Inc. v. Zurich Am Ins, Co., in which an American confectionary, food and beverage company asserts it suffered over $100 million in damages because of the loss of 1,700 servers and 24,000 laptops. Its insurer denied coverage because the policy contained the Hostile/Warlike

Action Exclusion. The case is pending in state court in Illinois and no decisions have yet been rendered. The second prominent litigation is Merck & Co., Inc. v. ACE Am. Ins. Co., et al. The pharmaceutical giant Merck suffered a widespread systemic failure caused by NotPetya. Operations were halted for two weeks, and Merck asserts it suffered more than $1.4 billion in damages. It had nearly three dozen insurers on all-risk property policies providing coverage for loss or damage resulting from the destruction or corruption of computer data and software. The insurers rejected Merck’s claims based on the Hostile/Warlike Action Exclusion. On Jan. 13, 2022, the lowest-level state court in New Jersey rendered its decision. It said it was interpreting the words of the Hostile/Warlike Actions Exclusion by their “ordinary meaning.” It said that the term “warlike” could only be interpreted as “like war.” This is consistent with the definition in the Oxford English Dictionary, which also defines “hostile” as “of, pertaining to, or characteristic of an enemy, pertaining to or engaged in actual hostilities.” Merck argued this meant that the exclusion only applied when armed forces engaged in traditional warfare. The court agreed. It cited a few old cases and said that “no court has applied a war (or hostile acts) exclusion to anything remotely close to the facts herein.” Based on this logic, it held “Merck had every right to anticipate that the exclusion only applied to traditional forms of warfare.” Thus, it held the exclusion did not apply. This decision is subject to robust criticism. It is true that the exclusion had never been applied to a cyberattack — but no court had ever been presented with the issue. Further, the court did not analyze the term “hostilities,” which is inherent in the definition of “hostile.” There are numerous sources of authority in various contexts that broaden the term far beyond conventional war by armed forces. Moreover, contemporary military doctrine in the U.S. and several other advanced nations recognizes cyberspace as a domain of warfare and conflict. Finally, there is general consensus that cyber

continued on page 46 APRIL 4, 2022 INSURANCE JOURNAL | 45

Idea Exchange: Cyber continued from page 45

activities are subject to the international Law of Armed Conflict, which is the proper term for what is generally called “War Law.” For these reasons, this case should not be considered authoritative. It may not withstand appeal. Even if it does, courts in other states have no obligation to follow it. In addition, the case could clearly be distinguished based on the facts of the current conflict. Russia and Ukraine are involved in an actual war, with bullets and bombs. If they were also to deploy destructive cyber weapons against each other, War Exclusions would clearly apply. And if outside groups were to deploy destructive cyber weapons in support of one of the nations, with extensive collateral damage outside the physical theatre of conflict, there is a substantial argument that they too should fall within War Exclusions.

Analytical Framework

As of the time this is being written, Merck is the only known decision construing War Exclusions in the context of a cyberattack by any nation, under any type of policy. There are countless variations in the types of cyberattacks and the applicable language of War Exclusions. Thus, the question is wide open, requiring detailed analysis on a case-by-case basis. There are four central areas of analytical inquiry. First, is a given cyberattack covered at all by the particular property/ casualty policy at issue? Next, what is the nature of effect of the cyberattack? Third, what is the nature of the threat actor launching the cyberattack? And fourth, what is the nature of the victim? Often, the answers to these questions will not be clear. But the best answers available must be examined under the case law of a given U.S. state. The case law on War Exclusions is sparse and not especially illuminating, and general insurance coverage law varies across states. Thus, determining whether to enforce a War Exclusion is much more art than science, and judgments are required.

Is the Cyberattack Covered at All?

The essential first step is to determine whether the loss caused by the cyberattack 46 | INSURANCE JOURNAL | APRIL 4, 2022

falls within covered risks contemplated by the policy. This is a function of: • How cyber risks are treated in the policy. What grants, extensions and exclusions might apply? • In the absence of policy provisions, is there “silent cyber” or “non-affirmative cyber” coverage? Property/casualty policies treat cyber risks in various ways. In current policies, it is very rare to have no language addressing cyber risks at all. Instead, most have express coverage grants, extensions or exclusions. Many of these are ISO forms or ISO-derived forms. Merely by way of example, these include, among other forms: • an Extension for Interruption of Computer Operations Due to Destruction or Corruption of Electronic Data; • an Extension for Replacement or Restoration of Electronic Data; • a definition of Business Income and Extra Expense coverage which includes Interruption of Computer Operations; and • Inland Marine policies with an Electronic Data Processing Coverage Form.

‘One of the challenging technical issues in cybersecurity has been accurately identifying the source of a cyberattack.’ In addition, Exclusions for Access or Disclosure of Confidential or Personal Information and Data-Related Liability are fairly common. Apart from forms such as these, in theory, policies could be found to afford silent or non-affirmative coverage for a range of cyber risks. These include commonly understood risks such as First-Party Cyber Property Loss and Network Disruption (including Business Interruption and Contingent or Dependent Business Interruption) and Ransomware and Cyber Extortion. In theory, policies could also be found

to cover less commonly understood or addressed cyber risks. These include the following: • Third-Party Cyber Physical Events, which are cyber-related events resulting in damage or injury to third parties. This could include damage to data, software, hardware, and computer systems, and also other types of property damage and bodily injury. • IoT Risks, which refers to devices connected to the Internet that fail or malfunction. They can cause first- or third-party property damage or bodily injury. • Industrial Cyber Risks, which are related to but different from IoT Risks. They arise from electronic interference, Internet-based or otherwise, with an Industrial Control System (“ICS”) or a Supervisory Control and Data Acquisition (SCADA) System. These are systems used to monitor and control plants or equipment. They present special challenges of interpretation and causation. If these systems are compromised, they can be used to destroy production equipment. For example, they might cause a generator or turbine to rotate too quickly and damage or destroy property. The equipment itself could be destroyed. The loss could cascade because equipment around it could be damaged as it breaks apart. So the damage is not merely to the equipment, but from the damaged equipment, causing further damage to other equipment or property. And the loss could be aggravated by third-party property damage and bodily injury. Upon making the determination that there might be coverage under the policy, the analysis proceeds to the next questions.

What is the Nature and Effect of the Cyberattack?

The key questions are: • Is it “hostile” or “warlike” as commonly understood? • Is the effect “kinetic,” are there physical effects similar to those produced by bullets and bombs? • If the effects are not kinetic, do they cause widespread or severe economic INSURANCEJOURNAL.COM

damage, impair critical infrastructure, impair the government’s ability to provide essential services, or have similar gravity? Modern policies do not focus on whether a war has been declared, or whether there has been an “act of war.” Instead, they focus on the nature and source of the attack, and its effect. Since at least 2012, the position of the U.S. government has been that “cyber activities that proximately result in death, injury or significant destruction would likely be viewed as a use of force.” Use of force is understood to refer to the prohibition in Article 2(4) of the United Nations Charter, which prohibits the use of force against the territorial integrity or political independence of any state. Thus, it is highly likely that a cyberattack would be construed as “hostilities,” “war” or “warlike operations” when it has kinetic effects, i.e., it has the same effects as bullets and bombs, hurting people and breaking things. Beyond that, without specific policy language, the courts will be faced with unresolved “questions of first impression.” Some of the other circumstances in which War Exclusions are most likely to apply are when the effects of the cyberattack are widespread and severe, and when it results in significant disruption of the availability or integrity of essential services, such as: computer networks INSURANCEJOURNAL.COM

and information systems; the internet; financial institutions and financial market infrastructure, especially if there are significant economic losses; health services; utilities; and other components of critical infrastructure and essential services. War Exclusions could also be applied to a cyberattack causing loss or damage resulting from an impairment of functioning of the government, including the nation’s security or defense. It is reasonable to assume these effects could trigger War Exclusions even in the absence of specific language. But insurers would be well-advised to add express language addressing them.

What is the Nature of the Threat Actor?

Is the threat actor: • Russia or Ukraine? • A group officially or in reality connected to, controlled by, or acting at the request of Russia or Ukraine? • An independent group voluntarily aligning with Russia or Ukraine? One of the challenging technical issues in cybersecurity has been accurately identifying the source of a cyberattack. This is called “Attribution.” While challenging, it is not impossible. For example, the NotPetya attack was attributed to the Sandworm group working within Russia’s military intelligence organization, the GRU, by each of the “Five-Eyes Intelligence Alliance” — the United States, the United Kingdom,

Australia, Canada and New Zealand — as well as by Denmark, Finland, Latvia and Sweden. In the context of the RussiaUkraine conflict, there is a substantial possibility that governments would again make attributions. Even without government attributions, many of the same resources used by governments to make attributions are equally available to private companies. An example is the cybersecurity forensic firm CrowdStrike, and others of similar caliber. In fact, they are at times relied on by governments themselves. It is extremely likely that Russia would be the nation launching a direct cyberattack on the West, either targeting a specific entity, or using malware designed to spread. For cyberattacks from Ukraine, there would be some risk of inadvertently sending an exploit into the wild. But in either case, virtually every government, cybersecurity forensic firm, and hacker collective will be joining the effort to identify the source, so reliable attributions are likely to be possible. Additional threats come from groups of “non-state actors” who are de jure or de facto agents of one of the nations in conflict. Much is known about the threat signatures and characteristics of many of these groups, so again reliable attributions may be possible. Indeed, some groups have declared their allegiance openly. Where the attacker is a nation or an affil-

continued on page 48 APRIL 4, 2022 INSURANCE JOURNAL | 47

Idea Exchange: Cyber continued from page 47 iated non-state entity, most cyberattacks would likely fall within War Exclusions. For non-state entities, of course, it would help if the exclusion expressly contained language such as “by a state … or those acting on its behalf,” or “those acting at its direction,” or “by an agent of,” or similar terms. But a substantial argument could be made that those words are not required. Once again, there is no case law directly on point in the cyber context, so this is a question of first impression. An additional area of inquiry is whether the non-state actor is a Russian ransomware gang or other entity that was made subject to sanctions by the U.S. Treasury Department’s Office of Foreign Asset Control (OFAC), either before or as a consequence of the invasion. This would have two effects. First, even if an insurer wanted to pay a ransomware demand, it would be illegal to do so. Second, it would strengthen the position that the cyber attacker was sufficiently close to the Russian government that War Exclusions should be enforced. There is another gray area. What if a non-affiliated hacker group such as Anonymous launches an attack against Russia that inadvertently spreads to other countries? Novel and complex questions would arise about whether it had the type of relationship with one of the combatants that is necessary under most current War Exclusions, or whether it could be charac-

48 | INSURANCE JOURNAL | APRIL 4, 2022

terized as a “unprivileged belligerent” in a war.

What Is the Nature of the Victim?

Is the victim: • An insured that was directly targeted? • An insured hit by a cyberattack deliberately designed to spread to other networks? • An insured that was “collateral damage” in a cyberattack that went into the wild? Finally, the nature of the victim will be a factor in whether War Exclusions apply to a given cyberattack. If the victim is directly targeted by the cyber attacker, there should be little doubt about the applicability of War Exclusions. It is possible that some would raise questions if the victims were not physically located in Russia or Ukraine. But as noted, advanced countries recognize cyberspace as a military domain. That domain has no physical boundaries, and a thoughtful court should recognize that. The most likely entities to be directly targeted are banks, IT and internet service companies, utilities, shipping companies and mobile phone network operators. If the victim was struck by an attack deliberately intended to spread, a strong case for enforcing War Exclusions could also be made, because the loss would likely be considered to result from a direct cyberattack.

‘What if the cyberattack goes into the wild and inadvertently spreads to an insured’s system, so that the loss is more remote than those from the original attack? There is no clear authority here, and most policies have not addressed this.’ But one scenario may raise additional issues. What if the cyberattack goes into the wild and inadvertently spreads to an insured’s system, so that the loss is more remote than those from the original attack? There is no clear authority here, and most policies have not addressed this. One of the new LMA War, Cyber War and Cyber Operation Exclusions (which are discussed below) does address it, by providing an exception to the exclusion for the direct or indirect effect of a cyber operation on a “bystander cyber asset.” That term is defined as “a computer system used by an insured or its third party service providers that is not physically located in an impacted state but is affected by a cyber operation.” An “impacted state” is defined as “any state where a cyber operation has had a major detrimental impact on the functioning of that state and/or security or

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Advertisers Index defense of that state.” Under this language, at least some losses from collateral damage are not excluded — those suffered by an entity in a state that was not heavily affected by the cyberattack.

Updated War Exclusions

Given the many potential open issues described above, insurers may wish to review the treatment of cyberattacks under War Exclusions for all their lines of business. Standalone cyber insurers have been working on this problem for years, trying to address it fairly, while avoiding the danger of catastrophic aggregation. They have started to put forth proposals. In a significant effort, in late 2021 the Lloyd’s Market Association released four “War, Cyber War and Cyber Operation Exclusions.” (LMA Exclusions) They were designed for use in standalone cyber policies, and attempt to address and thus provide clarity on several of the most vexing issues. Although the LMA Exclusions were designed for standalone cyber insurance policies, several of their concepts and elements merit consideration when reviewing and updating War Exclusions in policies for other lines of business.

Conclusion

The application of War Exclusions is not an exercise involving certainty derived from immutable facts. Rather the determination is a judgment based on an evaluation of often incomplete facts in an uncertain legal context, made by people — claims executives, their legal advisors, and ultimately judges. The coming weeks, months, and years may require many such judgments. Vitkowsky is a partner in Gfeller Laurie LLP, resident in New York. His practice includes cyber risks, liabilities, insurance, and litigation, including coverage determinations and policy drafting. His practice has frequently involved the intersection of insurance and national security. This article was originally published on Gfeller Laurie’s website and has been reprinted with permission. Email: vvitkowsky@gllawgroup.com. INSURANCEJOURNAL.COM

Applied Underwriters www.auw.com

April 4, 2022

2, 3, 52

Great American Insurance Group www.gaig.com

IASA www.iasa.org

M.J. Hall & Company www.mjhallandcompany.com

Monarch E&S Insurance Services www.monarchexcess.com

Texas Mutual www.texasmutual.com

SC1

The Hartford Insurance Group www.thehartford.com

Emphesys Insurance Company 1221 S. MoPac Expy., Suite 300 Austin, TX 78746 The above company has made application to the Division of Insurance to obtain a Foreign Company License to transact Life, Accident, and Health insurance in the Commonwealth of Massachusetts. Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, 1000 Washington Street, Suite 810, Boston, MA 021186200, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.

April 4, 2022

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

Wellfleet Insurance Company 5814 Reed Road Fort Wayne, IN 46835

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

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

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

April 4, 2022

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

American Benefit Life Insurance Company 1605 LBJ Freeway, Suite 700 Dallas, TX 75234

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

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

APRIL 4, 2022 INSURANCE JOURNAL | 49

Closing Quote How AI Can Help Agents, Brokers and Insurers Build Empathy

By Ilya Filipov

mpathy isn’t a word small business owners typically associate with insurance companies. But that doesn’t mean empathy isn’t important to policyholders. Quite the opposite: Empathy demonstrated by agents/ brokers and insurers can have a profoundly positive effect on overall customer satisfaction and brand loyalty. Whether filing a claim involving a fire or facing a stressful decision about which worker’s compensation insurance option to choose, business owners can display a range of emotions when interacting with their insurance representatives. They may be in a fragile state that makes it difficult for them to answer questions or make decisions. This is when agents and insurers must be able to empathize, both in how customer-facing representatives interact with policyholders and in how easy insurers make it for policyholders to navigate the claims and service requests. It may sound counterintuitive, but artificial intelligence (AI) can be used to spread empathy across the entire organization. Here are three specific ways AI can help.

Define what empathy means. Ask 10 insurance

industry representatives what

empathy means to them, and you’re likely to get 10 different answers. Empathy is hard to convey convincingly when a claim is denied. Yet every insurance company can readily identify those “top agents” able to deliver any message to a policyholder in an empathetic way, agents who possess a special ability to communicate with customers on a human level. The first step in building an empathetic organization, then, is to analyze what these successful agents — the top 5%, for example — are doing and compile a list of empathy best practices that can be used to train everyone. However, these top performing agents on the empathy scale are far more intrinsically skilled and not easily emulated. It is critical, therefore, that insurance executives bring in experienced coaches and consultants to build effective training and response programs. Compounding the organizational empathy challenge is the trend toward providing self-service both to increase efficiency and meet rising customer expectations for convenience. Granted, policyholders don’t have a need for empathy in every situation, but when they do, insurance representatives must be prepared to respond according to a strategic plan that cultivates relationships.

Use AI to build an empathy model. The limitations of chatbot technology aside, AI can play an integral role in raising an organization’s empathy

50 | INSURANCE JOURNAL | APRIL 4, 2022

level by acting as a real-time coach for live representatives, offering proposed responses and specific language to convey empathy to policyholders. In this context, AI acts as a skillful hidden hand guiding the human touch. With input from management, data scientists and experience from their top empathy performers, insurers and agents/brokers should utilize AI to program or create an empathy model for others to follow. This is the second step they should take to build an

organization that is consistently empathetic to policyholders.

Imbue empathy across the enterprise. The third step is

to implement the AI empathy model so that it is part of every conversation with customers. An AI model can generate suggestions in real-time along with information and feedback that managers can use to coach their teams and institute a practice in a way that better conveys empathy during customer conversations. As an example, they can use AI and natural language processing (NLP) to conduct sentiment analysis in realtime to gauge the emotions of a policyholder speaking to a representative. The AI model uses this information to suggest responses and specific

language to human agents while they’re interacting with the customer. The sentiment analysis score then can be viewed by supervisors to gauge areas of improvement for the agent. There is no doubt that some people have a gift for interacting with others and for expressing empathy. And though you can’t teach gifts, you can teach skills. With the right tools and training approach, human agents can upgrade their empathy skills enough to improve their effectiveness and overall performance. Not everyone is going to be in the top 5%, but if organizations can upgrade someone from the top 40% to the top 20%, and replicate that process through the AI model, that’s a big win. In the wake of the COVID-19 pandemic and as natural disasters continue to increase, empathy has become more important than ever. When a policyholder is in crisis, after all, he or she wants to talk with a fellow human. Thus, while the benefits of AI, automation and self-service to organizations and policyholders are many, it would be a mistake for insurance companies and agents/ brokers to rely strictly on these technologies for customer support. The most effective approach is a hybrid human/AI model that can be customized to fit the specific needs of the organization. Filipov is the director of industry strategy for financial services, insurance, at Talkdesk. INSURANCEJOURNAL.COM

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