Insurance Journal West 2023-09-04

Infusing

Opening Note

Chairman of the Board Mark Wells | mwells@wellsmedia.com

Chief Executive Officer Joshua Carlson | jcarlson@insurancejournal.com

ADMINISTRATION / CIRCULATION

Chief Financial Officer Terry Freeburg | tfreeburg@wellsmedia.com

Circulation Manager Elizabeth Duffy | eduffy@wellsmedia.com

Delayed Home Repairs

Homeowners insurance costs are on the rise and that trend doesn’t seem to be slowing down. According to S&P Global, homeowners insurance rose nearly 11% between 2021 and 2022. That could be one reason why many homeowners are delaying home repairs.

According to the latest Nationwide Agency Forward survey, within the past year, 44% of homeowners said they have delayed performing routine maintenance tasks and 31% are delaying necessary renovations and repairs.

More than a quarter of the homeowners surveyed (26%) reported that they are unaware that delaying necessary home maintenance can have implications for their homeowners policy.

Some 78% of respondents said they have deferred necessary maintenance because of inflation and rising prices.

Among those surveyed, the most common types of home maintenance or renovations that are delayed are roof repair or replacement and kitchen and bathroom remodeling.

Baby boomers (38%) are less likely than Gen X (50%) and millennial (52%) homeowners to delay home maintenance needs.

“As a homeowner, it’s important to protect your property from further damage when there is a known issue,” said Beth Riczko, Nationwide’s president of P&C Personal Lines. “When a claim is filed, there are many factors reviewed during the investigation that may impact whether the claim is covered, including if the insured followed policy conditions. For example, when shingles are damaged on a roof and aren’t repaired causing interior damage, there could be coverage impacts.”

In addition to putting off home maintenance, 71% of agents surveyed reported policyholders are reducing their homeowners coverage to save money.

The most common homeowners claims, according to agents, resulted from weather-related damage and fire damage. Most agents reported an increase in both over the past year.

The survey found that 43% of homeowners have filed a claim in the past, with more than half (56%) related to weather, 37% for water damage and 13% for fire damage.

More than 8 in 10 homeowners believe their home is insured to the right value (87%), though many remain concerned that their policy might not cover certain types of damages or incidents (54%) or that they may not have enough coverage in case of a major loss or catastrophe (47%).

“Homeowners should assess coverage needs and determine if they have enough coverage to reflect rising repair costs due to inflation,” said Riczko.

Staff Accountant Sarah Kersbergen | skersbergen@wellsmedia.com

EDITORIAL

V.P. of Content Andrea Wells | awells@insurancejournal.com

Executive Editor Emeritus Andrew Simpson | asimpson@wellsmedia.com

National Editor Chad Hemenway | chemenway@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

Content Editor Allen Laman | alaman@wellsmedia.com

Assistant Editor Jahna Jacobson | jjacobson@insurancejournal.com

Copy Editor Stephanie Jones | sjones@insurancejournal.com

Columnists & Contributors

Contributors: Amanda Castro, Karen Collins, Jim Sams, Joseph Saracino, Susanne Sclafane

Columnists: Anita Nevins, Mary Newgard, Catherine Oak, Bill Schoeffler

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

‘Among those surveyed, the most common types of home maintenance or renovations that are delayed are roof repair or replacement and kitchen and bathroom remodeling.’

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Private Flood Insurers See Opportunity as NFIP Increases Rates

While the National Flood Insurance Program (NFIP) rolls out a new rating program generating premium increases for many policyholders, the private flood insurance market has seized the opportunity to grow its market share across the U.S., according to an issues brief published recently by the Insurance Information Institute (Triple-I).

The U.S. flood insurance market has grown 24% between 2016 and 2022 from about $3.3 billion in direct premiums written to about $4.1 billion — with 77 private companies writing about 32% of the flood business across the country as of Dec. 31, 2022, according to the issues brief, Flood: State of the Risk.

“The timing of the private market’s increasing appetite for flood risk is fortuitous, as it coincides with Risk Rating 2.0, NFIP’s new pricing methodology that aims to make the government agency’s flood insurance premium rates more actuarially sound and equitable by better aligning them with individual properties’ flood risk,” said Triple-I. “As NFIP rates become more aligned with principles of risk-based pricing, some policyholders’ prices are expected to fall, while many are going to rise.”

The brief went on to explain that as the cost of participating in a government-run flood insurance program rises, private insurers may respond by “applying cutting-edge data and analytics capabilities,

more refined pricing techniques and new products, such as parametric insurance, to seize those opportunities.”

Affordable coverage can only come with increased competition, according to Triple-I.

A recent consumer research conducted by Triple-I, in partnership with reinsurer Munich Re, found that 64% of homeowners and renters said their residences were not at risk from flood, and another 14% were unsure of their flood risk.

Unless required by their mortgage lender, most homeowners don’t purchase flood insurance.

Also, many homeowners believe their standard homeowners policies cover flood damage.

12% Figures

The percent by which auto insurance shopping rates rose year-over-year in the second quarter of 2023, according to TransUnion’s quarterly Insurance Personal Lines Trends and Perspectives Report. While an uptick in vehicle sales played a role in the increase, TransUnion said in a press release that the search for lower insurance premiums was the primary driver. The consumer price index for motor vehicle insurance rose 17% in June 2023 compared to June 2022.

$50,000

Three men have agreed to pay more than $50,000 in restitution and penalties in Ohio for their roles in operating a phony charity that collected cash purportedly to help victims of the East Palestine train derailment. The settlement, announced by Republican Ohio Attorney General Dave Yost, requires Isaiah Wartman and Luke Mahoney of WAMA Strategies to pay more than $22,000 to a local food bank, plus $3,000 in investigative costs and fees. Michael Peppel, co-founder of the fraudulent charity, Ohio Clean Water Fund, must pay a $25,000 civil penalty and agree to a lifetime ban on starting, running or soliciting for any charity in the state.

$3.2

The estimated amount of insured property losses from the Lahaina Fire in Hawaii reported by catastrophe modeler Karen Clark & Company on Aug. 15. AccuWeather on Aug. 14 revised its estimate of the total damage and economic loss from the devastating wildfires burning in Hawaii to $14 billion to $16 billion.

8,500

The approximate number of acres burned by wildfires in Texas between Aug. 1 and Aug. 11, according to the Texas A&M Forest Service, which monitors wildfire conditions. Gov. Greg Abbott issued a wildfire disaster declaration for about 75% of Texas counties, allowing them to use all available state resources to respond to any new fires as the state continues to bake under triple-digit temperatures. The declaration covers 191 of the state’s 254 counties.

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Declarations

‘Not Our Friends’

“There were other victims in this cyber operation. … The Communist government in China are not our friends and are very active in conducting cyber espionage.”

— Nebraska Republican Congressman Don Bacon said on the social media platform X, formerly known as Twitter, that the FBI had warned him that his emails were hacked by Chinese spies, with both personal and campaign messages compromised. He was told that the Chinese Communist Party had access to his accounts for about a month ending on June 16.

Delaware DOI Fights Back

“The department continues to regularly receive complaints advising that various members of the insurance industry, including insurers and brokers, have been responding to consumer inquiries related to premium rate increases by claiming that the Department has required an insurer to raise premium rates.”

— Reads a bulletin posted by the Delaware Department of Insurance on Aug. 7. The DOI said it is not forcing insurers to raise premiums and warned that anyone who says otherwise could lose their license and face fines of $10,000.

Ohio Plant Explosion

“This terrible tragedy could have been avoided if the employer followed wellknown machine safety standards that are meant to prevent this type of explosion.”

— Explained OSHA Area Director Howard Eberts in Cleveland, Ohio, after an investigation into an explosion at I. Schumann & Co. LLC, a Beford, Ohio, foundry, that resulted in the death of a maintenance supervisor and injuries to 15 other employees, found the operator failed to protect workers from the hazard of steam explosions and proposed $62,500 in penalties.

Firefighters’ Cancer Risk

“Firefighters have a 9% higher risk of being diagnosed with cancer and a 14% higher risk of dying from cancer than the average American.”

— Florida CFO Jimmy Patronis said at a news conference announcing $50,000 in grants for three south Florida fire departments for the purchase of decontamination equipment. Florida firefighters are covered by a limited presumption if they are diagnosed with cancer, but some fire departments still need special cleaning systems to remove carcinogens from gear.

Texas vs. Shell

“This is a lawsuit to enforce Texas laws enacted to safeguard the state’s air resources, human health and the environment against pollution and to protect the quality of water in the state.”

— States a lawsuit filed in Travis County by the Texas attorney general’s office alleging air and water contamination and violations of state laws at a Houston-area petrochemical plant operated by Shell Oil. The state seeks more than $1 million, alleging a May 5 fire at the plant damaged the environment. A Shell spokesperson said the company is aware of the lawsuit but does not comment on pending litigation.

‘Not Ready for Prime Time’

“They are still not ready for prime time because of the way they have impacted our operations.”

— San Francisco Fire Department Chief Jeanine Nicholson said at a preliminary hearing about whether robotaxis should be approved to operate throughout San Francisco at all hours. Nicholson cited 55 written reports of the robotaxis interfering with emergency responses. Despite safety concerns expressed at the hearing, the state’s Public Utilities Commission ultimately voted to approve rival services from Cruise and Waymo to operate around-theclock.

InclusionScore CEO: Recent Events Highlight Need to Rein in Costly D&I Risk

By Chad Hemenway

At the end of June, James Felton Keith read the news of the U.S. Supreme Court’s majority rulings regarding affirmative action in higher education, and the application of free speech in anti-discrimination law.

At around the same time, the outgoing CEO of the Independent Insurance Agents and Brokers of America (Big I) was relieved of his duties early — a decision made following his April conference interview with FOX News host Jesse Watters, who made crude comments regarding the sexuality and intelligence of Vice President Kamala Harris right before the conference’s scheduled diversity luncheon Keith would attend.

Keith, CEO of InclusionScore, told Insurance Journal the events only cemented his thoughts regarding what he calls “people management” in business.

“What institutions are next?” questioned Keith, an engineer and economist who was the first Black LGBTQ person to run for Congress in 2017. With the economy being driven by those demanding intentional inclusion in the workplace, he said — like women who may have been offended at the Big I conference, or the LGBTQ community and those of various racial and ethnic backgrounds affected by the Supreme Court rulings, — “This is going to explode the litigation.”

InclusionScore is an underwriting tool for diversity and inclusion (D&I) risk, which ripples into employment practices liability, directors and officers, errors and omissions, professional liability, management liability, and even workers’ compensation. The company’s team wrote the international standard for D&I – ISO 30415 published in 2021.

“You used to ask 100 people for a definition of D&I and get 100 answers,”

Keith said. “Now the answer is ISO 30415. There’s a very rigid answer.”

A solid answer was necessitated by a number of factors: the growing diversity of America’s workforce, a recent spike in grievances at the Equal Employment Opportunity Commission (EEOC), and the hard fact that adopting D&I initiatives is costing companies money. Keith said about 90% of S&P 500 balance sheets are intangible assets.

“That’s finance talk for people,” he explained. “It’s not just the 500, but their top-tier partners too. So the biggest companies in this country all claim, whether they are public or private, that their number one asset is people. And right now, everyone is in their box, their cultural bucket, and they’re thinking about how they’ve been done wrong. This new hyper-identification of ourselves has created a situation where we’re at risk if we are not acknowledging folks and managing them, being good custodians of their unique abilities.”

“Insurers have to be engaged because they are going to pay the bills,” Keith con-

tinued. He added that large, multinational insurers use the ISO standard across all industries to evaluate an organization’s maturity at people management. “Firms that are not standardizing and professionalizing the intentionality of inclusion cost money,” he said.

With dozens of protected classes and others that claim retaliation or discrimination, the environment “quickly turns litigious,” Keith said. The outcomes can be very expensive, with multimillion-dollar awards. The average price tag for settling out of court is about $75,000. InclusionScore’s database puts court-awarded damages for employment-related lawsuits at about $217,000 per claim.

“We need to look at people management and establish some standardized reins on what is in and out of play,” he said. “We’re not mining for gold; we’re selling shovels specifically to create corporate change management — as loss prevention. Because the world can get pretty chaotic if we allow sociology and people with political opinions to argue about what should happen in businesses. Not just from a D&I standpoint, but also from a broader ESG standpoint.”

James Felton Keith

Business Moves

Midwest World Insurance Associates, R&S Insurance Agency

World Insurance Associates LLC announced that R&S Insurance Agency Inc. (R&S) of Stoughton, Wisconsin, joined World as of August 1.

R&S has been providing insurance products and services to individuals, families and businesses since 1964. R&S offers personal insurance, commercial lines as well as farm, ranch and agricultural business insurance.

World Insurance Associates is headquartered in Tinton Falls, New Jersey.

National

Acturis Group, Broker Buddha

The software-as-a-service firm Acturis Group has entered the U.S. market with the acquisition of Broker Buddha.

Broker Buddha, based in New York City, provides insurance brokers and carriers with a client engagement platform and other systems, the company said in a news release. The software aims to simplify the application and renewal process. Jason Keck is CEO of Broker Buddha.

The 23-year-old Acturis, headquartered in London, has offices in six countries and has some 1,200 staff members.

Harford Mutual Insurance Group, ClearPath Mutual Insurance

Maryland-based commercial property/ casualty insurer Harford Mutual Insurance Group received final approval from the Maryland Insurance Administration of its merger with ClearPath Mutual Insurance Co., a monoline workers’ compensation carrier headquartered in Louisville, Kentucky.

Under the terms of the merger agreement, ClearPath Mutual merged into Harford Mutual Insurance Group and converted to a stock insurer. Post-merger it will be renamed Clearpath Insurance Co. marketed as Clearpath Specialty.

The newly formed Clearpath Specialty has re-domesticated to Maryland.

All policyholders of ClearPath Mutual will obtain membership rights in Harford Mutual as policyholders of the newly formed Clearpath Specialty.

ClearPath Mutual, formerly KESA of Kentucky for 40 years, was formed in 2018 and currently provides monoline workers’ compensation coverage in Indiana, Kentucky, Georgia, Tennessee, and West Virginia. ClearPath Mutual writes more than $52 million in direct written premium across nearly 7,000 policies.

ClearPath Mutual’s current home office in Louisville will remain in place and serve as Harford Mutual’s Midwest office.

Harford Mutual said it will retain all ClearPath Mutual employees and plans to merge efficiencies.

Jeff Borkowski, ClearPath Mutual’s current president and CEO, will become a vice president of Harford Mutual and remain president of Clearpath Specialty with Steve Linkous becoming CEO.

Harford Mutual Insurance Group, founded in 1842 in Harford County, Maryland, provides commercial property/casualty insurance to a regional market.

East

NFP, Hafetz & Associates

NFP, a property/casualty insurance broker, benefits consultant and retirement advisor, has acquired Hafetz & Associates, based in Linwood, New Jersey.

Hafetz is a general agent specializing in health benefits, work disability and other services for businesses. Scott Hafetz is CEO. He will now report to Kate Henry, co-president of NFP’s Northeast region.

NFP is headquartered in New York City and has offices around the country, and in Canada, Ireland and England.

South Central

Inszone, Speck Insurance and Financial Services

Inszone Insurance Services, a national provider of benefits, personal, and commercial lines insurance, has acquired Speck Insurance and Financial Services.

Speck Insurance and Financial Services is a personal and commercial insurance agency founded in 2001 by Sheree Covington Speck. The agency will now operate from Inszone Insurance’s local office, catering to the Katy, Texas region. Inszone is headquartered in Sacramento, California.

Higginbotham, Iscential

Higginbotham, headquartered in Fort Worth, Texas, has acquired Houstonbased independent insurance agency, risk management and financial services firm, Iscential. This move adds a second Houston team to Higginbotham’s roster. Warren Barhorst, CEO, founded Iscential, 30 years ago. It now has 140 associates and is licensed in over 38 states. In the transaction announcement, Barhorst noted that he was particularly excited to now be able to offer Higginbotham’s wide array of services to Iscential clients.

Dowling Hales acted as exclusive financial advisor to the sellers in this transaction.

Employee-owned Higginbotham was established in 1948 and ranks 16th on Insurance Journal’s 2023 list of the Top 100 Property/Casualty Agencies.

Southeast

Valent Group, Coastal Professional Insurance

Birmingham-based Valent Group, an insurance brokerage and risk management firm, has acquired Coastal Professional Insurance Inc., an independent agency in Mobile, Alabama.

Coastal, or CPI, has been in the business for three decades and offers property coverage. The agency principals also have considerable experience in flood insurance. La Donna Douglas is president of CPI.

Valent Group, with offices around Alabama, is a subsidiary of EBSCO Industries, a diverse, privately held global company based in Birmingham.

West

Arthur J. Gallagher, Wigmore Insurance

Arthur J. Gallagher & Co. has acquired

Costa Mesa, California-based Wigmore Insurance Agency Inc.

Tim Wigmore and his team will remain in their current location under the direction of Scott Firestone, head of Gallagher’s Southwest region retail property/casualty brokerage operations.

Wigmore is a retail insurance broker providing a range of commercial and personal insurance services to clients throughout Southern California.

Arthur J. Gallagher is a global insurance brokerage, risk management and consulting services firm headquartered in Rolling Meadows, Illinois.

Risk Strategies, Bisnett Insurance

National specialty insurance broker Risk Strategies acquired Bisnett Insurance in West Linn, Oregon.

Bisnett Insurance offers commercial lines, personal lines and employee benefits products.

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The firm has operations in the Pacific Northwest including Oregon, Arizona and Idaho.

Bisnett serves a variety of industries, including transportation and trucking, farm and ranch, construction, manufacturing, retail, hospitality, real estate, public entities and nonprofit organizations.

This acquisition expands Risk Strategies’ footprint in the Pacific Northwest, and builds upon the previous acquisition of Fournier Group, a commercial and personal lines retail insurance agency in Portland, Oregon.

Boston-based Risk Strategies is a brokerage firm offering risk management advice, insurance and reinsurance placement for property/casualty, employee benefits, private client services, as well as consulting services and financial and wealth solutions. Risk Strategies now has more than 30 specialty practices and 100 offices.

People

National DUAL North America, headquartered in San Diego, California appointed Peter Gosselink as executive vice president of its fine art program. Dual also has named Tricia Loney as head of specialty casualty.

Gosselink trained as a marine underwriter specializing in fine arts and collections before becoming versed in insuring various artwork and collectibles for commercial and private collections and stock in trade.

Before joining DUAL, Gosselink served as senior underwriter II, inland marine — fine art specialist and national product lead for Tokio Marine America Insurance Co.

As head of Specialty Casualty, Loney will be responsible for the long-term, sustainable profitability of DUAL’s commercial automobile, construction, environmental liability, excess liability, and workers’ compensation programs.

Loney’s background includes a 15-year career at a number of carriers, most recently as assistant vice president of professional liability program development for CNA Specialty and a senior director at Nationwide E&S/Specialty.

McGill and Partners said Karl Hennessy, will be appointed CEO of McGill Global Risk Solutions LLC, the U.S. insurance and reinsurance business.

Hennessy previously was leader of global specialty

insurance teams in London. He will be moving to New York.

Hennessy will be supported by John Judice, who is appointed president of the U.S. business and will be responsible for driving sales and business development activity across McGill and Partners’ specialty insurance platform.

Warren Mula will remain chairman of the U.S business.

Nirali Shah has been appointed head of U.S. D&O, and to further support business development activity in the U.S., and Daisy Jackson was appointed partner, business development.

East

Fred C. Church, headquartered in Lowell, Massachusetts, promoted Kate Hart to vice president, personal lines manager.

Hart began her insurance career in 2007 as a sales representative with Liberty Mutual, later becoming a field development specialist. She joined Fred C. Church in March 2016 as the personal lines operations manager.

Ames & Gough, headquartered in Washington, D.C., appointed Elizabeth (Liz) Hilliard as assistant vice president.

Hilliard works directly with clients as an account executive and provides technical and administrative services to support

client executives. Based in the Washington, D.C., office, she joined Ames & Gough in 2015 and has over two decades of commercial insurance industry experience.

Before joining Ames & Gough, she served at BB&T Insurance Services as an insurance account manager. Earlier, she was with Lambert, Riddle, Schimmel and Company for 14 years.

Midwest

H.W. Kaufman Group, headquartered in Farmington Hills, Michigan, hired David R. Janis as general counsel and a member of the company’s leadership team.

For nearly 20 years, Janis has worked as a practicing attorney and corporate advisor. Previously, he served as associate general counsel at Rocket Mortgage in Detroit, Michigan, and was an active member of the company’s risk advisory group and risk counsel.

Dean Hildebrandt, president and CEO of Assurex Global, headquartered in Columbus, Ohio, was elected to join the board of directors of Western National Mutual Insurance Co.

Hildebrandt has 25 years of experience in the industry. His term on the board will last for three years.

Ian Shada has joined Alliant Insurance Services as vice president within its employee benefits group in Omaha, Nebraska.

In his role with Alliant, Shada will design and implement comprehensive employee benefits programs for a diverse client base throughout the

Midwest, Southwest, and Southern regions.

During his career, Shada has worked with clients across a broad range of industries. He also has experience with home, auto, commercial, life, and disability policies, working across 26 states.

Prior to joining Alliant, Shada was an agency principal with a Nebraska-based employee benefits firm.

Alliant Insurance Services is headquartered in Newport Beach, California.

South Central

The Texas Department of Insurance (TDI) appointed Debra Knight as the new State Fire Marshal for Texas.

Knight brings more than 30 years of experience in administrative and criminal law, as well as insurance and compliance analysis. She joined TDI in 2013 after 20 years in private practice and the insurance industry.

Knight previously served as the deputy commissioner of Compliance and Investigations for the Division of Workers’ Compensation, where she oversaw investigating administrative and criminal violations.

Before retiring in 2014 as a colonel in the United States Army, Knight served as the FEMA Region VI Emergency Preparedness Liaison Officer for the U.S. Army in Texas. Knight holds a Doctor of Jurisprudence from South Texas College of Law.

Southeast CRC Group, a large wholesale and specialty

Tricia Loney

Kate Hart

Elizabeth (Liz) Hilliard

Farrah Schubmehl

insurance distributor with offices across the U.S. and Canada, has named Farrah Schubmehl president of the group’s Nashville office.

Schubmehl has been serving as senior vice president and property broker at CRC.

She succeeds Jake Blackshear, who will join CRC’s Starwind specialty programs division to develop a new transportation line.

Schubmehl has 24 years in the insurance business, including the last four years at CRC’s Swett & Crawford division, based in Birmingham, Alabama. She was recently

named CRC Group’s 2022 Woman of the Year and a top wholesale specialist broker.

Schubmehl will now report to Brent Treadway, co-president of the brokerage.

West

Insurance Office of America (IOA), headquartered in Longwood, Florida, has added Zack Leland to its western division team.

Based in Aliso Viejo, California, Leland joins IOA as a commercial lines producer, focusing primarily on staffing, contractors, warehousing and logistics.

Before joining IOA, Leland was a commercial lines producer at PIASC Insurance Services, Inc. and as sales manager at PEO Brokers Network.

Woodruff Sawyer, headquartered in San Francisco, California, named two new vice presidents.

Owen Igbinosun joined the firm as vice president, management liability, focused on private equity and real estate in the upper middle markets.

Before joining Woodruff Sawyer, Igbinosun spent over 12 years in risk management for HUB International, Assured Partners, Lockton and Stericycle.

Aparna Niroola joined the firm as vice president, employee benefits, focused on clients in middle and large markets.

Before joining Woodruff Sawyer, Niroola spent more than 20 years in employee benefits and health care consulting.

In addition to working at brokerage firms Aon and Willis Towers Watson, she advised on both the provider and payer side for Kaiser Permanente and Optum.

CIBA Insurance Services, headquartered in Glendale, California, named Andrew Aldorisio head of product development and a member of the executive management team.

Aldorisio has more than 15 years of insurance experience, most recently as chief underwriting officer at Obsidian Insurance Holdings Inc. He also has served as vice president at SCOR and vice president and program underwriter at Munich Reinsurance America Inc.

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Claims Pros Warned About Confirmation Bias and Inflated Line Items

By Jim Sams

The charred remains of a dog found among the ruins of a house that was destroyed in a sudden fire added an air of legitimacy to the insurance claim.

For sure, homeowners sometimes resort to arson, but who would be so heartless to sacrifice the family dog?

As it turned out, the family that owned the burned-out house had acquired the dog, a rat terrier, only about 30 days before the fire. The family owned two other dogs that had escaped harm.

Juliet Schade, property claims director for Capitol Insurance Group, told the story about the dog’s fate while cautioning an audience at the Combined Claims Conference in Garden Grove, California, about how confirmation bias and expectation bias can lead claims professionals to wrong conclusions. While the remains of a dog may invoke sympathy, there were also clues that pointed to foul play.

The fire broke out in daytime while the

residents were at home and managed to destroy the home even though firefighters arrived only seven minutes after receiving notice.

“As the claims people say, what’s up with that?” mused Ulises Castellon, chief executive officer for Fire Cause Analysis in Berkeley, California.

Castellon’s company investigated the San Francisco Bay area blaze and found tell-tale signs of a combustible liquid at several locations within the house. Chemical tests revealed gasoline was used.

The fire started in the garage, yet there were several unburned cigarette butts amid the charred ruins. The couple who owned the house said they tried to open the garage door but couldn’t when they tried to extinguish the flames with a garden hose. Castellon’s company did a time-motion study to find out how long it would have taken for the owners to move to the several locations they said they did. It revealed that both husband and wife would have burned to death if they had

stayed in the house that long.

Capitol Insurance denied the claim. Attorney Kevin D. Hansen, a partner with McCormick Barstow in Fresno, said a successful outcome requires careful documentation and cool professionalism.

Claims adjusters need to remember that every note they make in the file and every call they place while investigating may come under scrutiny in a courtroom.

“You don’t want to lose a case because somebody made an unfortunate comment in the claims file,” he said.

Hansen said accuracy and tone are both important. He said he’s seen “Frankenstein letters” from claims adjusters with incorrect facts and even multiple fonts. Adjusters are typically in a hurry, he said,

‘This may come as a surprise to some of you, but insurers don’t get a lot of sympathy from juries.’

which may be one reason that the letters they send to insureds often seem harsh and too direct. That can make a difference at trial.

“This may come as a surprise to some of you, but insurers don’t get a lot of sympathy from juries,” he said.

'Fun With Numbers'

Property insurers that determine a claim is legitimate must then decide how much to pay. That leads to a process that construction estimator Pete Fowler calls “fun with numbers.” The topic was discussed at length in a separate session.

Fowler, chief quality officer for Pete Fowler Construction Consultants in San Juan Capistrano, California, said after more than 30 years in the estimating business he has grown accustomed to wild variations in estimated costs. He said often he can find the source of inflated estimates by drilling down to the line items. Fowler said 10% of the itemized expenses can drive a 100% difference in costs.

A condominium that suffered water damage from a leak in an upstairs unit is one example. Fowler said the owner’s contractor priced the job at $170,000. His estimate put the cost at $45,000.

Looking deeper, Fowler discovered a suspicious line item that pushed up the cost. The contractor had priced the flooring as an expensive “exotic species” of wood. Fowler said the flooring in the condo was standard material available for far less than the contractor’s price.

Profit and overhead can also raise prices. Sean Dowsing, partner and construction practice lead for Manning & Kass, Ellrod, Ramirez, Trester law firm in Costa Mesa, California, said a 10% markup for overhead is standard in the construction industry, but only on paper. Contractors find ways to pump up individual line items in their estimates to generate larger profits. Restoration contractors, especially, expect to be paid more, he said.

Fowler said insurers must dig deep to find out where contractors are having

“fun with numbers.” Some may inflate materials costs. Costs can also be buried in a category called “burden,” which pays for such costs as lodging for construction workers who don’t live nearby.

Fowler said an estimate conducted “stick by stick” will eventually arrive at the appropriate number, but that kind of depth is expensive. Fowler displayed an exhibit with five levels of estimating. A level one is basically a “guesstimate,” but can be used for decision making. A level 2, which takes one to three hours, will generally come within 20% of the real number. A full-scale level 5 estimate, which can take 100 hours, will provide a number within 1% of the actual costs, he said.

Fowler said when he prepares in-depth estimates, he doesn’t usually quibble over what contractors have marked down for profit and overhead, but he will call out any attempt to minimize the stated profit margin by obscuring the real number. “I think they should make a profit, but I don’t think it should be a secret,” he said.

Closer Look: Auto Rate Hikes Not Bringing Profit to US Auto Insurers: Fitch

By Susanne Sclafane

Jumps in rates and written premiums did little to move the needle on underwriting profits for U.S. personal auto insurers, Fitch Ratings reported based on a recent review of midyear results of nine big market players.

Profitability challenges in the auto line prompted a Fitch downgrade of the lead subsidiary of one of the insurers, Kemper, and a changed outlook for another, Horace Mann. Separately, S&P Global Ratings downgraded yet another — Allstate — as well.

In an analysis of public company GAAP filings titled, “U.S. Auto Insurer Profit Recovery Slow to Materialize,” published in mid-August, Fitch calculated a 10% aggregate increase in premiums for the nine-company cohort for the first six months of 2023. But the aggregate combined ratio

for the group improved less than a point, dropping to 100.4 for first-half 2023, compared to 101.3 for the same period last year. The aggregate combined ratio now hovers right above breakeven, with just two of the nine publicly traded personal auto insurers — Progressive and GEICO — reporting sub-100 combined ratios, a chart in the Fitch report reveals.

Fitch cited continued unfavorable claims severity and higher catastrophe losses as factors driving the group’s overall underwriting loss.

“Future profit improvement will continue to be hindered by unusually high loss severity,” the Fitch writeup predicted.

The combined ratio figures compiled by Fitch reveal that GEICO was the only one of the nine carriers to actually report a lower combined ratio in firsthalf 2023 compared to first-half 2022. While GEICO reported a 9.7-point drop in its combined

ratio and premiums growing less than 1.0% (0.9% per Fitch’s calculation), other carriers saw combined ratios grow in the range of 0.1 points (Kemper) to 16.3 points (The Hartford). Excluding GEICO, the overall first-half 2023 combined ratio for the group is about 103, up about 3 points from last year’s first half ex-GEICO result. (Note: Carrier Management, sister publication to IJ, estimates based on premiums and underwriting profit information in the Fitch commentary.)

GEICO vs. the Rest

Commenting on GEICO’s results in the Management’s Discussion and Analysis section of Berkshire Hathaway’s second-quarter 2023 report, the conglomerate cited higher average premiums per auto policy, takedowns in prior accident year’s claims estimates and cuts in advertising costs to explain the reversal from last year’s underwriting losses to underwriting profits for the quarter and six month periods. Although rate increases generated 16.3% higher average premiums per policy over the last 12 months, GEICO’s overall premiums were basically flat. A decrease of 2.7 million policies in force over the same period — a 14.4% drop in policy counts — explains why premiums did not increase. Berkshire said the cuts in advertising contributed to the decline in the number of policies.

GEICO’s first-half loss ratio improved 7.5 points, with the prior-year reserve takedown ($888 million) accounting for roughly 3.6 points of the change (by Carrier

Management’s calculations). The expense ratio improved 2.2 points.

As for other carriers, loss severity continues to be an issue, Berkshire noted.

“Average claims severities in the first six months of 2023 were higher for property damage (21-23% range), collision (7-9% range) and bodily injury (6-9% range) coverages,” Berkshire stated in the MD&A. Meanwhile, claim frequency changes varied by coverage, with property damage and collision frequencies down 7%-8%, while frequencies rose slightly for bodily injury and personal injury coverages. While GEICO’s premium volume hardly budged, among the remaining carriers analyzed by Fitch, Progressive had an outlier premium jump of more than 20% for the first half. Premium growth averaged 10.2% for the nine carriers overall, but only four of the nine — Progressive, Allstate, Travelers and Cincinnati Financial — actually recorded increases of 10% or more. Together, first-half 2023 premiums for the eight carriers other than Progressive only grew by about 4%.

That’s a problem when loss costs are climbing faster. The Fitch report displays CPI data from the Bureau of Labor Statistics indicating that Motor Vehicle Insurance costs leapt by more than 10% annualized for each month since September 2022, including a 17% jump in June 2023.

Progressive, in its second-quarter earnings report, revealed that, unlike GEICO, its policies in force

are climbing by double-digits, while unfavorable prior-year loss reserve development and catastrophe losses fueled worsening underwriting results through the first six months. Progressive reported July 2023 results, revealing that the yearto-date combined ratio is now down to 97.6, through seven months, from 99.1 through six months, with premium growth staying at the 20-plus percent level.

In contrast to Progressive and GEICO’s sub-100 combined ratios for the year so far, Kemper, Horace Mann and The Hartford posted first-half combined ratios above 110; The Hartford’s result deteriorated more than 16 points.

“Persistent severity loss increases in auto have had a meaningful influence on overall industry results. We continue to respond with significant pricing actions,” Hartford CEO Christopher Swift said during a conference call, according to a report in Insurance Journal.

“During the quarter, we achieved renewal written price increases of 13.8% and expect acceleration to above 20% by the fourth quarter. As loss cost trends emerge, we will aggressively push for appropriate rate actions,” Swift added.

Rating Agency Actions: Horace Mann and Kemper Fitch took rating actions on the carriers with the secondand third-worst first-half auto combined ratios — Horace Mann and Kemper — in August. For Horace Mann, Fitch Ratings has affirmed the ratings of the property/casualty operating subsidiaries at “A” (Strong), but

revised the rating outlooks to negative from stable.

“The negative rating outlook for the P/C subsidiaries reflects continued weakness in the personal auto and property lines of business which Fitch believes will persist over its ratings horizon,” Fitch said in a statement. “In 1H23, the auto segment combined ratio deteriorated relative to the prior-year period as a result of persistently high claims severity, while the property business reported above-average catastrophe losses, leading to a total P/C combined ratio of 118.4, compared with 115.3 for full-year 2022.”

Fitch also affirmed the ratings for Horace Mann Life Insurance Co. at “A,” and its holding company ratings, citing “strong capitalization; moderate business profile driven by the company’s niche position in the K-12 educator market; and the growing organizational focus on the relatively stable earnings in the life, retirement and supplemental segments which somewhat offset the volatile results in the P/C segment.”

For Kemper, Fitch is downgrading the insurer financial strength ratings of the lead P/C operating subsidiary, Trinity Universal Insurance Co. to “A-” (Strong) from “A.” Fitch has also downgraded the ratings for Kemper’s holding company, while affirming the ratings of Kemper’s life insurance subsidiaries with a stable outlook. Explaining the downgrades, Fitch cited “continued underwriting weakness” through the first half of 2023 and deterioration in Kemper’s capitalization level.

“Kemper Corporation’s underwriting results remained above rating sensitivities through 1H23, largely as the result of a continuation of heightened loss trends in both continued on page 26

‘Future profit improvement will continue to be hindered by unusually high loss severity.’

Closer Look: Auto

continued from page 25

the Kemper Auto (nonstandard personal and commercial auto) and Personal Insurance (preferred auto and homeowners) segments, higher catastrophe losses and adverse prior-year reserve development. The Kemper Auto and Kemper Personal Insurance segments reported GAAP combined ratios remained elevated at 109 and 115, respectively, for 1H23,” the Fitch announcement said.

Fitch noted that Kemper’s actions to address underwriting performance with targeted rate increases as well as non-rate actions over the last several quarters should limit further deterioration in underwriting results and help the company’s efforts to return to underwriting profitability over time. The rating agency also reported Kemper’s decision to place its

personal insurance business into a planned runoff, noting that this “could have a modest near-term impact on the company’s scale and performance volatility related to property exposure.”

S&P Downgrades Allstate

Another one of the nine big publicly traded auto insurers — Allstate — also has found itself on the downside of rating actions. For Allstate, rating actions came from S&P Global Ratings. In addition to lowering the holding company long–term issuer credit rating, S&P lowered the financial strength ratings on the core operating subsidiaries to “A+” from “AA-” with a stable outlook.

“The downgrade reflects Allstate’s continued weak underwriting performance given elevated catastrophe

losses, persistently high loss costs for the personal auto business, and the increased exposure — measured by premiums — consuming higher levels of capital.”

Highlighting the impact of catastrophes, S&P said that Allstate’s Property-Liability year-to-date catastrophe losses of $4.4 billion, were greater than the $3.1 billion loss in all of 2022. Catastrophes pushed the Allstate six-month combined ratio in the homeowners line to 132.3, S&P’s announcement said. “The auto business, while improving on an underlying basis in the quarter, still weakened year to date on a calendar year basis to 106.4 from 105 as elevated catastrophe losses and minimal adverse development outpaced a meaningful expense improvement.”

Allstate told investors that auto premium growth is beginning to outpace underlying loss costs during a second-quarter earnings call, and S&P expects the auto combined ratio to improve in the second half as “compounding rate increases start to meaningfully earn through the book.”

Still, however, S&P said it expects the companywide combined ratio to fall in the range of 108-110 for the full year, assuming a normalized level of catastrophe losses in the second half. The S&P announcement went on to comment on the potential drivers of improvement — continued rate increases, a reduced expense ratio driven by advertising cost cuts and other expense control initiatives, as well as the reduction of “loss-making” policies in force and an effective reinsurance buying strategy.

Potential drivers in the other direction include “catastrophe risks in its homeowners business line in the third and fourth quarters of 2023 mainly from wind and fire disasters that could further erode earnings, and ultimately, capitalization,” S&P said.

Separately, Allstate on Aug. 17 announced estimated catastrophe losses for the month of July of $313 million or $247 million, after-tax, from 18 events. Allstate also reported that it implemented auto rate increases of 8.2% across 12 locations during the month of July, resulting in total brand premium impact of 0.9%.

Sclafane is the executive editor of Carrier Management, a sister publication to Insurance Journal. This article first appeared in Carrier Management. Email: ssclafane@wellsmedia.com.

News & Markets

Both Cruise and Waymo cited their unblemished safety records as proof their robotaxis are less dangerous than vehicles operated by people who can be distracted, intoxicated or just lousy drivers.

Cruise has been currently testing 300 robotaxis during the day when it can only give rides for free, and 100 robotaxis at night when it has been allowed to charge for rides in less congested parts of San Francisco for the past 14 months. Waymo has been operating about 100 of the 250 robotaxis it has available to give free rides to volunteers and employees throughout San Francisco.

Two Rival Robotaxi Services OK’d to Operate Throughout San Francisco

By Michael Liedtke

California regulators approved an expansion that will allow two rival robotaxi services to operate throughout San Francisco at all hours, despite safety worries spurred by recurring problems with unexpected stops and other erratic behavior.

The state’s Public Utilities Commission voted to approve rival services from Cruise and Waymo to operate around-the-clock service. It will make San Francisco first major U.S. city with two fleets of driverless vehicles competing for passengers against ride-hailing and taxi services dependent on humans to operate the cars.

It is a distinction that San Francisco officials didn’t want, largely because of the headaches that Cruise and Waymo have been causing in the city while testing their robotaxis on a restricted basis during the past year.

But it ended in a major victory for Cruise – a subsidiary of General Motors – and Waymo – a spinoff from a secret project at Google – after spending years and billions of dollars honing a technology that they believe will revolutionize transportation. Both companies view approval of their San Francisco expansions as a major springboard to launching similar services in other congested cities that would benefit from a

technology that they contend will be more reliable, convenient and cheaper than ride-hailing and taxi services reliant on human drivers.

During a public PUC meeting, many speakers derided the robotaxis as nuisances at best and dangerous menaces at worst. Others vented frustration about San Francisco being transformed into the equivalent of an “ant farm” for haphazard experimentation.

Supporters of the robotaxis also stepped up to defend the technology as a leap forward that will keep San Francisco on the cutting edge of technology, while helping more disabled people who are unable to drive to get around town and reducing the risks from drunk driving. Waymo says there is so much interest in its robotaxis that it has already built up a waiting list of more than 100,000 people vying to take a driverless ride.

The rising fears about the safety of the robotaxis had come into sharper focus during a preliminary hearing that included a sobering appearance by San Francisco Fire Department Chief Jeanine Nicholson, who warned regulators that the robotaxis had been repeatedly undermining firefighters' ability to respond to emergencies.

The Public Utilities Commission still decided to approve the expansion by a 3-1 vote.

But the proposed San Francisco expansion has been facing increasingly staunch resistance. In a May 31 letter urging state regulators to continue to restrict the operations of Cruise and Waymo, San Francisco transportation officials asserted the driverless vehicles rely on a “developmental technology that is not ready for unconstrainted commercial deployment.” In a June 22 letter, the president of the union for San Francisco police officers warned of potentially dire consequences if Cruise and Waymo are allowed to expand throughout the city. Tracy McCray, the union president, cited a robotaxi obstructing emergency vehicles responding to a recent mass shooting that injured nine = as an example of how the technology could imperil the public. “While we all applaud advancements in technology, we must not be in such a rush that we forget the human element and the effects such technology unchecked can cause in dangerous situations,” McCray wrote.

Unless Cruise and Waymo are able to fix the problems that have been cropping up in their robotaxis, the San Francisco expansion could turn out to be a pyrrhic victory, warned Nico Larco, director of the University of Oregon's Urbanism Next Center.

“There is a real public sentiment risk here,” Larco said. “If they don’t figure some of these things out, there will be growing frustration from the general public.

Copyright 2023 Associated Press. All rights reserved.

Arrests Made in ‘Family and Friend’ Auto Insurance Fraud Ring

An alleged “family and friend” organized auto insurance fraud ring in California was broken up by the Urban Automobile Insurance Fraud Task Force when seven people were arrested on Wednesday in connection to the case.

In total, 23 individuals face felony counts of insurance fraud and conspiracy. Alleged ringleader, Gerson Castro Martinez, 34, of San Jose, was arrested on eight felony counts. Castro allegedly involved family and friends in a fraud scheme that netted

defendants more than $174,000.

An investigation reportedly uncovered 33 claims that contained a similar modus operandi, where repeat damage claims were made, insurance policies purchased either with fictitious identities or involved parties that knew each other but reported claims as though they were strangers and had been involved in a loss.

The ring reportedly used at least 40 different vehicles, some purchased with

damages on them, and some sustained damages in staged collisions.

They ring apparently ran the scheme for four years.

According to California Department of Insurance detectives, the fraud was uncovered when Rene Murillo Hernandez, 43, of Santa Clara, alleged he hit a parked vehicle after his vehicle was struck by an unknown driver. He left a note with his insurance information on the parked vehicle he struck. Investigators say that when the owner of the parked vehicle, another alleged member of the fraud ring, turned in a claim to the insurer, the investigation showed the damages were inconsistent with the two vehicles colliding with each other.

Further investigation revealed the damages allegedly sustained in this incident were previously reported in a prior loss under different ownership, and that the P.O. Box address was used in several other similar claims by other individuals all claiming the same address was the address where their vehicles were housed, investigators say. The case is being prosecuted by the Santa Clara County District Attorney’s Office.

Copyright 2023 Associated Press. All rights reserved.

My New Markets

Residential Investor Property

Market Detail: Denali Specialty Group LLC offers comprehensive commercial insurance for residential investor property schedules. Targeting dwellings, including student housing and apartments. Package policy offering includes builders risk and vacant coverage capability. The program is national in scope. Denali market is exclusive with in-house underwriting authority.

Available Limits: Not disclosed.

Carrier: Accelerant Specialty; non-admitted; rated A- by AM Best.

States: Available in 50 states plus District of Columbia.

Contact: Kerri Senger; ksenger@denali-specialty.com; 314-369-2152.

Coastal Condo Associations

Market Detail: CHAMP, built by NSM Insurance Group, is a package program tailored to coastal, wind-exposed condominium associations. We have a 16-year track record of providing wind capacity to the coastal condo market. Our program is available in all states from Maine through Texas. Key coverages: property (wind damage included); property coverage enhancement endorsement; general liability; cyber liability; business income; equipment breakdown; crime; hired and non-owned auto. Territories: East Coast — all states; Gulf Coast — all states. Submission requirements: Acord applications; CHAMP supplemental application; three years currently valued loss runs. Highlights: Backed by top-rated national carriers; in-depth industry expertise; one policy form; in-house underwriting and service. Has pen; appointment required.

Available Limits: Not disclosed.

Carrier: Admitted; rated A- or better by AM Best.

States: Available in Alabama, Connecticut, Delaware, Florida, Georgia, Louisiana, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, New York, Rhode Island, South Carolina, Texas, Virginia. Contact: NSM Insurance; nsmmarketing@ nsminc.com; 800-970-9778.

Truckers GL and Motor Truck Cargo

Market Detail: Joseph Krar & Associates Inc.’s truckers GL product offers liability

coverage for non-toxic and non-hazardous commodities truckers (99793). Insured must carry primary commercial automobile coverage package with property and/or inland marine. General commodity trucker: $495 minimum premium, $0 minimum deductible. Available coverages that may be added include specified additional insured form, waiver of subrogation, primary and non-contributory. Available for an additional premium: limited loading/unloading option (other than personal property in CCC).

Available Limits: Primary limits up to $2 million/$4 million/$4 million, when required by written contract.

Carrier: Not disclosed.

States: Available in Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island.

Contact: Email Receiver; emailrec@jkrar. com; 860-628-3967.

LTC Facilities with Special Units

Market Detail: Magnolia LTC Management Services Inc. offers PL/GL coverage for LTC facilities and can assist you with placement in CCRRG. Magnolia LTC Management Services (Magnolia) is the exclusive program manager and responsible for the daily operations of Continuing Care Risk Retention Group (CCRRG). CCRRG is a mutual insurance company that offers PL and GL Insurance for LTC facilities. This is a member owned program with superior performance, service and expansive coverage with competitive rates. New brokers welcome. Highlights: general and professional liability package policy; two GL & PL policy form options available — claims made, claims paid — typically less expensive and exclusive to CCRRG brokers; deductible and SIR options available; per location aggregate – subject to U/W approval; prior acts available; very competitive rates; new ventures considered with appropriate prior experience; accounts with a “shock loss” considered with acceptable documentation; sexual misconduct (no sub-limit); no joint and several liability; defense outside the limits – subject to U/W approval; excellent risk management service provided — including “on-site” risk assessment visit(s); CCRRG members have

exclusive access to Magnolia Analysis Risk System (MARS) — provides valuable tools, policy and procedures and other helpful information for LTC Facilities — including 53 hours of approved continuing education (administrator LVN/LPN, CNA/NA for employees’ licensure requirements) at no additional cost. Coverage available in all states upon underwriting approval. Has pen.

Available Limits: Standard liability limits of $1 million/$3 million; $2 million/$4 million limits – subject to U/W approval; lower limits may be available upon request.

Carrier: Continuing Care, a Mutual Insurance Company.

States: Available in 50 states plus District of Columbia.

Contact: Steve Ottenbrite; sottenbrite@ magnolialtc.com; 707-571-7430.

Historic Property Coverage

Market Detail: National Trust Insurance Services LLC offers coverage for historic properties. The role of NTIS is to be an advocate for our historic property customers. We work directly with insurance carriers to uncover underwriting concerns and resolve them. We see problems as opportunities, and work to develop solutions that satisfy the needs of both parties. Our clients range from historic property owners, to turn-of-the-century Victorian house museums, to nationally recognized theatres, art and cultural institutions. Appointment required.

Available Limits: Not disclosed.

Carrier: Not disclosed.

States: Available in most states plus District of Columbia; not available in Alaska and Hawaii.

Contact: Joslyn Hayes; info@nationaltrust-insurance.org; 800-451-0701.

This section brought to you by Insurance Journal's sister website:

www.mynewmarkets.com Need

Special Report: Surplus Lines

By Andrea Wells

As the longest hard market in memory refuses to fade, standard property/casualty carriers are not only continuing to raise prices but also reimagining their books by shedding risks they no longer want.

It’s affecting large and small commercial lines business and personal lines as well. One expert calls it the “niche firming phenomena” within segments. Whatever it’s called, it’s a hard market unlike any other and the surplus lines industry is playing its part and benefitting.

It’s a historical hard market in every sense, says Tim Turner, president of Ryan Specialty, chairman and CEO of Ryan Turner Specialty, Ryan Specialty’s wholesale brokerage division, and a member of Ryan Specialty’s board of directors. “It’s generating a record-breaking volume of property and casualty business into the non-admitted channel, the E&S channel.”

It’s not just catastrophe-exposed property risks moving into the excess and surplus lines channel. “There’s multiple niche firming phenomena inside large property and casualty segments,” Turner told Insurance Journal. But it’s not all large risks moving into E&S — small personal lines accounts in catastrophe-exposed regions are also making their way into surplus lines.

Hard market insurance conditions are not evident in every line of the insurance business. Most of the general P/C sector remains in the standard market. “But the percentage of business that’s non-admitted in the wholesale market today is record breaking,” Turner said.

While that shift is led by catastrophe-prone property it’s not all wind, flood and wildfire, Turner notes. “It’s convective storms, it’s hail and tornadoes at unprecedented levels” driving much of the movement — also skyrocketing loss costs and jury verdicts in other sectors, such as transportation.

According to the 2023 Midyear Report of the U.S. Surplus Lines Service and Stamping Offices (See chart on page 30.), liability (non-professional) premiums in surplus lines increased 26.9% from 2021

to 2022, and property premiums jumped 25.9% during the same period.

The Midyear Report also showed substantial increases in surplus lines premium for personal lines. Residential, homeowners and other personal property grew 29.5% from 2021 to 2022.

While the majority of property/casualty insurance business remains in the standard market, the amount of business moving into the E&S sector continues to grow and E&S carriers and their wholesale brokers partners don’t see an end to that trend anytime soon.

“The massive growth we saw across the country in the wake of the pandemic might be behind us, but the report demonstrates that the E&S market continues a strong trajectory and will be there to meet the needs of Americans seeking unique insurance solutions,” said David Ocasek, CEO of the Surplus Line Association of Illinois, in August.

Longest Running Hard Market

This hard insurance market cycle is different than others in the past, says John Jennings, CEO and one of the founding members of Jencap Group, who added that it’s the longest hard market in his 35-plusyear career.

[A hard market is defined as an upswing in the insurance market cycle where premiums rise, coverage terms constrict and capacity and/or availability of markets declines.]

Ryan Specialty’s Turner has worked through three full hard market cycles throughout his 35-plus year career. Patrick Ryan, founder, chairman and CEO of Ryan Specialty, has worked through five hard market cycles, he added. “And we’ve never seen one quite like this,” Turner explained. “It’s the hardest market we’ve ever seen, and it’s the most prolonged hard market we’ve ever seen,” he said. “We’re on unchartered ground.”

The number one reason that the market continues to see rising rates and limited capacity has to do with “pure loss scenarios, underwriting results, and capacity,” says Jennings. “If you look at all that, and if you look at California and Florida specifically, those are pure underwriting results driven events,” he said. Florida’s

wind and flood, and California’s wildfires, are not going away, he said.

The growth in surplus lines business in these two states alone has been dramatic, Jennings added.

“Personal lines business in those states has become surplus lines business permanently, at least as far as I can see,” Jennings said. It’s now a question of whether the E&S market can handle that influx, he added. “There’s only so much reinsurance out there,” he said.

Jennings and Turner both feel confident that the surplus lines market can respond but questioned whether that response would be at an acceptable price point to some insureds.

“You have to wonder at what point can people afford to pay the type of prices that even E&S carriers will need to participate in some of those coverages,” he said. In California, personal lines premiums for high-value homes in wildfire prone regions are running in the hundreds of thousands, even million-dollar premiums, he said.

The E&S sector is not falling short when it comes to providing the necessary capacity to fill the need, but coverage may come with a high price and restrictions. That limits some buyers.

“I don’t believe that the industry’s falling short at all in terms of capacity,” agrees Turner. “The pricing, on the other hand, there’s certainly accounts where the pricing causes the insured to either buy less insurance or seek alternative structures where they take on risk, or they go into a captive,” he said. “But I haven’t seen a single case where we couldn’t deliver a solution.”

Those solutions are more complicated today than ever before, especially for large commercial accounts.

“The E&S market is delivering solutions, but coverage may have shorter limits, tighter terms, and increased pricing,” Turner explained. “Some of these accounts that may have taken 10 or 20 carriers to deliver a hundred-million-dollar limit [before], might need 30 or 40 carriers to get that done this year. But we’re getting it done,” according to Turner.

continued on page 30

Special Report: Surplus Lines

continued from page 29

Tough Property

Property is likely the most difficult line of coverage today.

Property insurance pricing in the U.S. increased by 19% in the second quarter, compared to 17% in the first quarter, marking the 23rd consecutive quarter in which prices rose, according to the most recent Marsh Global Insurance Market Index.

The main drivers of Q2 property price hikes in the U.S., Marsh says, were the cost of reinsurance and capital, strong capacity demand, limited new insurers, and ongoing losses. The good news: Best-in-class risks with limited natural catastrophe exposures and stable incumbent capacity experienced more favorable results compared to those affected by losses and/or

with geographic concentration of assets in natural zones, such as along the Gulf of Mexico, Atlantic coast, and California.

Sam Baig, co-president of Amwins Brokerage, describes today’s E&S market as a bit chaotic and mixed as each line of business presents its own set of challenges.

Property remains very firm, he says. “It doesn’t matter if you’re in California or Texas or Florida, it’s impacting every property broker across the country.”

Any account with a transportation component is also taking rate as well. “For example, excess casualty is relatively flat unless you’ve got a transportation component, which can be very difficult,” Baig said.

“For the most part, property everywhere is pretty firm,” added Jeff McNatt, co-pres-

2021 and 2022 Surplus Lines Stamping Office Premium by Line of Business

ident of Amwins Brokerage. “It doesn’t matter what you’re doing, there are issues everywhere from earthquakes to wildfires to flooding — all those things are driving the market.”

“I understand that the price can sometimes be shocking, but as a wholesaler our job is to go out, try to create a market, find capacity and try to find a solution for these extreme insurance situations,” Jennings said. But he admits that some of today’s market problems are hard to fix. “You know, there’s always a solution — at a price,” Jennings said “You might be able to get coverage, but can the insured afford to pay it? Things will be very difficult going into the future.”

Talent Shortage and Stress

Nir Gabay, senior vice president at Admiral Insurance Group, a Berkley Company, says there are not enough people to hire to service the new surplus lines business coming into the market. That’s a big challenge for the sector today.

Everyone in the chain is trying to figure out new ways to operate, whether by investing in IT solutions to increase efficiency, or finding new ways to hire, train and retain younger talent, he told Insurance Journal.

(1) Includes aviation, general and products liability.

(2) Includes aircraft physical damage, commercial property and related business interruption, commercial package and a variety of standalone commercial coverages (e.g., DIC, earthquake, flood, terrrorism, vacant building, etc.).

(3) Includes D&O, E&O, EPL, sexual misconduct, representations and warranties, patent, trademark and copyright infringement, architects and enginners, medical malpractice, etc.

(4) Generally includes packaging of commercial GL, inland marine, crime, boiler and machinery, auto and farm.

(5) AZ and UT don't have categories for multi-peril lines.

(6) Includes specialty residential and homeowner's coverages as well as standalone coverages (e.g., flood, excess flood, mold, sinkhole, wind, etc.) on residential properties.

(7) Includes auto dealer liability, commercial auto liability, excess auto liability, garage owners liability, storage, etc. North Carolina only permits dealer and excess auto liability in nonadmitted market.

(8) Includes credit, crime, hole-in-one, kidnap, ransom, ocean marine, pet, etc.

(9) Includes auto dealer inventory and commerical auto collision, comprehensive, fire and theft, etc.

(10) Includes liability for cargo during transit, physical loss or damage to data processing equipment, furrier's stock and various floater policies (e.g., personal effects, personal property, jewelry, furs, fine arts, etc.).

(11) Includes coverage for loss by sickness or bodily injury and for accidental death, disability and medical expenses while traveling.

Source: 2023 Midyear Report of the U.S. Surplus Lines Service and Stamping Offices

Jencap’s Jennings says that investing in people is likely the biggest key to success in today’s fast-paced hard market cycle. He advises others to think about where the market is going and hire for that. “What kind of expertise is needed for the future, what kind of people, what types of backgrounds … and make those investments in the business, on the people side, and on the technology side,” Jennings said. He added that Jencap is always on the hunt for new talent and has added 160 people new hires this year alone.

Finding new, young talent is a challenge for every sector in the property/casualty world.

Anthony Manna, senior vice president - financial lines, and one of Jencap’s top young wholesale brokers, says it’s important to share the story of what’s possible with a career in insurance with young people to attract new talent. “Insurance is a hidden gem, but insurance isn’t sexy,”

Manna said. It’s up to the industry to tell the story of how rewarding a career can be, he suggests.

“Nobody likes insurance. Nobody wants to talk about their insurance, but everything that comes with a career in insurance has been far beyond anything I’ve wanted in a career,” he said. “You have a healthy balance of sales, networking, and analytical work,” he said. “That’s something I may not have known at 17 or 18 years old, but it has been very rewarding in terms of a career.”

The talent shortfall coupled with the rapid increase in new surplus lines business submissions has created a heavy workload for existing staff, according to Amwins’ McNatt.

“At the same time, it’s exciting for us as we are building and growing in this market,” he said. “It’s exciting because we’re getting to see opportunities on business that may have historically not been in our marketplace.” He says finding solutions for these evolving risks is what the E&S market is there for — to solve problems and address pain points for business that is leaving the standard market. But the huge volume of new business entering the surplus lines space does create stressful times. “The workloads and the stress on some of our employees is very high right now,” he said.

To help employees, Baig and McNatt say Amwins tries to make sure that they are providing workers with good workplace environments and options. “We’ve worked hard on some of the flexibility with work schedules, so people can try to get some work-life balance in there,” McNatt said. “It takes time and effort on our part, and strain on our staff, to do what was done with one policy and one phone call before; now our folks are having to call eight markets and negotiate to get a deal done,” Baig said.

Keys to Succeed

For the surplus lines market to excel in today’s hard market, Matt Dolan, president of Liberty Mutual’s North America Specialty and Ironshore, says three things come to mind.

First, E&S carriers and their wholesale broker partners must attract and retain good talent. That means retaining experienced underwriters and brokers that understand historical risk, contemporary risk and merchant risk, he said.

“That’s fundamental to succeed today,” he said, and “those that are able to attract and retain top talent will be able to navigate through this environment.”

Second, carriers and their broker partners must be able to “move across this data spectrum,” he said. That means having the right data and interpreting that data correctly so that it becomes quality information. “And then that information informs judgment. If we can harness the data and convert it into actionable information, that informs our view and judgment about risk; that is a critical component to success. Those who do that well will navigate through this environment

Lastly, E&S markets must have an appetite for risk. “We use the term risk aware, not risk adverse,” he said.

“You must have appetite for risk. You can’t run from it. Our job is to solve emergent risk problems, so you must be thoughtful and creative and curious, and that’s the way that you enhance your relevance and design products that are responsive to this really unprecedented, incredibly complex but incredibly inter-

esting risk environment.”

Companies that are responding to their wholesale brokers and being creative are seeing a major influx of new business, says Admiral’s Gabay. “Because there is a lack of staffing and lack of systems, especially with legacy companies, they just can’t keep up and they can’t respond,” he said. “So, anyone who’s really set up to take on the volume and be responsive is really winning right now.”

He said responsiveness and being able to connect with their wholesale partners the way that they want to connect is critical in today’s fast-paced surplus lines world. The largest wholesale brokerages have invested in their own systems. “They’re trying to optimize their own stuff. They’re experimenting right now with their economies of scale and trying to figure out how to transact business differently in different sectors,” Gabay said. “If you want to deal with the largest brokers, you need a system in place and you have to be ready to transact. If you don’t have it, you’re just left out.”

Amwins’ McNatt says that being transparent — with carriers, retail partners and the insured — is also critical when navigating through this hard market.

“We see the most successful retailers in this kind of market are the ones that are connected to their clients and they’re fully transparent,” he said. “They make sure that their customers understand that in this market, the more open they are with data and information, usually ends with better results for the client. … The more successful brokers that we see tend to be the ones that are the most transparent, and have built a solid relationship with their client.”

Baig said the same is true in the wholesale broker space. “Over communicate and communicate early and often and really manage expectations as best as you can,” he said. “The market changes daily, so those that are out in front and educating their retailers, educating their insureds, tend to do the best for the long haul.”

McNatt added, “The more heads up we can give a client, the better off we all are.”

continued on page 32

Special Report: Surplus Lines

continued from page 31

Outlook for 2024

As surplus lines carriers and wholesale brokers look toward a new year, discussions around property capacity will continue, the experts agree.

“There are so many variables that our business faces today,” said Hank Haldeman, president of Worldwide Programs at Amwins Group. How prolonged are the property exposures facing the property/casualty industry from cli-

mate change? “Obviously climate change is affecting our loss projections, but have the past couple years been an exaggeration, or will those issues slow down?” Haldeman asked. It is hard to predict that future scenario, he said.

One thing he knows for sure — the existence of these unknown variables will mean that the role of the E&S segment will not diminish anytime soon. “I don’t know how challenging the property renewals are going to be in 2024. Some people are say-

Personal Lines in Surplus Lines

The continuing trend of more personal lines business making its way into the E&S market is surprising, says John Jennings, CEO and one of the founding members of Jencap Group.

“I think that is probably the biggest surprise over the last four or five years,” Jennings told Insurance Journal. “That’s been dramatic as we’ve seen standard lines carriers that have pulled out of California just in the last two years. There is no place for that business to go, but the E&S market.”

State Farm General Insurance Co. announced at the end of May that it stopped accepting new policy applications for property/casualty insurance in California for reasons including increased risks from wildfires and inflation. The decision followed a similar move by Allstate Corp. last year. Farmers in early July announced it will limit new homeowners insurance policies in California.

Other large carriers that have reduced their appetite for writing California homeowners insurance include American International Group (AIG) and Chubb. Agents are reporting that businesses in higher-risk areas are paying increasingly more for property insurance, which is becoming harder to obtain. Liberty Mutual said in late July it will stop offering its businessowners policy on Oct. 1.

To deal with rising rates and lack

of availability, more homeowners have turned to the California FAIR Plan, the state’s insurer of last resort for homeowners, or the surplus lines market. Reports from agents are that more property owners in the state have been forced to take lower limits being offered by the remaining carriers, or some are going uninsured.

The E&S market is even seeing some personal auto business enter the sector, according to Jeff McNatt, co-president of Amwins Brokerage.

“Auto [traditionally] has been standard market business so that’s new coming into the marketplace,” McNatt said. “It’s just a function of — can the E&S market react fast enough to solve these problems? We’ve found homes for those (problems) but it’s usually not at a price that’s everybody’s very happy about.”

While the E&S market is offering some relief, overall, the sector is struggling to meet the catastrophe-exposed capacity demands that exist in California and Florida today, says Hank Haldeman, president of Worldwide Programs at Amwins Group.

“In personal lines, there are fundamental issues arising out of cat exposures that are beyond the capability or capacity of the E&S channel to solve,” Haldeman told Insurance Journal. There’s too much exposure for the E&S market to be the primary driver in fixing market conditions in states like California and Florida, he said.

“The E&S industry does not have, and probably never will have, the capacity

ing we’ve finally achieved some level rate adequacy, but capital isn’t rushing to the market at the moment,” he said. “So it’s just tough to say what’s going to happen with rates and capacity in 2024 but I don’t see any rapid softening of the market.”

There’s just a lot of unknowns, Haldeman added. But that isn’t necessarily a bad thing for surplus lines. “Uncertainty is actually beneficial for the specialty end of the business, which performs best during times of uncertainty,” he said.

to jump in and fill the shoes of a State Farm, or a Farmers,” he said. “If you have a challenge with wildfire, you’ve got a challenge that is widespread and basically depends on the location of the risk. The same’s true for coastal property risk in Florida.”

Michael Garrison, head of wholesale at Navigators, a brand of The Hartford, agrees. “My honest answer is that I don’t know the answer” to if the E&S market can support the influx of new business entering the market from catastrophe exposed personal property.

“I don’t know how much business will flow in there,” Garrison said. “The admitted space is there for consistency — for filed rates and filed forms — and all the attention to the E&S space, I think creates challenges and is raising a lot of questions.” He believes the surplus lines market can and is responding to some extent, but probably cannot fill the gap for everything that is needed.

That isn’t the case for large commercial property risk, Haldeman noted.

“On the other hand, and not limiting it to cat exposures, but as the demand for coverage for complex, large exposures continues to grow in the commercial space, E&S is ideally poised to respond to that, and I think it’s able to garner most of the capacity that’s needed to help solve that problem.” There isn’t the differentiation within the personal lines sector that there is on the commercial lines side, he added.

Closer Look: Assisted Living

Turnover, Inflation, Operating Costs Add to Insurance Woes for Senior Living Industry

By Ezra Amacher

Professional liability and property insurance are top of mind for senior living operators, who are experiencing a challenging market driven by high staff turnover, inflation and heighted operating costs.

The cost of labor and staffing shortages are the primary drivers impacting senior care and housing facilities, insurance experts specializing in senior living say.

“Turnover has been a historic issue and it’s not going to go away,” said David Thurber, senior vice president, legal for CAC Specialty’s senior living practice group.

Ninety-two percent of nursing homes and nearly 70% of assisted living homes reported significant or severe workforce shortage in a March 2023 poll by LeadingAge. Nearly two-thirds of respondents said their workforce has not improved since June 2022.

Caring for seniors can be a mentally and physically taxing job, leading to burnout. Workers who might have stayed in senior living in the past can go work in other industries with better pay.

High staff turnover becomes a challenge for the insurance industry because it generally correlates with things that give rise to loss, said Thomas Blaine, vice president and industry leader for aging services at CNA, an insurer that specializes in senior living. “You’re training new people who are unfamiliar with the facility, they’re unfamiliar with the residents, they’re unfamiliar with the policies and procedures of the organization,” he said. “All of these things are also taxing the rest of the staff that are helping onboard, mentor and train these individuals. And so, it takes away from some of the care delivery and creates an opportunity for a failure to occur.”

When failures do occur, they can lead to professional liability claims averaging approximately $250,000 according to CNA’s Aging Services Claims Report.

The report found that a lack of appropriate staffing may contribute to or exacerbate allegations of failure to monitor — and may lead to an increase in unwitnessed falls or delayed identification of pressure injuries. Resident falls and pressure injuries make up approximately two-thirds of all claims.

The average liability claim for an assisted living bed now exceeds the average liability claim for a skilled nursing bed, which suggests possible further turbulence in the professional liability market for assisted living in particular, said Lorraine Lewis, an executive vice president at Alliant Insurance Services.

Overall, professional liability capacity has opened back up for senior living facilities after contracting during the pandemic. After significant rate increases during the period of 2019-2022, rates are now beginning to stabilize for operators with positive loss experience in favorable litigation venues.

“We’re still seeing modest rate increases, but they are not nearly as extravagant as

what we saw for the past two years,” Lewis said. “We’re in an environment for most operators where rates are stabilized, so they could expect flat to 5% or 10% (on renewals).”

Social Inflation

As more insurers enter the senior living sector, there’s a perception that the industry is rate adequate, a perception that Blaine warns could be shortsighted.

Capacity is depressing some of the rate achievement in the market, and to respond to the true cost of insuring the industry, another firm market lies ahead, Blaine warned.

“I don’t think that the new capacity is entering a marketplace that’s as profitable as they perceive, if they’re using historical trends around rate achievement to time the market,” said Blaine. Whether auto liability, general liability or medical malpractice, all are experiencing trend lines associated with social inflation and the desire to punish the corporation.

The medical malpractice market, in

particular, is plagued by social inflation.

“It’s not all about the multimillion-dollar hit,” Blaine said. “It’s about the $150,000 claim a few years ago that might go for $250,000 to $300,000 today.”

Thurber believes the senior living industry is especially susceptible to social inflation because seniors make sympathetic plaintiffs, and juries don’t generally see the industry as doing the best job possible to take care of the elderly. Juries become aware of the staff turnovers and that seniors sometimes go into facilities against their will.

“I think senior care people are seen as victims when it comes to an injury,” Thurber said. “They’re certainly painted that way by plaintiff’s counsel. And so, there’s this emotional need by juries, more now than ever in the past, given how we’ve evolved socially over the last two years, to provide money to residents.”

Property

While rates for professional liability have mostly normalized, property remains a major concern for the industry, with rates increasing as much as 50% or more in some venues.

“We are in a once-in-a-lifetime situation in terms of the difficulty of the property market,” Lewis said. Underwriters view senior living in particular as a high-risk asset class because facilities are built with wood frame construction that are prone to fire and other types of catastrophe damage.

In a May 2023 executive survey published by the National Investment Center for Seniors Housing & Care (NIC), between 86% and 95% of operators across all care segments (independent living, assisted living, memory care, and nursing care) reported an increase in their property insurance coverage compared to one year prior. Approximately one-third of operators reported the cost of property insurance to have increased significantly.

Retirement living tends to be concentrated in areas prone to hurricanes, floods, hailstorms or wildfires. Operators with catastrophe exposed property should see a 20% to 30% rate increase this year, while portfolios in non-catastrophe geographies

can expect a rise of 5% to 25%, Lewis said. Operators in Florida may see anywhere from a 30% to 45% increase or find that coverage is just unavailable.

Caring for seniors can be a mentally and physically taxing job, leading to burnout.

“A lot of carriers have pulled out of states altogether,” said Mark Holt, senior vice president of risk management at CAC Specialty. “It’s not uncommon if you have a catastrophe-exposed risk, instead of having it all with one carrier, having to layer it up with six, seven, eight, nine carriers. No one carrier wants to be on risk for $20 to 30 million.”

Carriers are turning to higher deductibles and the application of coinsurance to flatten out premium. Percentage deductibles that 10 to 15 years ago used to be 2% to 3% are now up to 5% in some

catastrophe-prone regions, Holt said.

Underwriters specializing in senior living facilities also are becoming more insistent that operators evaluate insured value to reflect increased replacement costs due to inflation.

“I think many organizations don’t fully reflect the regulatory changes and the increased cost of materials as they think about what it’s going to cost to replace their buildings going forward,” Blaine said. One reason for that is operators tend to rely on industry tools that may undershoot the true replacement cost or business interruption value of a facility.

“Labor and material costs are up ... 40% since pre-pandemic.” Blaine said. “That, in conjunction with insurance to value (ITV) and business interruption values that were underrepresented, means huge increases in property costs for the senior living operators out there before they can attract more attention to the property insurance space from the market.”

Healthcare Property Insurance

AIU offers complete property coverage for healthcare facilities including assisted living homes, nursing homes and rehab centers that may not fit in the standard market. Policies include a $500 million blanket limit per occurrence, plus enhanced coverage like flood, earthquake, and water damage.

Built pre-2000? Frame or JM exterior? Non-sprinklered property?

Veteran Insurance Pros Offer Strategies for Navigating a Hard Market

By Jahna Jacobson

Everyone in the insurance industry knows that 2023 has become one of the hardest markets in decades, across the board.

In a panel discussion — No One

Said it Would be Easy.

Navigating the Current Hard Market — held recently by Insurance Journal’s Academy of Insurance, four industry veterans dissected the causes of this difficult market and offered advice on how to thrive in it.

“I just can’t remember a market like this,” said panelist Nancy Germond, executive director, risk management and education, for the Independent Insurance Agents & Brokers of America, or the Big I. “It’s the hardest market I’ve ever seen.”

Hard and soft markets used to be like locusts, said panelist Bill Wilson, founder of Insurance Commentary. com and author of Insurance Journal magazine’s monthly column, Is It Covered? “Every seven years, you would have

this cycle.” But nothing like this, the panelists agreed.

Significant premium increases, reduced industry capacity to write coverage, cuts in coverage and more uninsured drivers are both evidence and causes of the current hard market. Homeowners insurance has been hit particularly hard, with premiums increasing many times over for areas at risk for catastrophic weather losses.

Carriers are looking for reasons to reject new business, said panelist Scott Margraves, insurance expert witness with Gulf Coast Risk Management. “There’s an attitude that carriers really don’t want to write new business, that they’re taking a significant increase in revenue and premium without additional exposure, so trying to get an underwriter or the supervisor interested in a piece of business is more of a challenge.”

Inflation is also contributing, especially in property where valuations are not keeping pace with the costs of repairs, said Patrick Wraight, director of the Academy of Insurance.

Also, because so much of the change is climate-driven, the panelists agreed that there may not be an end in sight and that there’s a good chance the hard market will become the new normal.

While higher deductibles and coverage reductions are causing issues, the bigger issue is that standard market carriers are far more selective, Margraves said. “If it doesn’t fit the box, we’re going to take a pass.”

To work around those issues, agents must go to the excess and surplus market to keep business, “and that’s the wild west,” he said. “Do your due diligence. It’s tough right now; it’s very tough because the E&S brokers are not releasing quotes either,” he said. “They know they’ve got you over a barrel.”

So, the key for insurers and agents is adapting to deliver what clients need under these new conditions.

Become an Advisor

“Now is the time that you build value,” Germond said. “You become a trusted advisor because everybody’s hurting, and if you can help explain to them exactly what’s going on and, you know, it’s not you, they’re not picking on you. This is endemic in our industry right now.”

She said it could be as simple as social media or emails offering proactive advice about maintenance or security. An agent will gain clients’ confidence if they can find ways to get ahead of issues for clients to lower or maintain premiums without losing coverage.

“Constantly be talking to your clients,” she said.

Start With the Supply Side

Carriers are looking for agents to write lines, Margraves said. “Find those online programs and figure out what they want to write.” It’s easier to cold-call a business and make a deal with a specific offering and benefit. “If you’ve got something to sell, people want to buy,” he said.

Develop Relationships

“Now is the time to develop hand-holding relationships with good wholesale brokers,” Germond said.

“Because, for example, if you’re going to write a specialty line of coverage ... you want a wholesaler who knows their competition and knows the forms, so that they can be honest with you about here’s where ... you’re not going to have coverage, whereas with another form, you might,” she said. “So, develop those relationships.”

When “working with wholesalers, hammer out beforehand who’s going to issue the certificates of coverage. Make sure you’ve got that because we’re finding agents saying — they won’t issue a certificate, I can’t issue the certificate, but we know that we have to service our client,” she added.

Focus on Coverage Over Premiums

“We tend to look at premiums when we’re in a hard market, but I can’t overstate the importance of looking at coverage,” Wilson said. When you place an account with a company, there are certain coverages that you will request because you know that the insured needs them, he said.

However, when the policy comes back in, when the deliverables come into the agency, an agent should make sure what they want is included, but just as importantly, see what was added that you didn’t ask for. “I will guarantee there are exclusionary or restrictive endorsements that the

carrier has added, sometimes justifiably, but in many cases, you can get those removed for little or no additional premium. And in some cases, they can be catastrophic,” Wilson said.

Businesses may jump at a low premium without reading the fine print, and they will appreciate a vigilant agent who does not cut corners.

Wilson knows an agent who has made his living “plugging holes” for clients. “He says every week there’s a contractor [who] comes into his office wanting him to save them. Invariably, they leave paying more than their current premium because he showed them all the holes and their current policies and how he could plug those holes for little or no additional premium,” he said.

“That kind of coverage-based selling, I think, is something that we also need to explore more.”

Find a Niche

“You can’t compete against the Walmarts of the world,” Margraves said. “I guarantee you there are people advertising and looking for business right now. ... If you can find a market that wants to write cannabis shops and CBD shops, you ought to be writing business all day long.”

Germond said there are also opportunities in writing policies for people who have started businesses or have work-from-home side gigs.

Remarket Strategically

One result of the hard mar-

ket is that many agents have to remarket more frequently, Germond said.

“You’ve got to have a strategy in mind for what you remarket and what you don’t,” she said. A recent survey showed that 50% to 75% of agents were remarketing accounts, which takes a lot of resources, Germond said. Multifamily housing and commercial properties are tough to place, she added. One of the few bright spots may be workers’ compensation. “If you have agents in your agency who can lead with workers’ comp, that can help,” she said. Leading with comp can help bring in other accounts.

Double Check Everything

It’s more important than ever

to double check everything that comes across your desk, Germond said.

She said the insurance industry is experiencing a “brain drain,” and that new agents are more likely to make mistakes and omissions.

“Where you could have in the past relied on the standard lines carriers to get it right when they do a renewal or issue a new policy, you can’t rely on that anymore,” she said. “You’ve got to check everything.”

View the full discussion to learn more about the history of the current hard market, panelist predictions and advice for thriving in the new normal at https:// www.ijacademy.com/members/ courses/863/view.

With our deep product and industry expertise, we deliver global solutions to address the unique risks you face. Our experts have a comprehensive understanding of directors and officers, errors and omissions, employment practices, fiduciary and crime insurance. Let us tailor a solution for your specialized needs.

To learn more, talk to your broker or visit intactspecialty.com

Spotlight: Cyber Diverging Cyber Cat Model Results Challenge Underwriters’ Risk

Analysis: Guy Carpenter

By L.S. Howard

Significant progress has been made in advancing vendors’ cyber catastrophe models, but a notable degree of variability exists across model outputs, which can pose a challenge to insurance and reinsurance companies as they formulate their views of risk, according to a report from Guy Carpenter.

“Among the greatest challenges for cyber writers is constructing their own view of risk to manage cyber exposure accumulation in order to support decisions around capacity constraints and capital deployment,” Guy Carpenter said in the report, “Under the Lens: Investigating Cyber Vendor Model Divergence,” in which it analyzed differences between three major cyber catastrophe models: Guidewire Cyence, CyberCube and Moody’s RMS.

On a positive note, Guy Carpenter affirmed that cyber models’ results “are gradually converging over time as more credible data points become available for calibration and validation.”

One of the principal findings of the report is that there is no single driver of cyber model divergence but rather a varying combination of multiple parameters that drive discrepancies in modeled average annual losses (AALs), including

Industry Variations

Variability between the vendor model results was most evident for businesses classified as “Variety Stores” or as “Eating and Drinking Places” in the retail sector. The Guy Carpenter report suggested that the divergence here is largely driven by Cyber Cube’s more conservative view of the retail industry sector. Explaining further, the report noted that CyberCube’s model considers financial fraud to be a significant contributor to loss, closely tied to payment process events that impact retailers.

revenue, industry sector classification and differing treatment of specific coverages.

More Revenue, Less Divergence

The main driver of loss variability across the three tested vendor models was annual revenue, the report said, indicating that organizations with larger revenues have less model divergence than smaller organizations. Here’s how Guy Carpenter phrased it: “Annual revenue input results in the highest modeled loss differences, with the greatest model divergence concentrated in the nano (< $1 million) and micro ($1 million-$5 million) revenue bands.”

The report explained that cyber risk data from larger organizations is readily accessible but is less available with micro and mini risks.

Revenue is intrinsically connected to the main types of cyber losses, such as business interruption (BI), contingent business interruption (CBI) and data restoration, the report said. “As such, it is expected that modeled losses will increase as revenue increases. However, variability in modeled results decreases as revenue increases.”

Above the $5 million range, the report continued, the variability of results was very consistent out to the very large risks with revenue greater than $1 billion.

This is a significant finding because the cyber insurance market continues to see increased penetration in the small revenue space, which Guy Carpenter said “will increase attention on the reliability of modeling for very small risks.”

“A deeper understanding of the relative treatments of low-revenue organizations by the vendor models will be essential to the alignment of internal views of risk to vendor views,” the report added.

Industry Drives Differences

The results of Guy Carpenter’s study show that the industry sector is the second-most-impactful driver of variability in losses, after annual revenue.

“Industry sectors differ in how they carry out their business. This necessarily means that technologies utilized across sectors also will vary and will be relied upon to different extents,” the report said. “Different sectors may also vary in their security posture, resiliency and attractiveness to threat actors. As a result, conceptually, industry sector will have a significant impact on cyber loss. We also find that this area causes significant variability in losses across vendor models.”

On the other hand, the report noted, the three models have little disagreement

in perceived risk from the number of company employees, after accounting for all other input parameters.

Specific Coverage Treatment

“Ransomware and malware events are top event drivers for modeled losses across vendors as well as being broadly agreed upon as a major driver of loss across the industry,” the report said.

But here resides another source of model divergence. Guy Carpenter pointed to vendor models’ differing treatment of specific coverages, such as Ransomware & Extortion and Regulatory Defense & Fines.

While property policy wordings are far more homogeneous, cyber policies are written with differing coverages using diverse definitions, which makes it difficult to align diverse cyber policy wordings with available model functionality, the report said. “Until the space becomes more standardized, there will continue to be challenges in aligning policy wordings with available model functionality.”

Methodology

To conduct its study, Guy Carpenter applied advanced analytics using predictive modeling “to achieve a deeper and more robust understanding of key factors driving divergence in cyber model outputs.”

The analysis aimed to address three points:

• Determine which input parameters drive the greatest cyber model divergence.

• Identify market segments where industry view of risk is most divergent.

• Highlight risk characteristics for which a given cyber model may yield a significant average annual loss (AAL) penalty.

To analyze these points, Guy Carpenter relied on a sampled company-level dataset that approximated the distribution of the cyber industry, including key input parameters (such as annual revenue and country of domicile) that Guy Carpenter compiled across available vendor models. The dataset was then modeled using each of the three cyber models to generate an AAL at the individual-company level, as well as a portfolio average.

“By marrying cyber catastrophe mod-

eling expertise and predictive analytics, this study helps insurers and reinsurers identify market segments where the model view of risk is most divergent,” according to Erica Davis, global co-head of Cyber, Guy Carpenter, in comments accompanying the report. “This will result in more confidence for insurers and reinsurers in

making decisions about their deployment of capacity, which ultimately supports the cyber industry’s sustainable growth forward.”

This study is a companion to an earlier report, titled Through the Looking Glass: Interrogating the Key Numbers Behind Today’s Cyber Market.

hesitation since they opened

doors in 1985. Nautilus is a true and loyal friend

industry. Policy after policy and

they

just earned my respect, they’ve earned my trust.”

Mark L. Kaufman Chief Operating Officer Western Security Surplus Insurance Brokers, LLC

Idea Exchange: Cybersecurity

Raising Customer Awareness of Cybersecurity

ture, and denial of service attacks. Further increasing our vulnerability to cyberattacks are today’s hybrid and remote working environments.

By Joseph Saracino

Cyber threats are more pervasive than ever and growing. Check Point Software’s Cyber Attack Trends: 2022 Mid-Year Report noted that cyberattacks intensified by 42% in the first half of 2022. Cybercrimes in the United States alone were responsible for over $4 billion in losses in 2022, according to the Federal Bureau of Investigation.

Even with this staggering data, many companies have failed to recognize just how serious and widespread cyberattacks are and their far-reaching ramifications. Beyond the loss of proprietary company data, there is the compromise of customers’ and employees’ sensitive personal information, productivity losses, costs incurred to remediate a breach, reputational damage, and loss of customer confidence. If an organization is found to have been non-compliant with cybersecurity laws and regulations, hefty fines may also result. For insurance brokers and agents, educating their clients regarding today’s perilous cyber landscape and what an effective cybersecurity program consists of, is a way to demonstrate the value-add expected of a trusted advisor.

Today’s Cyber Landscape

Following the 1,802 data breach cyberattacks in the U.S. in 2022 as reported by Statista, in which 422.14 million individuals were affected, 2023 continues with growing cyberattacks and new threats. Ransomware attacks remain the number one threat and now we are seeing cybercriminals target entire nations. Cloud supply chain attacks are also on the rise, most notably, those involving open-source communities. Other top cyberattacks projected for 2023 include: mobile device, phishing/spear phishing, crypto jacking, state-sponsored, Internet of Things (IoT), social engineering/social media, smart medical device, cyber-physical/infrastruc-

Where most organizations remain most vulnerable is in their lack of endpoint protection. An endpoint is any physical or virtual device that is connected to an organization’s Information Technology (IT) network (e.g., PCs, laptops, tablets, mobile phones, routers, and printers). With more people working remotely or in a hybrid model, the number of endpoints has significantly increased. Open ports, created by unpatched software, misconfigured applications, and weak credentials, also increase an organization’s likelihood of experiencing a cyberattack.

New Technologies and Threats

Cyber criminals are also gaining ground in their nefarious deeds by relying on new technologies. One example is the “post-exploitation framework” designed to secretly deploy ransomware within enterprises. The framework, EXFILTRATOR-22 (EX220), is capable of establishing a reverse shell with elevated privileges, uploading/ downloading files, logging keystrokes, and launching ransomware to encrypt files. It can also start live Virtual Network Computing (VNC) sessions through which criminals can gain real-time access to the network.

iPhone users are at risk for a new cyber threat, which police stations nationwide are reporting. Cyber criminals are exploiting the iPhone’s passcode feature by observing users tap their passcodes, which are usually just several digits. Then, they apply that information to access their devices. Once they have access, they change the passcode associated with the iPhone’s owner, who is then locked out of their account, including all information stored on the iCloud. Cyber criminals can then gain access to the owner’s financial accounts, health records, and other personal information.

In addition to the iPhone platform,

another example of a platform being targeted with cyberattacks is Microsoft Office Outlook. These attacks include privilege escalation and remote code execution vulnerability exploitations. In privilege escalation attacks, criminals obtain users’ authentication credentials without any user interaction and then send malicious messages that trigger an authentication request enabling them to access sensitive information and systems. Remote code attacks enable criminals to execute arbitrary code with the victim’s privileges to gain remote access to the system.

What’s further intensifying cyber threats is the speed at which they are now occurring. Rapid7’s 2022 Vulnerability Intelligence Report cited that the time it takes from when a system vulnerability is disclosed and when a cyberattack takes place is decreasing. It’s typically a period of seven days, representing a 12% and 87% increase in the exploitation speed

timeframe in 2021 and 2020, respectively. Given today’s cybercrime environment and increased threats, federal and state governments are stepping up their efforts to fight cybercrimes.

Government Actions

For many years now, federal and state governments have taken measures to protect sensitive personal information. Numerous laws and industry standards have been enacted for this purpose. Among them are:

The Health Insurance Portability and Accountability Act (HIPPA) designed to ensure that ensures the confidentiality, availability, and integrity of personal health information (PHI).

Payment Card Industry Data Security Standard (PCI DSS) encompassing various regulatory standards intended to ensure that all organizations maintain a secure environment for credit card information.

New York Department of Financial Services (NYDFS) Cybersecurity Regulation (23 NYCCR 500), a regulation introduced by the New York State

Department of Financial Services which establishes cybersecurity requirements for financial service providers.

System and Organization Control 2 (SOC 2) SOC 2, a voluntary compliance standard for service organizations developed by the American Institute of CPAs (AICPA) which specifies how organizations should manage customer data.

The General Data Protection Regulation (GDPR), a regulation of the European Union (EU) which sets forth standards for organizations located in or outside of the EU that collect data or target individuals in the EU.

The Federal Educational Rights and Privacy Act (FERPA), a U.S. federal law designed to ensure that students’ educational records are protected and private, which applies to all educational institutions that receive funding from the U.S. Department of Education (DOE).

The National Institute of Standards and Technology (NIST), which promotes innovation, industry competitiveness and quality of life with the advancements of standards and technology, and which has

issued the NIST 800-53 Risk Management Framework providing guidelines to support and manage information security systems, and the NIST 800-161 Supply Chain Risk Management Framework.

The California Consumer Privacy Act (CCPA), a California law developed to provide consumers more control over the data that organizations collect about them.

Cybersecurity Maturity Model Certification (CCMC), which imposes stringent cybersecurity measures on certain organizations that handle controlled unclassified information and to safeguard sensitive information.

New York Shield Act, which strengthened New York’s prior 2005 Information Security Breach and Notification Act by expanding the types of private information companies must provide consumer notice of if a data breach occurs.

More recently, the Biden Administration unveiled its U.S. National Cybersecurity Strategy, developed by the Office of the National Cyber Director. Already undercontinued on page 42

Idea Exchange: Cybersecurity

continued from page 41

way, this plan is introducing more aggressive liabilities for “those entities that fail to take reasonable precautions to secure their software.” In addition, the new strategy authorizes law enforcement and intelligence agencies to hack into the networks of foreign entities to prevent cyberattacks or retaliation against advanced persistent threat (APT) campaigns. This strategy is intended to serve as a preemptive strike using “disrupt and dismantle” tactics against hostile networks of cybercriminals and adversarial foreign governments and disabling perceived threats to national security or public safety.

Insurance Carriers

Given the high cost of cyber breach claims, insurance companies are taking a much harder look at potential cybersecurity insurance policy holders. NetDiligence’s Cyber Claims Study 2021, which reviewed cyber incidents occurring between 2016 and 2020, found the average cost to an insurer for a small and medium sized enterprises breach is $145,000. For large companies, the average costs can rise to $10 million.

With these high-cost claims, insurers are establishing baseline criteria, which they expect organizations to meet before they will consider issuing a cybersecurity policy. They include a proactive and consistent approach to managing cyber risks: multifactor authentication (MFA); comprehensive backup; regular penetration testing and vulnerability assessments; patching; cyber awareness training for employees; and incident response plan.

Cybersecurity insurers want to know that an organization is fully committed to cybersecurity and has taken the appropriate steps towards mitigating their risks.

The Role of Insurance Advisors

Brokers can perform a real value-added service to their clients by raising their awareness of the importance of establishing a sound cybersecurity program. Taking a consultative approach, they can start by asking key questions such as:

• Are you operating a hybrid IT infrastructure (on-premises and in the cloud)?

• Are you using common access interfaces (e.g., PowerShell, PsExec, MSI, etc.)?

• Are you using technologies such as multifactor authentication (MFA) and agentless and proxy less technologies to extend MFA, as well as risk engines that continuously assess IT system usage?

• Are you triaging MFA requests and using an escalation policy for managing high-risk situations?

• Do you currently have a comprehensive cybersecurity program in place that includes regular penetration testing (ethical hacking), vulnerability assessments, employee cybersecurity education and training, established cybersecurity policies, and an incident response plan?

Once a client’s situation has been assessed, insurance professionals should see where they stand in terms of qualifying for a cybersecurity policy. If security measures need to be taken, the client should be encouraged to promptly follow through with the appropriate actions. This is where partnering with a dedicated cybersecurity firm is important.

Many companies believe that their managed service provider and/or their internal IT team are qualified to manage the cybersecurity function. But unless those individuals have the essential credentials (e.g., Certified in Risk & Information Systems, Certified Network Security Administrator, Computer Hacking Forensic Investigator, Certified Information Security Systems Auditor, Certified Information Systems Security Professional, Licensed Penetration Tester, Systems Security Certified Practitioner, Certified Security Analyst, etc.) and experience providing cybersecurity services, they are not qualified. And, as the individuals tasked with overseeing IT operations, they are not an objective third-party, which is important to regulators should a breach occur.

Cybersecurity Partners

When looking for cybersecurity partners, insurance professionals should seek a firm that is not simply a vendor of technologies and services. In addition to having a proven track record and qualified, credentialed staff, the firm should exhibit

a level of cybersecurity expertise and serve its clients in an advisory role and not in a transactional role. They should be proactive in supporting an organization’s ongoing cybersecurity. That means keeping both their insurance partners, as well as their mutual clients, advised of the latest threats and developments, taking a role in educating and training the client’s employees, and developing a program tailored to the client’s specific industry, size and threat potential, in addition to supporting their regulatory compliance. The right cybersecurity partner will assume a long-term risk management strategy and not short-term technology fixes. Reporting to an organization's C-level suite, a cybersecurity partner becomes a trusted advisor in the same way that insurance professionals are to their clients.

By teaming up with the right cybersecurity partner, insurance professionals will become more proficient in cybersecurity, gaining broader knowledge and in turn, becoming a better resource and advocate for their clients especially when a cyberattack occurs and a claim must be filed.

Cause for Optimism

Damages stemming from cybercrimes are projected to reach $10.5 trillion annually by 2025 according to Cybersecurity Ventures. There is, however, some cause to be optimistic as more organizations recognize that cybersecurity must become embedded in their broader corporate culture. In fact, Gartner analysts reported that by 2026, at least 50% of C-level executives will have performance requirements related to cybersecurity risk built into their employment contracts. Further, according to Gartner by 2025 60% of organizations will use cybersecurity risk as a significant determinant when conducting third-party transactions and business engagements.

The tide is turning, and insurance professionals can ride the wave to strong client relationships by taking a proactive and advisory role in the critical area of cybersecurity.

Saracino is president and CEO of Cino Security Solutions.

Idea Exchange: Professional Liability

Skyrocketing Bodily Injury Claims Spill Over to Professional Liability Insurance Market

Claims frequency and severity are up across the industry, thanks in large part to social inflation, which has led to an increase in litigation and more costly settlements.

By Amanda Castro

Fueled primarily by aggressive tactics by plaintiffs’ attorneys, social inflation has caused a significant uptick in bodily injury (BI) claims that are being paid out by commercial auto and general liability policies.

But other insurance segments haven’t been immune from this trend — claims payouts are going up across the board. A 2020 report by the Insurance Research Council (IRC) noted a 300% increase in jury verdicts of $20 million or more in 2019 as compared with the annual average between 2001 and 2010. IRC research also found that claim severity is greatly outpacing economic inflation, and there is “significant growth in the proportion of bodily injury liability claims being paid at policy limits.”

This fact is of particular concern to professional liability underwriters who are seeing a disturbing trend of underlying bodily injury claims spilling over to professional liability (PL) policies. General liability (GL) policies are designed to cover bodily injury and property damage that occurs on an insured’s premises. However, if those limits are exhausted or the claim includes an allegation of negligence or misrepresentation, then the incident can turn into a PL claim as well. Depending on the claim allegations, PL insurance providers are increasingly finding themselves pulled into BI claims.

Across the 150 to 200 miscellaneous professional classes of business, insurance agents and brokers, and real estate professionals such as property managers or home inspectors, have become targets of underlying bodily injury claims. The

claims allege that these bodily injuries occurred, or were not properly covered, because of negligence, misrepresentation or an error/omission on the part of the insurance or real estate professional.

In other words, any professional whose client has a bodily injury exposure could also be at risk for these types of professional liability claims.

Some recent real-life examples of these claims include:

• A property management company was sued after someone was injured at an apartment complex they managed. The claimant successfully argued the property manager was negligent in maintaining the property, thus triggering the professional liability policy and a multi-million-dollar payout.

• A lawsuit over a shooting death at a residential complex led to a professional liability claim against the property manager for failing to provide proper security.

to do so. In the belief that coverage was in place, the truck was put into service and was involved in a fatal motor vehicle accident. Coverage was denied by the commercial carrier due to the error of the agent.

Coverage Impact

In general, the miscellaneous professional liability segment hasn’t experienced as much hardening as other lines of business, but professional liability carriers are closely watching how social inflation continues to play out.

Many insurers are already responding by reducing their capacity — cutting limits by half or more. And premiums are going up. Overall, professional liability rates are up 5% to 20%, depending on the line of business, according to a WTW E&O insurance market update published in April 2023. Carriers are increasingly concerned that social inflation claims trends could continue. As a result, rates will likely continue to go up over the next. year while

• A policyholder requested that a newly purchased truck be added to a commercial auto policy, but the insurance agent failed continued on page 44

Idea Exchange: Professional Liability

continued from page 43

capacity decreases, particularly for classes of business that are more exposed.

What Agents and Brokers Need to Know

The combination of challenges in the professional liability market puts more pressure on agents and brokers, who have the responsibility of helping their insureds protect their exposure while rates are higher and fewer coverage options are available.

It’s not an easy situation, especially if clients don’t understand their exposure and think cutting coverage is a way to save money.

Agents can help clients get the coverage they need to protect their exposure in several ways, including:

• Know the changes insurance providers are making and properly prepare clients so they aren’t surprised at renewal time.

• Educate clients on market changes and exposures and help them address risks so

they can get the coverage they need.

• Look into other opportunities to help the client cover their exposure, such as purchasing excess coverage that can drop down and fill in any primary policy gaps, taking a higher deductible, or obtaining tail coverage for prior claims.

• Maintain a strong relationship with underwriters and discuss different options and creative solutions for your clients, or negotiate on their behalf.

• Learn about the different risk management options carriers offer to mitigate your clients’ risks and ensure clients take advantage of these resources.

• Provide underwriters with all of the necessary information about your client when submitting applications, including any coverage concerns or specific needs, so accounts can be quoted accurately and quickly.

Unfortunately, social inflation trends don’t appear to be going away anytime soon, so the industry must work together to responsibly navigate these ongoing challenges. This includes finding ways to educate our clients on what social inflation means and the impact it has on all insurance consumers.

Castro is vice president at Berkley Service Professionals, a division of Berkley Alliance Managers, which is a member company of W. R. Berkley Corporation. Castro is based in Glastonbury, Connecticut, where she is a licensed insurance producer and surplus lines broker. Email: acastro@berkleysp.com.

The combination of challenges in the professional liability market puts more pressure on agents and brokers.

Idea Exchange: Ask the Insurance Recruiter

What’s The Best Recruiting Tool to Find Insurance Talent? The Answer Might Surprise You.

The #1, MOST IMPORTANT recruiting tool is one most insurance agencies and carriers don’t use to its fullest potential is … (drumroll please!) … a candidate database. Applicant Tracking Systems (ATS) and Customer Relationship Management (CRM) software are virtually the same when it comes to how your company can leverage technology to create recruiting success.

Databases Trump Other Sourcing Strategies

It’s easier to make a warm sale, right? If a business has brand familiarity with your agency, then they are more likely to invite you into the RFP process. The same is true with prospective employees. People who have already applied, interviewed, or stayed in touch with HR or a hiring manager are the best recruits for new openings. When you get into the habit of building and maintaining a database your ATS becomes more effective than cold calls and job board applications to source candidates.

Cold Calling Doesn’t Work. A lot of hiring managers believe this is how recruiting is done. Wrong. People don’t pick up the phone. A number they don’t

recognize is spam. Cold calling has a 1%-3% response rate. Employed people aren’t going to pick up the phone while they are at work. Finally, people read a job ad in 4-6 seconds. How quickly are they going to lose patience with a bad opening line? You run the risk of getting hung up on unless you’re an extremely skilled recruiter.

Job Boards Have Limitations. No third-party platform replaces an in-house system. Resume databases through job boards aren’t insurance specific and have outdated information. Job boards have a 30-day lifecycle. After that point you’ve seen all the active job seekers and lost positioning at the top of search results. Finally, InMails look and feel like emails, but you can’t personalize the formatting. They are costly and need to be carefully constructed because poor response rates will label you as spam.

Making the Case to Prioritize Your Candidate Database

Can you imagine a producer or account manager working without software to support their daily activity? How could you prospect, write new business, service existing clients or anything in between? You couldn’t, which is why for insurance

By Mary Newgard

agencies it’s easy to appreciate the need for similar technology to support recruiting efforts.

My entire team is super passionate about the need for our clients to fully realize the benefits of an ATS. We see it first-hand within Capstone. If we didn’t have a database, we’d start at zero on every search. Insurance organizations call us because they hope we already know a candidate that fits their job. You want to get to that same place internally.

Unfortunately, too often I see insurance organizations spend a lot of time and money to get candidates, but once the job is closed all that information is forgotten. The idea that the process “lives and dies with the job” is probably the biggest flaw in your ATS/CRM. You need an ATS to sustain recruiting success. A database can be customized based on your workflows and best practices to:

• Search candidate information

• Organize candidates into talent pools

• Save documents

• Record interview activity

• Communicate on a recurring basis in anticipation of future openings.

Visit our website, www.csgrecruiting.com/ consulting, for more information on how my team could help you develop database management strategies to support your recruiting efforts.

Newgard

Idea Exchange: The Marketing Connection

The Power of Social Proof: Enhancing Credibility & Trust for Your Insurance Business

The insurance industry is built on trust and relationships — and generating business often means building confidence and establishing expertise with your audience.

By Anita Nevins

One highly effective method of building trust is through the use of “social proof.” This psychological phenomenon refers to people relying on the actions and opinions of others to determine how they will behave.

In the insurance business, social proof can be in the form of testimonials, reviews, case studies, social media posts, and endorsements. Leveraging these types of social proof can help you stand out in a content marketing landscape that is constantly in flux.

To drive new customers to your insurance business, there are various types of social proof you can utilize. Each type has different applications and can help build credibility and trust with your target audience.

Let’s explore some of the most important types of social proof:

Social Media. In today’s digital age, social

media platforms play a significant role in shaping people’s opinions and decision-making processes. Leveraging social media platforms, such as LinkedIn, can provide you with valuable social proof for your insurance business. Some effective strategies for acquiring social proof from LinkedIn include sharing thought-leadership content, actively participating in industry conversations, showcasing achievements, collaborating with other specialists, and gaining recommendations from satisfied clients, colleagues and business partners.

Customer Testimonials. Testimonials are a powerful form of social proof that can be showcased through websites, marketing materials, emails, social media and digital campaigns. By sharing the positive experiences of your satisfied clients, you demonstrate your ability to successfully solve problems and meet the needs of the industry.

Case Studies. Case studies provide a more detailed look at how you have solved specific customer problems. They typically follow a structured format, starting with the original problem or the client’s situation, then describing how you intervened to address their challenge, and finally highlighting the concrete results you achieved. Case studies offer a

deeper understanding of your expertise and track record.

Expert Endorsements. Endorsements from insurance industry thought leaders can be a powerful form of social proof for your business. Expert endorsements can take the form of written recommendations from specialists, joint appearances, collaborative projects, or partnerships. Collaborating with renowned experts, such as appearing on their podcasts or contributing articles to their blogs, can significantly enhance your social proof. Online Reviews. Online reviews can play a crucial role in the decision-making process for unappointed agents. They are often the first place people go to gauge the reputation of a company. Positive reviews provide unbiased feedback and instill trust.

Personal Referrals. Personal referrals are among the most powerful forms of social proof. An enthusiastic recommendation from a friend, colleague or family member can carry significant weight. You can encourage personal referrals by implementing referral programs — offering rewards or incentives for customers who refer your services to others they know. Word-of-mouth marketing remains highly influential in the insurance industry.

Understanding the power of social proof is essential for insurance businesses, as it can significantly impact human behavior and decision-making processes. By incorporating case studies, customer testimonials, expert endorsements, positive online reviews, and personal referrals into your marketing strategy, you can effectively build your reputation and establish trust with your target audience. Remember, the more types of social proof you leverage, the stronger your marketing efforts will be.

Embrace the power of social proof and watch your insurance business thrive.

Nevins is the founder and co-CEO of Direct Connection Advertising & Marketing.

Idea Exchange: Minding Your Business

Lessons from the Stone Age

In our modern world of rapidly advancing technology and complex corporate structures, it’s absurd to consider looking toward the distant past for insights. Yet, the Paleolithic or Stone Age era — characterized by early humans’ usage of stone tools and basic social structures — holds surprising lessons for modern business management.

This article explores how these early societal structures and survival strategies might enlighten contemporary leadership practices.

The insurance industry, like other industries can also benefit from these practices.

1. Teamwork and Collaboration. Paleolithic societies were profoundly communal. The survival of an individual was often dependent on the collective effort of the group, promoting a sense of community and shared purpose. The business takeaway? Foster an environment that prioritizes teamwork and collaboration. As businesses grow larger and more specialized, the value of cross-functional teamwork becomes increasingly important. Encourage departments to interact, share information and work towards common organizational goals.

2. Adaptability. The key to the survival of early humans was their ability to adapt to various and often harsh environments. Businesses can learn from this adaptability in

an era where disruptive technologies and rapidly changing markets are the norm. Developing a culture of change readiness, encouraging creativity, and embracing new technologies is critical for businesses to thrive in this constantly evolving landscape. Today, innovation remains at the heart of business success. Leaders need to be problem solvers, constantly seeking better ways to serve customers, improve operations, and stay ahead of the competition.

3. Sustainability. The early humans were great observers of their environment, understanding the rhythms and patterns of nature and utilizing resources responsibly. In the current environmental situation, businesses need to adopt sustainable practices. This is ethically right, and research shows that customers increasingly favor businesses with environmentally friendly practices. Today’s business leaders must also excel at resource management, efficiently using capital, human resources, and raw materials to achieve their goals.

4. Storytelling. Ancient cave paintings demonstrate the role of storytelling in

early human societies. Today, storytelling can be a powerful tool for businesses, as well. Great leaders use stories to inspire their teams, convey complex ideas, and build a compelling brand narrative. Storytelling can help to foster a strong corporate culture and employee engagement. Effective communication remains vital in running a business, whether articulating the company’s vision, negotiating a deal, or motivating staff.

5. Decentralized Leadership. In many Paleolithic societies, leadership wasn’t concentrated in the hands of a single individual but was instead a shared responsibility among various individuals who had proven their skills. Modern businesses can adopt this concept by endorsing a more distributed leadership style, where authority isn’t confined to the C-suite but is spread across various organizational levels. This leadership style can lead to improved decision-making, greater innovation, and increased staff engagement.

6. Resilience. Stone Age humans faced a plethora of challenges, from harsh climates to dangerous predators. Their resilience

By Catherine Oak and

Bill Schoeffler

in these challenges is a lesson for businesses in our current economic climate. Organizations should cultivate resilience, enabling them to weather financial downturns, adapt to market changes, and overcome unforeseen obstacles.

7. Continuous Learning. Early humans were constant learners, improving their tools, developing better hunting techniques, and building more sophisticated dwellings over time. Similarly, businesses today need to foster a culture of continuous learning, encouraging employees to

September 4, 2023

SiriusPoint America Insurance Company

1 World Trade Center, 285 Fulton Street, Suite 47J New York, NY 10007

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

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

September 4, 2023

Obsidian Insurance Company

1330 Avenue of the Americas, Suite 23A New York, NY 10019

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

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

upskill and reskill. This can lead not only to individual employee growth but also to the overall development and progress of the organization.

Summary While the Paleolithic era might seem far removed from our modern corporate world, these timeless principles of collaboration, adaptability, sustainability, storytelling, decentralized leadership, resilience, and continuous learning can provide a valuable framework for effective business management in our complex and

September 4, 2023

HDI Global Insurance Company 161 N. Clark Street, 48th Floor Chicago, IL 60601

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

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

September 4, 2023

GEICO General Insurance Company 5260 Western Avenue Chevy Chase, MD 20815

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

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

rapidly changing environment. It’s about time we dig into the past to carve out a more successful future.

Oak is the founder of the international consulting firm, Oak & Associates, based in Bend, Oregon, and Sonoma, California. Schoeffler is an associate of the firm. The firm specializes in financial and management consulting for national and international insurance agencies, including valuations, mergers and acquisitions, clusters, sales and marketing planning, as well as perpetuation planning. Phone: 707-9356565. Email: catoak@gmail.com.

Closing Quote

Strategies and Key Steps to Get Through Today’s Hard Market

By Karen Collins

The U.S. property/casualty insurance market is experiencing the hardest insurance market cycle in a generation, resulting in many insurance agents and brokers, as well as drivers, homeowners and business owners needing to adjust to current market conditions that are characterized by rising premiums, tighter coverage terms, and reduced capacity for insurance.

In the aftermath of record losses and rising costs in recent years, over a dozen insurers have become insolvent in coastal regions while others have made difficult decisions to reduce their exposure by curtailing new business in catastrophe-prone regions.

Compounding market pressure in some states, there have been legislative and regulatory changes that introduced higher costs and volatility that makes modeling and, in turn, pricing catastrophic risk more challenging. The result is some insurers and reinsurers are more hesitant to deploy capital in some states due to the uncertainty of expected losses, or in some cases, the inability to charge adequate premiums.

Some industry critics have falsely implied insurers are reaping excess profits. However, anyone looking at the actual insurance industry performance numbers would be

hard pressed not to recognize the significant losses in recent years. Between 2020-2022 the U.S. experienced the costliest three-year period ever for insured natural disaster losses, with the homeowners’ line climbing above a combined ratio of 100 for five out of the most recent six years. A significant cost driver affecting the industry is the rapid onset of inflation, which accelerated to a 41-year high in 2022.

Insurance claims inflation has risen even faster, contributing to significant underwriting losses, as the costs and time frames needed to rebuild and replace contents have surged. For example, since the start of the COVID-19 pandemic the price of single-family residential home construction materials has shot up 34%, while labor climbed 27%, as of December 2022.

This has resulted in much higher loss costs, and underinsurance challenges for consumers. As insurers face higher costs for reinsurance and other forms of capital to help spread catastrophic risk, insurers are diligently working to manage costs and ensure they can fulfill all obligations for the risks they do take on. In states facing the most significant pressure, the non-admitted market and residual market plans may continue to serve as a relief valve for the admitted market.

The resulting impact on agents and brokers has been significant, as more time and effort are needed to help consumers adjust or identify new coverage to meet their needs. This is the time for agents and brokers to emphasize good

communication and develop better relationships with their customers. Insurers understand such market dynamics present significant challenges for agents and brokers.

Where do we go from here?

To address the rising costs and risks communities face, we must focus on the underlying issues. A key long-term strategy is mitigation, which for wildfire regions includes reducing excess fuel loads in wildland urban interface (WUI) regions; re-examining land use policies in high-risk regions, which includes adoption and enforcement of building codes and defensible space standards; and strengthening existing homes and businesses to become more resilient to wildfires.

APCIA supports the Insurance Institute for Business & Home Safety (IBHS), which launched the first ever research-based wildfire mitigation standard in 2022. Introduced initially in California, IBHS’s new Wildfire Prepared Home program provides homeowners with critical steps they should take to protect their homes from

wildfires. APCIA is working closely with IBHS to expand this program into additional western states, such as Oregon and Colorado. We are further working at the federal level to steer more resources to support states in mitigation efforts. For example, APCIA’s president and CEO, David Sampson, currently serves on a federal wildland fire commission focused on ways to mitigate and manage wildfire losses.

To address the current hard market challenges, it is imperative that lawmakers and regulators strike a healthier balance between affordability for consumers and ensuring that companies have the tools necessary to manage rapidly evolving risk and costs. APCIA is working to educate policymakers on this to ensure any new legislation or regulations do not introduce new or higher exposure and costs, which may exacerbate current market conditions for consumers.

Collins is vice president, Property & Environmental in the Policy, Research, and International Division for the American Property Casualty Insurance Association (APCIA).