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February 19, 2024 • Vol. 102 No. 3

Contents News & Markets

Special Report

Idea Exchange

Global Ransomware Attacks Reach Record High in 2023, Says Corvus

Closer Look: ‘New Normal’ in Agency M&A Landscape Experts Share 2024 Outlook for Independent Agencies

DEI: Redefining the Paradigm for the Property/ Casualty Industry

Spotlight: Extreme Weather, Cyber Risks Top Concerns When Insuring Farms

Report: 2023 Combined Ratio Forecast at 103.9, Commercial Lines Performed Best Wage Growth Likely to Continue Driving Workers’ Comp Payroll Growth

15 Chubb Writing More Personal E&S but CEO Greenberg Doesn’t Like the Trend

How Apprenticeship Programs May Be the Best Solution to Today’s Talent Crisis

The Competitive Advantage: Working From Home

Special Report: Agency Compensation Rose Again in 2023 But Not Everyone Is Pleased

More P/C Carriers With Less Surplus: Aon Ward Analysis

Special Report: 2024 Agency Salary Survey Results Revealed

40 42

Is It Covered?: Wear and Tear and Mechanical Breakdown Exclusions Under Auto Policies

Ask the Insurance Recruiter: Why Insurance Professionals Will Change Jobs in 2024

Agency M&A Down 24% in 2023 but More Large Deals May Be Seen in 2024: OPTIS

Referral Fees: A Multi-State Overview

Marsh: US Commercial Lines Rates Up 3% in Q4 2023

What Does ADR Mean for Workers’ Compensation Programs On Construction Sites?

Closing Quote: It’s Time for the Commercial Property Insurance Industry to Adopt Tech Efficiencies

Departments 6 Opening Note 4 | INSURANCE JOURNAL | FEBRUARY 19, 2024

10 Figures

11 Declarations

16 Business Moves

18 People

27 My New Markets

INSURANCEJOURNAL.COM

FARMOWNERS INSURANCE

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got a niche?

AM Best A++ Rating I Ward’s Top 50 2001-2023 I 95.7% Claims Satisfaction I 120+ Niche Industries Philadelphia Insurance Companies is the marketing name for the property and casualty insurance operations of Philadelphia Consolidated Holding Corp., a member of Tokio Marine Group. All admitted coverages are written by Philadelphia Indemnity Insurance Company. Coverages are subject to actual policy language.

Opening Note Write the Editor: awells@insurancejournal.com

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

ADMINISTRATION / CIRCULATION

Happy Employees

his issue reveals data and compensation insights gathered from Insurance Journal’s annual Agency Salary Survey. For the second year in a row in the survey’s 15-year history, salary averages reported were higher than ever before. (See page 28 for the full report.) While that trend may be good for agency employees, agency owners may be struggling to keep pace with growing compensation demands and the industry’s ongoing talent crisis. Competition is fierce for experienced top talent and salaries are rising as a result. “You have many people who are leaving the workforce but not as many coming in,” says Al Diamond, president of the Agency Consulting Group Inc. based in Cherry Hill, N.J. “That’s going to cause a lot of upward pressure on starting salaries.” That pressure is causing people to move. “People may find it more advantageous to leave their jobs and go elsewhere so they get paid more …. Getting a 2% or 3% raise every year isn’t going to keep up with the starting salaries as people get harder and harder to find,” he told Insurance Journal. Competitive pay, job stability and flexibility have become table stakes for companies looking to hire top-tier candidates, said Jen Farrell, director of agent and customer research at Liberty Mutual and Safeco Insurance. The research team at Liberty Mutual surveyed more than 1,100 independent insurance agency leaders and team members for the 2023 Agency Growth Study. As part of the survey, the insurer asked agency employees about the characteristics of their ideal employment situation. Leading the list — remote work and flexibility. Some 54% of respondents ranked flexible hours as a top benefit. While employees seek flexibility, employers seek experience, reliability and an independent knowledge base, according to Diamond. But experience and knowledge are not easy to find, he admits. “Many agency owners are basically giving up after a year or so of searching and hiring inexperienced people,” he said. For now, expect continued movement of agency talent. “We’re seeing movement both in producers and in service staff, except the rate of producer movement is declining while the rate of service staff movement is increasing,” Diamond says. He urges agency owners to remain diligent in their efforts to keep their best employees happy and engaged. That means appreciating people, he adds. “If the employees feel appreciated, they’ll walk through walls and fire to protect the agency and their jobs. If they don’t feel appreciated, they’re looking for the next job.”

‘If the employees feel appreciated, they’ll walk through walls and fire to protect the agency and their jobs.’

Chief Financial Officer Terry Freeburg | tfreeburg@wellsmedia.com Circulation Manager Elizabeth Duffy | eduffy@wellsmedia.com 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: Desmund Adams, Matthew Jones, Alex Lyashok, Meghan Parilla, Mark Robinson, Susanne Sclafane Columnists: Chris Burand, Mary Newgard, Bill Wilson

SALES / MARKETING

Chief Marketing Officer Julie Tinney | jtinney@insurancejournal.com West Sales Dena Kaplan | dkaplan@insurancejournal.com Romeo Valdez | rvaldez@insurancejournal.com Kelly DeLaMora | kdelamora@wellsmedia.com South Central Sales Mindy Trammell | mtrammell@insurancejournal.com Southeast and East Sales (except for NY, PA, CT) Howard Simkin | hsimkin@insurancejournal.com Midwest Sales Lisa Whalen | (800) 897-9965 x180 East Sales (NY, PA and CT only) Dave Molchan | (800) 897-9965 x145 Advertising Coordinator Erin Burns | eburns@insurancejournal.com Insurance Markets Manager Kristine Honey | khoney@insurancejournal.com Sr. Sales & Marketing Coordinator Laura Roy | lroy@insurancejournal.com Marketing Administrator Alberto Vazquez | avazquez@insurancejournal.com Marketing Director Derence Walk | dwalk@insurancejournal.com

DESIGN / WEB / VIDEO

V.P. of Design Guy Boccia | gboccia@insurancejournal.com Web Team Lead Josh Whitlow | jwhitlow@insurancejournal.com Ad Ops Specialist Jeff Cardrant | jcardrant@insurancejournal.com Web Developer Terrance Woest | twoest@wellsmedia.com Web Developer Jason Chipp | jchipp@wellsmedia.com Digital Content Manager Ashley Cochrane | acochrane@insurancejournal.com Videographer/Editor Ashley Waldrop | awaldrop@insurancejournal.com

ACADEMY OF INSURANCE

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

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Andrea Wells V.P. of Content 6 | INSURANCE JOURNAL | FEBRUARY 19, 2024

Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published 22 times annually by Wells Media Group, Inc., 3570 Camino del Rio North, Suite 100, San Diego, CA 92108-1747. Periodicals Postage Paid at San Diego, CA and at additional mailing offices. SUBSCRIPTION RATES: $17.95 per copy, $27.95 per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this publication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended to be legal, accounting, tax, technical or other professional advice. Readers are advised to consult competent professionals for application to their particular situation. Copyright 2024 Wells Media Group, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. Insurance Journal is a publication of Wells Media Group, Inc. POSTMASTER: Send change of address form to Insurance Journal, Circulation Dept, PO Box 708, Northbrook, IL 60065-9967 ARTICLE REPRINTS: Contact (800) 897-9965 x125 or visit insurancejournal.com/reprints

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News & Markets Global Ransomware Attacks Reach Record High in 2023, Says Corvus

espite law enforcement actions, fourth quarter 2023 ransomware incidents still surpassed 2022 by nearly 70%, and the number of active ransomware groups grew by 34%. Corvus Insurance recently released its Q4 2023 Ransomware Report, featuring data collected from ransomware leak sites. 8 | INSURANCE JOURNAL | FEBRUARY 19, 2024

The report shows ransomware activity for the year surpassed 2022 totals by 68%, with a record-setting 4,496 total leak site victims, compared to 2,670 in 2022 and 3,048 in 2021. Ransomware attacks increased each of the first three quarters of 2023 and then declined slightly in Q4. International law

enforcement activity in Q4 disrupted the ransomware ecosystem, including taking down ALPHV/BlackCat, one of the most prolific ransomware gangs, and eliminating Qakbot, a pervasive family of malware used to gain access to victims’ networks. As a result, Q4 attacks dropped by 7% from Q3. Despite this sequential quarterly drop, Q4 2023 activity was still up year over year, and Qakbot still accounted for 31% of the total ransomware volume for the quarter. In Qakbot’s absence, there was a noticeable shift to other malware strains such as “Pikabot” and “DarkGate.” In Q3, the ALPHV/BlackCat ransomware group accounted for nearly a quarter of all victims in the legal industry (23.5%). This number declined by 8.8% in Q4, likely due to law enforcement disruption in December. The transportation, logistics and storage industry experienced consistent increases throughout 2023. Lockbit 3.0 accounted for 22% of victims, while ALPHV/BlackCat comprised 15.87%. The industry is sensitive to business interruption and presents attractive targets to threat actors looking for high-pressure victims. Active ransomware groups increased by 34% between Q1 and Q4 2023 as wellknown ransomware groups fractured and leaked proprietary encryptors on the dark web. Members of larger defunct groups began forming splinter groups, and leaks spawned new ransomware operations. “Throughout 2024, we will undoubtedly witness much of the same activity, as criminals continue to attack, shift, re-brand, and strike again,” said Jason Rebholz, CISO, Corvus Insurance. “Businesses should remain prepared with enhanced security controls and cyber insurance policies to help minimize risk.” Corvus Insurance, now a wholly owned subsidiary of The Travelers Companies Inc., is headquartered in Boston. Corvus provides specialty insurance products enabled by data science, including Smart Cyber Insurance and Smart Tech E+O, among other products and digital tools. INSURANCEJOURNAL.COM

Now more than ever. Our commitment to support our member agencies in achieving success is critical in today’s market. We realize that things (and markets) change, so we help our members adapt. Our approach enables results using technology and data. SIAA member agents are smart and entrepreneurial. It’s our role to help them thrive. Now more than ever. Are you starting from scratch, an existing agency looking to grow, or an exclusive agent seeking to make the move to independence? Then you owe it to yourself to check us out, because we are here to champion your success. Now more than ever. siaa.com info@siaa.com

Figures

103.9

The 2023 net combined ratio for the property/ casualty insurance industry, according to underwriting projections by actuaries at the Insurance Information Institute (Triple-I) and Milliman. Commercial lines are estimated to come in at 97.7 and personal lines at 109.9. Record levels of severe convective storm losses were the single biggest driver of the overall adverse results, the Triple-I and Milliman said.

1.78 Million

28 The number of chemical manufacturers being sued by the state of Connecticut, which alleges the companies “knowingly” contaminated the state’s waters and natural resources and harmed public health with toxic PFAS “forever chemicals.” The state filed one suit over aqueous film forming foam (AFFF) used in firefighting, and another suit over chemicals used in manufacturing, and added to consumer products, such as food packaging, cookware, carpeting, clothing and cosmetics.

10 | INSURANCE JOURNAL | FEBRUARY 19, 2024

The number of new car registrations in California in 2023, representing a 11.9% increase compared with 2022 figures, according to the 2023 California Auto Outlook report issued by the California New Car Dealers Association. The report showed the top three passenger cars sold in California in 2023 were the Tesla Model 3, the Toyota Camry and the Honda Civic. Predictions for 2024 include another increase in new vehicle registrations by 3.2%, approaching 1.83 million units sold.

The increase in severe injuries workers’ compensation insurer, Texas Mutual, saw in 2023 compared to the previous year. Texas Mutual’s incident trends report showed the construction industry reported the most serious incidents by industry in Texas in 2023. Construction accounted for 39% of serious incidents, with more than triple the number of reported claims of any other industry.

INSURANCEJOURNAL.COM

Declarations

Personal E&S

High Tides

Incorrect Assumptions?

“I wish we could serve this customer base on an admitted basis to give them what they need and what they want to buy.” — Remarked Chubb CEO Evan G. Greenberg, referring to the insurer’s increase in North American personal excess and surplus lines business. During a fourth-quarter earnings conference call, Greenberg said while the large majority of Chubb’s personal insurance portfolio is on admitted paper, its E&S business is growing “at a rapid clip.”

“This is the most vulnerable we have ever been. … It doesn’t even take a storm anymore to threaten us. On most regular high tides, the water comes up and through where this dune used to be.” — Patrick Rosenello, mayor of North Wildwood, New Jersey, about the impact of rising water on the popular coastal town. A recent storm destroyed part of the sand dunes the town bolstered to protect itself. North Wildwood is in a legal battle with the state over tens of millions of dollars the town has spent trying — mostly in vain — to hold back the ocean.

“[I]t is possible that some assumptions the Governor’s Office made about the background checks — such as assuming that BCA was reviewing Department of Revenue information — were incorrect.” — An audit, produced by the Minnesota Office of the Legislative Auditor, says the governor’s office “departed from its Standard Operating Procedure for Executive Director Appointments” when selecting Erin Dupree as director of the state’s Office of Cannabis Management. The audit alleges the governor’s office did not have complete information about Dupree, who resigned her post after media reports about her financial problems and other issues.

Endangered Dolphins

Georgia Trucking Market

Avian Flu Trauma

“The massive volumes of polluted fresh water diverted through the Bonnet Carré Spillway and into the Mississippi Sound caused direct and indirect mortality of resident bottlenose dolphins. … Many of the dolphins that did survive developed extremely painful and debilitating skin lesions.” — States a federal lawsuit alleging that the 2019 opening of the Bonnet Carré Spillway as a flood-control measure sent polluted fresh water from the Mississippi River into the Gulf of Mexico, killing bottlenose dolphins that live in saltwater. The Mississippi Sound Coalition, which includes local governments and business groups, filed the lawsuit against the U.S. Army Corps of Engineers, seeking protection for the dolphins under the Marine Mammal Protection Act. INSURANCEJOURNAL.COM

“It has destroyed our market. No one wants to insure trucking here. … And 87% of trucking companies in Georgia are small businesses, with fewer than five employees.” — Said Bryce Rawson, assistant to Georgia Insurance Commissioner John King, about the problems trucking companies in the state have in securing liability insurance. Several Georgia Republican legislative leaders and Commissioner King are seeking the repeal of Georgia’s direct-action law, under which injured motorists have been able to sue truckers’ insurance companies directly, leading to large verdicts and settlements.

“It’s a trauma. We’re all going through grief as a result of it. … Petaluma is known as the Egg Basket of the World. It’s devastating to see that egg basket go up in flames.” — Said California poultry farmer, Mike Weber, whose chickens recently tested positive for avian flu. His company, Sunrise Farms, has had to slaughter its entire flock of egg-laying hens — 550,000 birds — to prevent the disease from infecting other farms in Sonoma County north of San Francisco. The highly contagious virus has ravaged Sonoma County, where officials have declared a state of emergency.

FEBRUARY 19, 2024 INSURANCE JOURNAL | 11

News & Markets Report: 2023 Combined Ratio Forecast at 103.9, Commercial Lines Performed Best

he 2023 net combined ratio for the property/casualty industry is forecast to be 103.9, with commercial lines at 97.7 and personal lines at 109.9, according to the latest underwriting projections by actuaries at the Insurance Information Institute (Triple-I) and Milliman. Record levels of severe convective storm losses were the single biggest driver of the overall adverse results. Hard markets continue with 2023 net written premium growth forecast at 9%, the actuaries added. The quarterly report, “Insurance Economics and Underwriting Projections: A

Forward View,” was presented on Jan. 30, during a members-only virtual webinar. Inflation, interest rates and overall economic underlying growth were key macroeconomic trends impacting the

property/casualty industry’s results, said Michel Léonard, chief economist and data scientist at Triple-I. “Real gross domestic product (R-GDP) in the third quarter of 2023 accelerated to 4.9%, but economists still expect year-over-year growth of 2.1%,” said Léonard, noting that for GDP, “revised Q3 numbers did not disappoint but all eyes remain on Q4.” The consumer price index (CPI) continued to slow down to 3.1% as of November, but CPI, less food and energy, was still up 4% year over year, he added. “Year-over-year P&C underlying growth grew 1.3% in 2023 and is forecasted by Triple-I to

Wage Growth Likely to Continue Driving Workers’ Comp Payroll Growth By Allen Laman

espite a “significant slowdown” in job growth in 2023, a new National Council on Compensation Insurance briefing shared that “wage growth will likely continue to drive

12 | INSURANCE JOURNAL | FEBRUARY 19, 2024

workers’ compensation payroll growth throughout 2024.” “Employment gains slowed in 2023 from 2022; however overall payroll gains, a key metric for workers’ compensation, remained robust,” the quarterly economics briefing said. “Additionally, the 2023

labor market looks solid when compared to pre-pandemic growth trends, and it appears much more ‘normal’ than the past few years.” NCCI’s report was penned by Stephen Cooper, Patrick Coate and Yariv Fadlon. The briefing’s authors shared that while wage growth has slowed from its peak, it remains solidly above pre-pandemic growth rates and is positioned to remain elevated in 2024. The writers pointed to several factors — union activity and newly negotiated contracts, minimum wages rising in 22 states and inflation remaining top of mind for workers — that they believe will likely continue to put upward pressure on wage growth. “At an industry level, the payroll picture looks much healthier than the employment picture,” the briefing said. “Thanks primarily to continued elevation in wage growth, nearly all sectors experienced payroll growth close to or above 5% in 2023.” The Bureau of Labor Statistics has reported that payroll employment rose INSURANCEJOURNAL.COM

grow 2.6% in 2024,” said Léonard. “This is below U.S. GDP growth in 2023 and slightly above U.S. GDP growth in 2024. Year-over-year P&C replacement costs increased by 1.1% in 2023 and are forecast to increase by 2% in 2024.” With respect to P&C industry underwriting projections, Dale Porfilio, chief insurance officer at Triple-I, said “The bad news is that the 2023 Q3 incurred loss ratio for homeowners, commercial auto, and commercial multi-peril exceeded our expectations, as 2023 Q3 incurred loss ratios were above historical averages.” The industry’s bleak homeowners financial results was reinforced by the year’s net combined ratio forecast at 112.3, noting it would be the worst since 2011. Porfilio added that the 2023 net written premium growth rate of 12.4% is the highest in over 10 years, reflecting rate increases to offset inflationary loss costs. “We expect personal auto and homeowners lines to improve in 2024

and 2025, but to remain unprofitable,” he said. Commercial property and workers’ compensation continue to be profitable, though commercial multi-peril and commercial auto remain troubled, said Jason B. Kurtz, a principal and consulting actuary for global consulting and actuarial firm Milliman. “Looking at commercial auto, underwriting losses continue, with a projected 2023 net combined ratio of 110.2, the highest since 2017,” said Kurtz. “For 2023 Q3, the incurred loss ratio was the highest in over 15 years, while the 2023 net written premium growth rate of 6 % is noticeably lower than the prior two years.” “For commercial multiperil, the 2023 net combined ratio of 110.3 is forecast to be the highest since 2011,” he added. With respect to workers’ compensation, the 2023 net combined ratio of 88.7 is in line with the five-year average of approximately 89, said Kurtz.

It’s anticipated the line will see net written premium growth of 2% per year from 2023 through 2025, though growth will be modest and the net combined ration should remain favorable, he said. Rate adequacy and medical inflation are top concerns for the line. “We’ve seen loss costs decline for 10 consecutive years,” said Donna Glenn, FCAS, MAAA, chief actuary at the National Council on Compensation Insurance (NCCI). The strong labor market and overall economy have resulted in payroll increases outpacing loss cost declines, she said. With respect to rising medical costs, Glenn said though costs are increasing, the rate of increase is moderate — “in the 2.5-3.5% range.” The NCCI is in the process of developing a medical price index for a quarterly view into medical inflation’s impact on workers’ compensation claim costs to address stakeholder concerns.

by 2.7 million jobs in 2023 — a number far below the 7.3 million jobs added in 2021 and the 4.8 million added in 2022. Still, in its briefing, NCCI called 2023’s increase “a good gain for a ‘normal’ labor market.” For context, in the five years prior to the beginning of the pandemic, the economy added an average of 2.3 million jobs per year. “As we entered (or at least approached) a ‘new normal’ in 2023, it was natural to expect employment growth to slow back towards a steady-state pace,” the briefing said. “Indeed, we expect that employment growth will continue to slow in 2024 as the labor market continues to approach a more balanced state of supply and demand. But that slowing is not necessarily a bad thing.”

The quarterly briefing shared that three industry groupings — education and healthcare, leisure and hospitality services, as well as government — accounted for

more than 80% of all employment gains in 2023. NCCI noted that this “appears to reflect uneven rates of recovery from the pandemic rather than a sign of serious labor market weakness.” The briefing said that at an industry level, “the payroll picture looks much healthier than the employment picture,” later adding that while employment gains have slowed, stopped or reversed altogether across most industries, “these trends haven’t had a material impact on the wage growth picture.” The briefing’s authors report that payroll growth remains broad-based, with just two lagging industry groups: retail trade and information services.

INSURANCEJOURNAL.COM

FEBRUARY 19, 2024 INSURANCE JOURNAL | 13

News & Markets More P/C Carriers With Less Surplus: Aon Ward Analysis By Susanne Sclafane

s we continue into 2024, many property/casualty companies are primed to grow their businesses, but not all have adequate levels of surplus to support premium growth, an Aon Ward executive said during a December 2023 webinar. Jeff Rieder, partner and head of Ward Benchmarking, noted that many organizations in the U.S. P/C insurance industry recovered nearly all of their policyholder surplus “and then some” — during the first half of 2023 after a down year in 2022. But by the end of the third quarter of 2023, surplus levels had fallen back down to where they were at the beginning of the year, he said. Speaking at Aon’s U.S. P/C Performance Outlook webinar in late December, Rieder said Aon is estimating just a 1%-2% decline in overall policyholder surplus through the first nine months of 2023 industrywide, but added that more significant individual dips will particularly challenge many smaller organizations that “have lost more surplus than perhaps they’re able to withstand.” “By rough estimates, about 15% of the U.S. P/C industry is being affected by severely detrimental surplus conditions,” Rieder said. “Some companies are growing [premiums] at levels that are far greater than they’re able to grow their surplus.” Through third-quarter 2023, about 170 U.S. carriers are operating with 20% less surplus than they began with in 2021, he said. Of those, 103 had lost more than 30% of the surplus they had at the beginning of 2021 by the end of third-quarter 2023. 14 | INSURANCE JOURNAL | FEBRUARY 19, 2024

And just in 2023, over 30 carriers had lost 30% — or more — of their surplus since the beginning of the year. “This will certainly have a big impact, and we want to recognize that that’s going to challenge companies in terms of how they’re approaching 2024 and beyond,” Rieder said during a portion of the webinar devoted to a review of key performance metrics. During the rest of the webinar, Rieder and Charlie Gall, associate partner and Ward P/C practice leader, reviewed inflation trends, insurance labor trends and AI usage trends in the insurance industry. Rieder and other analysts from AM Best,

Standard & Poor’s and Fitch presented industry outlooks in December last year and early this year, highlighting personal lines challenges — not just in auto but in homeowners lines — and the impacts of severe convective storm losses, changing reinsurance appetites and one component of inflation, elevated shelter costs, on carrier results. Toward the end of the webinar, Rieder stressed that the financial position of the industry as a whole still remains very strong. “With a favorable fourth quarter here, we still have a chance to get back to over a trillion [dollars] in total policyholder surplus,” he said, referring to the industrywide total at midyear 2023. “But I don’t want to minimize the impact [of financial challenges] on many particularly personal lines-focused organizations … Several have gone into rehabilitation or liquidation, and we’re seeing many that are dealing with surplus positions that are in some cases half of what they were at the beginning of the year,” Rieder said. “There will be some organizations that will be certainly stressed. The volatility of losses and rising cost of reinsurance and inability to get adequate rate is going to certainly stress the financial strength of those organizations,” he said. At one point, Rieder displayed a bar graph showing global insured catastrophe losses which impacted property insurers, split between primary perils, shown in green, and secondary perils in gray. The bar for the year 2023 through the end of October, indicating a $92 billion total, was almost completely gray, indicating that convective storms, wildfire and winter weather were the bulk of the INSURANCEJOURNAL.COM

2023 loss total — a stark comparison to any of the prior eight years. A note on the graph indicated that $55 billion of the $92 billion — 60% of the total — represented U.S. insured convective storm losses.

Midwest Suffers

While much has been written about troubles on the coasts in 2022 and 2023 — in California and Florida — Tim Zawacki, principal insurance analyst, S&P Global Market Intelligence, brought the focus to the middle of the country during S&P’s early December webinar, “IN/sights: Outlook and Trends for U.S. Insurers— What to Expect in 2024 and Beyond.” “What we’re seeing in recent years is that the severity and the impact on the industry of convective storms, which are not as bound by geography as hurricane and wildfire, has perhaps changed the thinking [about] states like Iowa, South Dakota, Wisconsin,” said Zawacki, highlighting the high property insurance loss ratios for insurers that fueled reinsurance industry responses and eventually depleted surplus positions.

“You’re seeing reinsurers become more reluctant or not at all willing to write business for companies that are heavily concentrated in the upper Midwest,” he said. “We’re seeing in Wisconsin, in particular, the town mutual model that’s existed for 150 years really get washed under in this fallout from the reinsurance market just not having the appetite to be so geographically concentrated among cedents that may have small balance sheets,” he said. Zawacki has written a number of articles on the S&P GMI website detailing problems in the Midwest, including one article about the impacts of 2022 and 2023 storms on Wisconsin Re, a reinsurer of Midwest town and county mutuals now in rehabilitation, and another article on the decision of Wisconsin-based SECURA Insurance to exit the personal lines market — a move Zawacki suggested other carriers squeezed by rising costs and rising cat losses would follow. In a separate article published in Insurance Journal, Jerry Theodorou, director of the Finance, Insurance and Trade

Policy Program for R Street Institute, who is a former director of Insurance Research for Conning, described the convective-storm driven troubles of Wisconsin Re and a half-dozen Midwest carriers either in rehabilitation, liquidations or receivership or experiencing surplus declines of 40% or more. Rating agency AM Best reacted to the surplus hits at two of them, Badger Mutual Insurance Co. and Germania Farm Mutual Insurance Association, with ratings downgrades, pushing Milwaukee-based Badger’s financial strength rating to C++ (marginal) from B+ (good) in October last year, and Texas-based Germania’s down to B (fair) from B++ (good) in August.

Sclafane is executive editor of Carrier Management, a publication of Wells Media Group serving property/casualty insurance carrier executives. She is a media professional with deep background in the P/C insurance industry including 25 years as editor and reporter for trade magazines, online news services, digital journals. Her prior experience includes 14 years as a casualty actuary.

Chubb Writing More Personal E&S but CEO Greenberg Doesn’t Like the Trend By Chad Hemenway

hubb is writing more North American personal excess and surplus lines business, but the insurer’s chief executive is not exactly celebrating. While he reminded analysts during a fourth-quarter 2023 earnings conference call that the large majority of Chubb’s personal insurance portfolio is on admitted paper, CEO Evan G. Greenberg said Chubb’s E&S business is growing “at a rapid clip” and will likely continue to do so. “I don’t like the trend,” he said. “More will go on non-admitted. Climate change continues, and states take the wrong actions to try to cover up price and deflect price signals.” States and regulators “don’t allow

INSURANCEJOURNAL.COM

“easier to place.” us to tailor coverage for “You have to go those who [are] exposed through a more in a more outsized way to administrative process catastrophes,” Greenberg to place [a risk] in E&S,” continued. “Remember, he said. “You can’t just affluent people want to jump to E&S; you have to live in beautiful places be able to leap through that are right on the edge admitted-market hurdles of civilization, and it’s to get to E&S.” more [catastrophe]-exposed. Where we can’t In announcing what Evan Greenberg tailor coverage in line with Chubb called record-breaking fourth quarter results, it did not exposure, we’ll use [E&S] and price it offer any specifics related to personal adequately. “I wish we could serve this customer lines risk heading to E&S. Premiums in base on an admitted basis to give them Chubb’s high-net-worth personal lines business grew 12% and new business what they need and what they want to was up 34%. North America personal buy.” insurance grew net premiums 12.1% in Greenberg later noted that the admitted market is “customer friendly” and the fourth quarter.

FEBRUARY 19, 2024 INSURANCE JOURNAL | 15

Business Moves founded in 1960 by Joseph Gilmartin Jr. and has been led by Joseph Gilmartin III since 1995. Hanuschak Insurance has been serving clients since 1954 and is under the leadership of Dave Hanuschak in Cumberland. FBinsure has 145 employees and 14 locations serving southeastern Massachusetts and Rhode Island. Patriot has more than 1,800 employees operating in 132 locations across 26 states and is backed by GI Partners and Summit Partners.

National

Majesco, Decision Research Corp.

Majesco, a cloud insurance software provider for the insurance business, acquired the Decision Research Corporation (DRC). DRC, based in Philadelphia-based, is a SaaS-based insurance software company. It offers enterprise rating for large insurers, a reinsurance product, and core platforms for the managing general underwriter/ agency (MGA/MGU) market. New Jersey-based Majesco serves the life and health insurance industries, as well as property/casualty.

Riskonnect, Ventiv Technology

Riskonnect, which provides integrated risk management (IRM) solutions, acquired Ventiv Technology, a provider of risk, insurance and underwriting technology products and services. Private equity firm and Riskonnect majority investor, TA Associates (TA), supported the acquisition with additional investment capital. TA will continue as the majority owner. Ventiv, based in Atlanta, provides risk management information systems (RMIS) analytics (artificial intelligence/machine learning, benchmarks, geospatial), claims administration, billing and policy solutions.

East

Arthur J. Gallagher, The Rowley Agency Global insurance broker Arthur J. Gallagher & Co. acquired Concord, New

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Hampshire-based The Rowley Agency. The Rowley Agency is a retail insurance broker providing property/casualty, surety and employee benefits products to commercial and personal lines clients primarily in New Hampshire, Vermont, Maine and Massachusetts. The Rowley Agency’s Dan Church, Gary Stevens and their team will remain in their current location. The Rowley Agency was founded by Joseph Rowley in 1966. In 1991, majority ownership transitioned to Church (CEO) and Stevens (president). Arthur J. Gallagher & Co., a global insurance brokerage, risk management and consulting services firm, is headquartered in Rolling Meadows, Illinois.

Patriot Growth Insurance Services, FBinsure, Rhode Island Insurance Group

Insurance broker Patriot Growth Insurance Services and its partner insurance agency FBinsure of Taunton, Massachusetts, added Maggiacomo Insurance, Hanuschak Insurance, and Gilmartin Insurance of the Rhode Island Insurance Group to the Patriot platform in the Northeast. The Rhode Island Insurance Group provides personal and commercial insurance. The three agency owners and their teams have joined FBinsure. Each of the Rhode Island Group agencies brings a decades-long, family-owned legacy. Providence’s Maggiacomo Insurance was founded in the early 1930s and is now under the leadership of third-generation owner Tom Maggiacomo. Warwick-based Gilmartin Insurance was

Risk Strategies, Professional Risk Associates

National specialty insurance brokerage Risk Strategies acquired Professional Risk Associates Inc. (PRA), a Virginia-based specialty healthcare insurance agency focused on medical professional liability. Founded in 1989 and licensed in 36 states, PRA counts more than 6,000 medical professionals as clients nationwide, with much of its business focused in the mid-Atlantic region. With more than 30 specialty practices, Risk Strategies serves commercial companies, nonprofits, public entities and individuals, and has access to all major insurance markets.

Webster Bank, Ametros Financial Corp.

Connecticut-based Webster Bank completed its acquisition of Ametros Financial Corp., a firm that administers medical claims settlements. Wilmington, Massachusetts-based Ametros provides post-settlement medical administration for those receiving funds from workers’ compensation and liability settlements though a technology platform, CareGuard. The business will continue to operate under the Ametros and CareGuard brands. Headquartered in Stamford, Webster Bank serves the Northeast from New York to Massachusetts. Its HSA Bank division provides employee benefits products.

Midwest

World Insurance Associates, TW Group World Insurance Associates LLC

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acquired the business of TW Group Inc. of Westmont, Illinois. TWG was founded in 1946 and provides insurance to individuals and businesses. The firm specializes in business, personal, life and health insurance.

Oswald Companies, Brieden Consulting Group

Oswald Companies acquired Brieden Consulting Group, an employee benefits agency based in Grosse Pointe, Michigan. The Brieden Grosse Pointe location and the firm’s team will continue to serve existing clientele in their current building, adding another office for Oswald. In addition to its downtown Cleveland, Ohio, headquarters and its Michigan presence, Oswald, founded in 1893, has offices in Akron, Cincinnati, Columbus, Medina, Toledo and Pittsburgh.

Inszone Insurance Services, American Heritage Agency

Sacramento, California-based Inszone Insurance Services acquired American Heritage Agency Inc., a well-established insurance agency that has been serving the Hays community in Kansas since 1999. American Heritage Agency has been serving clients in various sectors, including oil and gas, farms, personal lines, and small construction. Originally founded by Don Lowry in 1999, American Heritage was acquired by Shawn Robben in 2008.

Arthur J. Gallagher, Horak Insurance

Arthur J. Gallagher & Co. acquired Washington, Iowa-based Horak Insurance Inc. Horak Insurance is a retail property/ casualty insurance agency serving commercial and personal lines clients as well as farms in eastern and central Iowa. Paul Horak, Luke Horak and their team will remain in their current locations.

South Central

Inszone Insurance Services, Jacque Pirtle Insurance Inszone Insurance Services acquired Jacque Pirtle Insurance, an insurance INSURANCEJOURNAL.COM

agency with nearly three decades of commitment to serving the Dallas/Fort Worth Metroplex. Founded in June 1994 by Jacque Pirtle, Arlington-based Jacque Pirtle Insurance provides personal and commercial insurance lines. Inszone also acquired Dina King Insurance, based in the Dallas area. Founded by Dina King in 1985, Dina King Insurance offers a wide range of insurance products and services, including auto, home, commercial, life, annuities, 401K, and financial products.

ALKEME, Mogul Wealth Strategies

ALKEME acquired Mogul Wealth Strategies, a multi-line independent insurance agency and wealth management firm located in Frisco, Texas, and serving the entire United States. Founded in 1996, Mogul Wealth Strategies serves businesses and high-networth individuals and families with life insurance, advisory services and employee benefits.

Arthur J. Gallagher, RPS, Forest Insurance Facilities

Arthur J. Gallagher & Co.’s U.S. wholesale brokerage, binding authority and programs division, Risk Placement Services Inc., has acquired Metairie, Louisiana-based Forest Insurance Facilities. Forest Insurance Facilities is a commercial lines wholesale insurance broker and managing general agency (MGA) serving clients throughout Louisiana. Wayne Forest Jr., Matt Forest and their team will remain in their current location.

Southeast

Rokstone, Versus TPA

Rokstone, a specialty insurance and reinsurance managing general agency, launched a new third-party administrator service based in Kentucky, Verus TPA. Verus TPA will manage Rokstone’s agricultural claims in the United States. Two agriculture adjusters have joined the firm from AXA: Nicole Pidcoe, who was claims manager for equine and livestock at AXA and has 15 years of

experience; and claims specialist Payton Burdine.

Starke Agency, University Insurance

Starke Agency, an insurance brokerage in Montgomery, Alabama, acquired University Insurance Agency in Auburn. University has served the AuburnOpelika area for more than 50 years. Starke was founded in 1929. It offers business, home, life and auto insurance products.

Alera Group, CLS Healthcare Liability Specialists

Alera Group has acquired CLS Healthcare Liability Specialists. Based in North Palm Beach, Florida, CLS provides malpractice coverage for physicians, surgeons, hospitals, locum tenens firms, nurse staffing firms and others in the healthcare sector. Alera, with headquarters in Deerfield, Illinois, has some 180 offices around the country.

West

Symphony Risk Solutions, Symphony Energy

Symphony Risk Solutions is launching a new specialty business focused exclusively on the risk management and human capital needs of the energy industry, Symphony Energy. Symphony Risk is a risk management and employee benefits consulting firm serving middle market and “lower Fortune 500” businesses, private equity firms and alternative asset managers, corporate executives and high net worth families. Symphony Risk Solutions added Craig Simon, who has 25 years of exclusive focus on the energy sector, as president of Symphony Energy. Simon and his team will design and implement traditional and alternative risk management programs to the energy sector, with a focus on the transition to renewable energy in the U.S. Simon joins Symphony from Marsh, where he led a U.S. Energy & Power team. Symphony has offices in San Francisco, Dallas, Chicago, Los Angeles, New York, St. Louis and Seattle. FEBRUARY 19, 2024 INSURANCE JOURNAL | 17

People National

Marsh, a business of Marsh

McLennan headquartered in New York, hired Andy Stirk as United States chief growth officer. Stirk is Andy Stirk based in New York, New York. With 20 years of insurance industry experience, Stirk rejoins Marsh from Ascot Group, where he most recently served as chief commercial officer.

Liberty Mutual Insurance Global Risk Solutions appointed Elisabeth Case global product manager, cyber. Prior to joining Liberty Mutual, Case was a managing director within Marsh’s U.S. and Canada Cyber Practice, where she served for over 16 Elisabeth Case years.

WTW, headquartered

in Arlington, Va., appointed Despina Buganski as head of personal lines, corporate risk and broking, North America (CRB NA). With more than 30 years of industry experience, Buganski joined WTW in 2010 and served as chief operating officer for the personal lines business since 2015.

AXIS Capital Holdings Limited has appointed Mike Cueman to the newly created

role of head of construction — U.S. He is based in New York, New York. With over 20 years of

underwriting and leadership experience, Cueman joined AXIS from Liberty Mutual Insurance, where he was vice Mike Cueman president.

Dyad named Jeff Wargin chief product officer

(CPO). Wargin will lead product management for the global Dyad organization. Wargin joins Dyad with over 25 years of experience in the property/casualty insurance software market. Wargin started his career at Accenture and held leadership posts at Duck Creek, including CPO.

The Insurance Industry Charitable Foundation (IICF) named Wendy Houser as

chair of IICF’s International Board of Governors. Houser is chief wholesale officer at Markel Specialty. She previously served a Wendy Houser three-year term as the IICF Southeast division board chair.

AXIS Capital Holdings Limited named Anna Tan as

head of wholesale casualty. Tan joins AXIS from Navigators, a brand of The Hartford, where she served for over 12 years, most recently as head of excess casualty. Specialty insurer Canopius Group appointed Uwe Schoberth as head of distribu-

tion in the U.S. and Bermuda. Schoberth brings over 30

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years of experience in the insurance sector. He joins Canopius having most recently served as chief distribution officer at insurtech Joyn Insurance.

Guy Carpenter appointed Keith Wolfe to the newly created role of chief commercial officer, North America. Wolfe Keith Wolfe joins Guy Carpenter after 27 years with Swiss Re and its predecessor companies, where he held several leadership positions, most recently serving as president, U.S. Property & Casualty. DUAL North America hired Dwain Chamberlain as executive vice

president and head of specialty healthcare while concurrently announcing the launch of the Specialty Healthcare program. Chamberlain joins DUAL from Hallmark Financial Services where he most recently served as senior vice president. He brings more than 25 years of experience in the professional liability market.

East

Chris Nunnally joined Alliant Insurance Services as senior

vice president within its employee benefits group. Nunnally is based in Boston. Before working with Alliant, Nunnally was area vice president within the Boston office of insurance broker Gallagher. Alliant is headquartered in Irvine, California.

The Hilb Group, headquartered in Richmond, Virginia.,

appointed Amanda Harm as vice president, carrier relations and insurance strategy. Harm joined Hilb Group in March 2023 as the tri-state director of market placement. She has more than 13 years of experience in the insurance industry. She previously served as a commercial placement specialist and regional marketing coordinator at Edgewood Partners Insurance Center.

Arthur Hall Insurance, headquartered in West Chester, Pennsylvania, promoted Vicki Marshall to account executive and plan administrator for the United Way Vicki Marshall of Delaware Insurance Program. Marshall began her insurance career in 2006. She joined Arthur Hall Insurance in 2019 as an account manager. She is based in Wilmington, Delaware.

Midwest

Leif Assurance, headquartered in St. Louis, Mo., named Lauren Davis creative marketing director. Davis has worked as creative marketing Lauren Davis director at Leif Assurance’s sister companies, Powers Insurance & Risk Gabe Smith Management and Valley Insurance Agency Alliance (VIAA), since 2019. INSURANCEJOURNAL.COM

Leif Assurance also hired Gabe Smith as a construction insurance specialist. Smith has 10 years of sales and insurance experience. Before joining Leif Assurance, he owned and served as an insurance agent at The Woodlands Financial Group Insurance.

TrueNorth Companies,

headquartered in Cedar Rapids, Iowa, hired Samantha Rogers as vice president of human resources and a member of the firm’s executive leadership team. Rogers previously served as human resources business director at Skywalk Group.

Skyward Specialty Insurance Group Inc.,

headquartered in Houston, Texas, made two new hires as it expands into the media liability market, focusing on multimedia, film and ad agencies. Regina Williams joins Skyward Specialty as vice president, media liability. Based in Kansas City, Mo., Williams began her career at Media/Professional Insurance. Williams also worked at First Media Insurance, OneBeacon and as senior vice president at Intact Insurance before joining Skyward Specialty. New team member Sandi McIntosh began her career specializing in media liability at Media/Pro. She then worked at First Media Insurance, OneBeacon and Intact Insurance for the last 21 years as assistant vice president.

Rebecca Easland has been appointed deputy commissioner at the Wisconsin Office of the Commissioner of Insurance (OCI).

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Easland most recently served as senior policy advisor with the International Association of Insurance Supervisors (IAIS). Prior to joining IAIS, Easland worked at OCI for over 15 years as a financial examiner and the director of the Financial Analysis and Examination Bureau.

South Central

Alliant Insurance Services

hired Buzz Mansfield as senior vice president within its Alliant Americas division. Based in Lafayette, Louisiana, Mansfield joins Alliant with more than 30 years of experience in commercial insurance and risk management. Before joining Alliant, Mansfield was a senior vice president at Cadence Insurance. Alliant hired Stuart Bonaventure and Miles Dixon as vice presidents within its Alliant Americas division in Lafayette. Before joining Alliant, Bonaventure was a commercial lines producer at BXS. Dixon previously served as a producer at BXS and as commercial P/C insurance broker at Louisiana Companies.

IMA Financial Group Inc., headquartered in Denver, hired Ron Gleason to its energy risk management, insurance and surety bonding team as a producer. Gleason joins IMA’s Houston office. Gleason brings over 30 years of expertise as a specialty underwriter in the energy sector. Before joining IMA, Gleason served in leadership roles with Ironshore Insurance. BevCap Management, a provider of risk management solutions, promoted Matthew

Bossier to the position of

president, Property & Casualty. In his new role, Bossier will be responsible for leading and overseeing the strategic direction of the Property & Casualty division. Headquartered in McKinney, Texas, BevCap Management is a multi-line program manager with a focus on alternative risk.

Southeast

The Professional Insurance Agents of Kentucky (PIAK) elected Matt Niehaus execu-

tive vice president. Niehaus formerly was a principal with McCarty Strategic Solutions and previously served as a deputy commissioner at the Department of Insurance.

Amwins, headquartered in Charlotte, N.C., appointed Ryan Armijo president of Amwins Underwriting. Armijo takes over the role from Bob Petrilli, who is retiring after serving as president since August 2018. Previously, Armijo served as chief operating officer of Amwins Underwriting. Tampa-based BRP Group, an independent insurance distribution firm, named Dan Galbraith and Jim Roche as co-presidents of the company. Galbraith, who has been serving as chief operating officer, joined BRP Group in 2019. Prior to that, he was senior vice president of sales for Stericycle’s North America Compliance Services Business. Roche also joined BRP in 2019 and co-founded the group’s Millenial Specialty Insurance. Previously, he was vice president of strategy, initiatives and analytics at QBE Insurance.

West

Woodruff Sawyer named Luke Parsons the firm’s national private equity and venture capital practice group leader. Luke Parsons Parsons previously was senior vice president of Woodruff Sawyer’s private equity and due diligence teams. Woodruff Sawyer is headquartered in San Francisco.

Crest Insurance Group promoted Tom Connell to agency president. Connell, based in Scottsdale, Arizona, joined Crest in 2012. He previously served as the agency’s senior vice Tom Connell president. Former president JB Shockey remains a senior broker and advisor at the agency. Crest is headquartered in Tucson, Arizona. Aspire General Insurance Co., headquartered in Rancho

Cucamonga, California, named Bilal Alam actuary and chief data officer. Additionally, Dale Gunter joined Aspire as general counsel. Alam previously served as vice president and head of reinsurance at National General and as CIO of National General Lender Services. Gunter has over 30 years of insurance experience; his previous role was with National General/Allstate.

FEBRUARY 19, 2024 INSURANCE JOURNAL | 19

Closer Look: M&A Outlook ‘New Normal’ in Agency M&A Landscape Experts Share 2024 Outlook for Independent Agencies By Allen Laman

he number of announced insurance distribution mergers and acquisitions boomed in 2021 and 2022. Last year, the count plummeted to levels seen at the beginning of the decade. Insurance Journal recently interviewed four M&A experts to share their analysis of the market — and how they foresee it evolving in the future.

‘New Normal’ in M&A

The insurance distribution mergers and acquisitions space may be settling into a “new normal” — or perhaps returning to an old one, according to OPTIS Partner’s latest North American Agent & Broker Year-End Merger & Acquisition Report. The firm reports that announced deals reached 1,108 in 2021 and 1,031 in 2022. That number fell to 782 in 2023. Still, last year’s count was compa-

rable to the 805 transactions made in 2020 and above all other years on record. “As the economy appears to stabilize and perhaps the U.S. finds the soft landing the Fed is trying to achieve, we fully expect to see the pace of deal flow pick up where it left off in Steve Germundson, 2023,” the Optis Partners report said. “While some buyers will continue to slow their deal activity as they devote resources to integration or further digest the debt on their balance sheets, others are active if not more so than ever in a field of competition that has slightly fewer active players.” During an interview in which he assessed the space, Steve Germundson, a partner at OPTIS, recalled

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how high demand and fear that capital gains tax rates could rise pushed folks to early exits during that bubble of heightened activity in 2021 and 2022. He said that today, the M&A marketplace is “largely healthy,” noting that while economic and logistical factors have slowed or stopped some buyers, “well-positioned, well-capitalized” buyers remain on the hunt. “I think the key points out of that report and out of this discussion are pretty much the same,” Germundson said. “The M&A side of our business is not dead. It’s not even on life support. It’s healthy; it’s just come back to a normal level. I think we’re going to see the same in 2024. I think we’ll continue this sort of level of activity through the year.” Activity was steady from quarter-to-quarter in 2023, he said, and comparing that to the years before the 25-month big wave of deals, “we’re up four,

five, six percent over the prior average period of time,” he said. Germundson also shared that some private agency owners are becoming more knowledgeable and skilled in purchasing agencies, and he expects to see more deals done between local agencies as we move ahead. “It’ll be a trend that I’m looking for in 2024 and beyond,” he said. OPTIS data shows that of the 249 fewer deals done in 2023, perennial deal-count leaders Acrisure (71 fewer deals) and PCF (69 fewer deals) accounted for nearly 60% of the decline. Hub International led buyers with 65 transactions in 2023, down 7% over its 2022 totals, yet 6% higher than its previous five-year average. Broadstreet Partners followed with 59 completed transactions (up from 35 in 2022). Thirteen firms did 20 or more deals in 2023 compared to 17 the prior year.

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Slight Uptick

In MarshBerry’s fourth quarter 2023 Retail M&A Market Update, the consulting agency reported that while last year may not have broken records, it was still a “solid year for insurance brokerage M&A.” Phil Trem, Phil Trem, president MarshBerry — Financial Advisory, MarshBerry, highlighted in an interview that 2023 was the third-highest year of announced deals in history. Announced acquisitions dropped 16.8% year-over-year by MarshBerry’s count, which the company attributed to debt markets becoming more restrictive and putting a crunch on capacity for buyers. Also, seller supply was low, and unlike previous year-ends, when firms were compelled to sell due to fears of pending tax or regulatory changes, 2023 offered “no compelling reason or urgency for firms to sell,” the report said. That may change moving forward. “We think, at least over the next 24 months, 2024 (and) 2025, that we are going to see another slight uptick,” Trem said. “We could see levels that we saw in 2020 (and) 2021, predominantly because of some uncertainty with what’s coming in this year’s election and what’s potentially going to happen as it relates to taxes.” A package of tax cuts passed by former President Trump in 2017 expires at the end of 2025, Trem explained, meaning some of those revisions will revert in INSURANCEJOURNAL.COM

2026. There is some concern, he said, that depending on who wins the White House and Congress, capital gain taxes could potentially be at risk of increasing down the road. “So, when you step back and you’re a business owner, an entrepreneur, and you’re thinking about the future of your company, if you think it might be a foregone conclusion that you will sell your business in the next three, four, fiveplus years, even though you may not theoretically be ready to do it today, the risk of paying higher taxes is going to be a catalyst for more sellers to come to the table in 2024 and 2025.” Trem recalled how in 2021, President Biden expressed a desire to raise capital gains rates, “and there was a scramble” to complete transactions — including transactions by businesses that “likely wouldn’t have considered a transaction but for fear of a higher tax rate.” In its report, MarshBerry said that while the overall M&A deal count has decreased in the past two years, “we continue to see a rise in valuations driven by the need for expertise at high performing platform organizations.”

Diversified Appeal

Like the other experts interviewed for this piece, Catherine Oak recognized that insurance M&A activity has taken off since around 2008. She said in the last couple of years, “it’s just gone crazy,” while acknowledging 2023’s dropoff. “Now, there’s a little bit of a slowing now because of interest rates, and also because a lot of the good firms are already

acquired,” Oak said, noting that some national and regional brokers are now Catherine Oak, purchasing Oak & Associates inspection firms, title companies and other non-insurance entities. “Because there aren’t those good size, medium-to-large insurance agents left to acquire,” Oak said. Oak is the founder of Oak & Associates and has worked as a management and financial consultant since 1984. She said that today, any viable agent “can still sell and probably has many suitors,” regardless of size. She believes what matters most is that they are profitable and growing. “And if they’re not, it’s not that they can’t get a good price for their agency, but they’re not going to get those high multiples,” Oak explained. “They’re not going to get three times revenue or 12-times EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). But they might still get acquired. It’s just that a lot of these independent agents, they want those big bucks.” It’s her job as a consultant to help them meet their goals. In addition to growth, she looks to see if they have at least a 30% pro forma profit and are compensating producers equitably. Buyers don’t want firms to be overstaffed or books of business specialized in one area, she said. “So, if the agency has personal lines, commercial lines, writes employee benefits, maybe some life insurance — that’s

better,” Oak shared. “That they’re more diversified, and then those clients can then be cross-sold, so the average size of account is bigger instead of just a lot of monoline business. And then, when people have more than one policy, they often don’t shop it as often and leave if you’re taking care of a client and all the client’s needs.” Oak and Bill Schoeffler, her partner at Oak & Associates, reported in a December column that prices paid by publicly traded brokers, large regionals and agencies funded by private equity firms are still high. “They will hopefully continue to be high for the valuable, desirable firms,” the pair wrote. “Since the supply is dwindling, the prices may be even higher for those that remain if they fit the profiles of the key buyers today. As long as insurance agencies remain profitable, there will be buyers.”

Best-in-Class Agencies

Sean Kenny, senior vice president of corporate development at SIAA, saw economic factors and geopolitical concerns contribute to last year’s transaction drop, but he’s also seen multiples retain their value, staying “extremely strong and resilient” Sean Kenny, SIAA for top agencies, he said. “For the best agencies out there, they’re still commanding the highest multiples that we saw at the peak in 2021,” Kenny explained. “Now, there is a

continued on page 22

FEBRUARY 19, 2024 INSURANCE JOURNAL | 21

Closer Look: M&A Outlook continued from page 21

big, clear separation between the best agencies and those average- to below-average agencies.” He explained in a follow-up email that he defines highperforming agencies as those experiencing strong new business growth supported by solid retention. They embrace change, adopt technology and have a consistent supply of newly minted producers and account executives that are trained and mentored by other successful teammates and leadership on staff. They also consistently reinvest in their businesses and figure out how to maximize the value provided to the customer through diversified revenue streams.

Low performers likely have very few of the above results and characteristics, Kenny wrote. A low-performing agency is “likely flat and supported by rate tailwinds rather than new business growth,” and “does not embrace technology and therefore has difficulty measuring the results of their team,” Kenny shared, adding that there’s no reinvestment or little support provided to help the agency’s sales staff grow. Too heavy a reliance on one key member in the organization — often the owner — can also result in the agency being in a tough spot when it comes to succession planning, he explained.

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Kenny said he has seen a “significant decline in valuations” for average- to below-average agencies. He expects the consolidation trend that has taken place over the past decade or so will continue, but that the number of transactions will be “less pronounced.” Only about 10% of independent agencies generate more than $2.5 million in revenue, making it more difficult for billion-dollar brokers to “move the needle through inorganic growth going forward,” he said. Still, demand is there, and Kenny believes M&As could pick up steam if a recession is dodged and inflation is controlled. He often fields

questions related to timing exits, and his advice is always the same. Instead of aiming to time the market, Kenny urged agents to focus on improving their businesses. “It’s a little bit of the wrong question,” he said, “because you’re trying to time the market, versus what you should be thinking about is your business and how to provide the best offering to your customers. How am I going to deliver the most value to my customers?” He continued: “How am I going to differentiate my offering from my competitors? How am I going to set up my business for success regardless of whether I’m here on a dayto-day basis or I’m not?” INSURANCEJOURNAL.COM

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Spotlight: Farm & Ranch/Agribusiness Extreme Weather, Cyber Risks Top Concerns When Insuring Farms By Jahna Jacobson

s risks from extreme weather, technology glitches and cyberattacks rise, so does the need for agricultural insurance that can cover a rapidly diversifying and evolving industry. “With the interest rates, production expenses, and cost of diesel constantly on the rise, the average farmer is feeling the squeeze as we move into 2024,” said Becky Tucker, program manager and broker, XPT Specialty Agency. “This increase in costs is making it harder and harder for the average farmer just to break even.” The biggest concerns facing this sector are extreme weather, water rights, lack

of available labor, increased regulations, insurance pricing and rising resource costs. The agricultural community is bracing itself against volatile issues on several fronts, according to Missy Clifford, commercial lines development manager at The Richards Group in Brattleboro, Vermont. Age-old weather concerns are exacerbated by climate change and more frequent extreme events. Clifford said costs are up across the board for seed, fertilizer, fuel, labor and insurance — just about every facet of the business. Market prices are seeing significant fluctuations,as well, while ongoing regulatory changes impact how things are done, how much they cost and how much money is left in farmers’ pockets, according to Clifford. To survive, many farming operations are diversifying and expanding into new revenue-generating markets. These changing risk profiles require careful consideration to make sure every exposure is adequately insured, Clifford said.

Climate Change

Extreme weather has always been a top concern for farmers, but even more so now as recent climate-related events have led to frequent catastrophic losses. “The change of weather patterns has impacted the loss frequency and severity, causing many markets to stop writing farm and ag coverage, completely changing the farm market,” Tucker said. “Instead of just one policy for all the insured’s needs, we are piecing everything out by each line of coverage.” Tucker says that means some risks that used to be insured under one policy now can take three or more separate policies to meet all their coverage needs. Excess liability is an area that has been under stress in recent years. Large farm facilities often need to secure multiple layers of coverage through different carriers to meet their needs. According to Tucker, there continues to be a need in this market for additional players to fulfil excess liability contractual requirements.

“With so many standard markets limiting their umbrella and excess limits, currently, there is a big need for second-layer excess policies,” she said. Insureds are also looking at different options such as higher wind and hail deductibles (if not completely excluded) or self-insurance on some structures and hay, according to Tucker. “There are ‘geographical gaps,’ where farm and ag carriers just won’t consider business,” Tucker added. “For example, Florida, Louisiana and coastal Texas are difficult to find coverage due to possible storms.” In the face of increasing climate change impacts, insurers need to stay on top of not only weather events but the evolving risks that accompany climate shifts, such as disease, fire and pest infestations, Clifford added. Tucker agrees that wildfire risk is a top concern to underwriters. “Not only the wildfire but the smoke that comes along with it,” she said, because of the long-term damage that

USDA Insurance Program Updates Encourage Conservation

n December 2023, the U.S. Department of Agriculture announced updates to the federal crop insurance program to affirm USDA conservation practices as Good Farming Practices for crop insurance. USDA’s updated Risk Management Agency (RMA) handbook recognizes USDA’s Natural Resources Conservation Service’s conservation practices as good farming practices for crop insurance. Earlier this year, the

agency announced that up to $3 million is available for cooperative agreements to educate underserved, smallscale and organic producers on risk management and climate-smart practices. RMA’s Risk Management Education Partnerships provide funding for organizations, such as nonprofits and land grant universities, to develop training and resources for producers about risk management options like crop insurance.

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Proposed Cybersecurity Legislation Seeks to Protect America’s Food Supply Chain

.S. Representatives Brad Finstad (MN-01) and Elissa Slotkin (MI-07) have introduced HR 7062, the Farm and Food Cybersecurity Act, designed to strengthen cybersecurity protections within the food and agriculture critical infrastructure sector by identifying vulnerabilities and improving protective measures against cyber threats on the food supply chain. The act would direct the Secretary of Agriculture to conduct a study every two years on cybersecurity

threats and vulnerabilities within the agriculture and food sectors, and to work with other agencies to conduct an annual cross-sector crisis simulation exercise for food-related cyber emergencies or disruptions. U.S. Senators Mike Rounds, R-S.D., and Catherine Cortez Masto, D-Nev., also introduced The Cybersecurity for Rural Water Systems Act, which would address vulnerabilities in rural water systems by providing updated cyber defenses and technical assistance.

smoke can cause. The property insurance market continues to be challenging for some farmers, which is driving higher retentions. “A lot of these farmers are hoping for a second look or second option for their property coverage,” Tucker said. “Most of these insureds would take a higher deductible or an exclusion for wildfire if they could have coverage for everything else rather than just be declined,” she added. Tucker says a few carriers are trying more innovative ways to assess geographical risk. She said that some are “working off more than just zip codes” and developing new systems and programs to address regions hit hard by wildfires.

to business disruption. Drones, automation, water management technology and Real-Time Kinematic (RTK) Technology are all part of improving efficiency, but reliance on technology also brings new risks. These technologies have the capacity to help address some of the most persistent problems including helping farmers reduce water and fertilizer use, improving efficiency through use of machines, and by providing better information about weather, soil and other conditions that can help maximize yields without the need to plow under sensitive areas. Clifford said that insurers need to have an eye on agricultural-related technology, the costs of repairing and replacing it, and the losses incurred if normal operations are interrupted. But with added automation, the risk of a cyberattack grows, she added. “This could paralyze some farming operations. An offer of a robust

Technology

As farms rely more on technology to increase yields and profits, and improve conservation, they become more vulnerable to ransomware attacks and data theft, leading INSURANCEJOURNAL.COM

cyber liability endorsement would be beneficial to farming operations.” Cyberattack threats to agriculture cooperatives triggered warnings from the Federal Bureau of Investigation in 2021 and 2022. The agency says attacks during the planting and harvesting seasons might result in the theft of private information, as well as operational disruption, which could result in financial losses and even food shortages. The September 2021 warning noted that ransomware threats increased as the industry implemented more smart devices.

Covering the Gaps

One area of opportunity for insurance professionals is combing through contracts to make sure clients have

adequate coverage. Contractual obligations are an area that Tucker advises insurance professionals to pay close attention to in today’s market. “Insurers should be taking notice of the contracts that these farmers and ag workers are in with the growers and packers,” Tucker said. “These contracts and insurance requirements are a large driver for why insureds purchase their policy.” Tucker says agents and brokers need to ensure that coverage properly fulfills these contractual requirements for the insureds’ and additional insureds’ needs. While the issue isn’t new, she said making sure that coverage gaps are resolved between all parties can be more challenging in hard market times.

WEATHER Act Aims to Reduce Hurdles for Small Farmers

n December, a group of legislators, including Vermont U.S. Sen. Peter Welch, a member of the Senate Agriculture Committee, and Sen. Bernie Sanders, pitched the Withstanding Extreme Agricultural Threats by Harvesting Economic Resilience (WEATHER) Act, legislation calling for developing an index-based insurance policy that is more responsive to crop and income losses caused by extreme weather. The program would create a multi-peril index insurance product for farmers based on weather indices correlated to agricultural income losses using data from NOAA, satellites, climate models and other data sources.

The legislation directs the USDA to research developing an insurance program with payouts based on agricultural income. This is particularly important to the approximately 8% of U.S. farms (American Farm Bureau Federation) that market foods locally through direct-to-consumer or intermediated sales, which would be covered and reimbursed for retail rather than wholesale value on losses. Farmers would automatically be reimbursed within 30 days if an extreme weather event exceeds any pre-determined county-level threshold. The new system would ease the administrative burden on farmers, which can unfairly impact family-run diversified farms.

FEBRUARY 19, 2024 INSURANCE JOURNAL | 25

News & Markets Agency M&A Down 24% in 2023 but More Large Deals May Be Seen in 2024: OPTIS By Chad Hemenway

here has been a somewhat return to normal when it comes to insurance agency mergers and acquisitions, with traditionally active buyers preferring to remain inactive to focus on integration of agencies they’ve already acquired. According to the M&A database of investment banking and financial firm OPTIS Partners, there were 782 announced insurance agency mergers and acquisitions in 2023, down 24% from 1,031 in 2022. “The M&A market has returned to normal, and the number of potential buyers continues to be robust,” said Tim Cunningham, managing partner of OPTIS Partners. “Valuations should continue to hold solid, and for the better firms, we may see a slight increase continuing. “The mega-deal between AON and NFP is slated to close sometime in 2024, and we think more large deals may be

done this year.” According to OPTIS, 2023 was a story of consistency, with the count of deals in each quarter equaling or exceeding tallies before a 25-monthlong rush of deals that occurred from the end of 2019. There were nearly 250 fewer deals done in 2023, compared with the previous year, and OPTIS said two firms accounted for nearly 60% of the decline: perennial deal-count leaders Acrisure (71 fewer deals) and PCF (69 fewer). Hub International led buyers with 65 transactions in 2023, down 7% over its 2022 totals, yet 6% higher than its previous five-year average. Broadstreet Partners followed with 59 completed transactions (up from 35 in 2022). Thirteen firms did 20

or more deals in 2023 compared to 17 the prior year. The activity of private-equity-backed buyers slowed down a bit in 2023, representing 69% of completed deals compared to the 12-month, high-water mark of 77% in the first quarter of 2022. But transactions led by privately owned firms hit an all-time high in 2023 at over 21% of the total, OPTIS said.

Marsh: US Commercial Lines Rates Up 3% in Q4 2023

roker Marsh said the composite rate change at renewal for U.S. commercial lines was up 3% in the fourth quarter 2023, led by an 11% increase in property rates. The Marsh Global Insurance Market Index said it was the 25th straight quarter in which U.S. commercial property insurance rate increased — matching the mark for consecutive quarterly global

26 | INSURANCE JOURNAL | FEBRUARY 19, 2024

commercial insurance rate increases (up 2%). The 11% increase in Q4 U.S. property rate increases matched Q4 2022 but was below increases of 17%, 19%, and 14% seen in the previous three quarters of 2023. Marsh said clients retained more risk by increasing deductibles or using captives, parametric, or structured solutions as underwriters scrutinized catastrophe deductibles and

limited coverage for non-physical damage, cyber and communicable disease. “Risks with limited natural catastrophe exposure and stable incumbent capacity typically experienced better results than did risks with losses and/or concentrations of assets in CAT zones, including the Gulf of Mexico, the Atlantic coast, and California,” Marsh reported. Rates were down for the sixth consecutive quarter (-6%) in U.S. financial and professional lines as directors and officers liability insurance for public companies declined 8%. Rates for financial institutions decreased 5%, and for cyber, rates were down 4% though ransomware attacks increased in frequency and severity. Regarding U.S. cyber insurance, “Capacity was available, especially for excess programs,” Marsh reported. U.S. casualty markets remained competitive, especially in workers’ compensation, as rates increased 3% in Q4, compared to 2% the quarter before and 1% in Q4 2022. INSURANCEJOURNAL.COM

We’ll Go to

Battle for You

MonarchExcess.com Commercial Lines: BOPs, Comm’l EQ, Distributors & Importers, Farms/Ranches, Garage, Gen’l Contractors, Security Guards & Product Recall Burbank 818-249-0100 / Fresno 559-226-0200 / Rancho Mirage 760-779-5555 / San Diego 619-521-2170 / Simi Valley 805-577-6800 San Marcos 760-891-2811 / Arizona 877-406-8026 / Hawaii 818-425-9847 / Miami, FL 305-569-6734 / Lic. #0L09546

News & Markets

Hub Launches High Net Worth Excess Wildfire Program in California

UB International launched a new program to address the need for enhanced wildfire coverage of high value homes that will be offered exclu-

sively by HUB Private Client to address the insurance and risk management needs of affluent families and individuals in California.

Hub Private Client plans to expand its HUB High Net Worth Excess Wildfire Program to other states in the future. It is designed as excess coverage, in partnership and complementing existing insurance market capacity to deliver coverages not available through traditional wildfire or fire policies. HUB High Net Worth Excess Wildfire Program is available for clients with completed homes with total insured values of less than $30 million used as a primary or secondary residence or as short-term rentals. Single-family dwellings held within an LLC or trust are also eligible. Coverage is only related to wildfires or fire. SPG maintains a list of eligible primary carriers, where excess coverage will be provided on a follow-form basis, and where the primary carrier has provided coverage with a sublimit for the peril of wildfire or fire. Chicago, Illinois-based Hub is an insurance broker and financial services firm providing risk management, insurance, employee benefits, retirement and wealth management products and services.

Officials Say California Family Arraigned for Auto Insurance Fraud Filed 40-Plus Claims

hannon Ninio, 60, of North Hills was arraigned for insurance fraud after a California Department of Insurance investigation found she and her husband, Moshe Ninio, allegedly stole customers’ personal information and used that information to file more than 40 fraudulent auto insurance claims and collect nearly $200,000. Moshe Ninio was arraigned on 18 felony counts of insurance fraud on Dec. 22, 2023. The Ninios’ son-in-law, Ivan Lebedynets, 33, of Winnetka, was also arraigned earlier this week for his alleged involvement in the scheme. The CDI began its investigation after an insurance company alleged that Moshe Ninio, owner of AT Car Rental, stole the identities of his customers to obtain auto insurance policies in their name to insure his fleet of rental cars. Shannon Ninio was also owner of the company and Lebedynets was their employee. The investigation reportedly found W2 | INSURANCE JOURNAL | FEBRUARY 19, 2024

that when their customers would get into legitimate accidents, Moshe Ninio would file insurance claims impersonating his identity theft victims who were listed as the policyholder. While posing as that policyholder, he would allegedly claim he gave permission to a “friend,” who was actually the current vehicle renter, to drive the vehicle, all to disguise their rental car business. Shannon Ninio and Lebedynets also allegedly posed as policyholders for many of the claims. Between September 2018 and July of 2020, 47 auto insurance claims were filed under the fraudulent policies. The total paid loss for the claims was reportedly $192,282. During the course of the investigation, 15 individuals listed as policyholders were interviewed and the majority of the identity theft victims stated they had previously rented vehicles from Moshe Ninio, according to investigators. They also reportedly stated that they

never opened any of the fraudulent insurance policies and that their personal information was used without their permission. Moshe and Shannon Ninio were arrested Dec. 21, 2023. Lebedynets self-surrendered and was arraigned on Jan. 29. All three are scheduled to return to court on April 10. The case is being prosecuted by the Los Angeles County District Attorney’s Office. INSURANCEJOURNAL.COM

My New Markets Community Services Insurance Program (CSIP) Market Detail: Community Services

Insurance Program (CSIP) is a multi-line and admitted, guaranteed cost program designed for non-profit and social service agencies (including for-profit). CSIP is supported by A-rated A.M. Best carrier partners and features a broad underwriting appetite. CSIP is underwritten by Non-Profit Insurance Services (NPIS), the largest insurance provider to the non-profit community in the U.S. Lines of coverage available include Workers’ Compensation, Property, Inland Marine, Business Interruption, Crime, Cyber, General Liability, Professional Liability/Sexual Abuse and Molestation, Commercial Auto Liability, Umbrella Liability, Active Shooter, and Management Lines (D&O, EPLI, Fiduciary). Appetite/ classes of business include but are not limited to: arts and culture/museums, charitable foundations, clubs and camps, developmentally disabled, health, home health/hospice, mental health, disease and medical research, fitness and recreation, human services, outpatient clinics, private and charter school, rescue missions, and substance abuse and addiction treatment. Has pen. Available Limits: Not disclosed. Carrier: Benchmark Insurance; admitted; non-admitted; rated A by AM Best. States: Available in 46 states and District of Columbia. Not available in Alaska, California, Hawaii and New York. Contact: Justin Wiley, CPCU, ARe; justin. wiley@ballator.com; 904-233-9651.

Waste Haulers Program

Market Detail: TIP National LLC offers an

insurance program specialized for waste haulers. A.M. Best “A, VII” rated carrier writing limits up to $1 million. Offering package to include Auto Liability, Physical Damage and General Liability. Full-service insurance and safety/compliance package are part of the program. Quick turn-around on quotes; $1 million maximum premium; has pen; appointment required. Available Limits: Up to $1 million. Carrier: Trisura Specialty Insurance Co.; non-admitted; rated A by AM Best. States: Available in District of Columbia and INSURANCEJOURNAL.COM

all states except Kentucky, Massachu-setts, Nevada, New York and West Virginia. Contact: Jackie Devries; jackie.devries@ tipnational.com; 877-848-8883.

Victor Flood

Market Detail: Victor Insurance Managers

LLC offers access to flood insurance. Floods are one of the most common disasters and risks in the United States. Caused by excessive rain, a ruptured dam, rapid ice melting in the mountains, or a hurricane, floods can cause major damage to homes, businesses and personal property. Victor Flood offers a gateway to National General Insurance and the National Flood Insurance Program. With Victor, you have access to an industry-leading, web-based flood portal. Victor Flood utilizes the industry’s swiftest and most comprehensive tool for real-time policy issuance and retention management, making the process easy for you and ensuring your clients are financially protected. Available Limits: Not disclosed. Carrier: National General Insurance. States: Available in all states plus District of Columbia. Contact: Jillian Glover; info.us@victorinsurance.com; 301-961-9500.

Hotel / Motel Multiline E-commerce Program Market Detail: Covenant Underwriters

offers a new e-commerce insurance program: Hotel Risk Manager. The program: Eliminates workload by writing most coverages needed on one manuscript policy written just for hotel owners; meets the needs of independent motel and limited-service hotel owners; brings convenience to excess and surplus markets with electronic applications, auto monthly direct billing, and same-day policy issuance; and delivers satisfaction with dedicated claims handling. Has pen; appointment required. Available Limits: Not disclosed. Carrier: Non-admitted; rated A by AM Best. States: Available in 48 states plus District of Columbia. Not available in Alaska and Hawaii. Contact: Broker Relations; broker@covenantunderwriters.com; 346-330-3777.

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

www.mynewmarkets.com

Need a Market? Find It. FAST FEBRUARY 19, 2024 INSURANCE JOURNAL | 27

Special Report: Agency Salary Survey Agency Compensation Rose Again in 2023 But Not Everyone Is Pleased High Workloads, Talent Shortage, Hard Market Pressures Weigh on Agency Personnel

9.6% increase for last year. (Total income includes salary plus additional compensation such as profit sharing, bonuses, and other income.) However, satisfaction with compensation declined overall to an average of 3.36 in 2023 from 3.61 in 2022 based on a scale of 1-to-5 where “5” equals “most satisfied.” (See Agency Compensation Satisfaction Index chart, page 29.) Management/agency owners/agency principals reported a compensation satisfaction score of 3.79 in 2023, down slightly from 3.85 in 2022. Producers/sales reported satisfaction of 3.12 in 2023, down from 3.39 in 2022. Support staff/CSR/account executives reported a satisfaction score of 3.16 in 2023, up slightly from 3.11 in 2022.

Restructuring Service Teams

By Andrea Wells

gency salaries and total compensation rose in 2023 for everyone in the Insurance Journal Agency Salary Survey. But while insurance agency personnel made more money last year, not everyone was satisfied. Managers/owners and producers were less satisfied with their compensation overall despite their reported higher pay. On the other hand, support staff/CSRs/account executives reported both higher salaries and higher satisfaction with compensation. That’s all according to the 2024 Agency Salary Survey,

which polled some 700 agency employees and managers nationwide throughout the month of January on salary trends in 2023. One respondent explained the trend: “Revenues have mostly increased due to the hard market while staffing has remained about the same.” Another wrote: “Compensation does not make up for low staff and high workload. We are simply understaffed,” adding that the agency’s management and steady working hours have kept them going even if they feel unsatisfied about compensation in general. Another manager added

28 | INSURANCE JOURNAL | FEBRUARY 19, 2024

that their agency has had multiple issues retaining staff due to compensation. “We need to find a way to balance the amount of workload to ability of CSR and new/young employees to the insurance industry and pay scale should be a bit higher in order to keep from losing CSRs within a 5-year term to higher paying agencies.” According to the 2024 Agency Salary Survey, total income for agency owners, principals and management increased the most in 2023 — a 16.1% increase. Producers/sales total income increased 12.6% for 2023. While agency support staff total income showed a

It’s a balancing act in today’s competitive hiring market, says Mary Newgard, partner at Capstone Insurance Recruiters, a national recruiting firm based in Iowa. “This year, my gut read is that insurance agency hiring will be less about niche roles and more focused on solving problems created by recent talent shortages,” Newgard said. That means agencies will have to be creative. Insurance agencies faced significant recruiting challenges in 2023, particularly when hiring customer service representatives (CSRs), which led to considerable salary hikes. Insurance Journal’s 2024 Agency Salary Survey revealed that average salaries for support staff were: • Account Exec/Commercial Lines CSR ($89,854) • Account Exec/Personal Lines INSURANCEJOURNAL.COM

Average Agency Salary Adjustment CSR ($57,331) • Support Staff ($69,942) Capstone’s own annual compensation survey shows that between 2017-2021, the average CSR salary was just under $50,000, but grew in 2022 to $55,384. In 2023, the highest salary reached $71,000. Newgard says that should these high salaries for CSR positions remain the norm, retail agents and brokers will need to rethink CSR compensation and roles to be competitive. More than half of Capstone’s client service hires in 20222023 were for 100% remote positions, Newgard said. Agencies are finding that they can be competitive with compensation when hiring experienced talent outside their own geographical regions. She says that insurance agencies big and small alike struggle to find experienced insurance talent, which in her view makes company size less of a factor than location. “By and large, we have noticed through the years that compensation is fairly even across the different cities, states and regions,” Newgard said. There’s always going to be the outliers such as New York, San Francisco, or Los Angeles. But the cost-of-living differential is about the same in most parts of the U.S. That’s one reason she anticipates agencies moving toward a regional service team approach this year where they can strategically target markets with large pools of experienced insurance talent. Remote work options have been driving and will continue to drive this trend going forward, Newgard says. “Most agencies are going to

continued on page 30

INSURANCEJOURNAL.COM

2023

Management/Agency Owner/Agency Principal Producer/Sales Support Staff/CSR/Account Executive

13.8% 11.9% 8.0%

2022

5.3% 9.3% 5.6%

2021

2020

2021

2020

4.6% 6.1% 4.4%

3.1% 3.3% 2.1%

Average Agency Total Income Change* 2023

Management/Agency Owner/Agency Principal Producer/Sales Support Staff/CSR/Account Executive

2022

16.1% 12.6% 9.6%

8.0% 13.6% 5.0%

7.5% 17.9% 3.9%

5.0% 8.4% 2.3%

2023

2022

2021

2020

*Includes all income changes in year

Agency Compensation Satisfaction Index* Management/Agency Owner/Agency Principal 3.79 3.85 3.8 Producer/Sales 3.12 3.39 3.31 Support Staff/CSR/Account Executive 3.16 3.11 3.13 *5 = Most Satisfied; 1 = Least Satisfied

3.88 3.47 3.25

How Agencies Base Compensation Incentive Plans 2023

Agency profits Productivity Revenue growth Contingent commissions Individual performance No incentive plan

2022

34.8% 29.9% 29.0% 18.6% 40.7% 22.5%

40.5% 30.4% 32.7% 17.6% 17.6% 19.2%

2021

37.6% 28.4% 31.9% 15.6% 15.6% 23.0%

2020

34.3% 29.2% 28.2% 17.9% 17.9% 22.6%

Average Agency Salaries by Experience Manager/Owner

Less than 3 years 3-5 years 6-10 years 11-20 years 21-30 years More than 30 years

N/A $158,400 $179,313 $267,798 $241,457 $257,210

Producers

Staff $39,442 $57,302 $69,893 $90,822 $81,198 $93,665

Producers

Staff $83,529 $71,049 $62,496 $79,051 $88,450

Account Exec/ Personal lines CSR

Support Staff

$67,800 $101,209 $112,064 $137,962 $101,847 $94,800

Average Agency Salaries by Region Manager/Owner

East Midwest South Central Southeast West

$156,401 $167,683 $193,168 $174,594 $176,829

Average CSR Salaries by Region

Account Exec/ Commercial Lines CSR

Average CSR Salaries East by Region Midwest South Central Southeast West

$94,530 $81,598 $66,529 $91,866 $110,662

$106,613 $116,781 $107,903 $128,466 $107,809

$58,120 $56,086 $65,750 $47,518 $63,058

$92,727 $62,182 $52,576 $74,591 $60,875

FEBRUARY 19, 2024 INSURANCE JOURNAL | 29

Special Report: Agency Salary Survey continued from page 29

Average CSR Salaries Account Exec/Commercial Lines CSR Account Exec/Personal Lines CSR Support Staff

What Strategies Agencies Implemented Cut benefits Shift health plan costs to employees Increase benefits Force reduction of employees Postpone hiring Postpone raises Increase hiring Increase compensation

need to create new positions, which is going to mean that you’re going to have to come up with more money,” Newgard predicts. “And you’re going to have to think about what those brackets look like and how to compete for roles that are going to be focused on leadership and managing client service teams.” In 2024, expect a lot of agencies and brokerages to rebuild their service teams, making them more nimble, technical and efficient, she said. “This may mean eliminating archaic positions or creating entirely new roles.”

$89,854 $57,331 $69,942

2023

1.7% 4.6% 13.3% 2.5% 14.2% 5.0% 53.3% 61.7%

2022

1.26% 5.86% 21.76% 1.67% 16.32% 5.02% 38.08% 64.44%

2021

2020

2022

2021

2.26% 6.33% 16.29% 2.71% 19.46% 13.57% 38.46% 57.01%

0.9% 5% 11% 7% 41% 29% 25% 32%

What Strategies Agencies Plan to Implement in 2024 Cut benefits Shift health plan costs to employees Increase benefits Force reduction of employees Postpone hiring Postpone raises Increase hiring Increase compensation

2024

1.7% 2.1% 14.3% 2.1% 12.7% 7.6% 48.1% 51.9%

What Benefits Agencies Offer Group Health Insurance Health Savings Account Dental Group Life/Disability 401(k) Profit Sharing IRAs Pension Plan ESOP Stock Options Flexible Savings Account Education Reimbursement Childcare/Daycare Paid Family Leave Pet Insurance No Benefits Provided

2023

76.6% 41.8% 60.7% 59.0% 68.2% 19.6% 11.9% 4.6% 4.0% 7.7% 28.2% 28.4% 3.0% 31.7% 8.2% 8.4%

2023

1.7% 4.6% 13.3% 2.5% 14.2% 5.0% 53.3% 61.67%

2022

81.5% 47.2% 67.2% 65.2% 70.0% 24.2% 14.2% 7.0% 4.5% 7.5% 34.1% 33.1% 5.3% 34.6% 8.8% 8.4%

0.84% 4.22% 13.50% 2.53% 8.86% 6.33% 58.65% 59.07%

2021

80.6% 44.6% 61.0% 60.5% 68.8% 19.8% 13.8% 3.8% 3.4% 6.7% 30.0% 30.2% 3.4% 30.6% 7.2% 7.8%

1.3% 4.3% 9.0% 3.0% 21.0% 14.6% 53.7% 41.6%

2020

78.6% 42.3% 60.5% 57.4% 66.1% 21.2% 10.8% 4.8% 3.5% 6.3% 26.8% 31.4% 4.5% 29.6% 5.5% 6.4%

Employee Targets

2019

79.0% 42.8% 61.7% 57.3% 66.8% 17.5% 11.1% 4.0% 2.9% 7.0% 28.1% 26.2% 3.4% 25.5% 5.4% 9.5%

Changes to Health Insurance Plan Increased employee contribution Increased deductible limits Implement higher co-pays for participants Reduced drug benefit Reduced other benefits 30 | INSURANCE JOURNAL | FEBRUARY 19, 2024

2024

40.8% 39.7% 29.1% 4.8% 4.1%

2023

53.8% 46.7% 28.3% 3.3% 2.7%

2022

48.7% 53.8% 32.0% 8.6% 8.1%

2021

40.2% 52.9% 34.4% 6.2% 5.7%

While the agency M&A market cooled in 2023 (see page 20), the best-in-class firms are still hot areas for acquisitions. That means top talent will continue to be targets at recently acquired firms. “It’s well established that when a firm announces it has sold, it is playing defense against all competitors. Everybody swoops in and tries to steal the people,” according to Kevin Stipe, partner and CEO of Reagan Consulting. But good talent leaves for more than money. “A great culture can reduce your employee turnover by a meaningful percentage,” Stipe says. “If there’s a sense of the culture changing (post-acquisition) then people could be more open perhaps to look at other jobs than they would be under just your normal status quo environment because there’s been a change of ownership.” Stipe says those firms get targeted. One agency principal responding to Insurance INSURANCEJOURNAL.COM

Journal’s annual salary survey, agreed. “Employees are being targeted by headhunters more and more,” they said. “The employees that don’t want to leave, they want more money from us.” The winning formula to retain top talent is simple, Stipe said. “It’s something I learned 30 years ago, and I think it rings just as true today as it always did — the firms that hire high quality talent and are willing to pay for it end up running laps around the firms that don’t do that.” That’s the winning strategy, he says. He advises agencies to pay close attention to developing their firm’s culture as well, particularly in the new world of remote work. “You can afford to pay your employees more if you can retain the best,” he said. “Turnover absolutely kills you, so to the degree that you can limit turnover by paying attention to a high-quality culture, then you can pay people more, and it’s a win for everybody,” he said. “You can pay people more, get higher performance, and still be as profitable, or more profitable, than your peers.” That’s the winning formula.

Wages Rise

While a rising tide in

compensation tends to raise all wages, that’s not always helpful. Rural, smaller agencies are forced to compete with larger firms across the country, says Art Betancourt, founder and CEO of AEBetancourt, a national professional placement and executive recruiting firm for the industry. There’s still a wage disparity geographically, although that appears to be shrinking, at least on the service side. “Overall, I would say on the service side, wages have probably increased 10% to 20% per role,” Betancourt said. “That’s definitely impacting the more rural or the smaller brokers a lot more and they can’t afford to keep up.” Smaller agencies need to realize they have to pay more in today’s employee-driven market, he said. “That also

Average Management Salaries President/CEO Agency Owner/Principal Commercial Lines Manager Personal Lines Manager Office Manager Marketing Manager Accounting Manager Financial Officer

Average Salary (2023) $129,333 $184,947 $113,787 $122,889 $102,138 $114,750 $98,667 $134,764

Salary (2022)

$274,808 $174,372 $123,857 $93,929 $85,295 $132,000 $74,000 $132,263

Average Producer Salaries by Line Commercial Producers Personal Producers

$125,033 $80,534

Average Producer Salaries by Region Personal Lines Producers

Commercial Lines Producers

Account Exec/ Personal lines CSR

Support Staff

East Midwest South Central Southeast West

continued on page 32

$80,293 $65,833 $63,500 $124,802 $60,333

$115,048 $173,489 $137,579 $120,703 $105,078

Average CSR Salaries by Gender Female Male

Account Exec/ Commercial Lines CSR $86,927 $92,225

$52,535 $66,260

$64,400 $70,889

Average Salaries by Gender Female Male Difference Pay Gap

Managers/Owners

$130,745 $200,824 $70,079 54%

Producers

$85,061 $137,211 $52,150 61%

Staff $75,626 $77,752 $2,126 3%

Industry Average by Gender $93,268 $171,399 $78,131 84%

Average Management Salaries by Gender

President/CEO Agency Owner/Principal Financial Officer Commercial Lines Manager Personal Lines Manager Office Manager Accounting Manager Marketing Manager Other Management Positions (OO, HR, Risk Control, etc.) INSURANCEJOURNAL.COM

Female

Male

Men Make This % More than Women

Women Occupy This Position This % the Time

$222,111 $127,686 $80,545 $109,872 $86,000 $83,117 $98,667 $112,500

$188,771 $226,491 $161,333 $185,000 N/A $123,600 N/A $96,000

-15% 77% 100% 68% N/A 30% N/A -15%

20% 26% 44% 86% 100% 65% 100% 67%

$140,000

$132,667

-5%

60%

FEBRUARY 19, 2024 INSURANCE JOURNAL | 31

Special Report: Agency Salary Survey continued from page 31

the past two years but he sees the pace of compensation growth slowing some this year. That’s not to say the pace of demand will fade. “There has been a shift in the last year or two where there is a realization that some employees do have more options,” he said. That “shift of power” from the employer to the employee boils down to a lack of available talent. He says people are no longer willing to stick around and just be “okay.” When someone calls and offers them 20% more in pay, they take it, he said. Even so, Betancourt predicts a bit more stabilization in compensation this year, but the

high demand for quality talent isn’t going to get better anytime soon. There are just not as many people getting into the sector as there are getting out. “So there’s going to continue to be a war for talent for at least the next decade,” he predicts. Agencies looking to hire only in-office talent will have a tough time competing with other agencies offering remote options, he added. “We’re finding that agencies that are having the most difficult time filling positions are the ones that are fully in-office 100% of the time,” he said. “When we talk to candidates, one of the most common things they say is, ‘I’m only interested if this is remote.’” Betancourt agrees that Employee Benefits Satisfaction Index* retaining top talent is critical Satisfaction Satisfaction Index today. To do so, management When Offered When Not Offered and agency owners need to Profit Sharing 3.8 3.45 first be good listeners. “You Pension Plan 3.77 3.5 have to listen to your employees,” he said. “You might not Education Reimbursement 3.73 3.43 be able to meet everything that Group Life/Disability 3.62 3.37 they want or desire, but there 401(k) 3.56 3.42 are some things that could be IRAs 3.63 3.5 low cost to you but meaningful Group Health Insurance 3.59 3.3 to your talent.” Health Savings Account 3.56 3.5 Deliver on those needs when Stock Options 3.56 3.51 possible and deliver them conESOP 3 3.54 sistently, he suggests. “If you Dental 3.57 3.44 can do that, then those people Flexible Savings Account 3.82 3.51 are more willing to stay.” Childcare/Daycare 3.8 3.51 Betancourt says culture is Paid Family Leave 3.72 3.42 important but sometimes the Pet Insurance 3.58 3.51 small stuff means more. None Provided 2.98 3.56 *5 = Most Satisfied; 1 = Least Satisfied might mean that they have to do more with less people.” That’s not always bad news for everyone. Betancourt says that might mean hiring two really good account managers for $80,000 a year versus keeping three mediocre account managers for $60,000 a year. Betancourt says his firm continues to see recruiting efforts focused about 50% on service staff and 50% on producers. That’s a different than a few years ago where recruiting focused more on producers some 80% of the time. The demand for service talent in the industry has pushed compensation ranges up over

Salaries, Total Income Skyrocketed in 2023 But Satisfaction with Compensation Waned By Andrea Wells

nsurance agency employees and producers on average made more money in 2023 but, overall, employees reported lower satisfaction with their compensation than in 2022, a year when overall satisfaction rose, according to the latest Agency Salary Survey, published annually by Insurance Journal. Changes in overall salary and total income skyrocketed again in all categories in 2023. Management/agency owners/ principals and support staff/ CSR/account executives saw large increases in total income change from 2022 to 2023, while the producer/sales category revealed a significant “Consistency on delivering on small things, surprisingly, are the things that get under your people’s skin the most,” he said. “If they feel like they’re listened to and that you’re consistently delivering on the things that you’re able to, people might be willing to let some of the bigger things go. That’s how you can drive a better culture within your organization.”

Average Salary and Total Compensation Adjustments by Region EAST

MIDWEST

SOUTH CENTRAL

SOUTHEAST

WEST

Average Total Compensation Raise - Staff

9.1%

10.5%

8.0%

7.4%

10.6%

Average Total Compensation Raise - Producer

9.8%

15.5%

13.6%

14.2%

12.3%

Average Total Compensation Raise -

14.2%

18.2%

16.0%

13.9%

18.5%

Management Average Salary Raise - Staff

7.6%

9.4%

8.0%

4.3%

9.6%

Average Salary Raise - Producer

8.0%

16.1%

11.2%

17.6%

10.8%

Average Salary Raise - Management

12.0%

13.1%

14.%0

13.4%

16.3%

Average No. of Agency Employees

90.6

100.2

94.8

105.6

113.3

32 | INSURANCE JOURNAL | FEBRUARY 19, 2024

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positive total income change but at a slightly lower rate than the previous year. (See page 29.) Surprisingly, satisfaction with compensation declined in 2023 even though salaries and total income rose. While the 2022 Agency Compensation Satisfaction Index reflected an increase over the previous year (3.61 overall in 2022 up from 3.41 overall in 2021), this year’s Agency Compensation Satisfaction Index showed decreases except with support staff. Satisfaction with compensation declined to an average of 3.36 in 2023 from 3.61 in 2022 based on a scale of 1-to-5 where “5” equals “most satisfied.” (See Agency Compensation Satisfaction Index chart, page 29.): • Management/agency owners/agency principals reported a compensation satisfaction score of 3.79 in 2023, down slightly from 3.85 in 2022. • Producers/sales reported satisfaction of 3.12 in 2023, down from 3.39 in 2022. • Support staff/CSR/account executives reported a satisfaction score of 3.16 in 2023, up from 3.11 in 2022. The score for overall satisfaction was higher when agencies offered employee benefits, both hard benefits (such has group health, life/disability, dental, profit sharing, 401(k) plans, IRAs and flexible savings accounts) and soft benefits (such as childcare/day care, education reimbursement and paid family leave). (See Employee Benefit Satisfaction Index, page 32.)

continued on page 34 INSURANCEJOURNAL.COM

Agency Salary Survey Demographics Remote Work in Agencies Today

Position

7.9%

Do not work remotely, in-office only 17.2% 39.8% 1 day per week 5.9% 2 days per week 7.2% 11.5% 10.4% 3 days per week More than 3 days per week Full time, remote work only Other Options

Owner/Manager Incentive Comp in Addition to Salary

47.1%

52.9%

Yes No

Support Staff/CSR/ Account Executive

14.2%

Gender

45.6%

19.3% 12.7%

11.4%

5.5%

Age

How Owner/Partner Salary Is Determined 58.1% 32.7% 24.2%

Non-Owner Producer Bonus for Exceeding Sales Goal

37.5%

30.1% 69.9%

Yes No

Owners Thinking About Selling 7.2% 5.8% the Agency 87.0%

5.1% 2.9% How Often Agencies Review 2.6% Compensation Structures 8.0%

Every year Every two years Every three years As needed but not within the last three years Never reviews

57.6%

Producer/Sales

54.4%

% of new business % of agency premium % of growth 6.9% % of sales goal % of salary Do not offer incentives for sales managers

Yes No Not applicable

28.2%

Male Female

How Sales Manager Incentive Comp Is Determined 33.5%

Book of business New business development % of ownership in business Management duties

Management/Agency Owner Agency Principal

81.4%

6.3% 4.5%

21 to 30 years old 31 to 40 years old 41 to 50 years old 51 to 60 years old 61 to 70 years old Older than 70 years old

16.4% 22.9% 19.3% 30.6%

Ethnicity American Indian or Alaskan Native Asian/Pacific Islander Black or African American Hispanic White/Caucasian Multiple ethnicity/Other

12.7%

0.2%

Education Graduated from high school Some college completed Graduated from college Some graduate school completed

0.2% 1.6% 2.3% 3.0%

80.2%

8.6% 4.3%

43.8%

12.1%

30.9%

Completed graduate school Other

FEBRUARY 19, 2024 INSURANCE JOURNAL | 33

Special Report: Agency Salary Survey continued from page 33 Employee benefit satisfaction ranked highest when agencies offered added benefits such as profit sharing (3.8), pension plans (3.77), education reimbursement (3.73), and

paid family leave (3.72). The survey found that in nearly all employee benefit categories queried, employees showed more satisfaction with overall compensation when those benefits were offered. The

Increased Demand for Higher Pay in 2023

Agency Staff Size in 2023 Increase Decrease Stayed the same

Agency Gives Year End Bonus

41.0%

48.4%

10.6%

Agency Annual Cost of Living Increase Yes No Not Sure

one exception this year was a slight decline in satisfaction when offered employee stock ownership plans (ESOP). As noted, the survey revealed an upward trend in total compensation for all

No. of Resignations Higher in 2023

9.0% 44.9%

46.1%

3.4% 28.5%

Yes No Not Sure

68.1%

Yes No Not Sure

1.3%

44.5%

54.2%

0.3%

12.2%

87.5%

agency positions this year. Management/agency owners/ principals saw the highest increases in total compensation, according to this year’s survey. The 2024 Agency Salary Survey — based on nearly 700 responses nationwide — showed total income changes, including salary plus additional compensation such as profit sharing, bonuses, and other income, were: • Agency owners, principals and management total income increased the most in 2023 — a 16.1% increase in total income in 2023, compared to an 8.0% increase in total income for 2022. • Producers/sales total income

Anticipated Agency Staff Size in 2024 Increase Decrease Stay the same

2.0%

Producer Commissions in 2023

8.6% 8.8%

All agency staff Management and sales producers only 10.5% 2.4% Management, plus all support staff (CSRs) Other Options N/A

69.7%

Increase Decrease Stayed the same in 2023 compared to 2022

53.9%

41.0%

Ow Com to S

Ye No

How Com

% % % % % Do

Producer Satisfaction Index for Ince Bo Incentives

What Employees Receive Year End Bonus

Do 1d 2d 3d M Fu Ot

How Det

50.6%

47.4%

Rem Tod

5.1%

Trips Contests Club Membership Dues Educational Courses Cash Bonuses Company Car

Ne % Ma

Non for

Ye No

*5 = Most Satisfied; 1 = Least Satisfied 3.5% Agencies’ Plans to Change 2.5% Payroll Expense in 2024 23.0%

Reduce payroll expense Increase payroll expense Keep the same Not sure

Agency Salary Increases in 2023 Higher than 2022 Lower than 2022 Same in 2023 compared to 2022

71.0%

32.9%

59.4%

7.7%

34 | INSURANCE JOURNAL | FEBRUARY 19, 2024

Agencies’ Plans to Change Commission Structure Changed in 2023 Will change in 2024 No changes

Survey Reveals How Work From Hom Ye

80.5%

Work From Home Offered

Producer Compensation and Fees Producer receives % of fee Producer receives all of fee Producer doesn’t receive fee

Ow the

6.4% 13.1%

54.7%

44.2%

East Midwest South Central Southeast West

1.1%

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No No

How Com

Eve Eve Eve As Ne

increased 12.6% for 2023, compared to a 13.6% increase in 2022. • Agency support staff total income showed a 9.6% increase for 2023, compared to a 5.0% increase for 2022. Salaries only (excluding bonus and incentive income), rose again in 2023 and at a higher rate than in 2022: • Salaries for agency owners, principals and management rose 13.8% in 2023, compared to 5.3% in 2022. • Producers/sales reported average increases in salary of 11.9% in 2023, compared to 9.3% in 2022. • Salaries for agency support staff rose 8.0% in 2023, compared to 5.6% in 2022.

Insurance Journal’s Agency Salary Survey collected about 700 responses from agency owners and employees nationwide

via an online survey in January 2024. Paul Osbourne, director of informaiton systems at Demotech Inc., assisted with analysis of this

year’s results. For more information, contact Andrea Wells at: awells@ insurancejournal.com.

Non-Owner Producer Compensation

What Producers Want Used When Determining Incentive Pay

18.8%

Salary Only

38.8% % of new business

36.3%

Salary plus commission

12.8% % of agency premium

20.9%

Commission only

28.1% % of growth

8.2%

Draw against commission

14.2% % of sales goal

10.2%

Other

7.1% % of salary

5.6%

N/A

Agency Revenues in 2023 Compared to 2022 How Agencies Determine Fees

1.0% -31% or more

7.0% As a % of Premium

6.8% -11% to -30%

28.0% A flat fee based on type of risk/account

13.6% -1 to -10%

65.0% No fee charged

2.3% 0%

How Agencies Charge Fees 24.8% Fees are charged in addition to commissions

41.3% +1 to +10% 32.3% +11% to 30% 2.9% +31% or more

11.2% Fees are charged in lieu of commissions

entives Satisfaction When Offered 3.92 3.9 3.92 3.94 3.92 3.64

Satisfaction When Not Offered

3.48 3.48 3.5 3.45 3.41 3.51

64.0% No fee charged

How Incentive Compensation for CSRs Is Determined

Incentives for Non-Owner Producers

11.9%

No. of policies sold

29.7%

New business commissions

38.8% No Incentive

12.2%

Renewal commissions

17.3% Trips 16.4% Contests 8.1% Club memberships 28.0% Education 41.9% Cash/year-end bonuses 7.7% Car

8.6%

Set dollar amount

42.0%

Do not offer incentive comp

14.6%

Other

CSR Education Reimbursement 75.0% Yes 25.0% No

me Changed 2024 56% 58% 64% 53% 58%

2023

62% 50% 50% 67% 57%

How Bonus for Producer is Determined 28.8% Discretionary 11.4% Retention 15.0% Profit 21.0% Net book growth 23.8% Personal production

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Workload in 2023 Compared to 5 Years Ago 45.2% Higher today than ever before 29.9% Steadily increasing 11.9% Increases only slightly each year 3.2% Steadily decreasing 3.4% Less today than ever before 6.4% Same today compared to 5 years ago

FEBRUARY 19, 2024 INSURANCE JOURNAL | 35

Idea Exchange: Talent DEI: Redefining the Paradigm for the Property/Casualty Industry

he recent billionaire back-and-forth about diversity, equity and inclusion initiatives is a great opportunity to look By Desmund Adams at why we’re doing DEI, how we’re doing it — and how we can do it better. Bill Ackman and Elon Musk have pilloried DEI as racist, shameful, even illegal. And, done wrong, diversity efforts can open themselves up to that critique. But “when companies do DEI well, you see a well-run, successful company,” Mark Cuban maintains. DEI-focused recruiting doesn’t close the door to candidates that fit the traditional straight, white, male model. Done right, it opens the door to everyone with the talent, experience and skill to excel in a given role. Historically, DEI initiatives have been pivotal in addressing inequities, but their implementation often overlooked certain

36 | INSURANCE JOURNAL | FEBRUARY 19, 2024

groups, inadvertently sparking debates over reverse racism. It’s time to transcend the conventional discourse on racism and focus on the urgent need for businesses to adapt in a conflicted world.

The Role of Corporate Leadership in DEI

For corporate board directors and CEOs, understanding the importance of DEI extends beyond employee attraction and retention. It is a crucial aspect of enterprise risk management and profitability. Every business entity, created under state law and subject to common principles of business and ethics, may face legal scrutiny in discrimination lawsuits, focusing first on the company’s internal processes and procedures. The board, bound by duties of loyalty, care and fiduciary responsibility, plays a significant role in driving organizational governance. The CEO, responsible for the company’s vision, mission and profitability, acknowledges the correlation between inclusively diverse leadership teams and

increased innovation and profitability. The focus on specific racial or ethnic groups limited the scope of traditional diversity initiatives. Inclusionary DEI practices ensure participation and fairness for both historically underrepresented and represented groups, aligning with the organization’s vision and goals.

Implementing DEI as a Sustainable Business and Enterprise Risk Strategy

Inclusive, socially responsible anti-bias recruiting represents a pivotal shift in DEI practices. It embodies principles of fairness, balance, transparency and accountability, while actively mirroring the diverse demographics of all society. This method not only requires a solid framework for implementing actionable strategies and ensuring clear reporting but also highlights the profound impact on enterprise risk management and business sustainability if overlooked. For privately held companies, adopting socially responsible anti-biased recruitINSURANCEJOURNAL.COM

ment aligns with a deep commitment to DEI within their corporate governance and operational frameworks. Public companies, in contrast, face additional mandates under Securities and Exchange Commission regulations. These organizations are encouraged to incorporate DEI into their corporate governance, potentially as a key facet of their environmental, social and governance criteria. The SEC’s role is critical here. By requiring disclosures related to DEI initiatives and outcomes, the Commission can make these efforts an essential aspect of regulatory compliance. Such measures not only enhance corporate transparency but also position companies at the forefront of the profitability and governance curve, providing them with a competitive edge in today’s dynamic business environment.

it should never result in the hiring of someone who’s unqualified. As Cuban clarified to Musk: “DEI doesn’t mean you don’t hire on merit. … Diversity means you expand the possible pool of candidates as widely as you can. Once you’ve identified the candidates, you hire the person you believe is the best.” As fundamental as that sounds, putting it into practice can be challenging. The key is a bias-busting talent acquisition process that levels the playing field for candidates. Because DEI starts with adding diversity where there is none, transforming how you recruit is the first step. We’ve found that an inclusive, completely masked approach works best. Masked recruiting ensures that managers hire based on qualifications and potential fit for the organization rather than on demographic factors.

Conclusion

Performance-transforming DEI is built on the recognition that companies reap cultural and economic benefits when they welcome talent that reflects the diversity of their customer base. It involves acknowledging hidden biases in recruiting practices and committing to finding and hiring inclusive, qualified candidates. There is much work to be done, and the industry must rise to the challenge. Adams is founder and CEO of Focus & Find, an anti-bias recruiting firm that helps clients find, hire and retain inclusive, high-performing board members and executives. A member of the Forbes Business Council, he’s the author of “D&I Has Died,” a 2019 book exploring the critical role of talent acquisition as corporate diversity and inclusion efforts evolve.

Bias, Profitability and Leadership

Bias does more than treat people unfairly, it undermines profits. Companies with diverse leadership simply do better. Studies by organizations like Boston Consulting Group, the Wall Street Journal, McKinsey & Co. and the Peterson Institute for International Economics have consistently shown that companies with diverse leadership teams and workforces outperform their less diverse counterparts. Above average executive team diversity can result in 19% higher innovation revenue, and the 20 most diverse companies in the S&P 500 index had a 12% higher net profit margin.

The Future of DEI in the P/C Workforce

The P/C insurance industry, like others, is facing significant workforce upheaval. By 2028, approximately half of workers are projected to retire — with nearly half a million planning to clear their desks in the next few years. At the same time, P/C insurers are in a hiring mood — with 65% planning to boost their staff numbers in 2024. With such dramatic shifts on the horizon, attracting Gen Y and Z talent is crucial — and a diverse and inclusive culture is high on the list of must-haves for these values-sensitive workers.

DEI Done Right

DEI isn’t checklists and quotas, and

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FEBRUARY 19, 2024 INSURANCE JOURNAL | 37

Idea Exchange: Talent How Apprenticeship Programs May Be the Best Solution to Today’s Talent Crisis

our-year degree required. It’s been a standard part of job descriptions in the insurance industry for the better By Meghan Parilla part of the past two decades. Now, it’s time for an overhaul. The college degree prerequisite, which is well intentioned, creates a number of great employees. But it also leaves too many talented people on the outside looking in. Further, it hurts our industry’s efforts to recruit and retain a more diverse workforce because it leaves out people who cannot afford or are otherwise unable to obtain a four-year degree. Apprenticeship programs are changing the dynamic. They’re allowing our industry to cast a wider net, find ideal candidates, and help them learn on the job while they further their education. And, through the Insurance Industry Charitable Foundation’s IDEA Council and other coordinated efforts, the industry is sharing information and learnings to understand the benefits these candidates bring to our industry, and explore best practices for getting new apprenticeship programs off the ground and enhance existing programs.

the Chicago Apprentice Network has expanded to six additional cities. We have employed over 300 apprentices since 2017 and continue to hire 80-100 annually. At Aon, we developed our apprenticeship program in partnership with Harold Washington Community College and a group of 25 apprentices were hired throughout our client support, HR and IT departments. The model proved wildly successful. We have found that our apprentices are the

most diverse group of colleagues coming into our organization. Eighty percent of apprentices successfully complete the program and move onward in our organization. That’s a stark contrast to the national average of eligible interns (57.6%) who converted to full-time employee roles in 2023, per the National Association of Colleges and Employers (NACE). Additionally, we see higher levels of engagement from our apprentices. We measure this both statistically through our

How It All Started

The executive sponsor of Aon’s apprenticeship program tells the story about how she would look out the window of our Chicago headquarters and see a local community college down the street. She would think to herself, “There’s a lot of great, diverse talent inside that building. How can we bring that into our company?” At the time, we already had an apprenticeship program in the UK that was doing well. So, we decided, why not try it here? Our U.S. program started in Chicago in 2017, around the same time that Accenture and Zurich started similar programs. Together, we founded the Chicago Apprentice Network. Since 2017, 38 | INSURANCE JOURNAL | FEBRUARY 19, 2024

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annual engagement surveys, and anecdotally, as seen in our apprentices’ active involvement in our 15 Business Resource Groups. But the strongest endorsement we receive is from our apprentices themselves. Take, for example, Chant’e Boyd. She grew up in the Cabrini-Green section of Chicago. Most of her peers did not go to college. She worked in the retail and restaurant industries for 18 years, reporting to work at 3:30 a.m. and working every holiday. When she heard about our program, she thought there had to be a catch. Today, at age 40, Boyd has earned her associate degree and is a valued member of our team. “Now I can finally tell my daughter, ‘Be like me,’” she says. I’m thrilled to say that Boyd’s daughter is part of our 2023 apprenticeship class.

How to Start an Apprenticeship Program These seven best practices have helped us shape our program at Aon and serve as key foundational elements that other companies can follow.

1. Have strong leadership and managerial buy-in. Like most major initiatives, an

apprenticeship program must be embraced by the C-suite. But it’s equally important to get managers on board. Data from the DDI Frontline Leader Project shows that 57% of employees quit jobs because of their boss. Your managers will play a critical role in developing and training your apprentices, so their engagement is a must-have.

2. Aim to meet or exceed national standards. Ideally, apprenticeship

programs should seek certification from the U.S. Department of Labor (DOL). If you don’t have that certification when you start, then set up your program infrastructure to meet DOL guidelines. That will ensure you can seek DOL certification in the future. In a DOL-certified program, participants receive both an associate degree and a certificate from DOL recognizing their accomplishments.

3. Start with a cohort model. It may be INSURANCEJOURNAL.COM

‘Apprenticeship programs are changing the dynamic. They’re allowing our industry to cast a wider net, find ideal candidates, and help them learn on the job while they further their education.’

tempting to integrate apprentices into every office in every city — and you may, and can, eventually get there. But start small. Start in one city, one office, with a smaller group — maybe between five to 25 apprentices — and build on your success from there.

4. Work with local schools and organizations. Inner-city community colleges

are wonderful talent sources, offering access to students with a wide array of perspectives and possibilities. Additionally, seek nonprofit partners who can give your apprentices wraparound support, such as career navigation guidance, so they can achieve success across work, school and life.

5. Create opportunities for in-person

engagement. We have found in-person engagement to be critical in the apprenticeship process. Apprentices in proximity to their manager or team have found easier opportunities to connect, grow and share. 6. Make broader connections across the industry. As you start to build and

expand your program, consider tapping into resources like the Insurance Industry Charitable Foundation (IICF). Networking with their members has allowed our team at Aon to collaborate with people on a regional and national level who share our passion for creating more inclusive, diverse, equitable and accessible workplaces.

7. Join a regional apprentice network.

Aon is a founding member of eight out of 10 apprentice networks located in cities across the U.S. When employers join these networks, they can learn additional best practices from leaders of established programs. Additionally, they can meet other apprentices who have achieved career success. There is plenty of talent to go around these days. But to find that talent, companies must go beyond the four-year college degree requirement. Apprenticeship programs hold the power to create more diverse and highly engaged workforces that can transform the way we hire, credential and learn — and deliver powerful business results, too. Parrilla is the vice president of Global Early Careers at Aon. In that role, she leads the team responsible for Aon’s U.S. apprenticeship program. She’s also focused on expanding the company’s early careers program into Asia, EMEA and Latin America. A 16year industry veteran, Parrilla previously worked in finance, talent development and business partnership roles. FEBRUARY 19, 2024 INSURANCE JOURNAL | 39

Idea Exchange: The Competitive Advantage Working From Home

ased on my reading, most employers appear to prefer employees to be in the office. And yet, most white-collar By Chris Burand employees seem to prefer working from home, at least for a material portion of the time. Quite a conundrum exists, and I’ve had many agency owners and even carriers ask for advice on how to manage this situation. Specific to insurance agencies/brokers, working from home is a negative on many levels. Regardless of how simple insurance advertisements make insurance seem, the reality is insurance is an extremely complex industry. Complex and, excluding actuarial, formal education does not really exist relative to the real-world work environment. Agents are selling legal contracts, hopefully, though not always, designed to protect the most valuable tangible assets people, companies, governments, and non-profits own. This includes liability coverage, which protects the very tangible asset of cash and other assets that can be converted to cash to pay for the defense attorneys and judgements. No two insured assets are exactly the same. No two insureds are exactly the same. A “simple” homeowners policy if only offered by one standard, admitted carrier has around 25 million permutations of coverage. Absolutely nothing is simple about a product that has 25 million different combinations of coverage. The attorneys writing these policies were trained in law. The account manager checking the policies is likely trained in-house. Work-from-home makes training on how to read legal contracts, how to correctly combine different coverages, and how to complete policy checks extremely difficult, if not impossible, to achieve at an adequate level because in addition to the complexity, nothing is ever the same twice. To best address these complexities, insurance people have historically been 40 | INSURANCE JOURNAL | FEBRUARY 19, 2024

trained in-house and on-the-job. The environment is actually even more complex because of the complete lack of standardization between carriers, brokers and forms, and even the lack of consistency within the agency and the carrier. The lack of standardization goes even further when situations where producers get to “customize” procedures, aka, cut corners are added to the mix. A new person working by themselves has no reasonable way of knowing how to deal with these situations and producers will take advantage, ultimately resulting in more E&O claims. The same reality goes for marketing reps and underwriters. I am amazed at how much knowledge the top insurance people possess. They’ve gained this knowledge and skills over time and with considerable self-effort, not institutional effort. No formal training exists that comes close to replicating real-world situations and underwriting experience (although just saying “no” is fairly easy to teach). My experience is that E&O claims have been increasing since the beginning of the huge increase in work-from-home employees. These claims might not appear in the official E&O frequency claims charts because quite a few of these claims are being paid out of pocket, for better and worse. Training someone at a distance in the middle of the hardest market in probably at least 40 years is even worse because the intensity, urgency and complexity are all climbing. I was trained in the last hard market and thinking back, so much went over my head specific to a hard market that I’m not sure how I made it, other than I truly had wonderful people backing me up.

E&O increases in the work-from-home environment for many reasons, including producers finding ways to cut corners and the lack of adequate training. When everyone is sitting together, a natural check and balance environment is created. A natural but informal training program evolves simply through constant interaction and even overhearing other conversations. These are valuable realities. From an E&O defense perspective, I suspect agents are digging deeper holes because all the work-from-home communication will be in writing, including items

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that would have been more safely communicated verbally. These items would have been communicated verbally in an office because someone would have risen from their chair and walked over to the other person to talk through the situation. Regardless of these risks, I suspect some level of work-from-home is here to stay, and perhaps some of the benefits of workfrom-home have yet to be fully recognized. Once office leases expire, offices should be downsized enough to save the equivalent of a salary or two, and to pay for extra E&O expenses. Another benefit for leaders and managers who want to improve their skills is to learn to manage people by their skills and results rather than whether you like

them, whether they work long hours and rather than simply managing by walking around. If you want this challenge, be sure to include the following points in your strategy: 1. Greatly increase your employee training, including: a. Better coverage training. Run-of-the-mill CE qualified training is inadequate. Invest in quality training. b. Better communication skills. c. Better management system training. d. Better training on the agency’s/ carrier’s procedures.

2. Better procedures. Most agency and carrier procedures are materially lacking. Work-from-home requires high quality, comprehensive procedures. This includes a user-friendly procedures manual. I’ve reviewed dozens and dozens of procedures manuals. Most are written as if the goal was to provide a sleep aid. Procedures manuals are instruction manuals. The best people to write a procedures manual are those actually doing the job. The manual should also be a living document. When training new employees, learn where they get hung up and then fix the procedure. 3. Add a robust quality control position because procedures are only good if people follow them. Especially with work-fromhome, people are going to vary from the procedures whether on purpose or unintentionally. This is why branch offices have historically had higher E&O claims than main offices, all else being equal.

Specific to insurance agencies/brokers, working from home is a negative on many levels. Work-from-home lacks natural checks and balances and adequate training. Quality control is the only way to identify these inevitabilities. I am a fan of file audits rather than desk audits because a file audit addresses everyone that touches a file rather than focusing on one desk. It is simultaneously less threatening and more comprehensive. Work-from-home at some level or another is here to stay. A compromise between employees and employers will be discovered through real world back and forth experiences. To make it work, employers must improve their management skills and their organization’s procedures. These recommendations will provide a foundation for achieving that goal. Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719-4853868. E-mail: chris@burand-associates.com. INSURANCEJOURNAL.COM

FEBRUARY 19, 2024 INSURANCE JOURNAL | 41

Idea Exchange: Is It Covered? Logic & Language and Forms & Facts Wear and Tear and Mechanical Breakdown Exclusions Under Auto Policies

n my September 2023 column, I wrote about wear and tear exclusions in property policies and how these exclusions are By Bill Wilson sometimes improperly cited to deny claims. Most property policies have a series of exclusions that apply to wear and tear, rust, corrosion, decay, deterioration, settling, cracking, marring, scratching, etc. The basis for these types of exclusions is that they largely address damage that occurs over a fairly lengthy period of time and/or involve the normal use of the property. Over time, property wears out or otherwise can suffer damage that is gradual through routine, frequent use. Such losses are expected and largely uninsurable, even on a depreciated basis. Auto policies typically have similar sets of exclusions. For example, the ISO Personal Auto Policy excludes: Damage due and confined to: a. Wear and tear; b. Freezing; c. Mechanical or electrical breakdown or failure; or d. Road damage to tires.

mean in the context of most auto and property policies? According to IRMI, “Damage to equipment from an external cause is not excluded by the mechanical breakdown exclusion. Instead, the mechanical breakdown exclusion applies only to loss caused by an internal defect in the equipment.” To support this interpretation, IRMI cites Caldwell v. Transportation Ins. Co., 234 Va. 639, 364 S.E.2d 1 (1988) which opined, “[E]xclusion of losses caused by structural or mechanical breakdown or failure is restricted to losses arising from internal or inherent deficiency or defect, rather than from any external cause.” One property form example showed a policy where an oversized piece of wood was fed into a sander, causing it to short out and break the roller teeth. This is not internal, “self-inflicted,” mechanical breakdown but rather an external cause covered by the open perils form in question.

An auto policy example was extensive engine damage that resulted from a truck traveling down a bumpy, dusty road, resulting in the engine air filter clips dislodging and dirt entering the engine. Again, the cause of loss was not an internal mechanical breakdown, but rather a non-excluded external cause of loss. Some years ago, I assisted a New Hampshire agent in reversing a claim denial. A tow truck drove onto a driveway of a business insured under a business owners policy (BOP). The truck’s hydraulic hose blew out, causing hydraulic fluid to spew onto the insured’s building, parking lot, etc. The BOP adjuster denied the claim on two bases, wear and tear or mechanical breakdown and pollution not caused by a “specified cause of loss.” The wear and tear and mechanical breakdown exclusions were not applicable, as the damage resulted from an external cause and not from any equipment in

Although the wording is arranged slightly differently, the ISO Business Auto Policy essentially excludes the same perils. And, as with property policies, these auto physical damage exclusions are sometimes misunderstood and wrongly applied. So, let’s consider the logic behind something like a mechanical breakdown exclusion and consider some actual claim examples where arguably this type of exclusion was erroneously applied. For the former consideration, there is no better resource than the International Risk Management Institute (IRMI.com).

Meaning of ‘Mechanical Breakdown’

What does “mechanical breakdown”

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the control of the insured. And, while not specifically relevant to our discussion here, the pollution exclusion didn’t apply because, arguably, “vehicles” and possibly “explosion” were two “specified causes of loss” that triggered the exception to the pollution exclusion. The BOP adjuster ended up paying the claim and, presumably, subrogating against the tow truck owner. To conclude this discussion, one of the most common auto policy claim denials I’ve come across over the years involves engine damage that occurs following refueling. For example, this might include water that has contaminated a fuel storage tank, or where gasoline has been pumped into a vehicle powered by diesel fuel, or vice versa. These situations might include some things that are not supposed to be able to occur, though negligence seems to have no creative boundaries. In one claim submitted to the Independent Insurance Agents of America (IIABA) “Ask an Expert” service several years ago, after refueling, the engine of an agent’s customer’s Lincoln MKZ began to knock until the vehicle stalled and had to be towed to a repair shop. It was determined that a significant amount of water in the gas tank had caused engine damage. The auto policy adjuster’s initial inclination was to deny the claim, citing INSURANCEJOURNAL.COM

the wear and tear and the mechanical breakdown exclusions. The agent gave the same argument made at the beginning of this article to dismiss the wear and tear exclusion, citing Black’s Law Dictionary which defined “wear and tear” to mean “deterioration caused by ordinary use.” Clearly, this was not ordinary use. Similarly, for the reasons cited at the outset of this article, the agent argued that this was an external cause of loss and not mechanical breakdown as intended by the policy language. The agent also provided evidence of the payment by the carrier of a claim for damage when an insured put gasoline into her new diesel-powered auto. Finally, less than a year after the aforementioned water damage claim, I was contacted on a consulting basis by an independent agent who was a friend of a direct writer insured. Her husband had recently passed away and she had been driving his diesel pickup truck, a vehicle she wasn’t familiar with. She accidentally put gasoline, instead of diesel fuel, into the tank, resulting in $11,000 in damage. The mechanical breakdown exclusion in the direct writer’s auto policy was different from that found in ISO and other more-familiar policies in that it elaborated on the exclusion to include “damage resulting from negligent servicing or repair of your

covered auto or its equipment” if the damage involved a “major component” of the vehicle such as the engine. In this case, we’re dealing with an atypical broadened mechanical breakdown exclusion. My argument FOR coverage was that refueling is not, in common use, a form of “service or repair.” MerriamWebster defines “servicing” as “supplying maintenance or repair” and includes an example of the use of the term in a sentence in the form of, “I need to get my car serviced.” If you need fuel in your vehicle, would you say to someone, “I’m going to get my car serviced,” or would you say something like, “I’m going to get some gas?” Servicing, in common usage, typically refers to things like oil changes, tune-ups, perhaps tire rotation, etc. Refueling is just part of the normal and necessary operation of an auto, not some sort of periodic maintenance. If there is a moral to the issues discussed in this month’s column, it’s once again to RTFP! Wilson, CPCU, ARM, AIM, AAM is the founder and CEO of InsuranceCommentary.com and the author of six books, including “When Words Collide…Resolving Insurance Coverage and Claims Disputes.” He can be reached at Bill@InsuranceCommentary.com. FEBRUARY 19, 2024 INSURANCE JOURNAL | 43

Idea Exchange: Ask the Insurance Recruiter

Why Insurance Professionals Will Change Jobs in 2024

ebruary is Insurance Careers Month, a time often used to attract the attention of college graduates and professionals from other industries to the benefits of working in the insurance industry. While I’m all for that hype, dare I say that there is a missed opportunity to talk about what experienced insurance professionals want? Your first recruiting priority for insurance agencies should be retention. A mindset focused on employee retention makes recruiting easier. “Search Motivations” are something my team hears multiple times a day from insurance professionals who want to explore the job market. While reasons are unique to each person, there are some common themes that should give

you pause on where your recruiting and retention is vulnerable.

No Remote Policy = No Candidates

Trust me, insurance agencies of all shapes and sizes have remote roles. If you’re totally unwilling to offer remote work arrangements, or you’ve started bringing people back into the office with only one or two days/week working from home, you won’t meet the demands of most insurance professionals. Desiring 100% work from home prompts a lot of people to look for a new job. With such low unemployment, they know they can find what they want, and their demands will be met. You may not want to employ people 100% remotely, but think about the

What would be your biggest catalyst for a job change within the insurance industry? Unhappy with compensation Lack of growth opportunities Management or owership change Relocation

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32% 34% 28% 5%

benefits it offers to retain and attract experienced insurance professionals. • When Capstone By Mary Newgard recruits 100% work from home insurance jobs, we receive nearly 10 times more applications as compared to jobs that require office hours. This is consistent for remote “nationwide” as well as remote “local” applicants. • Remote jobs fill faster than office-based positions. In 2023, my team saw a typical account manager search take approximately 60 days to fill remotely whereas the same position that require local candidates to commute had an average time-to-fill of four to five months. • From December 2023’s Ask the Insurance Recruiter’s column, when Capstone asked insurance professionals about their desired flexible schedule, almost 50% said 100% remote was their top choice in contrast to options like a three days at home/two days in the office hybrid or a four-day work week. INSURANCEJOURNAL.COM

Compensation May Be the Only Differentiator

Money sits right near the top of Capstone’s April 2023 LinkedIn poll as a major reason insurance professionals will consider a job change. (See table on p. 44.) An interesting trend I’m seeing is just how many insurance professionals will start or end their job search based on compensation. A lot has to do with the gap many agencies have closed with benefits offerings, remote work schedules and other perks that would normally separate one company from another. If all things are equal, then the only way job seekers will invest time interviewing or seriously consider a change is based on a significant increase in compensation.

Your Staffing Issues Lead to Their Burn Out

The close relationship between recruiting and retention is never more apparent than when staffing shortages lead to turnover. Have you considered how much burn out motivates insurance professionals to resign? The person quoted below could easily be your employee. “I am ready to find a new job. I currently manage 30 accounts that total $2.5M revenue. It’s a huge book, and I am the only service person. I share an assistant with four other AEs. I’ve told my company for months that we need more help. They can’t hire anyone because their pay is low, and they want processors to work 5 days/week in the

office. I’ve had enough.” I know hiring is risky, so you want to hire the ideal candidate. However, when a job has been open for months there’s a real opportunity cost to your current staff. The best advice I can give is to be as open-minded to all possibilities as early in the process as possible. That means considering less experienced people who could be trained in the time you’d wait to find an experienced hire. Consider remote candidates and pricier salary ranges to increase your talent pool, finding someone sooner rather than later to relieve the pressure on current employees.

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

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FEBRUARY 19, 2024 INSURANCE JOURNAL | 45

Idea Exchange: Referral Fees Referral Fees: A Multi-State Overview

o matter the business, customer referrals are always a welcome way to expand client bases and build trust withBy Mark Robinson in the marketplace. This is certainly true within the insurance space, where it is common practice for producers to incentivize friends, family and business partners to deliver prospects in return for referral fees. But here is the rub: Oftentimes these referral sources are unlicensed individuals, in which case the payment of referral fees is fraught with regulatory challenges that differ from state to state. While referral fees directed to unlicensed persons are, for the most part, legal, they tend to be restricted in terms of the amount that can be paid, the conduct of the unlicensed referral source, and the tie between the referral fees disbursed and the sale of insurance. The analysis is truly state-specific.

The NAIC’s Take on Referral Fees

Back in February 2000, the National

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Association of Insurance Commissioners (NAIC) adopted the Producer Licensing Model Act (PLMA), which provides uniformity in statutory language relating to the qualifications, requirements and conduct of agents and brokers. With respect to compensation paid to unlicensed persons, the PLMA at Section 13 (Commissions), subsection D, reads: “An insurer or insurance producer may pay or assign commissions, service fees, brokerages or other valuable consideration to an insurance agency or to persons who do not sell, solicit or negotiate insurance in this state, unless the payment would violate [insert appropriate reference to state law, i.e. citation to anti-rebating statute, if applicable].” (Emphasis added.) For purposes of this language as set forth in the PLMA, to “sell” means to exchange a contract of insurance by any means, for money or its equivalent, on behalf of an insurance company; to “solicit” is defined as attempting to sell insurance or asking or urging a person to apply for a particular kind of coverage from a particular carrier; and to “negotiate” is the act of conferring directly with or offering advice directly to a purchaser or prospective purchaser of a

particular contract of insurance concerning any of the substantive benefits, terms or conditions of the contract, provided that the person engaged in that act either sells insurance or obtains insurance from insurers for purchasers. With few exceptions, a person or entity cannot do any of the above and act as an insurance producer without a state-issued license. Having said that and within states that have adopted the PLMA, a producer may compensate an unlicensed referral source when any referral fee paid is not in violation of anti-rebating/inducement laws and assuming the unlicensed individual is not soliciting, negotiating or selling insurance. As otherwise stated, paying referral fees to an unlicensed person is prohibited when that individual is engaged in conduct that would require a license. For producers, this is a real hot button issue because they are subject to regulatory sanctions if found to be aiding and abetting any unlicensed person or entity in the transaction of insurance.

Beyond the PLMA

States that have not adopted or have

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modified the PLMA have enacted statutes, regulations or issued guidance that result in varying requirements for producers looking to pay referral fees.

‘An unlicensed person cannot ‘solicit’ insurance, which, according to the PLMA, equates to attempting to sell insurance or urging a prospect to apply for coverage from a particular company.’ In New York, for instance, section 2115(a) of the New York Insurance Code provides that referral fees are allowed if they are not conditioned or contingent on the successful sale of a policy and the referring party does not discuss specific policy terms and conditions. The same is true in Texas, where sections 4005.053(c) and 4001.051(d) of that state’s Insurance Code authorize the payment of referral fees to unlicensed individuals pursuant to the identical caveats (e.g., policy terms or conditions may not be deliberated, and compensation cannot be based upon the purchase of insurance by the customer). The payment of referral fees is even more limited in Pennsylvania. According to 40 PA Stat. § 310.72(b), in addition to the prohibition against discussing policy terms and conditions and in the case of referrals for insurance that is primarily for personal, family or household use, a referring person may receive no more than a one-time, nominal fee of a fixed dollar amount for each referral not dependent upon an actual sale of insurance. As is the case in New York, Texas and Pennsylvania, almost all states allow producers to pay referral fees to unlicensed individuals that do not solicit, negotiate or sell insurance, assuming (1) payment is not conditioned on the sale of a policy and (2) the referral fee does not violate applicable anti-rebating/inducement laws. Regulators typically look at such conduct akin to an agent or broker purchasing leads.

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The Danger Zone: Solicitation

It bears repeating: An unlicensed person cannot “solicit” insurance, which, according to the PLMA, equates to attempting to sell insurance or urging a prospect to apply for coverage from a particular company. While some state regulators broadly define “solicit,” as is the case in the PLMA, certain other states like New York and Texas have settled on a narrower interpretation. There, an unlicensed individual contacting a prospective insured is not “soliciting” for purposes of paying a referral fee, so long as insurance policy terms and conditions are not discussed with a potential insured and payment is not based on the purchase of insurance. This begs the question: What would be deemed an unlawful solicitation by an unlicensed individual in states that follow the PLMA and do not provide relevant guidance? While perhaps not a comprehensive list of prohibited conduct,

unlicensed persons seeking compensation for bringing a prospect to the table should surely steer clear from offering explanations, interpretations, opinions or recommendations concerning insurance carriers, coverages, exposures limits, premiums, rates, deductibles or payment plans. That being said, how a regulator will ultimately interpret “solicitation” for purposes of referral fees requires a stateby-state review. As for producers hoping to avoid regulatory headaches, they should seek counsel or otherwise review each state’s requirements for compensation of unlicensed individuals prior to engaging in any formal referral fee program. Robinson is a founding partner of Michelman & Robinson, LLP, a national law firm headquartered in Los Angeles. In his capacity as Property & Casualty Regulatory Chair at M&R, Mark primarily represents retail brokers and agents. He can be contacted at 310-299-5500 or mrobinson@mrllp.com.

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Idea Exchange: Workers' Compensation What Does ADR Mean for Workers’ Compensation Programs On Construction Sites?

orkers’ compensation insurance is one of the costliest aspects of a construction project that carriers, construction managers, and businesses face. According to Insureon, construction carries the highest workers’

compensation costs of any industry, and as a result, the agents and brokers who work with construction employers are constantly looking for new tools to not only improve the return-to-work rates of the projects they insure but also reduce

overall claims costs. Alternative dispute resolution (ADR) programs may hold the answer. In New York, we see the costs continue By Matthew Jones to rise, and fewer workers returning to work after a construction accident as greater emphasis is placed on prolonged and drawn-out medical treatment rather than on actual healing that will benefit a worker, and employers, in the long run. ADR programs offer a new route for clients who are looking to realize cost savings. At their foundation, ADR programs focus on directing injured workers to quality healthcare with an emphasis on return to work, partnering with unions to meet their needs, and delivering more timely responses and results to a worker’s injury.

Directed Care under ADR

Under the current traditional workers’ compensation model, an injured worker would receive care from their provider and the carrier or self-insured employer would have an opportunity to obtain an independent evaluation of that worker’s injuries. This process then often leads to a debate about which care provider is more credible. Under an ADR program, this litigation driver does not exist as the healthcare providers are vetted and selected well in advance of a potential injury. At least in the state of New York, ADR programs are one of the only opportunities for employers and carriers to direct claims to specific healthcare providers who have a proven track record of providing care that focuses on healing the injured and returning them to a level of health where they can work again. With traditional construction claims in particular, many workers are placed on prolonged care plans that are not designed to help them heal, but rather to maintain the status quo. Body creep, whereby 48 | INSURANCE JOURNAL | FEBRUARY 19, 2024

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the scope of injuries is expanded, is an ever-present issue and a worker who may be capable of returning to work is deemed by their provider as unable to, in the hopes of a big, but statistically unlikely, payout. Through ADR, the care process is determined in advance and the employer or insured choses the injured worker’s physician. This is currently the only way an employer can direct care in the state of New York. ADR utilizes a predefined healthcare network to cut out many of the administrative and procedural roadblocks that can delay an injured worker’s care. Through these networks, an emphasis is placed on delivering the best possible care to the injured worker and ensuring that they not only get care quickly, but that care is focused on healing and returning to work.

administrator to develop the healthcare network and build an agreement that works for all parties. As a result, ADR programs are only available to union workers in New York. This means that they do not replace traditional workers’ compensation coverage, but rather supplement it and provide a lower-cost avenue that focuses on return to work. Because of this, ADR programs have been a great way to build relationships with unions and put a greater emphasis and focus on worker health and recovery. As a result, there are no surprises when it comes to directing care in an ADR Program. This is balanced by the intermediary administrator, whose job is to ensure that those caregivers meet the standards and maintain return-to-work focus that is required for the ADR plan to function.

‘In New York, we see the costs continue to rise, and fewer workers returning to work after a construction accident as greater emphasis is placed on prolonged and drawn-out medical treatment rather than on actual healing that will benefit a worker, and employers, in the long run.’

Faster and Better Results

As a result, workers in an ADR plan have a higher-than-average chance of returning to work, all while saving construction employers the costs associated with a prolonged workers’ comp claim. This is not to say that ADR is for everyone. Since ADR programs need to be negotiated and agreed on well in advance, they are only available for union worksites and union labor. Brokers should consider this when determining if an ADR program is a fit for their clients.

A Bridge Between Unions, Construction Employers

When an ADR program is established, the employer and the unions work collaboratively with a third party as a program INSURANCEJOURNAL.COM

care providers are selected in advance, so tests are performed quickly, and proper treatment begins in a matter of days, rather than months. As building costs continue to increase, those who insure workers on job sites are facing pressure to drive costs down while simultaneously increasing return-to-work rates. Unfortunately, the traditional workers’ comp model is not built to meet that demand. Only through new measures, like ADR programs, will the industry be able to keep up and actively improve return-towork rates on job sites. Jones is vice president at Mediation Resolution Management, an ADR Program administration company in New York. Website: https://mediationres.com/.

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An example of this in action would be in the ordering of a common diagnostic tool, an MRI. Under traditional workers’ comp models, a healthcare provider’s order for an MRI will often have to go through two or even three parties before an approval can be granted. This delay only hampers a caregiver’s ability to provide care and increases the costs associated with processing that care request. With an ADR program, the process for care and the

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FEBRUARY 19, 2024 INSURANCE JOURNAL | 49

Closing Quote It’s Time for the Commercial Property Insurance Industry to Adopt Tech Efficiencies

By Alex Lyashok

uyers of commercial property insurance are facing many challenges. Rates are rising, capacity is becoming scarce (particularly in catastrophe exposed zones), and large programs, often involving dozens of insurers, are proving harder to syndicate. Today, brokers and their clients are looking for new solutions, many of which have been moving to the forefront over the last several years. Brokers in particular are expanding their toolkits. In addition to traditional roles such as placing insurance, they are helping their clients to analyze and take control of their total cost of risk, to optimize their buying strategies and to proactively manage their risks. Whether through resiliency investments or the establishment of captives, property owners are leveraging risk retention and mitigation to complement, or even supersede, traditional insurance practices. Additionally, new methods to structure, capitalize and transfer risk have emerged. Catastrophe bonds, initially designed to cover re/insurers, are increasingly being adopted by large corporations to directly hedge their risks to supplement and/or replace sources of traditional insurance coverage.

Then there are parametric policies — a type of insurance contract insuring policyholders against the occurrence of a specific event. These are outgrowths of the industry finding ways to sustain itself through a difficult period, moving fast and making changes for a dynamic risk environment. But the industry can’t let up now; commercial property markets continue to harden and higher frequencies of severe weather events (such as hurricanes, flooding, severe convective storms, and wildfires) will be likely as the climate warms. It’s time for the industry to truly embrace technology and digital transformation to ensure that insurance remains a viable solution for commercial property owners. While the commercial insurance ecosystem has traditionally been a laggard in its adoption of tech, leading insurance brokers are now well positioned to accelerate adoption of artificial intelligence (AI), software and data to accelerate the transformations needed to unlock these risk and insurance challenges, and deliver new solutions for their corporate clients. Brokers have traditionally been relationship-driven firms, yet in recent years, leading intermediaries have been reinventing themselves. Embracing technology further can accelerate these trends. But for tech to truly shine, brokers first need to help their clients overcome the “original sin” of this market, which is the inconsistency of accurate, trusted, granular and action-

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able data about the underlying insured exposures and their risks. Take the markets’ pervasive use of spreadsheets, and in particular the notorious “Statement of Values,” which stand as the most stubborn holdover of past processes in an analog insurance ecosystem. Disconnected, incomplete, inconsistent and often inaccurate, this state of data cannot serve as the critical lifeblood needed for more analytically rigorous risk management decisions.

Connected Data Networks

Insurance brokers must now use technology to establish the data networks needed to efficiently source, verify and connect their clients’ property exposure and risk data, and establish the data-driven workflows that enable them and their clients to make more proactive and analytically-driven risk management decisions. Connected data supports connected decisions along the full continuum of risk management action — from the due diligence owners perform when developing and acquiring new property assets,

to the accurate valuation of the exposures and quantification of the risks, to the investment to mitigate existing properties’ vulnerabilities and increase their resiliency, to the optimization of risk retention and insurance programs. Connected, trusted and actionable data will also enable brokers to extend and improve their placement syndicates, sourcing the widest and best sources of insurance capacity for their clients’ programs. By reducing the friction for underwriters, brokers can better compete for scarce capacity and improve their clients’ outcomes. Better yet, connected data can unlock entirely new and alternative sources of risk capital to supplement or circumvent the constraints of traditional markets. It’s time to connect the property risk market in a truly seamless fashion. Commercial insurance brokers, at the critical intersection of corporate buyers and risk transfer markets, are ideally positioned to adopt the tech necessary to make this happen. Lyashok is the CEO of Archipelago. INSURANCEJOURNAL.COM

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