Insurance Journal West 2022-05-16 by Insurance Journal

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May 16, 2022 • Vol. 100 No. 9

Contents News & Markets

Idea Exchange

Special Report

Most Homeowners Underinsured for Trends in Inflation, Building Costs: APCIA

Making Financial Statements Work for You with 3 Key Questions

Spotlight: Coaching Youth Hockey Bonds Insurance Pros On & Off the Rink

The Competitive Advantage: Insurance Claims – The Problems and Some Solutions

35% of Workplace Injuries Occur During First Year: Travelers

Report Forecasts ‘AboveNormal’ U.S. Wildfire Season, Worse in Drought-Plagued West

Closer Look: Compliance in Cannabis Can Be a Painstaking Task

Global Insurance Rates Continue to Moderate in Q1, Except Cyber

Special Report: Piecing Together Coverage in Live Events

Rapid Cyber Premium Growth by Fairfax, Tokio Marine Increased Share of Market

Contingent Risk Insurance: What Is It and Just How ‘Risky’ Is It?

Understanding the Fine Print: How to Make Informed Decisions about PEOs

Closing Quote: Cyber Insurance: A Necessity for Every Agency

Special Report: A Changing Live Event Insurance Landscape

FEMA Contractors Not Liable for Misrepresentations About Flood Risk

Closer Look: Creating Harmony: What Cyber, Insurance Pros Can Learn from Music

Special Report: The Risks of Amusement Parks

Spotlight: The Evolution of Catastrophe Modeling Since Hurricane Andrew

Departments

6 Opening Note

4 | INSURANCE JOURNAL | MAY 16, 2022

14 Figures

15 Declarations

16 Business Moves

18 People

46 My New Markets

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Opening Note Write the Editor: awells@insurancejournal.com

Chairman of the Board Mark Wells | mwells@wellsmedia.com Chief Executive Officer Joshua Carlson | jcarlson@insurancejournal.com

ADMINISTRATION / CIRCULATION

Small Biz Ups and Downs

mall businesses are the heart of America but today’s economic rollercoaster is a tough ride to handle. According to a recent survey by Next Insurance, small businesses are feeling stressed and frustrated by the state of the economy and inflation. Only 29% of respondents said they felt optimistic about an economic recovery in the next year, according to the survey of 1,000 small businesses across the U.S., with 35% admitting they have considered closing their business. Following two years of being hamstrung by pandemic restrictions, small business owners said they are working more hours and about a third of respondents said they are performing duties usually handled by someone else. Thirty percent said employee turnover is high, with 28% reporting they’ve been “ghosted” by employees even though the survey revealed these business are paying about $24 per hour — about $2 more than two years ago. Just 8% of small businesses said they pay less than $10 per hour. But it’s not all bad news. The MetLife and U.S. Chamber of Commerce Small Business Index yielded a score of 64.1, the highest score since the start of the pandemic. (The low point of the pandemic was reached in 2020 Q2 when the score reached 39.5). This score comes after a tumultuous 2021, where the Index fluctuated more than usual, though ultimately it ended with increased optimism relative to the onset of the pandemic in 2020. The U.S. Chamber reported that about three in five (61%) small business owners say their business is in good health. Upward trends over the last several quarters to hire more, invest more, and anticipate increasing revenues continued. The quarterly Index, an online survey of 750 small business owners and decision makers, is designed to take the temperature of the sector, see where small business owners are confident, and where they are experiencing challenges. Meanwhile, 91% of small business respondents said they have had to raise prices due to supply chain issues and inflation, according to Next Insurance, which targets small and medium businesses. Nearly 40% said the increased cost of materials has significantly impacted them in the last six months. Eight out of 10 small businesses said they have been impacted by shipping delays, and shipping costs have skyrocketed. “This substantial inflation is rapidly becoming a crisis for U.S. small businesses, which operate on low-profit margins and have less flexibility than larger companies,” said Suzanne DuFore, director of research at Next Insurance. Even so, it is encouraging to see the steady rise in business confidence on Main Street, says U.S. Chamber Vice President of Small Business Policy Tom Sullivan. “Inflation is top of mind for small businesses as it continues to limit power, forcing small businesses to raise their prices and absorb higher costs with their purchasing in already thin margins.”

‘This substantial inflation is rapidly becoming a crisis for U.S. small businesses…’

Andrea Wells Editor-in-Chief 6 | INSURANCE JOURNAL | MAY 16, 2022

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

EDITORIAL

Chief Content Officer Andrew Simpson | asimpson@insurancejournal.com Editor-in-Chief Andrea Wells | awells@insurancejournal.com East Editor Elizabeth Blosfield | eblosfield@insurancejournal.com Southeast Editor William Rabb | wrabb@insurancejournal.com South Central Editor/Midwest Editor Ezra Amacher | eamacher@insurancejournal.com West Editor Don Jergler | djergler@insurancejournal.com International Editor L.S. Howard | lhoward@insurancejournal.com Columnists & Contributors Contributors: Lisa Baertlein, Jill Bryant, Joe Fisher, Hemant Shah Columnists: Chris Burand, 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 Sr. Sales & Marketing Coordinator Laura Roy | lroy@insurancejournal.com Marketing Administrator Alberto Vazquez | avazquez@insurancejournal.com Marketing Director Derence Walk | dwalk@insurancejournal.com

DESIGN / WEB / VIDEO

V.P. of Design Guy Boccia | gboccia@insurancejournal.com Web Team Lead Josh Whitlow | jwhitlow@insurancejournal.com Ad Ops Specialist Jeff Cardrant | jcardrant@insurancejournal.com Web Developer Terrance Woest | twoest@wellsmedia.com Web Developer Jason Chipp | jchipp@wellsmedia.com V.P. of New Media 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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News & Markets Most Homeowners Underinsured for Trends in Inflation, Building Costs: APCIA

new American Property Casualty Insurance Association (APCIA) survey of over 1,000 U.S. homeowners who have a homeowners insurance policy, reveals a majority of insured homeowners have not taken important steps to ensure their insurance coverage is keeping pace with rising inflation and increased building costs, which could leave policyholders underinsured if catastrophe strikes. Only 30% of insured homeowners have purchased more insurance or increased coverage limits to compensate for rising building costs, according to the survey conducted online by The Harris Poll. Additionally, among insured homeowners who completed renovations or remodels during the pandemic, less than half (40%) updated their home insurance to account for those changes. “It is critical that homeowners make sure they have the right amount and right

types of coverage during this period of significant inflation, but unfortunately our survey shows that many individuals may not be properly prepared,” said Karen Collins, assistant vice president of personal lines at APCIA. “Our survey found that about two thirds of homeowners may be without key additional coverages, such as annual inflation adjustment, extended replacement cost, and building code/ordinance coverage, that can better protect them in these challenging market conditions.” In 2020 and 2021, U.S. insurers paid out $176 billion for natural catastrophe claims alone, the highest total for a two-year period for natural catastrophe claims. Inflation, recent supply chain issues, and increased demand for skilled labor and construction materials following unprecedented natural disasters in

35% of Workplace Injuries Occur During First Year: Travelers

new study by Travelers of workers’ compensation claims found that 35% of injuries occur during employees’ first year on the job, regardless of age or industry experience. “Our data underscores the importance of comprehensive onboarding and training programs for employees, particularly as we continue to navigate the challenges of COVID-19 and see many workers starting new jobs,” said Chris Hayes, assistant vice president, Travelers Risk Control – Workers Compensation and Transportation. “While new employees are among the most vulnerable, many injuries sustained by employees of any tenure can often be prevented if the proper safety measures are in place.” The leading workers’ compensation carrier on May 3 released its 2022 Injury Impact Report. The study analyzed

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more than 1.5 million workers’ comp claims over a five-year period (20152019). It provided insights in a number of areas related to first-year injury claims.

Most Common and Costliest Claims

The most common causes of first-year injuries were overexertion (27% of claims); slips, trips and falls (22%); being struck by an object (14%); cuts and punctures (6%); being caught in or between objects (6%); and motor vehicle accidents (6%). The most expensive claims, accounting for just 8% of total claims but 26% of total claim costs, were amputations, multiple traumas, electric shock and dislocations.

Industries Most Affected

The restaurant industry experienced

the most claims from first-year employees, with 53% of the claims involving the newest workers and representing 47% of total claim costs. The construction industry was a close second, with nearly half of all claims coming from those who were new to the job, driving 52% of the industry’s claim costs.

Missed Workdays

First-year injuries led to more than 6 million lost workdays over the five-year period studied, representing 37% of all lost days. Among all worker injuries over the same period, construction workers on average missed the most workdays (98) due to an injury, followed by employees in transportation (88) and those in services (69), which includes businesses such as legal, engineering and accounting firms.

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the last two years have contributed to a significant increase in the costs to rebuild homes and businesses. From December 2019 through December 2021, the price of construction materials rose by 44%. These trends are impacting postdisaster recovery efforts across the U.S. — leading to higher costs and longer reconstruction timeframes. “It is important to conduct an annual review of your insurance policy with your insurer or agent to help ensure you have enough coverage to repair or rebuild your home should disaster strike, but only 30% of insured homeowners updated their insurance

Dislocation and inflammation injuries resulted in the most time away from work on average, at 132 and 82 workdays, respectively. Strains and falls both caused workers to miss an average of 69 workdays, followed by motor vehicle accidents (61) and being struck by an object (59).

About the Injury Impact Report

Travelers analyzed more than 1.5 million workers’ comp claims received between 2015 and 2019 from various industries and business sizes. Findings were based on indemnity claims, where injured employees could not immediately return to work and incurred medical costs. This is the second analysis of its kind conducted by the company. The first was in 2016 and included data between 2010 and 2014.

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policy less than a year ago,” added Collins. “Homeowners should be aware that rebuilding costs are increasing, and they should take steps now to update their coverage and mitigate against potential damage.” Other key findings of the APCIA survey include: • There is a significant knowledge gap over whether insurance covers the cost to rebuild or the market value of the home. Sixty-four percent of insured homeowners indicated they are not sure or believe their homeowners coverage limits are based on the real estate market value of their home rather than the rebuilding cost. Most residential property insurance policies cover the cost of rebuilding a home, with recommended coverage limits typically based on estimated reconstruction costs for similar interior and exterior features, size, and finishes. • Sixty-three percent of insured homeowners say they have not added or are not sure if they have added annual inflation adjustment coverage, which automatically adjusts your policy each year to account for inflation. • Sixty-seven percent of insured homeowners say they have not added or are not sure if they have added extended replacement cost coverage to their policy, which increases the coverage available to rebuild your home if labor and materials costs skyrocket after a disaster. • Sixty-nine percent of insured homeowners say they have not added or are not sure if they have added ordinance coverage for new energy or building code upgrades, which provides additional coverage to account for higher costs associated with rebuilding to up-to-date building codes. • Only 20% of insured homeowners say they created or updated a home inventory in the event of a loss less than a year ago, and 25% say they have never completed a home inventory. “As climate change is causing more severe and frequent natural catastrophes, this should be a wake-up call to

homeowners to pick up the phone and call their insurer or agent to discuss their insurance policy and make sure they have the coverages they need,” said Collins. “Too often people overestimate their preparedness for natural disasters and other emergencies, and this can lead to gaps in preparedness and insurance coverage.” To keep from being surprised in the recovery process following a natural disaster, APCIA urges homeowners to talk with their agent or company about adding the following key coverage features:

• Replacement cost coverage, which pays an amount necessary to rebuild the home with construction materials of like kind and quality and replace your personal belongings, without deducting depreciation. • Automatic inflation guard, which automatically adjusts your coverage amount at each renewal time to help keep up with rising costs; however, during periods of extreme inflation, it remains important to review coverage limits.

• Building code/ordinance coverage,

which increases coverage to help com ply with any new building code or green energy ordinances.

• Extended replacement cost coverage,

which increases coverage available to rebuild your home when labor and material costs skyrocket after a natural disaster.

• Additional living expense (ALE) coverage, optional higher limits may help cover hotel and food costs if a longer timeframe is needed to rebuild your home.

APCIA also recommends creating an inventory of your home’s contents so you can quickly and easily account for all your belongings and report a loss to your insurer if disaster strikes. Many insurers have free tools available to help their policyholders create a home inventory or you can take photos and videos using your smartphone. Be sure to save your inventory to a safe, accessible place, like the cloud. MAY 16, 2022 INSURANCE JOURNAL | 9

News & Markets Report Forecasts ‘Above-Normal’ U.S. Wildfire Season, Worse in Drought-Plagued West By Don Jergler

he U.S. has in store an “above-normal” wildfire season if a prediction from fire weather experts holds true — “intense” may be a better word for the expectations in the Western region. Early predictions for the 2022 fire season point to 68,000 to 72,000 fires across the nation burning 8.1 to 8.3 million acres. The national average from 2001 to 2020 was 68,707 fires burning 7 million acres, according to the National Interagency Fire Center. This year has already been notable by historical wildfire season standards. Wildfires have burned more than 1.1 million acres, twice the number by early May 2021, according to AccuWeather fire forecasters. Another severe wildfire season in the Western U.S. seems likely based on the analysis from AccuWeather forecasters, who say the West is undergoing an “aridification,” a gradual drying out, from the ongoing multi-decadal drought, while the impacts from climate change are expected continue to heighten the wildfire threat in years to come. The “mega-drought” throughout the Southwestern U.S. is considered the region’s worst in 1,200 years, according to a study in the journal Nature Climate Change, which forecasts the mega-drought is likely to persist through 2022, matching the duration of the a late-1500s mega-drought. Through the end of April, most of the West was in at least a “moderate drought,” with 79% of the region experiencing at least “severe drought,” and nearly 37% in extreme or exceptional drought, according to the U.S. Drought Monitor. Below-average winter and spring precipitation totals across the West have set the stage for a higher-than average wildfire risk 10 | INSURANCE JOURNAL | MAY 16, 2022

this season, according to the forecast from AccuWeather meteorologists, who forecast the drought could “spur another intense season” for the region. “The long-term drought in the West sets the stage for another serious wildfire risk this season,” said Johnathan Porter, AccuWeather’s chief meteorologist. The analysis doesn’t break up 2022’s expected figures of 8.1 to 8.3 million acres burned into how much each region will contribute, however, “the West is a predominant, huge driver of that,” Porter said. California mountain areas were gifted with a heavy dose of moisture in April, increasing snowpack, but that doesn’t appear to be enough to mitigate what has been a drier-than-normal wet season for the state, according to the analysis. “The fundamentals once again look like the set-up is a very serious one, and one that will result in an above-average season,” Porter said. AccuWeather’s long-range team compared past years with similar atmospheric and ocean conditions going on this year, along with examining indications for coming months, as well as the persistent drought, to get a forecast for the nation’s fire season. The forecast across other regions is: • Pacific Northwest: Call it a “mixed bag.” The region has experienced an active storm trek the last few months yielding

•

near- or above-normal precipitation, reducing drought conditions. The expectations are for the fire season to start slow, with some rainfall into June, and most of the risk in late July or August. Southwest: Forecasters expect a boosted monsoon season to help mitigate some of the risk during the most severe part of the season in July. This may result in a lower-than-average risk of wildfires. Southeast: There is concern for an elevated chance for fires in the region, especially across south Florida where it has been unusually dry, through May and into June, when tropical storms and more frequent moisture are expected to reduce risk. In parts of the Carolinas drought concerns may yield higher-than-average risk of fires. Texas is expected to be warmer than normal, with significant fire concerns though the summer months. Northeast: No big concerns for this region. Forecasters are expecting above-normal precipitation across certain corridors from the June to August time-period. At present, there is increased risk for brush fires where it has been dry in some spots. Midwest: Drought in the panhandle and high plains and warmer-thannormal temperatures have produced elevated wildfire risk in the plains. There are of course wildcards that could affect the forecast, particularly in volatile California, where lightning and wind have in the past impacted the frequency and severity of fires. One of bestknown wind threats are Southern California’s Santa Ana winds, which typically peak between October and February. And, thunderstorms in the summer north of San Francisco Bay could “increase the risk for more widespread fires there,” Porter said. INSURANCEJOURNAL.COM

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News & Markets Global Insurance Rates Continue to Moderate in Q1, Except Cyber

lobal commercial insurance prices rose 11% in the first quarter of 2022, marking the fifth consecutive reduction in rate increases since pricing peaked at 22% in the fourth quarter of 2020, according to the Global Insurance Market Index published by insurance broker Marsh. The first quarter of 2022 was the 18th consecutive quarter that global composite prices rose, which continued the longest run of increases since the inception of the Marsh Global Insurance Market Index in 2012. However, the rate of increase continues to moderate across most lines of business and in almost all geographies, said the Marsh report. The major exception, said Marsh, was cyber insurance, driven largely by the continued increase in the frequency and severity of ransomware claims with many insurers seeking to tighten coverage terms and conditions, especially in relation to the conflict in Ukraine. “The war in Ukraine exacerbated concerns surrounding systemic exposures and accumulation risk,” added the report. Rising cyber insurance rates were driven largely by the continued increase in the

12 | INSURANCE JOURNAL | MAY 16, 2022

frequency and severity of ransomware claims with many insurers seeking to tighten coverage terms and conditions, especially in relation to the conflict in Ukraine. Prices increased 110% in the U.S. (down from 130% in Q4 2021), and 102% in the UK (up from 92%). In the first quarter of 2022, slower rates of increase in financial and professional lines led to moderated rates in most geographies, but financial and professional lines continue to outpace property and casualty lines — driven primarily by cyber pricing — with rate increases averaging 26%, compared to 7% in property and 4% for casualty, the report said.

Global Insurance Composite Prices

Global commercial insurance price increases across most regions moderated due to a slower rate of increase in financial and professional lines. The UK, with a composite pricing increase of 20% (down from 22% in Q4 of 2021), and the U.S., where prices increased 12% (down from 14%) continued to drive the global composite rate. In the United States, property insurance pricing increases mirrored those of the

fourth quarter of 2021 at 7%, said Marsh, noting that clients with significant losses, as well as those that showed poor risk quality, or had significant exposure to secondary catastrophe (CAT) perils — including wildfire, convective storm, and pluvial flood — generally experienced rate increases that were well above average. Other findings from the survey include: • Global property insurance pricing was up 7% on average in Q1 2022, down from an 8% increase in Q4 2021. • Global casualty pricing was up 4% on average, down from 5% in the previous quarter. • Pricing in financial and professional lines, largely driven by cyber, again had the highest rate of increase across the major insurance product categories, at 26%. However, this was down from 31% in the previous quarter. • U.S. property insurers appear to be managing their line sizes for secondary catastrophe perils, and tightening their pricing. • U.S. casualty insurance pricing increased 4%, in line with the fourth quarter of 2021 but excluding workers’ compensation, the increase was 6%. INSURANCEJOURNAL.COM

Figures

$518

Million

That’s the size of settlement Washington has reached with drug distributors McKesson Corp MCK.N, AmerisourceBergen Corp ABC.N and Cardinal Health CAH.N, ending a months-long trial over the companies’ alleged role in fueling the opioid epidemic in the state.

$260,000

That’s the number of U.S. states that have adopted a version of the National Association of Insurance Commissioners’ model data security law. The law, approved most recently by Kentucky lawmakers, will require insurance companies and larger agencies to take steps to prevent cyber crime and data breaches. The steps include developing a written cybersecurity program; investigating and reporting cyber events within three days to the state insurance commissioner; conducting risk assessments; and designating a person in the company to be responsible for information security. 14 | INSURANCE JOURNAL | MAY 16, 2022

The amount a Missouri recycling facility faces in fines for allegedly failing to erect guards or barriers to prevent workers from falling into a paper baler. An investigation by the U.S. Department of Labor’s Occupational Safety and Health Administration found that a worker at St. Louis-based Central Paper Stock Inc. was sorting and loading paper products onto the in-feed conveyor of a paper baler when materials jammed the chute and stopped the conveyor. The worker walked up the conveyor to unjam the materials and fatally fell down the chute and into the paper baler.

$12.1 Billion The amount Louisiana insurers have paid or reserved on all types of Hurricane Ida-related claims through March 31. According to the Louisiana Department of Insurance (LDI), policyholders have filed 458,485 claims of all types from Hurricane Ida as of March 31, with 86% of claims closed. Of those claims, 286,588, or 63%, were closed with payment, garnering $8.5 billion in payments for damage caused by the hurricane. The LDI will continue collecting data from property/casualty insurers to monitor the claims process. INSURANCEJOURNAL.COM

Declarations

Bird Flu Crisis

Hurricanes Not the Main Problem

Watch Where You Go

“Just when you thought it couldn’t get any worse, here comes the bird flu.” — Karyn Rispoli, an egg market reporter at commodity researcher Urner Barry, said about the bird flu virus sweeping across the U.S. The virus is rapidly becoming the country’s worst bird flu outbreak, having already killed over 37 million chickens and turkeys and with more deaths expected as farmers perform mass culls across the Midwest. The crisis is hurting egg-laying hens and turkeys the most, with the disease largely being propagated by migrating wild birds that swarm above farms and leave droppings that get tracked into poultry houses.

“Contrary to conventional perception, hurricane losses were not the primary culprit — results continue to erode despite the last major landfall occurring in 2018 (Hurricane Michael). The deterioration in performance is a by-product of the greater frequency of secondary perils (severe thunderstorms, wind, hail), higher reinsurance costs, escalating litigation costs, and building codes/laws that have been flouted by parties looking to profit.” — That was from a white paper posted in early May by the AM Best insurance rating firm, about why Florida lawmakers need to take quick action at a special session to prevent financial disaster for more Florida-based carriers.

“He thought no one was in the building. He was given no warning, no second chance.” — Deborah Gordon, attorney for a Detroit Red Wings Zamboni driver who said he was unfairly fired for urinating in a drain, claims her client has a health condition that causes him to frequently urinate. Al Sobotka filed a discrimination against Olympia Entertainment in April, two months after he was fired, following 51 years with the Red Wings. Sobotka, 68, couldn’t get to a restroom so he urinated in a drain that carries ice runoff from the Zamboni machines at Little Caesars Arena. Someone saw him and apparently reported it in February.

Reparations Suit Proceeds

Privacy Concerns

COVID Deaths

“We want them to see justice in their lifetime.” — Damario Solomon-Simmons, a civil rights attorney whose lawsuit seeking reparations for the 1921 Tulsa Race Massacre was granted by an Oklahoma judge. Solomon-Simmons sued under Oklahoma’s public nuisance law, saying the actions of the white mob that killed hundreds of Black residents and destroyed what had been the nation’s most prosperous Black business district continue to affect the city today. The lawsuit also seeks reparations for descendants of victims of the massacre. The three living survivors of the massacre are over 100 years old.

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“We live in a digital world and technology moves very fast. This is our effort to finally get ahead of the curve, at least when it comes to consumer data.” — Connecticut Rep. Mike D’Agostino, D-Hamden, co-chair of the General Assembly’s General Law Committee, said about legislation dubbed a “consumer bill of rights,” which allows consumers in the state to know when their personal information is being tracked and how it’s being used. The legislation also allows people to access, correct, delete and obtain a copy of their personal data, as well as opt out from having their information used by marketers, retailers and others for various purposes such as targeted advertising.

“Even as we believe that the worst of the pandemic is behind us, we find ourselves looking back on another year where COVID was the leading cause of job-related deaths.” — Labor & Industries Director Joel Sacks said that COVID-19 was responsible for about one quarter of the 106 work-related deaths reported in Washington in 2021.

MAY 16, 2022 INSURANCE JOURNAL | 15

Business Moves Richmond, Virginia, is a portfolio company of The Carlyle Group, a global investment firm. The company has completed more than 130 acquisitions and now has more than 100 offices in 22 states.

Midwest

Reliance Global, Barra & Associates

National

NSM, Carlyle Group

Private equity firm Carlyle Group Inc. has agreed to acquire U.S. specialty insurance provider NSM Insurance Group from White Mountains Insurance Group Ltd. WTM.N for $1.78 billion in cash, according to Reuters. Carlyle said the deal is expected to close in the second half of this year. The transaction is expected to add $280 per share to White Mountains’ adjusted book value. Private equity firms have been driving consolidation in the insurance brokerage sector. Mergers and acquisitions in the insurance sector more than doubled in volume to a total of $58 billion in 2021 from $22 billion a year earlier, according to consulting firm Deloitte. Pennsylvania-based NSM Insurance is one of the largest independent insurance brokerages that underwrites policies for pets, non-profit organizations, workers’ compensation, trucks and behavioral healthcare. NSM generates more than $1 billion in premiums from more than one million clients, according to its website. Carlyle has invested more than $10 billion in the financial services space, including U.S. insurance claims firm Sedgwick Claims Management Services and China’s Ant Group.

East

Cross, Humphrey, Byfield Agencies

Cross Insurance announced the acquisi-

16 | INSURANCE JOURNAL | MAY 16, 2022

tion of Newburyport, Massachusetts-based Harold Humphrey Insurance Agency Inc. and its sister agency, Byfield Insurance Agency Inc., both offering personal and small business coverage. Cross also announced the opening of a Newburyport branch office located at Port Plaza Shopping Center, bolstering its presence in the coastal market. Humphrey & Byfield will both operate under the name Cross InsuranceNewburyport with Dave Messersmith, president of Cross Insurance-Coastal Region serving as the regional president for the Newburyport office. Since its founding in 1954, Cross Insurance has grown through the acquisition of more than 120 insurance agencies throughout the Northeast. The company now has over 1,000 employees operating out of offices in Maine, New Hampshire, Rhode Island, Massachusetts, Connecticut, New York and Florida.

Hilb, Paige & Campbell, Taylor Palmer

National insurance agency The Hilb Group reports it has acquired Vermontbased Paige & Campbell Inc., and its subsidiary the Taylor Palmer Agency in Bradford, expanding the company’s growing presence throughout New England. Based in Barre, Vermont — with additional offices in Bristol, Bradford, and Waitsfield — Paige & Campbell has served the area for more than 100 years. Agency principals Steven and Jonathon Shea and their staff will join the Hilb Group’s New England regional operations. The Hilb Group, headquartered in

Reliance Global Group Inc. acquired Schaumburg, Illinois-based Barra & Associates, a provider of both personal and commercial insurance products, including property and casualty insurance, life insurance, health insurance and other insurance products. Reliance acquired Barra for roughly $7.5 million, comprised of cash and debt. Following the transaction, Grant Barra, founder and CEO of Barra, will continue to oversee the Barra & Associates subsidiary, as well as other senior responsibilities within the company. Barra operates a growing network with over 60 agents and agency partners. Reliance is combining advanced technologies, with the personalized experience of a traditional insurance agency model.

Oswald Companies, Gulick Roberts Group

Oswald Companies acquired Madeira, Ohio-based Gulick Roberts Group LLC. Gulick Roberts Group, was founded by insurance executive Jim Gulick in 2017. The Gulick Roberts staff joined Oswald Companies as employee-owners. Oswald Companies said the acquisition of Gulick Roberts, an agency that specializes in property/casualty insurance, follows a recent growth capital investment by Toronto-based Peloton Capital Management into the firm and its strategic partner, RCM&D, which in 2020 merged as Unison Risk Advisors. URA features a combined workforce of more than 625 employee-owners in 13 office locations throughout the MidAtlantic and Midwest.

South Central Texan, Marek

Texan Insurance acquired Marek INSURANCEJOURNAL.COM

Insurance in an all-cash transaction. Crosby, Texas-based Marek is Texan’s second agency purchase in three months and bringing its employee count to 75. The entire staff from Marek Insurance will continue to work for the agency to serve their clients. Marek Insurance Agency is an independent insurance agency in the Crosby area, specializing in personal and commercial insurance needs. Texan Insurance is an agency serving the greater Houston area since 1985.

Southeast

Relation, Rabon Agency

Relation Insurance Services has acquired North Carolina-based Rabon Insurance Agency, which was previously part of Nationwide’s exclusive distribution model. Rabon, headquartered in Monroe, North Carolina, provides personal and commercial lines insurance across the state. Ashley

Rabon will continue to lead the agency. Relation Insurance Services said it is a fast-growing national brokerage with 1,200 employees.

West

First Light, NTIS

First Light Program Managers Inc. and NTIS Inc. dba NTIS Transportation Insurance Services of Las Vegas, Nevada, have entered into an agreement for First Light Program Managers to acquire substantially all of NTIS. NTIS, a wholesaler and managing general agency, specializes in the trucking industry, providing auto liability, auto physical damage, motor truck cargo and general liability coverage on a wholesale basis throughout the western United States. First Light Program Managers is a managing general agency that offers specialty insurance products in the trucking, trans-

portation, and marine sectors through a network of insurance agencies throughout the U.S.

Hub, Hanson Insurance Group

Hub International Ltd. acquired the assets of BDTAB LLC and Corvallis Insurance LLC, collectively doing business as Hanson Insurance Group, in Corvallis, Oregon. Brad Hanson, CEO of Hanson Insurance Group, Vice President Trent Hanson, and the rest of the Hanson Insurance Group team will join Hub Northwest. Hanson Insurance Group is an independent agency that provides business and personal insurance. Chicago, Illinois-based Hub International is an insurance broker and financial services firm providing risk management, insurance, employee benefits, retirement and wealth management products and services through more than 14,000 employees in North America.

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MAY 16, 2022 INSURANCE JOURNAL | 17

People National

or to this he was chief actuary for over a decade.

insurer in 50 states, plus the District of Columbia.

President Neeti Bhalla Johnson announced two newly-created global executive leadership positions and appointments:

Berkshire Hathaway Specialty Insurance (BHSI) has promoted Kathy Reid to head

Midwest

Liberty Mutual Insurance Global Risk Solutions (GRS)

Matthew Moore as

president of Underwriting and Susanne

Figueredo Cook as chief

Matthew Moore

operating officer. Also, Phil Hobbs has Susanne Cook been appointed president of Liberty Specialty Markets (LSM), succeeding Moore. Phil Hobbs All positions will report to Bhalla Johnson. Moore, who will continue to be based in London, previously served as president of LSM — GRS’ global specialty operation — and has 25 years of experience in the industry, working for Liberty Mutual for the past two decades. Figueredo Cook joins Liberty Mutual from Travelers Insurance, where she worked for more than 20 years in various leadership positions, including underwriting, claims and global operations. Hobbs has 20 years of experience in the industry and has served LSM for more than 15 years in a range of leadership roles. His previous position was deputy managing director, where he was responsible for underwriting strategy, and pri-

of Casualty, North America. Reid has 25 years of insurance industry experience. She has been senior vice president at BHSI since 2013. Prior to that, she was with AIG for 16 years. She will continue to be based in Chicago.

East

Rhode Island-based

Starkweather & Shepley Insurance Brokerage (S&S) reports that Nathan Oberg has

joined its commercial division and will focus on the marine industry. Oberg comes to S&S with experience in the marine trades. As a licensed captain, he operated and managed charter and private vessels throughout the Atlantic, ranging from Maine to the Caribbean. Off the water, he has worked in all areas of a shipyard, from hands-on work to many years as a service and project manager.

UFG Surety expanded its presence in the Mid-Atlantic by adding surety veteran Benton Kyner to the team. As surety branch manager, Kyner will oversee the buildout of a new surety branch office in Virginia. Kyner has more than 33 years of surety experience in Virginia and surrounding states. His career includes management and leadership roles with Travelers for 13 years, and before that with BB&T and Zurich North America. United Fire Group is a licensed property/casualty

18 | INSURANCE JOURNAL | MAY 16, 2022

Vantage Group Holdings Ltd. hired Andrew Lea as

senior vice president of cyber liability, technology E&O, media and management professional liability insurance. Lea brings underwriting experience from senior-level underwriting roles with commercial insurance carriers including Zurich Insurance, Swiss Re and AIG, as well as some prior broking experience at Marsh. Most recently, he was head of commercial E&O, cyber & media Liability underwriting at CNA Insurance in Chicago. Vantage offers an array of specialty re/insurance products covering global risks, including niche property/casualty classes.

MJ Insurance hired Chazney Gates as IT project manager.

This is a new role for the company. As IT project manager, Gates will be responsible for managing all aspects of MJ’s technical project portfolio and oversee successful project completion to ensure exceptional client and employee experience. Gates comes to MJ Insurance from IU Health, where she served as associate project manager and provided support to ensure technology requirements were met for the new IU Health Bloomington replacement hospital.

South Central

Texas Mutual Insurance Company

named

James (Jim) Ziolkowski,

Jim Brzozowski

of Lakeway, Texas, as regional vice president for its Austin office. In this role, Ziolkowski, who has worked at Texas Mutual for seven years, will oversee regional operations for Austin and the surrounding areas. With 30 years in the industry, Ziolkowski holds valuable experience in recruiting, training, developing and mentoring future organizational leaders. He was most recently a senior manager for regional underwriting at Texas Mutual.

Roach Howard Smith & Barton (RHSB) added Adam Smith and Hudson Yoder

as assistant vice presidents. They are part of its Fort Worth office’s growing commercial Property & Casualty sales practice. Smith and Yoder, in their role as assistant vice president, will focus on commercial P/C insurance solutions for middle-market businesses. Smith’s background is in healthcare consulting (transaction advisory, M&A analytics, and managed care negotiations.) Yoder has over six years of experience in marketing and sales with life insurance and long-term care solutions.

SBMP Insurance Group hired Jim Brzozowski to serve as executive director. Brzozowski comes to SBMP with 16 years’ experience in the P&C industry. During that time, he has worked in various roles in business development, underwriting and product management. Founded in 1989, SBMP Insurance Group represents 21 individually owned agencies with 37 locations throughout

INSURANCEJOURNAL.COM

the state of Texas.

Alera Group promoted Bill Brown to managing director

in the South Central region overseeing growth and operations in Alabama, Arkansas, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Oklahoma and Texas. Bringing 20 years of industry expertise, Brown most recently served as a managing partner within Alera Group.

Specialty Comp Insurance Solutions (SCIS), a division of

Specialty Program Group, LLC (SPG), promoted Steve Math to president and CEO of SCIS, reporting to Chris Treanor, president of SPG. Math takes the leadership helm from Jay Chase, who will be joining the SPG leadership team as executive vice president and consultant assisting SPG in its strategic growth planning. Math joined SCIS in 2019 as executive vice president and chief underwriting officer. Prior to SCIS, he served as senior vice president of underwriting and field operations with Texas Mutual Insurance Company. SCIS is a national workers’ compensation facility specializing in underwriting for middle market, hard to place, high hazard risks. SCIS is headquartered in Dallas, Texas.

Texas Windstorm Insurance Association (TWIA) General Manager John Polak will

retire at the end of 2022 after 11 years of leading the wind and hail insurer of last resort for the Texas coast. The board of directors will immediately begin a candidate search to find a well-qualified and capable leader to fill this role. INSURANCEJOURNAL.COM

Before coming to TWIA in 2011, Polak held the positions of CEO, COO, CIO and CUO in insurance companies ranging from large national and international carriers to midsized regional carriers. During a career spanning five decades, he oversaw the development and growth of profitable specialty books of business in both personal and commercial lines. He has overseen catastrophe loss responses in Florida, Louisiana, Texas, and other parts of the country.

Southeast Oakbridge Insurance Agency in

Atlanta has named Scott Kiser as Scott Kiser senior vice president and private client group practice leader. Kiser, with 28 years in the property/casualty insurance business, was previously head of regional sales for Donegal Insurance Group. Oakbridge was formed in 2020 through the merger of four insurance and risk management firms, and is now one of the largest privately owned agencies in the region. It has experience in agriculture, bonds and sureties, construction, transportation and other lines.

EPIC Insurance Brokers and Consultants, a property and casualty insurance brokerage, announced that James

Kennedy

has joined

James Kennedy

the firm as a principal with Vanbridge, its financial services division. Kennedy will work in the private equity space. He has a background in private equity and mergers and acquisitions, including due diligence, transactional services, advisory, and placement. Kennedy will be based in Birmingham, Alabama, and New York City, but will work with all of EPIC’s national teams in the financial services space. A Florida insurance regulator has moved into the private insurance sector. Branch Insurance Exchange, based in Columbus, Ohio, announced that Grant Phillips has been named its associate manager of regulatory affairs. Phillips was previously the deputy director of government affairs for the Florida Office of Insurance Regulation, according to the Florida Politics news site and Phillips’ Linkedin page. Branch was launched in 2019 by insurance veteran Steve Lekas and tech entrepreneur Joe Emison. It offers home and auto insurance. The North Carolina Department of Insurance bestowed high honors on

Richard Taylor, who has

owned and operated an insurance agency in the state for more than 70 years. Taylor bought the insurance agency in Lumberton, North Carolina, in the 1950s. At age 94, he doesn’t come into the office as often as he once did, according to a local news report. In October, Taylor sold the agency to Janis Rozier, but

he still maintains an office decorated with years of photographs and awards. State Insurance Commissioner Mike Causey said Taylor was well deserving of the department’s Order of the Guardian Award.

West

Highwing named Jim McKenney CEO, and added an

advisory board of experienced professionals to support its expansion. McKenney will lead the company’s team of insurtech professionals. President and Co-founder Erik Mitisek will remain with the firm, leading new business development, marketing and sales. McKenney previously led a team in product and underwriting as senior vice president for Liberty Mutual. The new advisory board will be chaired by Patrick Kinney, a retired executive vice president for Travelers. The board includes Piyush Singh, founder and CEO of Terrene Labs, and Jim Klotz, former vice president and research council fellow for Aite-Novarica Group. Highwing in Denver, Colorado, provides opendata-powered solutions to help brokers and carriers with transactions and communication.

Gorst & Compass Insurance

named Nelson Oliva a senior underwriter for personal lines. Oliva is based in Los Angeles, California. Oliva has more than 20 years of personal insurance experience. He began his insurance career with Gorst & Compass. Gorst & Compass is an independently owned wholesale insurance firm headquartered in Los Angeles.

MAY 16, 2022 INSURANCE JOURNAL | 19

Closer Look: Cyber & Security Creating Harmony: What Cyber, Insurance Pros Can Learn from Music By Elizabeth Blosfield

usic may not be the first thing that comes to mind when considering the cybersecurity and insurance industries, but these industries could have more in common than it seems, according to guests on a recent episode of The Insuring Cyber Podcast. “When it comes to helping people become aware of complex subjects that are maybe unengaging or a little bit boring, music is one of those things that we can learn from because people fall in love with music and listen to it for fun,” says Simeon Quarrie, owner of Vivida, an organization that develops learning initiatives and immersive storytelling to help break down complicated subjects in a way that they’re more easily understood. Quarrie says when it comes to educating about the importance of proper cybersecurity, the industry has a lot to learn from music. “We can take information that is complex, or hard to remember, or boring,” he says, “and we can format it in a way so that it means something to the audience.” He adds that this can be achieved by breaking cybersecurity down to its core, human elements. “What we’re actually talking about with cybersecurity when it comes to the human

element is people’s safety, people’s wellbeing,” he says. “What we have to do is file off and smooth off the edges of an industry that looks sharp and angular and uninviting.” Quarrie began his career as a filmmaker before founding Vivida and describes himself on social media as a storyteller. He says the cybersecurity industry initially didn’t seem inviting to him as a creative person, either. “I didn’t expect to be in the cybersecurity industry,” he says. “I lean very much towards the creative, and I’m not excited by the zeros and the ones.”

20 | INSURANCE JOURNAL | MAY 16, 2022

All of that changed, however, when he realized how innovative and dynamic the industry can be, he says. Last year, he wrote an article for Help Net Security about watching his team compose music during a live composing session for a cybersecurity awareness project. It made him think about the relation between the cybersecurity and music industries and what these two fields may have in common. “We do great work that has a really important impact,” he says. “And it would be sad to think that if I had thought about joining the [cybersecurity] industry in a very typical manner, I probably would never have gotten involved.” For Jon Laux, vice president of analytics at CyberCube, it was a different path that led him to the intersection of cyber

and music. Laux currently oversees CyberCube’s actuarial and cyber risk modeling teams, joining the company at the beginning of the year from Aon. In addition to his more than decade long career in cyber insurance, he also raps. And sometimes, he raps about cyber risk. “I certainly didn’t see myself as creative for a long period of time. That was my sister who was the writer,” he says. “I think one of the things I’ve come to appreciate is that everybody has the potential to be creative. And I think the question is, do we recognize it? And can we honor different forms of creativity? And then, as individuals, can we take the risks to show our creativity?” He says that the cyber insurance industry’s everchanging nature is one of the things that INSURANCEJOURNAL.COM

drew him to it. “I love to learn,” he says. “I want the messy, dynamic, hard to solve problems. That’s the space I want to be in.” That’s not only one of the things that has drawn him to rap music, as well, but also what he believes the cyber insurance industry can learn from rap. “I’d say that the urgency and immediacy that is part of hip-hop is also part of how we interact with technology in general, and I think those are things that the insurance

industry would do well to try to learn from,” he says. “I think rap does a good job of saying things clearly and pretty concisely. You’re not going to care about the fine print on page 14 of your policy. It’s like, ‘Tell me what it’s going to do. Tell me straight.’” Both Laux and Quarrie say that the cyber and insurance industries would benefit from encouraging creativity in attracting and retaining talent. But for younger, creative professionals thinking about joining the cyber insurance

field, is there a place for them? “The short answer is yes,” Quarrie says. “100%.” Laux agrees. “I think the workplace has recognized we need more diversity. We actually talk about that now as an industry, which didn’t necessarily used to be the case — diversity of background, of ways of thinking. I mean, people who are musical, if they also have the other skills, I think could certainly bring something to this space,” he says. “Just the idea of being willing to take risks and also

kind of have a place where you’re encouraged to incubate your skills and try new things out.” Blosfield is deputy editor of Carrier Management, a publication of Wells Media Group Inc. Email: eblosfield@ wellsmedia.com

Check out this podcast episode to hear what more Quarrie and Laux have to say, and look for new episodes of The Insuring Cyber Podcast, published every other Wednesday along with the Insuring Cyber newsletter.

Rapid Cyber Premium Growth by Fairfax, Tokio Marine Increased Share of Market By Chad Hemenway

he top cyber insurance carriers in 2021 shifted to include Fairfax Financial Holdings and Tokio Marine U.S. as the marketplace grew 74% to over $4.8 billion, according to a report from Fitch Ratings. Overall, the top cyber insurance underwriters are Chubb with 10% market share, Fairfax (9%), AXA XL (9%), Tokio Marine, AIG and Travelers (each with 5%). According to Fitch’s report, based largely on statutory financial supplements from insurers disclosing cyber-specific direct premiums, Fairfax reported 300% growth in premium in 2021 to move from eighth in 2020 to its current position thanks to the performance of its Crum & Forster, Hudson Insurance and Allied World operations. Tokio Marine moved from 11th to occupy a spot in the top five underwriters after nearly 190% growth in 2021, driven mostly by HCC. INSURANCEJOURNAL.COM

Combined market share of the top 10 carriers fell to 57% in 2021 from 67% in 2020, Fitch said. The analysis found that Chubb’s cyber book is almost all package business and it is by far the largest writer of package cyber coverage with a market share of about 28%. Chubb had 36% market share in 2020. CNA Financial Corp. is next with a 9% share. The market for package cyber products grew 48% to nearly $1.7 billion in direct written premiums in 2021. However, the number of policies issued fell 9% in 2021, likely due to the marketplace’s desire for affirmative cyber coverage, Fitch said. Meanwhile, the standalone cyber market jumped 92% in direct written premiums in 2021 to over $3.1 billion. “Besides growth in premium rates and higher demand for coverage, this growth is also attributed to insurers’ and policyholders’ desire to reduce ambiguity in what is covered

regarding cyber risk, or ‘silent’ cyber risk,” Fitch said. In response to claims, mainly from ransomware, rates for cyber insurance continue to increase as rates in other lines of commercial insurance moderate. Based on the cyber supplement data, cyber

claims that were closed with a payment increased 200% in the last three years to more than 8,100 in 2021. About 28% of standalone cyber claims were paid and 37% of package cyber claims were closed with payment over the same time, Fitch said.

MAY 16, 2022 INSURANCE JOURNAL | 21

Spotlight: Relationships Coaching Youth Hockey Bonds Insurance Pros On & Off the Rink

Waukesha Warhawks U10 team heading onto the ice

By Ezra Amacher

ob McGaver was a few months into coaching his son’s youth hockey team when he wanted to know a little bit more about one of the other coaches, Chad Muchow. The two fathers had hit it off right away on the rink, teaching their sons Harrison and Mason the same sport they played as boys. They both carry a similar philosophy in how they raise their kids. Their personalities complement each other as coaches. And they’re both committed to growing hockey. Muchow is president of the Waukesha County (Wisconsin) Youth Hockey Association and McGaver

serves as goalie director. When the time came to learn what Muchow does for a living, McGaver wasn’t much surprised to learn the hockey dads inhabit a similar professional space, too. McGaver serves as director of claims for West Bend Mutual Insurance, where he’s worked 12 years in the company’s workers’ compensation division. Muchow, meanwhile, works in subrogation for Accident Fund, one of the largest workers’ compensation insurance organizations in the U.S. McGaver’s previous employer, United Heartland, happens to be owned by Accident Fund Insurance. “Insurance, as big as it is,

22 | INSURANCE JOURNAL | MAY 16, 2022

it’s a small world, too,” says McGaver. The connections didn’t stop there. Muchow later mentioned that another coach in the youth hockey association works in insurance. McGaver instinctively asked, “Oh, who’s that?” That coach, it turned out, used to be McGaver’s homeowner’s insurance agent, Andy Klemp. Klemp and wife run an American Family Insurance agency. In his extra time, Klemp coaches the Waukesha Warhawks U14 team. When McGaver started talking to another local gentleman wanting to get involved in coaching youth hockey and learned that he too works in

the industry, at CNA Insurance, McGaver thought to himself, “Again those insurance guys — it must be something in the water that they’re so involved in hockey.” When the work day ends, and McGaver, Muchow and Klemp transition to their role as coaches, they’re quick to put aside any insurance discussion and invest all their attention on the players. Nevertheless, the camaraderie the coaches have built as insurance professionals translates well to their jobs and passion for teaching hockey to youngsters. Says Muchow, “The cool thing about guys like Rob and myself and Andy who are in the industry and we all INSURANCEJOURNAL.COM

connect, when the kids see that kind of energy and togetherness, it infects the group. I think they feed off that.”

A Special Season

When McGaver received word that the youth hockey association needed a goalie coach for the 2021-2022 season, the father of four was hesitant at first. He and his wife had just welcomed another child. Plus, the new role would require McGaver to lend his expertise not only to his own sons’ teams but also to the entire league, from 7-year-olds up to 14-yearolds. With some persuading from Muchow, McGaver agreed to make it out to a couple of practices a month with every team. The time sacrifice was worth it. McGaver knows the importance of hockey in children’s lives, having played the sport since he was 4-years-old. Many of his friends today are people he’s kept in touch with from youth hockey days or guys he’s met playing in men’s leagues. “You really build a bond and a trust,” says McGaver. “You’re spending a lot of time with all these different families and these kids. It’s awesome to still be able to see a lot of them. Their kids are playing hockey along with my kids. Just to see that bond they build not only between the kids but with the families.” In 2020-2021, the bond forged by hockey went away temporarily. COVID forced Waukesha County to alter its season, with players and parents forced to wear masks during games. Some families, including the McGavers, chose to sit out the season. The return to the rink INSURANCEJOURNAL.COM

was a healthy distraction for McGaver, his 10-year-old and 8-year-old hockey-playing sons, and the almost 300 families who make up the Waukesha County youth hockey organization. “It’s really helped bring back some sort of normalcy to the last couple years where it’s been anything but that,” says McGaver. “It’s still a place where kids can get together and play.”

Playing Through Tragedy

with the team I coached this year is with kids, you just got to let them know that life can be short,” says Muchow. “Pain is going to happen. Grief is going to happen. Death is going to happen. It happens to those who deserve it, it happens to those who don’t deserve it, but you just got to be willing to do a little bit extra, especially in times like this.”

Lessons On and Off the Rink

Muchow is quick to see the parallels between developing a career as an insurance professional and teaching kids

Only a few months into the 2021-2022 season, a different kind of calamity struck the Waukesha community. On Nov. 21, 2021, a man drove an SUV through the annual Waukesha Christmas parade downtown, leaving six people dead and more than 60 injured. The Waukesha County Youth Hockey Association usually marches L to R: Rob McGaver & Chad Muchow in the parade to hand out cards the sport of hockey. and grow the sport. The group In youth hockey, setbacks wasn’t there last year due to a occur in the form of a tough fall scheduling conflict. to the ice, an allowed goal or a “It was like an Act of God, as season-ending loss. we would say in the insurance “I learn more from the kids industry,” says Muchow. through adversity and parents The parade attack led to an as well when situations go outpouring of support from bad,” says Muchow. “Like how hockey teams around the state are you going to get up off the and region. Muchow brought mat when something goes in a motivational speaker from wrong in the hockey world and within the organization. The take that outside? Because in group partook in a fundraiser the professional world, you’re held in honor of Jackson not always going to get that job Sparks, an 8-year-old youth interview that you want or get baseball player who died placed where you want. How marching in the parade. “I think the biggest takeaway do you react?”

Muchow encourages players to double down on their efforts. The results will follow. “I get the kids to translate, if you’re a better student and a better person at home and things are going good outside the rink, they tend to go good inside the rink,” Muchow says. “And if things are going good inside the rink and you’re happy leaving the rink, those things tend to go well outside the rink.” Another area where insurance and youth hockey intersect is in building true connections with others. “Insurance is a relationship industry,” says McGaver. “A lot of times it’s who you know. Who feels like they can trust you and they’re willing to do business with you. When you take that over to the ice rink, it’s getting kids to trust you when you’re coaching them. It’s getting the parents to trust that they’re in good hands with you when you’re coaching them.” McGaver, Muchow and Klemp are leaning on their relationship-building skills as they expand the Waukesha County Youth Hockey Association heading into the 2022-23 season. The organization wants to build off the success of last season, which culminated with McGaver’s son Harrison goaltending the Waukesha Warhawks U10 team to a state championship. “I just think actively talking to people every day, in the insurance industry it’s all about networking and talking to people,” says Muchow. “I think that portion of what we do professionally helps us not only coach the kids but communicate with parents and also helps us grow the game.”

MAY 16, 2022 INSURANCE JOURNAL | 23

Closer Look: Cannabis Compliance in Cannabis

Can Be a Painstaking Task

By Don Jergler

ompliance in the cannabis industry presents a different challenge in every state, with almost countless regulations and considerations waiting to upend operators and those who work to insure them along the entire supply chain — licensing, equipment testing, distribution and retail sales, packaging and label requirements, and rigorous track and trace programs.

“The level of granularity is unparalleled, especially considering its specific use,” said David Vaillencourt, a regulatory policy and standards expert who serves as CEO of the GMP Collective, a consultant to cannabis producers across the supply chain. “And labels are so confusing … what you’re required to put on in a packaging in Florida is much different than Illinois, is much different than Massachusetts.” Vaillencourt’s comment

24 | INSURANCE JOURNAL | MAY 16, 2022

was made during an April 20 Insurance Journal webinar,

Ian Stewart

“Attaining Compliance in the Cannabis Universe.” The hour-long webinar covered trends like standards, lawsuits, dangers, best practices and a few blind spots. The other panelists were Sarah Oglesby, corporate compliance director at Trulieve, a vertically integrated cannabis company and multi-state operator, and Ian Stewart, founder, and cochair of the cannabis law practice at Wilson Elser. With so many complexities INSURANCEJOURNAL.COM

This story is based an Insurance Journal webinar, which is available on-demand at: https://www.insurancejournal.tv/videos/20265/.

to being in compliance in the cannabis industries in the dozens-and-counting adult-use and medical-use states, the risks of being out of compliance are real, and potentially bad for a business. Stewart described “a more aggressive stance” from state regulators against non-compliant cannabis companies. “There’s also a risk of, when a company goes out of compliance, there’s a higher risk of breach of contract of shareholder and investor disputes, and also matters where a competitor may be able to say, ‘Hey, you’re breaching consumer protection statutes,’ for example, or unfair competition statutes. And in California, as in a number of other states, we have statutes that have real teeth where you’ve got perhaps fee-shifting or cost-shifting that allows attorneys who bring those suits to claim their attorney’s fees and those drive … litigation — very dangerous for an insurance company that’s providing a defense for those claims because they can be very expensive.” INSURANCEJOURNAL.COM

At Trulieve, a publicly traded company with 113 dispensaries around the country, one would imagine that compliance is front-and-center, top-of-mind, you name it. “So, essentially in cannabis compliance, our number one priority is to keep our license in good standing,” Oglesby said. “So, all of our activities and operations are based on the license in that state, the cannabis license.” While any potential violation demands attention, it’s the big ones that can bite a company like Trulieve, she added. “It’s the big violations that can put our license in jeopardy

David Vaillencourt

that we have to be most cognizant of,” she said. “And in my opinion, that is the number one priority, when patients’ or customers’ health is concerned. So, when I’m looking at what are our top tier compliance concerns are, they would be anything that intersects the public safety standpoint. So, making sure our products are only using safe ingredients, making sure they’re third-party tested, making sure that those testing regulations are with certified labs in that state and that we’re only using those certified labs.”

‘It’s the big violations that can put our license in jeopardy that we have to be most cognizant of.’ An operator like Trulieve also faces varied regulatory landscapes — from excessively tough to so lax that there aren’t enough clear rules to follow. These rules, if they aren’t clear enough, require com-

panies to put significant time and resources into figuring out what the rule makers may have meant, and all the ways a company may run afoul of said rules. “Some states have better laws than others, as far as giving you a roadmap as to how to be compliant,” Oglesby said. “Many states though, it’s trial and error, it’s having good government affairs people on your team that have relationships with the lawmakers and are able to go in and have conversations to understand what the law’s really asking. And then having a good legal team to help you be able to interpret that law because as you know, laws can be interpreted many, many different directions.” Part of Vaillencourt’s work is getting companies to understand that just blindly adhering to what they think the rules are, or what those regulations mean, is not the best operating procedure. “Regulations and the rules and the interpretations are the

continued on page 26

MAY 16, 2022 INSURANCE JOURNAL | 25

Closer Look: Cannabis continued from page 25 minimum requirements for any business to operate,” he said. “And that doesn’t just mean everything’s great and that’s the bare minimum. It’s going above and beyond that, and it’s how you actually implement and apply them and go above and beyond just to keep your business safe and to show you’re a differentiator in the marketplace.” Of course, one of the worst problems that can arise for a company is litigation. Stewart, who covered a number of ongoing lawsuits in the cannabis space, also touched on Steele v. URBN Leaf, a case that Stewart worked on. Steele is a wrongful death product liability case in which a flight attendant after her flight arrived in San Diego, California, and was provided with edible gummy products. She ate an unknown number and was discovered dead the following morning. It was alleged that she had a psychotic reaction to the THC. The case was dismissed due to a lack of product identification. This occurred in 2018, before track and trace was automated in California. “I think that there was a lack of firm ID as terms of her alleged purchase of that product from URBN Leaf, the retailer,” Stewart said. “But in any event, I think what the allegations of that case were, was that she was a young, otherwise healthy adult who sustained some cardiovascular incident.”

He added: “It’s a warning, I think, for insurance companies to take the science that’s developing very seriously.” Third-party standards are another important part of the compliance puzzle, according to Stewart. “If you’re a company and you’re in litigation and you’re not familiar with relevant standards that impact your area of the market, that can be used very effectively by a good

plaintiff lawyer to create the basis for negligence finding or product liability finding,” Stewart said. “Third-party standards can be used defensively and they can be used offensively, and all cannabis companies should be paying attention to those developing standards and the insurance industry should be paying attention to those.” Ensuring that third parties have well-established risk management plans and follow

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Sarah Oglesby

standard operating procedures are one of the best ways to protect a company, according to Vaillencourt. “Looking for evidence of management plans, risk management plans, asking just, ‘Do you have a book of SOPs,’ because we know, again, pretty much every state requires you to submit this book of hypothetical SOPs, but are you actually using them? Do you have recall? Have you done mock calls? Looking for that evidence and verifying that,” he said. “Third-party certifications are a great way to do that.” According to Oglesby, Trulieve conducts mock audits quarterly on its recall containment policy.

‘Many states though, it’s trial and error, it’s having good government affairs people on your team that have relationships with the lawmakers and are able to go in and have conversations to understand what the law’s really asking. And then having a good legal team to help you be able to interpret that law because as you know, laws can be interpreted many, many different directions.’

“And so that’s something that we’re constantly refining and really making sure we’re implementing across the board,” she said. “Some other notable items that we’re working through is developing because there’s not GMP requirements across all states, we’re looking at it on not just the manufacturing and the food manufacturing, but also across cultivation. There is a different set of standards that we’re looking to implement that is equivalent to GMP. And so we’re working on that across all of our cultivation sites and hoping to get all of that moving by the end of 2022. Just so that again, we can standardize.”

What’s the Take-Home?

Compliance is in the eye of the beholder, so to speak, because regulations, like the cannabis industry they were made to oversee, are still in their infancy and they are evolving differently in different places. Stewart took a book from anatomy 101 to describe the state of compliance in cannabis. “Compliance is also somewhat subjective still because we have the regulations, but when you compare the regulations to the body of law, the regulations are the skeleton, he said. “And then you’ve got the rule making around the regulations, which is like the muscle and tissue. And then you’ve got the judge made decisions, court decisions, tort law, et cetera, that’s like the skin on the body. So right now, we’re still ... we don’t have a fully functional body of law. And particularly in some of these earlier, and more recent (legal) states. And, so, it is difficult.” INSURANCEJOURNAL.COM

News & Markets FEMA Contractors Not Liable for Misrepresentations About Flood Risk By Jim Sams

he North Fork of the White River in southern Missouri is a nationally known fly-fishing destination, teeming with brown and rainbow trout. The stream is fed from underground springs in the Ozark Mountains, keeping its waters cool on hot summer days. Rivers, of course, are prone to flooding. Derek and Jennifer Christopherson were aware of that risk and purchased a flood certificate from CoreLogic Flood Services before buying a home and property overlooking the river, relocating from Fargo, North Dakota. The certificate said their home in Tecumseh, Missouri, was in Flood Zone X, outside of even the 500-year flood plain in the most favorable flood zone designation available. In April 2017, only 40 days after they purchased the property, the North Fork spilled over its banks and flooded the home up to the roofline. The Christophersons, who did not buy flood insurance, filed a lawsuit against CoreLogic, the couple who sold them the property, the real estate broker and brokerage that arranged the sale, the Federal Emergency Management Agency and three contractors who assisted FEMA in drawing its flood maps. The litigation against CoreLogic and others continues, but earlier this month a panel of the 8th Circuit Court of Appeals affirmed a trial court decision that dismissed the Christophersons’ complaint against three contractors that assisted FEMA in determining flood risk. The panel said U.S. District Judge Roseann A. Ketchmark for the Western District of Missouri had correctly ruled that the Christophersons had failed to state a valid claim. “Vague naked assertions and conclusory statements,” the court said, “will not suffice.” Ketchmark also dismissed FEMA as a defendant because the Flood Control Act of 1928 grants the agency sovereign immunity. The Christophersons did not INSURANCEJOURNAL.COM

appeal that portion of her ruling. She also ruled that the litigation against CoreLogic and other defendants is better handled in state court. The Christophersons’ lawsuit says that they were unaware that in 2010 FEMA had ignored advice from the U.S. Army Corps of Engineers and changed the flood map for their area to lower the Special Flood Hazard area to 580 feet four inches to 615 feet above sea level. The CoreLogic flood certificate stated that there had been no prior changes to the map. The prior owners of the property, Robert and Connie Jo Bushner “had specifically demanded” that FEMA make that change after they tried and failed to sell their home for several years, the lawsuit says. Robert Bushner allegedly told the Christophersons that the property was not in any flood zone and had never flooded, as did real estate agent Inez Pahlmann with Missouri Ozarks Realty. The lawsuit charges that after the 2017 flood, FEMA and three of its contractors, Stantec Inc., WS Atkins and the Dewberry Companies, “fraudulently” amended the map to restore the prior 615-foot flood level and “back-dated” the change to 2010 to “make it appear” that the Special Flood Hazard designation had existed all the while.

“There is no justification, and has never been any justification, for the 2010 change from 615 feet to 580/581 feet, and such a 34′ lowering of the (base flood elevation) would never be reasonable, appropriate, or feasible,” the lawsuit says. The complaint states that the damage caused the defendants’ “fraud” is compounded because the new flood maps make it impossible for them to sell their property. The Christophersons claim they suffered $1,500,000 in damages, a sum that includes the $350,000 they paid for the home, $280,282 in lost income and $150,000 in personal property. The 8th Circuit panel, however, said in its opinion that other than “obtuse statements,” the Christophersons’ complaint does not state any facts that would support their allegations of fraud and negligent misrepresentation. There were no allegations of any acts or omissions by Stantec, Atkins of Dewberry individually. The Christophersons filed a new lawsuit against CoreLogic and the Bushners in an Ozark County, Missouri, court. CoreLogic, a California corporation, had the case removed to federal court on April 27. Mark A. Olthoff, an attorney for CoreLogic, said he is aware of the Christophersons’ revived lawsuit, but he has not yet responded to it and is unable to comment. MAY 16, 2022 INSURANCE JOURNAL | 27

Special Report: Entertainment Piecing Together Coverage in Live Events

Tough Insurance Market Remains as COVID Restrictions Ease By Amy O’Connor

he upcoming summer months promise to bring a resurgence of festivals, concerts, and community events after the COVID-19 pandemic effectively shut down the live entertainment industry for the past two years. Pent-up demand for in-person events is fueling cautious optimism among specialists in the entertainment and event space, who say they are busier than ever trying to secure adequate coverage for their clients. “The market is absolutely rebounding and it’s exciting to see,” said Debbie Spinner, underwriting manager in the Entertainment division of Alive Risks, which is part of Ryan Specialty Underwriting Managers. But getting back to pre-pandemic event normalcy will be a slow process for the insurance market, entertainment specialists say. Market conditions for mid-size and large events were extremely challenging before the pandemic began and with little to no event business for carriers to write and a slew of claims to pay, the market’s hardening has accelerated. Several carriers left the market altogether and those that remain pulled back on their capacity, leaving agents and brokers scrambling to place business with fewer markets to choose from. Those looking for coverage for large events are finding markets offering lower limits,

higher rates and strict underwriting requirements, according to experts. “On average, we are experiencing rate increases for nearly all coverages as carriers need additional premium to support increased losses and expenses,” said Hub International’s “2022 US Insurance Market and Rate Report.” Rate increases average 5% to 20% or higher, depending on the line of business. The event cancellation/contingency market has been hit hardest, said Christian Phillips, president of Paragon Insurance Holdings’ Contingency Practices. The pandemic caused more than $6 billion to $8 billion in event cancellation losses. Overall, coverage has become significantly more restrictive and there are zero options available to purchase coverage for communicable diseases, Phillips said. “The whole market was hit dramatically, whether you were a small event organizer or a large event organizer — everybody was impacted in the same way,” he said.

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‘Those risks that can demonstrate they are experienced and well-organized will get quicker responses from underwriters, better policy terms and better coverage.’ Carriers are scrutinizing all event risks much more closely than they were before COVID, said Martin Ridgers, president of MKR Specialty Insurance Brokerage, an independent agency in Long Island City, N.Y. Experienced event organizers who can demonstrate they are prepared in terms of safety and security will be prioritized by underwriters. “It is a hard market and underwriters will ask questions and let risks go,” he said.

Spinner said risk transfer has become extremely important to carriers for events of all sizes, which includes requiring vendors or third parties to have their own insurance that indemnifies the insured. “It is essentially like a puzzle … and every piece of that puzzle has to be underwritten,” she said. What that means for agents and brokers is significantly more work and time spent on policy submissions, and time INSURANCEJOURNAL.COM

is of the essence when it comes to securing coverage, Spinner said. “We’re seeing an influx of new business submissions, and everybody wants to see that, but unfortunately the underwriters are extremely inundated with the amount of business coming across their desk and now the challenge is actually turning those quotes around for insureds in time,” he said.

Communicable Disease

Prior to the pandemic, event organizers could easily buy event cancellation coverage with an optional endorsement

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for communicable diseases, typically for an additional premium, Phillips said, but that is no longer the case as companies deal with “dramatic” losses. “What’s happened postCOVID is there’s no option now to purchase it because obviously COVID is an ongoing thing, and everybody knows about it … it would be almost like saying ‘that building’s got smoke coming out of it — would you like to insure it with

a fire policy?’” Phillips said. Aristotle Moulopoulos, a production specialist in Alive Risk’s Entertainment division, said companies are not only excluding the coverage, but requiring “written confirmation that the insured understands there is no coverage

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Special Report: Entertainment continued from page 29 for COVID or communicable disease” when quoting event cancellation coverage. “It’s just another protection for the carrier because it’s an uninsurable risk right now,” he said. “They want transparency with the insured that they’re not trying to sell any product that’s misleading.” While some insureds are asking for coverage to protect them against COVID-related cancellations, most understand it’s “an impossible placement,” Moulopoulos said. At some point, underwriters may look at insuring communicable diseases with a COVID exclusion, Moulopoulos said, but he doesn’t see that happening as long as the virus is a prevalent issue. There are other exposures besides COVID making underwriters nervous in the event cancellation market, as well, such as extreme weather and security threats. The pandemic tipped the scales for those companies that were already pulling back on capacity and limits on bigger events, said Phillips. For smaller events, underwriters

‘It is essentially like a puzzle … and every piece of that puzzle has to be underwritten.’ have adapted with new policy forms that specifically exclude communicable disease coverage, new rates and deductibles, and the market is more able to absorb losses. “The market I would say right now is struggling from the point of view of capacity, especially with the larger events. Obviously smaller events are much easier to deal with,” he said. “When you get to the medium-size and larger events it’s a real struggle to get 100% of the limit placed, especially for certain types of events.” However, Phillips noted, some of the markets that left are being replaced with a few companies that were holding back while rates were low. “For many years we were in a soft market within our industry, so this was a perfect time to come into this industry as rates went up massively, coverage narrowed and capacity reduced,” he said.

Risk Management, Education Critical Components

Safety has always been a major underwriting component in the event space, noted Alive Risk’s Spinner, but it’s more important than ever in

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the midst of the current hard market and COVID-19. Underwriters have stepped up their underwriting requirements but those vary depending on the type and size of the event. Underwriters want detailed information on event safety and emergency plans, as well as what COVID protocols are in place even though COVID is not a covered exposure, Spinner said. COVID vaccine or testing requirements are lightening up, but underwriters still want to know if appropriate health and safety precautions are being taken to minimize the event’s overall exposure. “They want to make sure that [the insured] is trying to create a safe and well-run event,” she said. MKR Specialty’s Ridgers said event organizers have learned “more than they probably wanted to” in the last two years on how to make their events safer, and the good news is they’ve taken a number of steps to improve in that area. Those risks that can demonstrate they are experienced and well-organized will get quicker responses from underwriters, better policy terms and better

coverage, he said. It is up to brokers to represent their customer in a proper manner, as well. “Put [the policy submission] together as early as possible and find out what underwriters are concerned about,” he said. “Don’t just throw it to the underwriters and hope they can give you an answer — you need to go through the questions the underwriters have.” Brokers also need to take the time to read and clearly communicate the terms and conditions of their clients’ event policies, particularly given that policies are not as comprehensive as they once were, Ridgers said. “Underwriters are going to include terms that keep them away from risk,” he said. Paragon’s Phillips said he has found it helpful to bring together the event organizer and the underwriter so they can go through the policy and ask questions. “Then you’ve got much happier clients because in the event of a claim they know if they are covered or if they’re not covered, and things will run much, much more smoothly,” he said. It is up to agents and brokers to be the trusted advisor and educate their clients on what is required to effectively — and affordably — secure coverage, Spinner said. “With a lot of these events, especially the larger ones, it’s going to be a lot of information required to obtain insurance,” she said. “Ultimately, what these requirements are there for is to protect the insured and help them run a safe event. And, by doing all this it can help them get a better quote and a better rate.” INSURANCEJOURNAL.COM

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Special Report: Entertainment

A Changing Live Event Insurance Landscape

Coverage Restrictions in Today’s Market Requires Critical Policy Reviews

here are a wide variety of possible liabilities associated with a single live event. Each has its own share of challenges and unpredictability, meaning even the tiniest misstep could spell disaster. That’s why live events have always required special attention By Scott Carroll and unique insurance coverages to ensure the most robust protection possible. As the live event insurance market emerges from the pandemic, it enters an

environment where attaining coverage is more complicated than before. Carriers are restructuring existing policies to reflect updated risk calculations and introducing new targeted exclusions that remove their responsibility to provide coverage for damages and losses that arise in certain COVID contexts. Therefore, agents who want to grow their businesses in the current environment must stay up-to-date on their carriers’ changes.

Get to Know What You Don’t Know

As various carriers tweak their coverages, agents should talk with them to ensure

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they’re aware of any major changes to their existing clients’ policies and determine if those changes will hinder their ability to secure future coverage. For example, clients with a general liability policy for daily operations may wrongly assume they are covered for a special event, whether on-site or off, creating a situation where one wrong assumption could lead to a calamitous result. Even when a policy covers special events, it may only do so for events individually declared to the policy. In this scenario, a declared events exclusion often makes it clear that only declared events are covered under the policy.

Another critical live event coverage is for spectator liability, which provides protection if someone slips, falls and sustains an injury during an event. As the name suggests, this coverage does not extend to staff, performers or other paid participants. Furthermore, some policies can exclude spectator liability altogether. If left uninsured, a client could be on the hook for any injury at their event — whether it be a customer, talent, stagehand, crew or independent contractor. It’s also vital to review policy exclusions, which narrow the scope of coverage provided by the insuring agreement. Live event exclusions may list items INSURANCEJOURNAL.COM

such as tents, bleachers or thrown objects as non-covered incidents. These could leave clients open to significant liability if guests are injured by a falling tent or collapsed seating structure, for example. Agents should look carefully at the exclusions for each of their clients’ policies to mitigate any gaps or deficiencies, while offering the necessary resources and expertise.

Get Ahead of It

Carriers scrutinize policy terms to ensure policyholders provide all the detailed information they need. Providing such information is now taking more time and preparation than in the past, so agents must manage their work accordingly to ensure clients have enough time to fully evaluate their insurance needs and potential exposures in accordance with carrier deadlines. For existing clients, agents can prove their value by identifying any changes to open policies, then communicating them to the client with suggestions to limit potential exposures and liabilities. Any agent branching into live events for the first time is advised to speak with all their partners to determine which carriers and policies offer the best mix of protection and value, and any untenable policies due to exclusions or coverage limits.

Ask About Everything

The threats facing live events today range from violent assailants and crowd stampedes to cancellations due to weather or local health regulations. With more variables than ever before, the market for INSURANCEJOURNAL.COM

cancellation coverage has tightened significantly. To ensure proper coverage and help event organizers succeed once they are on site, it’s vital to ask many questions, including some that may not have been as important in the past.

‘Various new and heightened threats to event operations have forced insurance carriers to alter how they evaluate events, what coverages they offer and at what price, limiting options for agents and their clients.’ Regardless of the size or purpose of your event, there are several core questions agents must ask their clients.

Where are the entrances and exits located, and how many are there? Will the event provide security? If so, is the security company well-insured, and is their staff trained for this specific type of event? Do they have an evacuation plan in case of an emergency? If so, how long will it take? Does each vendor have its own insurance policies? Does the event organizer know the details of each policy? What’s the plan if there’s an active shooter situation? These questions can help your clients sort through event details and find the right choice for them. Carriers that offer specialized live event policies are likely to provide better protection, making all the difference, especially for clients who host multiple events. If a business hosts a onetime event, it must make sure it’s been declared to its policy. If it’s a monthly event, each

one needs to be specifically declared with the date and relevant details. This may require more interaction between the agent and client, and it’s entirely possible carriers will continue to implement changes that affect new and existing policies.

Setting Up for Success

Everyone associated with live events is excited about their return. Fans are coming out of their homes and experiencing all they missed from a pre-COVID world. Performers are back on the road, and venues are happy to accommodate. But, for insurers and their clients, running an event may never be as simple as it once was. Various new and heightened threats to event operations have forced insurance carriers to alter how they evaluate events, what coverages they offer and at what price, limiting options for agents and their clients. Carriers now require detailed information about every aspect of an event to determine their policies, rates and coverage options. So, agents and their clients will likely need to invest more time to gather all the relevant facts. Agents play a critical role in making sure clients are aware of any changes or potential coverage gaps that can leave them vulnerable. By staying informed of carriers’ new policies, reviewing existing policies and working closely with clients to gather detailed event information, agents can help live event hosts and organizers again entertain millions safely and confidently. Carroll is senior vice president at Take1 Entertainment Insurance.

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Special Report: Entertainment The Risks of Amusement Parks Insuring the Happiest Places on Earth

he website Statista estimates that amusement parks in the United States grossed about $19.75 billion in 2021. That’s a lot of roller coaster, water slide, bumper cars (if that’s still a thing) and overpriced food. By Patrick Wraight It would be fair to say that almost everyone that you know has been to at least one amusement park.

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Some prefer the thrill of the roller coaster, others would rather spend the day in a lazy river, and some just come for the $10 hot dog and $30 headband shaped slightly like ears. You’ve probably heard about the tragic accident in Orlando recently where a 14-year-old rider slipped from his seat on a ride that propelled passengers over 400 feet in the air and dropped them with a pause part of the way to the ground. This is the kind of incident that should be preventable as long as the ride attendant is properly trained and supervised and the ride itself is kept in optimal operating condition. This is a tragic incident, which should never be repeated. This is what I would call an individual catastrophic ride failure to differentiate it from a total catastrophic ride failure. This is not to minimize what happened, but to make a difference between a failure of a ride that causes a mass casualty situation as opposed to a failure that injures one person. If I’m being honest, I’m not all that interested in riding any ride that has had any kind of catastrophic failure,

individual or otherwise. Catastrophic ride failures are terrible and if everything was perfect and wear and tear wasn’t a thing, they would never happen. Because we live in a world where things wear out, break down, or people make mistakes these things will happen. Yet if we look at the numbers, we realize that, according to the Consumer Product Safety Commission, in 2004 there were five amusement ride fatalities. This is not good, but in 2019, according to the National Highway Traffic Safety Administration, there were over 36,000 fatalities related to motor vehicle crashes. With proper training, supervision and maintenance most of those rides that people really seem to like because they make them feel like their internal organs are moving around inside them are perfectly safe. Again, when things go wrong with these rides, they go catastrophically wrong. That’s why there should be so much attention focused on them, but amusement parks have risks beside ride-specific risks.

Risks of Normal Premises Hazards

Whether you’re talking about one of those large parks where the Super Bowl MVP usually ends up, or the small park about an hour from you, amusement parks are places where people show up and stay. Whenever there

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are people walking around on a premises, it doesn’t matter what they are there for, there are certain risks that are a part of having property and welcoming people in. There is the risk that someone might find something to trip over. Amusement parks have acres of parking lots and miles of sidewalks. Each person walks several miles in the time that they are in the park. All of that walking space needs to be maintained so that cracks don’t become tripping hazards. They also need to be kept clear of trash and obstacles that could become more tripping hazards. Most parks have grassy areas with trees. Even if those areas are kept free of tripping hazards, one thing that most parks would have a hard time dealing with are the animals that don’t normally like people but are attracted to the vast amounts of wasted food and the little kids that love to feed the cute critters. Yeah. Never let your little ones feed a squirrel. Take it from personal experience. Fingers are hard to distinguish from fries when you’re a squirrel. Whenever there is water around, there is the potential for a water-related accident. We aren’t even considering the hazards of a waterpark (although, there are many), we’re just talking about the hazards of the presence of water, including the air conditioning units that are running overtime in the little food trailers all over the park, the water fountains that dispense more water on the ground than they do into any containers, and the stray sprinkler that always seems to be pointed in the wrong direction. When you think about water, also consider the possibility that some water is not potable, and someone might try and drink it. Ick.

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Risks of Interpersonal Hazards

When you have that many people in one place, even if it appears to be a happy place (or the happiest, even), someone is going to get on someone else’s nerves. When that happens, sometimes people get out of control. Things get said and one thing leads to another and suddenly it gets physical. One note here is that most amusement parks have some security screening and signage that tells patrons that they may not bring weapons on premises, so things are unlikely to escalate too much, at least in the park. There are several factors that lead to the possibility that something might happen between two people. Just in case you’ve never been to an amusement park, you should know that it involves a lot of walking. The kind of walking that the majority of Americans aren’t used to. By some accounts, it appears that depending on the place you go, and the children you bring with you, we’re talking about 7-10 miles of walking in a single day. Think about that much walking when you buy the four-day park hopper pass. That much time on the feet makes one tired and makes for achy legs and feet. Those are some key ingredients in the making of an upset person. Also, take into account the attitudes of the people that people travel with. You might think that an amusement park is fully of shiny, happy people holding hands. But it’s not always. Just let someone’s little one decide

that they wanted to ride the Bubble Gum Coaster when someone else promised the other little one that they could ride the Launch into Chaos ride, and the next hour is nothing but crying, pouting and screaming. And that’s the parents. One more small ingredient to our potential fisticuffs is the presence of adult beverages. Tired people who are dealing with unhappy people, on a hot day, attempting to quench their growing thirst with an alcoholic beverage (and no food because who can afford that) all adds up to people who don’t think before they speak or act. The park should take this exposure into account and make sure that they take steps to mitigate it. They could provide rest zones where people can sit down and plan out what’s next. They could also ensure that those who serve alcohol know the signs of people who shouldn’t be partaking in them. It may also be helpful to have people around who are empowered to help defuse situations before they escalate.

Risks of Food Hazards

If you’ve been to an amusement park, you’ve paid $15 for a barbecue sandwich that tasted like your four-year-old nephew

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Special Report: Entertainment continued from page 35 made it in the front yard from mulch and mud. That’s not to say that all amusement park food is bad. It’s just mostly bad for you and isn’t the tastiest food you’ve ever had (especially for the price). Thankfully, the park will need licensure and inspections for their food operations, so there’s that. Unfortunately, that doesn’t mean that the local health department is on site every day, making sure that every food service person is doing everything right. When you consider that most of the food vending is done in small carts or the type of food trailer that you might see at your local fair, you see that the risk is real. Restaurants will often hire a manager in their kitchen that is certified as a food service manager, which includes food safety training. While it’s possible that someone at the park is a certified food service manager, it’s also quite likely that the people doing the food preparation and serving aren’t. They’re just filling in there because someone else had to take the weekend off. They normally work the Upside-Down Bumper Cars, not the fried dough stand.

‘Whenever there are people walking around on a premises, it doesn’t matter what they are there for, there are certain risks that are a part of having property and welcoming people in.’ Making food service training available for the team makes for a better trained and well-rounded staff. This would allow for more team members to know whether 36 | INSURANCE JOURNAL | MAY 16, 2022

or not they are maintaining safe foods. Having people around who have the ability to randomly test food service areas for proper temperatures and preparation also reduces this risk.

Risks of Alcohol Hazards

We’ve already mentioned this briefly in the context of the potential of interpersonal risks, but there’s a little more to it. The presence of alcohol increases several risk factors. This includes the possibility of people losing control of themselves and doing things that they normally wouldn’t do, including driving when they ought not. There are the risks that people are already dehydrated and aren’t eating properly, which both make the alcohol more effective in doing what it does. This exposure needs constant care and

monitoring, which may include limiting the places where alcohol is available, and intentionally limiting the number of beverages a person may consume. Looking at the risks of an amusement park should show the opportunity that exists for those of us in the risk and insurance realm. After all, we like to have a good time, too. We just like to do it in a way that mitigates the risks that people (including us) face. Because some of us really like that ride where you get strapped into a harness and lifted up a couple of hundred feet into the air and swing out like a bird in flight. Or so I’ve heard. Wraight, CIC, CRM, AU, is director of Insurance Journal’s Academy of Insurance. He can be reached at pwraight@ijacademy.com. INSURANCEJOURNAL.COM

Spotlight: Catastrophe Modeling The Evolution of Catastrophe Modeling Since Hurricane Andrew

here’s no question Hurricane Andrew was a wake-up call for the industry. The event paved the way for catastrophe models to revolutionize the way (re) insurers By Karen Clark quantify, price, transfer, and manage catastrophe risk. Prior to the adoption of catastrophe models, (re)insurers used rough rules of thumb based on premiums to estimate potential losses. Andrew caused losses many times higher than what these formulas had projected. The catastrophe models got it right because of their unique structure and architecture. The models provide the infrastructure for starting with an event, calculating the location-level intensities caused by that event, estimating the damage based on the replacement values of exposed properties (not premiums), and finally determining the ultimate financial loss. Catastrophe modeling evolved to a global standard technology used by (re)insurers around the world. For every type of peril — hurricanes, wildfires, earthquakes — and for every country and region,

models have these same four primary components. Most importantly, catastrophe models are built around large stochastic event sets representing the probabilities of events of different sizes and severities by location. This enables the most valuable output of a catastrophe model — the Exceedance Probability (EP) curve — which provides the probabilities of losses of different sizes on a particular portfolio of properties. For example, rather than simply estimating that a Category 5 hurricane making landfall near Miami, would result in an insured loss of $150 billion, the hurricane models assign a probability to that $150 billion loss. Today, the probability of that size hurricane loss in the United States is about 1%, in other words, a one in 100-year loss (on average). The models estimate the probabilities of losses of all sizes from hurricanes striking everywhere along the coastline. Essentially, the models provide a complete view of the loss potential for the industry as a whole and for the specific portfolios of individual insurers. Armed with this information and fully probabilistic models, insurers can make more

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informed decisions — on how much reinsurance to buy, on risk-based premiums for their own policyholders, and on underwriting guidelines. As the science has evolved and advanced over the years, and actual events have provided additional data for model validation, the model components have become more complex and able to account for more variables and event characteristics. Additionally, advances in computing power have enabled the models to capture and utilize more data and at much higher resolution than the original models. But the fundamental structure of the models has remained the same, demonstrating the robustness of this powerful technology.

Recent Advances

Recent advances in modeling technology include accounting for the impacts of climate change. The catastrophe models have been based on extrapolations of historical data under the assumption that history provides a good guide to the future. For example, the hurricane models are based on data going back to 1900. Until recently, this was a reasonable assumption. Today, however, given that climate change is known to be impacting weather-related events, catastrophe models must go beyond the data in the historical record. The current scientific consensus is that climate change is already impacting hurricanes, floods, winter storms and wildfires with medium to high confidence. With respect to hurricanes, global temperature

increases are leading to more intense hurricanes and there’s an ongoing shift to a higher proportion of major Category 3-5 hurricanes. Recent hurricane activity has provided this evidence. But how can this be incorporated into models that rely on data going back 100 years? Essentially, the historical data must be adjusted to reflect current climate conditions. Recent studies conducted by KCC scientists and other climate experts have concluded that a one degree Celsius temperature change results in a 2.5% increase in hurricane wind speeds. Since 1900, there has been a global temperature increase of 1.1 degree, resulting in a 2.75% increase in wind speeds. While 2.75% increase may not sound like a lot, losses increase exponentially with wind speeds. According to analyses conducted by KCC scientists, insured losses are 11% higher today than they would have been if global temperatures had remained constant. Perhaps more importantly, KCC analyses demonstrate the EP curves are not increasing uniformly across all return periods; rather climate change is altering the shape of the curve. The lower return periods — the one in five, 10 and 20-year losses, are rising faster than the one in 100-year and more extreme losses. The only landfall locations that can generate an extreme $150 billion hurricane loss are Miami, Galveston/Houston, and the Northeast. On the other hand, more major hurricanes occurring all along the coast are resulting in more INSURANCEJOURNAL.COM

‘According to analyses conducted by KCC scientists, insured losses are 11% higher today than they would have been if global temperatures had remained constant.’

$10 billion, $20 billion and $30 billion insured losses. Losses of this size may not be solvency threatening for most insurers, but they can negatively impact annual financial results. While we don’t know when the $150 billion loss will occur, based on the current climate, (re)insurers should expect a $10 billion hurricane loss every other year on average and a $20 billion loss at least every five years. A 10-year INSURANCEJOURNAL.COM

return period hurricane loss in the U.S. is now $40 billion. These numbers reflect current property replacement values, including COVID-driven cost increases, along with climate change.

Future Views

Traditionally, the models were designed to assess the current risk and not to project losses out into the future. With climate change impacting

several weather-related perils, (re)insurers now require future views of risk. To create these future views, scientists can rely on the projections in the latest Intergovernmental Panel on Climate Change (IPCC) assessment report — AR6. This report provides the current scientific consensus on projected global temperature increases under various emissions scenarios going out to the year 2100.

Catastrophe modelers use these projections to develop climate-conditioned catalogs (re)insurers use to see how their EP curves may change under the different scenarios and time periods. Future advances in modeling technology include faster and more frequent model updates. The speed at which environmental factors are changing means the models must be updated more frequently than they’ve been in the past. Model updates have not always been welcomed by (re) insurers because the numbers can change — sometimes dramatically — without sufficient explanation or justification. It behooves the modeling companies to make the model update process more efficient and transparent for (re)insurers. While catastrophe models existed before Hurricane Andrew, it was this event that led to widespread industry adoption of this powerful technology. The fundamental structure of catastrophe models has not changed, but the models have advanced and evolved to incorporate more variables, run at much higher resolution, and most recently, incorporate the impacts of the changing environment, i.e., climate change. The models remain essential tools for (re) insurers to quantify, price and manage extreme event risk. Clark is co-founder and CEO of Boston-based Karen Clark & Co., a catastrophe modeling company established in 2007 to help insurers better manage catastrophe risk. In 1987, she founded the first catastrophe modeling company, Applied Insurance Research, which became AIR Worldwide when it was acquired in 2002 by Insurance Services Office Inc.

MAY 16, 2022 INSURANCE JOURNAL | 39

Idea Exchange: Agency Management Making Financial Statements Work for You with 3 Key Questions

very minute of the day in 2020, Google conducted 5.7 million searches, Twitter saw 575,000 tweets, Facebook logged 44 By Tony Caldwell million views and TikTok users watched a whopping 167 million videos, according to research from cloud-based operating system DOMO. We are literally flooded with information every day of our lives. With the average person processing countless amounts of information, consider how much data a business owner — passionate about taking his business to the next level — is reviewing and processing during and after the workday. With this overwhelming amount of data surrounding them, what should they focus on to ensure a better future for their business? Not surprisingly, many of the answers can be found in a set of well-documented, accurate and timely financial statements. But to find the solutions your business needs to succeed and grow within those columns of numbers, you have to know what to look for. I’m going to give you some short,

40 | INSURANCE JOURNAL | MAY 16, 2022

concise and practical tools, in the form of questions, to make those monthly financial statements more meaningful. Answering these questions will transform those financials into a concise compendium of information revealing a road map for agency operations success for the future.

Breaking Down the Financials

First, what should a good agency financial report consist of? The balance sheet, I believe, is the most important financial statement for an agency owner to read and understand. That’s because the balance sheet tells you whether or not you are solvent. Solvency means survival, which is always the most important thing for any business. This isn’t an article about the technical analysis of your balance sheet, but two questions you should ask of your balance sheet every month include: 1. Are we solvent? 2. Are we likely to remain solvent? You can determine your solvency by calculating your “quick ratio.” This is simply current assets divided by current liabilities and by the number of days of working capital, which is how much cash you have divided by your daily cash demand. Your balance sheet will tell you if you have the

financial resources to execute your business plan and tell you what parts of the business — marketing, people, etc. — you need to invest in to grow at a given rate. If those money demanders are growing, the balance sheet will tell you whether or not you have the money you need or if you need to make adjustments in operations.

Cash flow is the blood that powers your business and keeps it alive. Particularly in a growing business, cash flow is the single most important line of a financial statement a business owner should review. Like a bookend, a profit and loss statement tells you where your money has come from and where it has gone. It tells you how many sales you’ve made and how you’re spending your money. Salespeople love to focus on the top of the income statement where revenue is listed because it shows how much money your business is creating, how many sales you’re

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making and how the top line is growing. But I like to read the P&L from the other direction starting with the bottom line. Are you making or losing money and how much? If the answer at the bottom isn’t what you expect, it directs you to focus on the middle of the statement which shows where your money is going I hate to admit this, but many years ago early in my insurance agency career, we were growing quite rapidly and the partners had decided to distribute a good portion of the profits. One morning, I arrived in the office and our bookkeeper pulled me aside and worriedly told me that if our checks for accounts current were mailed that day, we’d be overdrawn. We’d been focusing on profits within our financial statements, not cash flow. Cash flow is the blood that powers your business and keeps it alive. Particularly in a growing business, cash flow is the single most important line of a financial statement a business owner should review. It tells you not only if you are creating more cash every month than you’re consuming, but also where you are consuming cash, as well as where the cash is coming from.

While many businesspeople never look at this statement, I think it’s imperative to consider it carefully at least monthly, if not weekly, for a growing agency.

The 3 Questions to Find Context In Financials

Too often, these reports are misunderstood, poorly interpreted, undervalued or completely overlooked in many agencies. They are viewed as sterile, boring and not particularly meaningful. To be of value, financial statements need to have context, and the context is what’s happening right now in the business. I find a conversation among agency leadership centered on these reports can be the most productive if the team drives discussion around these questions: Is this what we expected? If not, why not? What are we going to do about it? These questions allow the numbers in the financial statement to become dynamic, meaningful and the basis for intelligent action. The answers to these questions either serve to instill confidence and reinforce the fact that you’re headed in the right direction or they serve as a call to course correct. For example, let’s suppose you have a cash target — an amount of money in the bank that you want accessible at a certain point in time for some business purpose. However, this month, you show that you not only don’t have that amount of cash,

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but the trend in your balance sheet projects you’re not likely to develop it in the time period defined in your business plan. To question number one — no, that isn’t what you expected. Why not? Did you invest in something that was not planned for? Was there a bad debt loss on an account? Was accounts receivable higher than it should be and in danger of becoming less collectible? Why do you not have the cash you had planned to have? This leads to the third question, what are you going to do about it? Are you going to collect accounts receivable? Are you going to resolve to be more disciplined with purchases? Should you delay the hiring of an employee that you planned for in the next quarter? Knowing that you’re not where you intended to be should trigger a dynamic conversation among leadership about how to pivot in real time to ensure that the business reaches its objectives.

Focus on the Future

Asking these three questions allows agency owners to not only identify the areas of the business that are not going the way they had planned, but to laser focus on improvement in those areas. The exceptions to what we expect are what should trigger us to take immediate action. If we do that, we have a far better chance of coming through the end of the quarter, the year, or the decade on plan. I used to think that financial statements were dull, dry, boring and not nearly as exciting as the sales report. I see that differently now. Financials that tell me we’re on plan and are going to achieve our goals are exciting. At the same time, these three questions allow me to determine where we are off track and help me to understand what we need to do about it — right now. Caldwell is an author, speaker and mentor who has helped independent agents create over 250 insurance agencies. Website: www.tonycaldwell.net. Email: tonyc@oneagentsalliance.net. MAY 16, 2022 INSURANCE JOURNAL | 41

Idea Exchange: The Competitive Advantage

Insurance Claims – The Problems and Some Solutions

laims are where the rubber is supposed to meet the road in the insurance world. Claims are where an insured might discover whether their cheap policy was too cheap. Claims are where reputations are made. Claims are where a disdain for insurance is developed, or people discover insurance is a savior. Currently, from By Chris Burand what I hear from my agency clients and personal friends from around the country, claims processing in the insurance industry is not going so well. The industry is developing more enemies than net promoters. Part of the issue is that carriers are cutting corners. I know we are not supposed to say this so boldly within the industry. It is talked about everywhere and when state conventions open again to live events, it will be a hot topic at the bar, but no one talks openly about the corner cutting. A fantastic primer on corner cutting was published several years ago in Bloomberg Markets. It was their cover story regarding 42 | INSURANCE JOURNAL | MAY 16, 2022

how a famous consulting company taught famous insurance companies how to save money on claims. The article is 15 pages and describes the innovative (at that time, not so much now) methods by which companies could save money. I suspect many companies have hired the same consulting firm to teach them the same tactics that was reportedly so thorough of a process that it consisted of 150,000 pages and slides. About two years ago a plaintiff law firm updated the article. I am not usually a fan of plaintiff law articles and to me this was biased as usual. However, the updates are worth reading for those of you who care about fair and straight forward claim settlements.

Pressure on Claims

The pressure to improve claims from a reputational perspective is only going to increase. The industry almost completely failed to offer coverage for the most important commercial business loss in 100 years due to COVID and a large proportion of people feel the coverage denial was the result of greed. I don’t agree with that perspective, but that perspective is seen

as reality. Combine that with poor claims and the regulators will make life harder. They may begin inventing coverage as some insurance companies and agents believe happened as a result of the 2021 hurricanes. An example of bad claims behavior, unethical even if legal, is what happened to a friend. He was driving down the highway recently and the driver next to him decided he wanted my friend’s space. He literally turned into him even though they were side-by-side — it was like trading paint in a stock car race. Establishing liability was not an issue. The other driver and his insurance company accepted liability. However, the carrier (interestingly enough — one of the carriers listed in the Bloomberg Markets report) said they would not pay for a rental car for my friend. Instead, they would reimburse him. That was an awful and unethical decision from my perspective. Their insured was liable. The point of insurance is to reinstate the party to the same financial position they were in immediately preceding the loss. If the innocent party must use their own cash, only to be reimbursed later, an exchange of working capital INSURANCEJOURNAL.COM

‘The pressure to improve claims from a reputational perspective is only going to increase.’ results. The innocent party must use their working capital, rather the liable party using their own working capital. Working capital costs money. The carrier saves money by forcing terms onto the third-party who is not a party to their insurance contract. (Interestingly, too, this carrier – while highly rated — has far less investment income than normal relative to its peer group, meaning they must achieve better underwriting results due to their lack of investment income subsidy.) Furthermore, the carrier saves money when the innocent party does not have the working capital to afford a rental car upfront, which is likely their larger savings, and is wrong. I recently reviewed a cyber claim where an intentional misreading of the contract was literally the only possible reason for denying the claim. The policy language read, “…including but not limited to….” The adjuster interpreted this to mean only “limited to.” This means, in her interpretation, that coverage was limited to three items. That is one heck of a silent sublimit if her interpretation was correct. However, “including but not limited to” means “not limited to,” which is not difficult policy language to understand. A different form of a shortcut is to not employ enough claims resources when a catastrophe hits. Obviously INSURANCEJOURNAL.COM

deploying enough claims resources when a catastrophe occurs is materially easier to recommend than to do, but the serious shortcomings arising from the hurricanes in 2021 is rather problematic, based on what agents are sharing with me. Not hiring enough adjusters, especially quality adjusters, or preparing an adequate catastrophe response plan saves money.

Cutting Too Close?

Carriers are under intense pressure to reduce their loss adjustment expenses and maybe they are cutting too close to the bone. What are some solutions besides behaving more ethically? If you are employed by a carrier that actually cares, measure how well your claims service really functions and then work hard to improve it. If you already score well, advertise. Two years ago I saw an awesome advertisement from a large regional carrier documenting a testimonial from a person who lost her home — twice. Better yet, show how well you perform using documented proof. I know carriers are afraid to do this because of the plaintiff bar, but if you are good, advertise you are good and then work to get better. Focus on forcing adjusters to return calls in a timely manner. Force your adjusters to actually read the policy they

are adjusting rather than assuming the policy reads like some other policy with which they are more familiar. Go ahead and pay the uncontested portion of the claim rather than delaying payment of the entire amount because some portion, often a small portion, is contested. Use common sense and good training with a strong focus on ethics and many of your claims problems will go away while your reputation will be polished. This process is not rocket science for ethical carriers. For agencies, you know which carriers have good claims service and which ones do not. Carefully let your customers know which is which. You are not, however, allowed to disparage a carrier, even if they are as guilty as h---. Educate your staff on how to advise clients when they need to submit a claim. Advise the insured what they should be doing and have them stay in touch with you regarding whether adjusters are returning their calls. If the adjuster is incompetent, work behind the scenes to walk the adjuster, word-by-word, through the policy language. Also, educate your insureds. Adjusters can’t return calls if insureds do not answer their phones or if insureds’ voicemails are full. Educate insureds that it is important for someone to be present when the adjuster arrives, and while arranging schedules is a major hassle, the insured needs to proactively participate. Educate insureds on what to expect when a claim happens. In a catastrophe, let insureds know adjusters will be slower to respond. Educate insureds that when a claim happens, people are not just going to take their word about what possessions they lost and the quality of construction and so forth. Documentation is important for quick and fair settlement. Everyone can play their part to improve claims results. If a carrier is being unethical or just stupid, the onus is on the agent to help the insured because the only other party willing to help the insured is the plaintiff’s bar. Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719-4853868. E-mail: chris@burand-associates.com. MAY 16, 2022 INSURANCE JOURNAL | 43

Idea Exchange: Contingent Risk Contingent Risk Insurance: What Is It and Just How ‘Risky’ Is It?

itigation, by its very nature, is uncertain. Even the most seasoned practitioner or skilled jurist cannot guarantee an outcome or assure a result. Fortunately, however, the insurance markets have increasingly been engaged to mitigate downside exposure of litigation’s inherent uncertainty. Through the proliferation of contingent risk insurance, businesses and individuals can now mitigate that downside risk by preventing potential windfall losses, locking in a substantial portion of a damages award, and even monetizing a judgment before lengthy appellate proceedings conclude. The impact of contingent By Steven Penaro risk insurance, if deployed correctly, can be profound. And, keeping in mind certain key considerations during the underwriting process will help insurers Kristen Kuan appropriately issue policies designed to provide maximum value to both insurers and insureds.

What Is Contingent Risk Insurance?

Contingent risk insurance offers and Jenna Jones protection from identified legal risks, allowing companies and individuals to minimize or eliminate their risk exposure and better manage risk associated with the uncertainties of highstakes litigation. Contingent risk insurance most commonly takes two forms: adverse judgment insurance and judgment preservation insurance. Adverse judgment insurance typically protects defendants in pending litigations. 44 | INSURANCE JOURNAL | MAY 16, 2022

In short, it allows an insured to box in litigation exposure and transfer that risk to the insurance markets. When purchasing adverse judgment insurance, the insured pays a premium in return for the insurer paying any subsequent loss exceeding the retention up to the limit of liability from an adverse judgment. With adverse judgment insurance, the insured typically must exhaust all appellate options before the insurance pays out. Judgment preservation insurance, as the name suggests, protects the prevailing individual or business against the risk of a judgment being reversed or overturned, or the damages award itself getting reduced on appeal. In short, this category of insurance allows plaintiffs to preserve damages awards pending appeal. Judgment preservation insurance protects the judgment creditor from the possibility that a certain portion of a damages award may get reversed in whole or in part.

Benefits of Contingent Risk Insurance

As can be gleaned from the above, contingent risk insurance is beneficial to any business or individual looking to protect themselves from the potential harm of an adverse decision or the potential for downside monetary exposure while litigation is pending. Examples of such benefits include: • Removing litigation roadblocks from transactions, including high-stakes M&A transactions; • Releasing corporate funds previously set aside to pay out a potential damages award; • Reducing litigation uncertainty for public companies involved in litigation, creating more shareholder confidence and a corresponding increase in stock price; and • Allowing businesses and individuals to monetize judgment-related earnings before the judgment becomes final, providing the judgment holder access to

the monetary benefit of the award before the appellate process concludes.

Underwriting Considerations

Every contingent risk insurance plan will need to be tailored to the specific facts and legal considerations at issue. As a result, each potential underwriter needs to carefully evaluate all the risks and considerations from a legal perspective. Despite the unique nature of each risk being underwritten, there are several common considerations that underwriters should be mindful of when determining exactly how “risky” the contingent risk may be. The developed record is an important consideration in conducting an underwriting analysis. If, for example, a case has progressed through a significant amount of discovery or if it has had one or more dispositive rulings in favor of the potential insured, an insurer will be able to conduct a more robust review of the case and properly examine any applicable legal theories — all of which may lead to the insurer becoming more comfortable with a specific risk. On the other hand, cases

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that are in their preliminary stages may not be good candidates for litigation risk insurance because there could be a lack of information about the facts, potential legal theories, or reasonably likely outcomes in the case. The forum of the litigation is also a key factor to examine. Not every legal forum is created equal. For instance, the U.S. District Court for the Western District of Texas is the busiest district court for patent cases, followed by the District of Delaware. The Western District of Texas has become an increasingly popular venue because of default schedules and standing orders, which keep patent cases moving quickly and on a pre-determined timeline. On the flip side, certain courts are known for having slower than usual dockets. For example, the District of Delaware, Eastern District of New York, and Southern District of California had some of the slowest dockets in 2021. Conversely, the Eastern District of Virginia, sometimes referred to as a “rocket docket,” has the fastest federal civil trial court. The Eastern District of Virginia is also becoming an increasingly popular venue for Chapter 11 cases. Unsurprisingly, dockets that move on a faster timeline may be a more favorable risk to an insurer since these cases tend to

have more developed records that allow underwriters to make more thorough assessments. Indeed, an underwriter familiar with the intricates of the forum is better positioned to assess the timeline, legal theories and potential range of outcomes of the litigation. Familiarity with the subject matter of a litigation can lead to a more streamlined and accurate evaluation of the risk. For instance, familiarity with recent legal developments in rapidly evolving areas of the law can help separate the good risks from the bad. The ability to quickly analyze emerging legal trends and identify legal issues and theories that have become stale or recently overturned are important considerations that will enable an underwriter to appropriately evaluate a risk. As noted above, cases that involve legal issues with a robust discovery record, including commercial litigations and patent litigations, lend themselves to a more thorough underwriting process. In these types of cases, the amount of potential damages, or the possibility for reductions in damages, can be more accurately determined. On the other hand, cases that are in the pre-discovery stage may be less suitable for contingent risk insurance because underwriters do not have a robust record to thoroughly evaluate the factual

and legal issues of the case. Likewise, tort cases, such as personal injury or medical malpractice cases, may not be the best candidates for contingent risk insurance because these cases tend to run the risk of surprising runaway jury verdicts.

Counsel for the Potential Insured

Finally, it is important to consider whether the counsel for the potential insured has thoroughly vetted their claims or defenses. For example, counsel that takes on a case on a contingency basis after conducting a thorough evaluation of the factual and legal issues of the case can often signify the perceived strength of a party’s claims or defenses. Cases where the counsel for the potential insured has conducted a robust analysis before the underwriting process can often be a more favorable risk. While litigation is inherently risky, these are key considerations that all underwriters should keep in mind when determining whether the litigation is a good candidate for contingent risk insurance. Steven Penaro is a partner, Kristen Kuan is a senior associate and Jenna Jones is an associate in Alston & Bird’s Litigation & Trial Practice Group, where they focus on commercial litigation. They are based in New York.

‘Contingent risk insurance offers protection from identified legal risks, allowing companies and individuals to minimize or eliminate their risk exposure and better manage risk associated with the uncertainties of high-stakes litigation.’

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MAY 16, 2022 INSURANCE JOURNAL | 45

My New Markets Medical Professional Liability Insurance

Product Recall & Accidental Contamination

Market Detail: Coverys is a nationally

recognized medical professional liability insurer and value-based care, risk-based solutions provider. You can be confident in Coverys’ financial strength and stability. Our underwriting companies are rated “A” (Excellent) by A.M. Best, and we have served the medical community for 45-plus years. Offers a range of flexible coverage options — from traditional first dollar coverage to reinsurance and alternative risk solutions, such as captives, risk retention groups, loss portfolio transfer, and more. Insurance products to complement participation in value-based care programs. Best-in-class resources and education to help mitigate risk and improve patient care. Innovative analytics that are used to uncover the root causes of risk and develop actionable insights to reduce risk. Superior claims defense and support. Unique support programs to assist healthcare providers who are experiencing a claim, adverse event, or burnout. Available Limits: As needed Carrier: ProSelect Insurance Company, Admitted, A rated by AM Best States: All states Contact: Tony Burnham at 425-310-7136 or email: aburnham@coverys.com

Property Managers and Subsidized Housing

Market Detail: HAI Group offers insurance and risk control services for low and mixed-income housing entities not in the public housing program. Commercial Property Coverage: Enhancement endorsement designed for apartment owners and property managers; Computer equipment within Business Personal Property, eliminating a separate coverage form; Sublimits for Earthquake, Flood, and Business Income/Extra Expense (Earthquake and Flood not available in high-risk areas); Option to include Equipment Breakdown (Boiler and Machinery) as an endorsement; and Installment pay plans are available for qualifying accounts. Commercial Liability Coverage: Option to include Employee Benefits Liability (Claims Made Basis); Option to cover Hired and Non-Owned 46 | INSURANCE JOURNAL | MAY 16, 2022

Auto as an endorsement, eliminating a separate policy (*not available in all states); Option to cover on a Location Aggregate basis; Option to cover Employers Liability (Stop Gap) where there are state-run workers’ compensation (monopolistic) programs; and Installment pay plans are available for qualifying accounts. Markets served: Affordable or mixed-income housing; US Department of Housing and Urban Development (HUD)-financed properties; Low Income Housing Tax Credit (LIHTC) developments; Low income senior housing; and Section 8. Available Limits: As needed Carrier: Not disclosed, Admitted, A rated by AM Best States: All states including the District of Columbia, except Alaska and Hawaii Contact: Matt Higgins at 800-873-0242 ext 225 or email: mhiggins@housingcenter. com

Small Business

Market Detail: UFG offers a new, online, small-business quoting experience that offers an agent-focused approach. ProQuote is designed by agents for agents. The BOP-Pro is a new offering to simplify businessowners policies with tailored products and coverages for policyholders. With over 35 available coverages, BOP-Pro is ready to be your go-to for specific industry segments, like contractors and restaurants. Key coverages include: Business income; Electronic data; Outdoor property; Accounts receivable; Cyber. Available Limits: As needed Carrier: United Fire Group, Admitted, A++ rated by AM Best States: All states including the District of Columbia Contact: Janeece Thomas at 916-5392357or email: jthomas@unitedfiregroup. com

Market Detail: DUAL North America offers a market for product recall and accidental contamination. Manufacturers, suppliers and supply chain partners all face high potential costs from the need to withdraw a product from the marketplace. Leaner supply chains coupled with global distribution and the rise of greater consumer protection regulations have all contributed to the frequency and severity of recalls. Meanwhile the ubiquity of sensors and IOT networks means that product failure can be anticipated, and the worst injuries and property damage avoided. A critical step to avoiding these potentially large direct and indirect financial losses is a dependable product recall strategy including insurance coverage designed to both prepare and survive such an event. The Contaminated Products Insurance policy is designed to help manufacturers, wholesalers, retailers, importers, and distributors of food and beverages, and other topical and ingestible products manage threats to their products, brands, reputation and financial sustainability. Highlights: Worldwide coverage; 24/7 access to DUAL-retained consultant Crisis 24 through Crisis Response Hotline; Pre-incident consulting services; Primary and Excess capacity available; Dedicated claims management; Access to a diversified, financially sound carrier capacity in a single transaction. Available Limits: Minimum SIR of $25,000 Carrier: Not disclosed States: All states including the District of Columbia Contact: Mark Leblanc 973-631-7575 at or email: mleblanc@dualcommercial.com

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Idea Exchange: Professional Employer Organizations Understanding the Fine Print: How to Make Informed Decisions about PEOs and brokers. However, as the adage goes, things may not always be as they appear. PEOs could expose employers to broad workers’ compensation risks and potential unpaid workers’ comp claims. Also, while the bundled costs PEOs offer appear to offer great savings, they could end up costing more if certain unnoticed nuances are left unaddressed. Most critically, standard PEO contract language could expose employers to unintended workforce and financial risks. None of this bodes well for commercial insurance agents or brokers who recommend PEOs to clients without conducting proper due diligence. Of course, there are situations in which partnering with a PEO can be advantageous for certain clients — especially those with difficult or near impossible to place workers’ compensation

risks. However, when companies transition to a PEO, new, unimagined risks could also emerge. So, before you recommend a client take the plunge and sign on with a PEO, here are a few key issues to consider.

Do PEOs Save Money?

One of the most attractive aspects of a PEO is its promise to save clients money by bundling services such as payroll, workers’ compensation benefits, health insurance and other benefits. In exchange, the PEO charges a fee, usually between 2% to 6%, to handle payroll, all the payments for payroll taxes, workers’ comp, group health insurance and other administrative costs. The ease of use is great. Clients write just one check each pay period and everything is handled. However, those who

continued on page 48

RISK

MEDIUM H

THERE ARE NO BAD IDEAS, JUST BAD DECISIONS.

ajor savings, less paperwork, and reduced administrative obligations. At first glance, professional employer organizations (PEOs) sound like an ideal antidote for busy business owners. PEOs boast that while partnering with them, business owners get to focus their time and energy on the things they do best while outsourcing the tedium of setting up employee benefits, By Frank Pennachio managing human resources, keeping track of payroll, and managing their workers’ compensation program. Some even view PEOs as a potential growth strategy — rather than as competitors — for insurance agents

MANAGE YOUR RISK BY CHOOSING A WSIA MEMBER.

Some decisions are too precarious to take on alone. You need a partner who can help you create the right solution for your client’s risk, while minimizing yours. Choose a WSIA member to craft cost-effective solutions for complex risks. In fact, it’s so cost-effective that a recent analysis by Conning, Inc. concludes that wholesale distribution does not increase the cost to the insured. That’s a good decision! Find a WSIA member at wsia.org/findamember

WSIA MEMBERS ARE INSURANCE PROFESSIONALS DEDICATED TO THE WHOLESALE DISTRIBUTION SYSTEM. Insurance Journal - half page.indd 2

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Idea Exchange: Professional Employer Organizations continued from page 47 lack a complete picture of their business’ detailed finances could end up spending more money than planned or anticipated based on their understanding of the PEO proposal. In some cases, the PEO might overestimate client expenses to come up with a desirable amount in savings. For example: workers’ compensation costs start with a manual rate, which is modified by credits and other factors to determine the “net rate.” Frequently, PEOs fail to apply all of the credits and discounts to the workers’ compensation manual rates when comparing the clients’ costs to their costs. As a result, the client’s rates are overstated, which makes the PEOs’ costs look more favorable than they might actually be.

‘For agents and brokers looking to partner with PEOs, the key is to avoid misrepresenting any promised savings on quotes or coverage.’ There are also additional deductions on the employers’ cost side that PEOs don’t automatically remove from their standard contract language. For example, employers do not have to

pay state and federal taxes for employees who have reached $7,000 per calendar year, usually by the first few months of the year. However, when a PEO is handling a company’s payroll, absent changes to standard contract language, most PEOs continue collecting those dollars for the rest of the year, even after the state and federal tax threshold has been met. One way this can be prevented is to make sure the contract specifically states that when each and every employee reaches $7,000, the PEO will lower the bundled rate. This is an often overlooked nuance in most PEO contracts. The same applies to Social Security and Medicare taxes. Asking the PEO to lower the bundle rate, once certain criteria and tax obligations are met, will ensure the employer isn’t paying beyond their actual obligation and can result in genuine cost savings to the employer.

What’s in the Contract?

A PEO provides an alternative arrangement between employees and their employer. As co-employers, a PEO will assume certain responsibilities as defined in the contract. It’s crucial to not only carefully review the contract language, but to understand any potential risk exposures created, unintentionally or otherwise, by the agreement. This can be a critical opportunity for agents and brokers to

demonstrate their value to the client as part of the client’s attorney review process. While the attorney will focus on the legal obligations and responsibilities associated with the contract language, experienced agents and brokers will be best positioned to identify the risk exposures created or overlooked that impact their client in standard PEO contract language. Clients also cannot assume every perk and benefit presented in a proposal by the PEO representative makes it into the final contract. In my experience, some PEOs might have as many as eight to 10 different contracts, all with varying terms. What isn’t stated in the contract is as important, or sometimes more important, compared to what is in the contract. For example, a contract might specify that the PEO will cover work-related injuries for employees but not for independent contractors or any other “non-leased employees.” As such, if an uninsured independent contractor is injured on the client’s job site, the client — not the PEO — will have the statutory responsibility to compensate the injured worker. In other words, if your client does not have a named insured workers’ comp policy, the client assumes additional risks because the PEO is not going to cover what they contractually exclude. A traditional named insured workers’ comp policy would typically cover uninsured subcontractors. I’ve also seen contracts that say PEOs are indemnified against their own negligence. In such an instance, the PEO contractually clarifies that if they are negligent and judgements, fines or penalties result from a lawsuit, the employer will hold the PEO harmless. This subsequently puts the employer on the hook for those judgements, fines and penalties, and in some cases any related costs to indemnify and defend the PEO, including legal fees.

Are PEOs Right for Your Clients?

In recent years, instead of competing with PEOs, some insurance agents and brokers have offered PEOs to their clients who are interested in a wider range of services. It’s important, as trusted advisors to clients, that agents and brokers understand the pros and cons of PEOs and advise their 48 | INSURANCE JOURNAL | MAY 16, 2022

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clients accordingly. As PEOs continue to gain market share, a preemptive conversation with clients may be warranted so clients know what questions to ask when, not if, they are approached by a PEO sales representative. Should a PEO reach out to your client, it’s important you work closely with the client to ensure they understand not only the PEO contract language, but also the company’s true operating costs as noted above. This ensures you’ll be able to help clients make better, more informed decisions.

‘It’s crucial to not only carefully review the contract language, but to understand any potential risk exposures created, unintentionally or otherwise, by the agreement.’ For agents and brokers looking to partner with PEOs, the key is to avoid misrepresenting any promised savings on quotes or coverage. Take your client through the contract, line by line, so they have a complete picture of the benefits and risks associated with working with PEOs. Most PEO sales representatives are not licensed insurance agents because PEOs are considered human resource consulting firms by state laws and enabling legislation. If a PEO sales representative makes a misrepresentation of their product or service, their greatest risk is the loss of their job. For agents and brokers, relying on information they have not themselves vetted can result in a misrepresentation that can cost us our licenses and our ability to work in the insurance industry. Additionally, should a PEO working with your client become insolvent, your client could find themselves obligated for all unpaid payroll taxes or unpaid workers’ comp claims. In most states, the PEO has to pay the employees for two weeks, even if they don’t get reimbursed by the employer. However, there’s a clause in most of the standard contract language I’ve seen stating that if a PEO — for any INSURANCEJOURNAL.COM

reason — feels uncomfortable receiving payments from a client, they can immediately terminate the policy. In a worst-case scenario, a company could receive the termination notice at 5 p.m. on a Friday and not be able to resume business on a Monday. Without workers’ comp, group health or a functional payroll system, the company can essentially go out of business almost overnight. As agents and brokers, we are in the business of protecting our clients’ businesses. The PEO value proposition is powerful: Your client has the potential to save a lot of money with fewer liabilities and responsibilities. No doubt, as businesses continue to look for opportunities to reduce costs, there will be agents and brokers willing to partner with PEOs as both a potential revenue stream as well as a way to keep some portion of their clients’ business. However, it is incumbent on insurance professionals to be methodical when advising clients on the potential risks and true cost of doing business with a PEO. Above all, insurance agents must be transparent when recom-

mending a PEO to a client so the client can make the most informed decision possible. To do so, insurance agents and brokers need to understand the fine print of typical PEO contracts. Pennachio has spent more than 30 years in the insurance industry as an agent and producer. He now serves as practice leader, growth solutions at ReSource Pro, helping independent insurance agents and insurance carriers.

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Closing Quote Cyber Insurance: A Necessity for Every Agency

n employee clicks an unsuspecting email link encrypting your files which can only be opened by paying a ransom for the key. Someone uses information on social media to pose as the agency principal and authorize the transfer of a significant sum of By Mike Becker money to a fictitious new vendor. Your agency management system provider experiences a data breach and hundreds of your clients have their information compromised. Today, threats can come in many forms. Is your agency prepared? While large corporations experience cyberattacks, small businesses are often more susceptible because they don’t have the same robust technology infrastructures that big companies have. According to Verizon’s 2021 Data Breach Investigation Report, 61% of small businesses reported at least one cyberattack during the previous year. A cyberattack can be catastrophic for small businesses like insurance agencies. Data breaches can cost nearly $150plus per compromised record to correct. That’s not including defense, settlement or judgment costs, or the impact of diminished consumer trust. And that’s just one type of threat. But there is a step agencies can take to protect themselves: cyber insurance. Some say, “I have an

endorsement for that.” But endorsements often aren’t enough. Standalone cyber coverage is necessary to have complete protection. Some agencies might be hesitant because social or geopolitical tensions have caused cyber premiums to rise. But this shouldn’t be a reason to put off coverage, as these tensions also lead to increased cyber risk. When thinking about insurance coverage, agencies should focus on cyber risks similar to how they consider all risks to the business property, and errors and omissions. Identifying the right cyber coverage can be challenging. Cyber plans are not standardized and can vary widely, and the space continues to evolve. While most policies cover common cyber risks such as theft and destruction of data and breaches, issues such as denial of service attacks or ransomware are not covered by all. Agencies need to examine their risks to make sure they get the right protection. When deciding on cyber coverage for your agency, it can help to remember the 3Es: educate, evaluate and engage.

Educate on the risks.

Agencies should be aware of the different cyberbreaches and their impact. While you might be familiar with some risks, others might be completely new like fraudulent fund transfers, social engineering, and cyber business interruption.

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Evaluate your risk exposure. After becoming familiar

with the different threats, determine which are most likely to impact your agency. Ask yourself: Do you host a public website that customers interact with? Do you use third party applications in the cloud? Do you enable your employees to bring their own devices and connect them to the agency network? Do you have employees working remotely? What would the impact of a disruption to your business look like? Is having a good reputation in your community or market important to your business? Have you read your vendor contracts and do you understand the data security responsibilities? Engage with insurers. Work with insurers or MGAs you trust that offer cyber coverage. Weigh the options. Don’t just look at the premium but understand what is included. Are the cyberattacks that are most likely to impact your business covered? Would you have access to outside cyber

experts who can help mitigate an attack? What are the exclusions? Read the proposals to understand how they work and compare them to each other. While getting cyber coverage for the agency is important, if your agency works with small business customers, make sure to include cyber coverage when you talk with them about more traditional policies. If you are not talking about cyber with your clients, another agency will. Take your clients through the above steps to bring them up to speed on the threats to their business and determine what attacks they are most likely to experience. Walk them through the different policies so they can fully understand their coverage options. Unfortunately, cyberattacks are not an if, but rather a when situation. Cyber coverage is an option that should no longer be considered optional. With the right coverage, agents can come out on the other side of an attack and continue to provide great service to their community. Becker is CEO of the National Association of Professional Insurance Agents. INSURANCEJOURNAL.COM

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