Insurance Journal West 2024-05-20

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Opening Note

Wildfire Risk

While the overall number of wildfires per year is declining, the increasing size and intensity of fires have led to more property damage than ever before. The average fire size has tripled over the past 30 years, according to a recent report by CoreLogic.

Wildfire activity is cyclical and doesn’t follow a uniform pattern from season to season. In 2023, when an El Niño weather pattern brought increased moisture to the West and South, the U.S. experienced a 25-year low in total area burned. Reports showed 2.7 million acres (4,209 square miles) burned that year from wildfires. In 2022, nearly triple that area burned, with fires touching 7.57 million acres (11,839 square miles).

In the first four months of 2024, 1.75 million acres have burned in the U.S. This is primarily due to the largest fire recorded in Texas history, which scorched more 1 million acres. State lawmakers have faulted a power pole for starting the massive blaze. While this blaze burned mostly farmland, many other smaller wildfires have struck near homes in Texas recently.

According to federal data cited by the National Park Service, humans cause about 85% of all wildfires yearly in the United States. In 2023, a small fire sparked by a lawnmower came within a mile from my home. Preparing to evacuate my entire life was surreal to say the least. Thankfully, our amazing fire service extinguished the blaze before it took over my own block.

“While the number of fires per year is in decline, the increasing size and intensity of those fires is creating more property damage than ever before,” wrote Tom Jeffery, Ph.D., author of the report out from CoreLogic.

Humans cause about 85% of all wildfires yearly in the

United States.

CoreLogic conducts an annual analysis of the wildfire hazard by calculating the residential exposure to higher categories of wildfire risk and the reconstruction cost of properties to produce the top 15 core-based statistical areas in the U.S. for wildfire exposure. All the metro areas on the list are in the West, six of which are in California. Austin, Texas, my hometown, is number seven.

Los Angeles tops the list with 185,763 properties at a higher risk and at a reconstruction value of $143.3 billion.

The rest of the top 10 are Riverside (166,372 at $86.6 billion), San Diego (123,060 at $75.6 billion), Sacramento (91,475 at $53.2 billion), San Francisco (56,985 at $40.2 billion), Oxnard (39,918 at $27.4 billion), Austin (64,768 at $27.3 billion), Denver (51,371 at $25.9 billion), Truckee (43,674 at $20.9 billion) and Colorado Springs (39,854 at $17.4 billion).

The report also notes that many of the high-extreme wildfire risk areas are in states that lead the nation in housing shortages, which means many homes will be built in the wildland-urban interface, raising risks for properties and people alike.

For more information or to read the full report visit: https://www.corelogic.com/intelligence/top-15-us-metros-wildfire-risk/.

Andrea Wells V.P. of Content

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

Chief Executive Officer Joshua Carlson | jcarlson@insurancejournal.com

ADMINISTRATION / CIRCULATION

Chief Financial Officer Terry Freeburg | tfreeburg@wellsmedia.com

Circulation Manager Elizabeth Duffy | eduffy@wellsmedia.com

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: Elizabeth Blosfield, Scott Freiday, Angelo J. Gioia, Lee Shavel, Charles Symington, Daniel Wiessner

Columnists: Chris Burand, Mary Newgard, Catherine Oak, Bill Schoeffler, 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

“Price,

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News & Markets

30% of Business Leaders Say Global Political Risk Is Their Biggest Threat

By Jahna Jacobson

Sixty-five percent of North American business leaders fear this election year will impact their ability to trade internationally, with 32% of leaders in the United States saying political risk is their number one threat.

In January, Beazley surveyed over 3,500 business leaders in the U.S., Canada, the U.K., Singapore, France, Germany and Spain.

The results, published in Beazley’s Risk & Resilience Report: Geopolitical Risk Snapshot 2024, found that 30% of international business leaders believe that political risk is the biggest threat they face this year, with 36% believing they are operating in a high-risk environment.

In this ‘year of the election’, when over 60 countries are holding major elections, businesses worldwide face significant political uncertainty, said Chris Parker, head of terrorism and deadly weapons protection at Beazley.

In the U.S., where a presidential election is looming, and the events of January 2021 are still front of mind for many, 25% of U.S. business leaders surveyed feel unprepared to deal with the political risks they face.

Globally, the Russian conflict against Ukraine continues to threaten peace in Europe, the conflict in Gaza risks igniting further unrest across the Middle East region, and concern over a Chinese

international firms looking to support the global energy transition, particularly in politically unstable regions. Twenty-seven percent of executives in the global energy and mining sectors say they are unprepared to deal with war and terrorism risks. These challenges have left businesses worrying about their ability to trade internationally.

“While previously some property insurance policies gave firms some cover from the risks associated civil unrest, property carriers have begun to exclude this risk, proving the importance of having standalone political violence and strikes, riots and civil commotion cover.”

invasion of Taiwan remains. In addition, there have been nine coups in West Africa, Central Africa and the Sahel region since 2020.

Lenders increasingly demand political risk protection, including trade credit risk, terrorism and war insurance coverage, for

Roddy Barnett, Beazley’s head of political risks and trade credit, said specialty insurance can play a vital role in providing financial reassurance to businesses.

“With growing political tensions across the globe, standalone cover for political risk and trade credit, political violence, strikes, riots and civil commotion is increasingly important,” Barnett said. “As businesses become exposed to a growing range of perils, the need to move away from pure terrorism cover is apparent, with businesses in major Western democracies being particularly affected.”

Businesses need proactive contingency plans for macroeconomic and political risks that they are exposed to, said Matthew Dunne, focus group leader, U.S. political risk & trade credit at Beazley.

“Diversification of supply, understanding local investment risk, having cover in place before something happens are all vital to building a robust risk mitigation strategy,” Dunne said.

News & Markets

Q1 Global Insured Natural Disaster Losses Driven by Severe Convective Storms: Aon

By L.S. Howard

Global natural catastrophes cost insurers $17 billion during the first quarter of 2024 with economic losses rising above $45 billion, according to Aon’s Q1 Global Catastrophe Recap –April 2024.

Q1 natural disaster losses were driven by severe convective and winter storms in the United States, as well as windstorms and flooding in Europe, and the earthquake in Japan, the Aon report said. The global Q1 insured losses of $17 billion were close to the average since 2000 ($16 billion) and higher than the median of $12 billion for that period. However, it is a significant drop from the “exceptional losses” seen in Q1 of 2023 ($30 billion), driven by elevated severe convective storm activity (SCS) in the U.S., according to Aon.

This year’s global insured losses were once again driven by SCS and winter weather events in the U.S., the report said, noting that disaster events in the U.S. accounted for roughly three-quarters of global insured losses in Q1-Q3 of 2023, or more than $13 billion.

Insured losses from SCS, winter weather and flooding across the U.S. in Q1 2024 were preliminarily estimated at nearly $13 billion, well above the 21st century average of nearly $7 billion, the report said. “Both figures are significantly less compared to Q1 insured losses from last year (above $19 billion), which featured several costly SCS events.”

Similar to 2023, the costliest Q1 2024 insured loss event in the U.S. also came from a severe weather event when large hail and multiple violent tornadoes hit the south central Great Plains to Ohio during the period March 12 – March 16, said Aon, noting that these weather events could cost insurers approximately $3.4 billion. Economic losses of $45 billion, were lower than the 21st century Q1 average of $59 billion and significantly lower than losses of $149 billion reported during Q1 2023. (Economic losses include insured and uninsured losses).

The remains of mobile homes are visible following a severe storm on Friday, March 15, 2024, in Lakeview, Ohio. (AP Photo/Joshua A. Bickel)

The costliest event of the first quarter from an economic loss perspective was the Noto Earthquake in Japan, which had an economic price tag of $17.6 billion, the report said, quoting preliminary government estimates. Aon said insured losses from the earthquake, which occurred on Jan. 1, could top $1 billion.

Despite the economic losses from the quake, Aon said, winter storms drove insured losses due to the higher levels of insurance coverage for such events, particularly in the U.S. At least four events during the quarter topped $1 billion in insured losses, while there were 12 billion-dollar events included in the category of economic losses. Eight of those events occurred in the U.S., two in South America and two in Asia.

Additional findings from the report include:

• The upcoming North Atlantic hurricane season is expected to be “extremely” active — with an average number of 11 hurricanes.

• The insurance protection gap (or the difference between total economic losses and the amount covered by insurers) was estimated at 64%; only 36% of global economic losses were insured.

• From a regional perspective, the APAC region accounted for the largest portion of global economic losses with a current preliminary estimate of $20 billion, largely due to the Noto quake.

• The U.S. has already seen more than triple the 10-year average of acres burned by wildfires thus far in 2024, driven by heightened wildfire activity in Texas and Oklahoma in February and March, which led to the costliest Q1 insured loss total from wildfires on record.

• Chile faced its worst disaster since 2010 in February, when a series of devastating wildfires aided by strong winds and prolonged heatwaves broke out in Central Chile. At least 131 lives were lost, approximately 1,100 injured and hundreds remain missing. Thousands of buildings were damaged, putting current estimated economic losses close to $1 billion, with notable losses to the local insurance sector.

• The months of January through March ranked as the warmest for the globe dating to 1850, according to NOAA. March 2024 became the 10th consecutive warmest month globally.

• More than 1,500 people globally were killed in catastrophes, which is significantly lower than the long-term average

Figures

The amount of a federal grant the state of New Hampshire is receiving to help reconstruct coastal seawalls eroded by storms and flooding. The grant, announced by Federal Highway Administrator Shailen Bhatt at Rye Harbor State Park, will help bolster stone barriers along Route 1A in North Hampton and Rye in Rockingham County to reduce flooding, structural damage and post-storm cleanup time to ensure smoother travel.

$8.7 Million

The amount the delivery company DHL will pay to settle a class race discrimination lawsuit filed by the U.S. Equal Employment Opportunity Commission (EEOC), the agency reported. DHL will also be subject to the oversight of a court-appointed monitor. The EEOC charged in its suit that DHL assigned its Black employees to routes in neighborhoods with higher crime rates compared to those assigned to its white drivers, gave Black employees much heavier dock work, and segregated its Black and white employees.

The number years in prison Tyburious M. Heyward, who South Carolina authorities have called a ringleader of an insurance fraud ring and who once recruited accomplices while he was in prison, will serve after pleading guilty to staging accidents and defrauding insurers of more than half a million dollars. Heyward, who previously served time for similar offenses, is one of dozens of people arrested in connection with the accident-staging ring in the last two years.

$80.2 Million

The amount Zurich North America was ordered by a California jury to pay three former employees to end a wrongful termination case. Melinda Brantley, Nicholas Lardie and Daniel Koos worked as claims examiners in Zurich’s Rancho Cordova branch but were fired late in 2017 over the use of “off the record” paid time off — utilized by then manager Chris Omen as an employee incentive, according to the Bohm Law Group, who represented the plaintiffs. The incentive was offered without reducing PTO. After investigating the practice, Zurich claimed the employees stole time from the company but the jury sided with the employees.

Declarations

E&S Momentum

“As far as we can see, the momentum for the liability lines continues to be as strong as ever. … To the extent you’re seeing any slowing in the momentum of E&S, it’s likely to be property related.”

— W.R. Berkley CEO W. Robert Berkley Jr. told analysts on a conference call to discuss first quarter earnings. Addressing suggestions that the E&S market is, in general, losing momentum, Berkley noted the difference between liability and property lines. There remains opportunity within the property line, but momentum is not what it was last year, he added.

Maine Climate Action

“Our generation will inherit a state overwhelmed by carbon emissions and climate change — with damage to the environment, to marine life, and to our own health — if we can’t start making these changes now.”

— Said Cole Cochrane, policy director of Maine Youth Action, after the group filed a lawsuit, along with the Conservation Law Foundation and the Sierra Club, against the state of Maine to try to force it to reduce carbon emissions in the era of climate change. The lawsuit says the Maine Department of Environmental Protection is under an “existing and ongoing statutory obligation” to reduce emissions and has failed to do so, according to an Associated Press report.

Sargassum Blooms

“Sargassum is becoming a devastating mainstay in parts of Florida’s coastal communities, particularly in the Florida Keys, where massive blooms continue to recur.

… Economically, a ‘severe’ Sargassum event could have more than a $20 million impact in just the Keys alone.”

— Brian Lapointe, principal investigator and a research professor at Florida Atlantic University Harbor Branch, said in a statement. Researchers at FAU are using a $1.3 million grant to see if huge blobs of seaweed can be harvested to help mitigate the economic impact on Florida beaches. The blooms can produce hydrogen sulfide and ammonia, making them harmful to humans and sea life — and discouraging to tourists.

Hawaii Housing Shortage

“This fire uncovered a clear truth, which is we have too many short-term rentals owned by too many individuals on the mainland and it is b———t. … And our people deserve housing, here.”

— Hawaii Gov. Josh Green blurted out during a recent news conference about the Aug. 8 wildfire on Maui, which killed 101 people and destroyed housing for 6,200 families, amplifying Maui’s already acute housing shortage and laying bare the enormous presence of vacation rentals in Lahaina. Short-term rentals are an issue across Hawaii, and the fire has prompted lawmakers to consider bills that would give counties the authority to phase them out.

Crop Insurance

“Crop insurance is an essential piece of the farm safety net, providing farmers with their most important risk management tool as they work to continue providing Americans with the highest quality, lowest cost food supply in the world.”

— Sen. John Hoeven (R-N.D) said in a statement introducing the Federal Agriculture Risk Management Enhancement and Resilience (FARMER) Act, an amendment to the farm bill that would increase premium support for higher levels of crop insurance coverage. Hoeven said the bill would enhance affordability and reduce the need for ad-hoc disaster assistance. In addition to Hoeven, the act is co-sponsored by Sen. Chuck Grassley (R-Iowa) and Joni Ernst (R-Iowa).

UnitedHealth Group Hack

“This attack was conducted by malicious threat actors, and we continue to work with the law enforcement and multiple leading cybersecurity firms during our investigation.”

— UnitedHealth Group Chief Executive Andrew Witty told CNBC on April 22. UnitedHealth said hackers stole health and personal data of potentially a “substantial proportion” of Americans from its systems in February. The intrusion at its Change Healthcare unit, which processes about 50% of U.S. medical claims, was one of the worst hacks to hit American healthcare and caused widespread disruption in payment to doctors and health facilities.

News & Markets

‘Dirty

Dozen’ Unsafe Employers Putting Workers at Risk

Aretail giant, a space launch operation, a major food processor, the nation’s two biggest rideshare providers and a large healthcare system are among those entities marked as being among the most unsafe employers.

The National Council for Occupational Safety and Health released a list of its “Dirty Dozen” employers of 2024, examples of employers that National COSH asserts put workers and communities at risk due to unsafe practices, which reportedly lead to preventable illnesses, injuries and fatalities.

According to the National COSH, several of the entities on the list also engaged in harassment and retaliation against workers who spoke out about their safety concerns. The group held a webinar, which included testimonials from some of the workers at the named-companies.

Cindy Smith has been a server at Waffle House for 30 years. In that time, she said she has been robbed twice and has dealt with numerous customer incidents that could have been curtailed. “I’m scared to death every time I leave this house,” said Smith, who is a member of the Union of

Southern Service Workers. “I worry if I’m going to come home to my family.”

Her union has held strikes and protests in an effort to force Waffle House to be more proactive in protecting the safety of its workers. “It is a multi-billion-dollar corporation, they can afford to have security at every location,” Smith added.

Former Costa Farms worker Ana Mejia has worked in the agriculture industry for 11 years. She said she has twice had symptoms of heat exhaustion while working, including dizziness, palpitation and rashes.

“I have suffered from the extreme heat,” she said. “Once they took me to the nurse at work, and it was very sunny, but the nurse was not there.” Those who were there could do little more than give her a drink in the shade and wait for her to feel better, she said.

Lyft driver J.C. Muhammad shared a story of being harassed and attacked by a rider. The incident motivated him to demand greater safety measures for drivers, such as requiring ID from riders and people who request rides for others, the ability to collect information needed to file police reports when needed and clear warnings for riders outlining the consequences of physically attacking drivers.

“All those things need to be in place to

Ban on Worker Noncompetes Faces Uphill Legal Battle

By Daniel Wiessner

The U.S. Federal Trade Commission’s ban on “noncompete” agreements commonly signed by workers is likely vulnerable to legal challenges, experts said, as some courts have grown increasingly skeptical of federal agencies’ power to adopt broad rules.

The commission, in unveiling the rule, said agreements not to join employers’ competitors or launch rival businesses suppress workers’ wages and stunt their mobility and job opportunities. About 30 million people, or 20% of U.S. workers, have signed noncompetes, the agency said.

Business groups led by the U.S. Chamber of Commerce, tax services firm Ryan LLC, and a Pennsylvania tree trimming company have filed three lawsuits claiming that the FTC, which enforces antitrust laws, lacks the power to determine which business practices amount to unfair competition and should be banned.

The Chamber moved to block the rule from taking effect pending the outcome of its lawsuit. The challenges are likely to delay implementation of the rule, which is set to take effect in August. In the end they may doom the measure, as the FTC has staked out a novel and unprecedented position regarding its rulemaking powers, several lawyers and other experts said.

The FTC rule may also be invalid because it addresses a “major question” with broad implications for the U.S. economy, which the U.S. Supreme Court has said agencies can only undertake with explicit authorization from Congress, lawyers said.

The FTC lacks that authority, and Congress itself has declined to pass proposed bans on noncompetes, said Jeremy Merkelson, a partner at law firm Davis Wright Tremaine in Washington, D.C., who represents employers. “I think the Supreme Court has all it needs to rule that the FTC’s big swing was not greenlit by the legislative branch,” Merkelson said.

The commission will also have to contend with a battery of conservative

protect drivers on the road,” Muhammad said.

The “Dirty Dozen” list was selected by the National COSH team, with nominations from local COSH groups, worker centers, unions, and worker leaders and advocates.

The selection criteria included:

• Severity of safety risks to workers

• Repeat and serious violations of safety standards and applicable laws

• The position of a company within its industry and the economy and its ability to influence broader workplace standards

• Presence of a campaign by workers or allies to correct health and safety problems.

National COSH says statistics show that preventable fatalities in U.S. workplaces are increasing, as are preventable illnesses and injuries. U.S. Bureau of Labor Statistics show 5,486 U.S. workers died from sudden workplace trauma in 2022, a 5.7% increase in preventable deaths from 2021. BLS statistics also show 2.8 million U.S. workers suffered workplace injuries and illnesses in 2022, a 7.5% increase from 2021.

Following are the entities and National COSH’s summary of its reasoning for their inclusion on the list:

Alabama Department of Corrections: Forced labor in Alabama prisons disproportionately targets Black men and women, who face hazardous working conditions

judges who have shown a willingness to block major government policies and rein in the power of federal agencies, including the Supreme Court’s conservative supermajority.

The Tyler, Texas, court where the Chamber filed its lawsuit has been “a pretty effective firewall against questionable Biden administration rulemaking,” said Gregory Hoff, director of labor and employment policy at the business-backed HR Policy Association. The court’s lone judge, J. Campbell Barker, is an appointee of Republican former President Donald Trump. Ryan’s lawsuit has been assigned to another Trump appointee, U.S. District Judge Ada Brown in Dallas. Any appeals in those cases will be heard by the New

and make $2 a day or less.

Ascension: Severe staff cuts create unsafe conditions for patients and workers at the nation’s largest Catholic healthcare system.

Black Iron/Xl Concrete: One worker dies from electrocution; another loses a thumb at a company with 29 OSHA violations during the past decade.

Costa Farms: In 2021, a worker dies from heat exhaustion at a Costa Farms nursery in Miami. Two years later, company executives lobby against a Miami-Dade heat safety ordinance.

Florence Hardwoods: In June 2023, 16-year old Michael Shuls is crushed to death inside a stalled conveyor at a lumber mill in northern Wisconsin. The company has been previously cited for failure to properly lock out and guard machinery — the same hazards that killed Shuls.

Mar-Jack Poultry and Onin Staffing: Duvan Pérez, an immigrant teenager, is killed at this poultry firm, which has a history of safety violations. Teenagers are prohibited from working hazardous jobs and Mar-Jac blames Onin Staffing for illegally hiring Pérez. But Onin denies it was Pérez’s employer.

Space X and The Boring Company: Workers suffer crushed limbs, amputations, chemical burns and a preventable death at companies owned by billionaire Elon Musk. Workers say Musk is obsessed

Orleans-based 5th U.S. Circuit Court of Appeals, where 12 of the 17 judges were appointed by Republican presidents.

In a statement, the FTC said federal law is “crystal clear” that the agency has broad rulemaking powers to address anticompetitive conduct. It also defended that authority in the 570-page rule itself, relying heavily on decisions by U.S. appeals courts from 1973 and 1985 that upheld agency rules requiring fuel distributors to determine the “octane rating” of gasoline and mail order companies to ship products within advertised time frames.

But those rules were not as sweeping as the noncompete ban that touches every sector of the economy, and the 5th Circuit is not bound to follow prior rulings from

with speed, but disregards safety.

Tyson Foods: Six workers have died on the job at Tyson since 2019, and more than 140 others have suffered injuries from hazardous ammonia leaks. The company is also under investigation for assigning children to dangerous, high-risk jobs.

Uber And Lyft: More than 80 mobile app workers have been killed on the job since 2017. Internal documents show 24,000 “alleged assaults and threats of assault” against Uber drivers.

Valor Security and Investigations: The New York City firm is indicted for selling fake safety certificates, endangering workers who never receive any training. Construction worker Ivan Frias — with a “certificate” from Valor but never trained — falls to his death in 2022.

Waffle House: Restaurants in this 24-hour, 365-days-per-year chain “have developed a reputation as a hotbed for violence.” A worker was shot and killed in 2022, with multiple shootings already in 2024.

Walmart: In 2022, Janikka Perry, pressured to avoid taking sick time, dies alone and crying out for help in a Walmart bathroom. Her family and colleagues demand better sick leave policies — and protections from workplace violence. Walmart stores have been the scene of more than 1,100 shooting incidents since 2014, resulting in over 300 deaths.

other appeals courts, said Damian Cavaleri, a New York-based lawyer who has represented employers and workers.

“It’s likely the 5th Circuit will create a split and it will go up to the Supreme Court, and I wouldn’t expect (the court’s conservative majority) to shy away from addressing the issue,” he said.

Copyright 2024 Reuters.

Business Moves

National

Lancashire Insurance

Lancashire Insurance, a subsidiary of Lancashire Group, has been launched as an excess and surplus insurer in the United States.

Lancashire Insurance US (LUS) operates under a delegated underwriting arrangement with Lancashire’s UK platform and is focused on the U.S. excess and surplus market, with initial products being energy casualty and property.

LUS will conduct insurance commerce under Lancashire Insurance (US) LLC, doing business as Lancashire Insurance Specialty Services across the U.S.

Huw Jones, previously group head of Specialty Insurance, has been named CEO of Lancashire Insurance US (LUS).

Arch Insurance North America, Allianz Global Corporate & Specialty

Arch Insurance North America, part of Bermuda’s Arch Capital Group Ltd., has agreed to acquire Allianz Global Corporate & Specialty’s U.S. MidCorp and Entertainment businesses for a cash consideration of $450 million.

The transaction includes risk transfer for Allianz, as Arch is assuming approximately $2 billion of loss reserves associated with the business. The cash payment from Arch, together with an estimated $1 billion of Allianz capital supporting the business, is expected to result in $1.4 billion of total transaction value for Allianz Group.

The businesses subject to sale are underwritten by Fireman’s Fund Insurance

Co. and its subsidiaries, namely American Automobile Insurance Co., Chicago Insurance Co., Interstate Fire & Casualty Co., and National Surety Corp. Collectively these businesses wrote $1.7 billion of gross premium written in 2023, AGCS said in a statement. (AGCS is Allianz Group’s dedicated carrier for corporate and specialty insurance business. Allianz purchased Fireman’s Fund in 1990.)

Approximately 500 employees from Allianz, which include underwriting, claims and other professional staff, are expected to transfer to Arch as part of the agreement, the companies said.

AGCS U.S. said going forward it will focus on its large corporate and specialty business.

Subject to regulatory approvals, the deal is expected to close in the second half of 2024.

Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC are acting as financial advisers to Arch, and Willkie Farr & Gallagher LLP is serving as the company’s legal adviser.

Arch Insurance North America, which includes Arch’s insurance operations in the United States and Canada, wrote approximately $5.8 billion of gross premium in those regions in 2023. The company offers a range of property/casualty and specialty insurance across market segments.

Business in the U.S. is written by Arch Insurance Co., Arch Specialty Insurance Co., Arch Property & Casualty Insurance Co., and Arch Indemnity Insurance Co. Business in Canada is written by Arch Insurance Canada Ltd.

In March 2023, Allianz announced it would restructure its global commercial insurance segment, which includes AGCS, as one go-to-market business under the trading name Allianz Commercial.

Chubb, Health Paws

Whitehouse Station, New Jersey-based Chubb said it is acquiring managing general agent Healthy Paws from Aon plc. Chubb has been the exclusive underwriter of Healthy Paws’ pet insurance program for Aon since 2013.

Terms of the deal were not disclosed.

Jon Harris, president and chief operating officer of Seattle-based Healthy Paws, will continue to lead the business. The companies said their long relationship will support accelerated growth and a seamless transition for employees, customers, and business partners.

Healthy Paws was founded in 2009 and currently serves more than 500,000 dogs and cats in the U.S. The company provides program and claims administration via a digital proprietary platform.

Midwest

ALKEME, Ralph Weiner & Associates

ALKEME has acquired Ralph Weiner & Associates, a retail insurance agency based in Wheeling, Illinois.

Established in 1951, Ralph Weiner & Associates has earned acclaim for its specialized focus on the long-term health care facility space, fostering enduring relationships and delivering customer service.

South Central

Arthur J. Gallagher, Fontenelle & Goodreau Insurance

Arthur J. Gallagher & Co. has acquired Metairie, Louisiana-based Fontenelle & Goodreau Insurance LLC.

Terms of the transaction were not disclosed.

Fontenelle & Goodreau Insurance offers commercial property/casualty coverages, specializing in large apartment accounts in the Louisiana market with capabilities nationwide. Charlie Fontenelle and his

team will remain in their current location under the direction of Bumpy Triche, head of Gallagher’s Southeast retail property/ casualty brokerage operations.

Inszone, Talerity LLC

Inszone Insurance Services announced the strategic acquisition of Talerity LLC, a specialized insurance agency focusing on professional liability for medical providers.

Talerity is based in San Antonio, Texas.

Founded in 2008 by Cary Smith, Talerity has carved a niche in the insurance landscape with its forward-thinking approach to risk management for healthcare providers. Talerity focuses on delivering tailored strategies that empower medical practitioners to enhance patient care, minimize errors, and thrive in their practices.

The acquisition comes on the heels of Inszone Insurance’s strategic appointment of Amy Hieatt as executive vice president — North American Health Care Practice leader, signaling a reinforced focus on the healthcare sector.

Southeast

King Insurance Partners, Prestige Insurance, The Dave Alton Agency

King Insurance Partners, the Gainesville, Florida-based brokerage, acquired Prestige Insurance, with offices in Vero Beach, Florida.

Michele Anania is principal of the 25-year-old Prestige agency, which focuses on home, commercial and life insurance coverage in southeast Florida.

Terms of the deal were not disclosed.

King Insurance Partner also has added The Dave Alton Agency, with offices in Greenville, Plymouth and Washington, North Carolina, to its line up.

The Alton agency, in business for two decades, offers homeowners, auto, commercial, farm and life coverage and writes in seven Southeast states as well as Minnesota. Dave Alton is owner and Holly Schmitt is agency manager.

OakBridge Insurance, Strawn & Co.

Atlanta-based OakBridge Insurance Agency has continued to expand with the acquisition of Strawn & Co., headquartered

in McDonough, Georgia, south of Atlanta. Strawn has been in operation since 1972. The agency offers personal and commercial solutions and has offices in McDonough, Peachtree City, WarnerRobbins, Zebulon, Locust Grove and Eatonton. Rusty Strawn is principal of the firm. He and the Strawn team will remain with the operation.

Oakbridge, founded in 2020, has said it offers a partnership model for agencies looking for accelerated growth. The firm has grown rapidly in the last four years through acquisitions and partnerships across the country.

West

World Insurance Associates, InterWeb Insurance

World Insurance Associates LLC acquired the business of InterWeb Insurance in Lake Havasu City, Arizona. InterWeb was founded in 2008 and primarily provides commercial insurance, focusing on errors and omissions coverage for customers in the financial services sector.

World Insurance Associates LLC, headquartered in Iselin, New Jersey, is an insurance organization providing individuals and businesses with products and services across personal and commercial insurance, employee and executive benefits, retirement planning and financial planning services and human capital management solutions.

Alliant

Insurance Services, Advanced Benefits

Alliant Insurance Services, headquartered in Irvine, California, acquired Advanced Benefits, based in Coeur d’Alene, Idaho.

Founded in 1993, Advanced Benefits offers employee benefit programs, and HR and compliance services.

The entire Advanced Benefits team will join Alliant.

GeoVera Insurance Holdings

GeoVera Insurance Holdings, headquartered in Fairfield, California, entered into a definitive agreement to sell its insurance

carriers and managing general agent businesses.

Upon completion of the deals, a newly formed entity, GeoVera Nova Holdings Inc., will control four insurance operating subsidiaries: GeoVera Insurance Co., GeoVera Specialty Insurance Co., Coastal Select Insurance Co., and SafePort Insurance Co., a property-focused insurance carrier.

Additionally, the MGA operations of GeoVera will be acquired by SageSure, an MGA focused on catastrophe-exposed markets, and GeoVera Nova will become a carrier partner of SageSure.

As part of the transaction, GeoVera’s existing investors, including Flexpoint Ford, New Capital Partners and AXA XL, will exit as shareholders.

The transaction is expected to close in the fourth quarter of 2024, subject to the receipt of required regulatory approvals and other customary closing conditions.

GeoVera is a provider of specialty property insurance products focused on catastrophe-exposed properties in the earthquake and wind markets, operating on both an admitted and surplus lines basis. In addition to Fairfield, California, GeoVera has offices in Sheboygan, Wisconsin, and Jacksonville and Tampa, Florida.

SafePort has a reported 50,000 policyholders and more than $165 million in premium. SafePort offers homeowners, dwelling fire, and commercial coverage through SageSure, SafePort’s program manager. SageSure is an MGA specializing in coastal residential and commercial property insurance.

Omaha National Group, Sutter Insurance

Omaha National Group Inc. acquired Sutter Insurance Co., a California domiciled carrier.

Sutter Insurance has been renamed Omaha National Casualty Co. Omaha National also owns Omaha National Insurance Co., which is domiciled in Nebraska.

Omaha National, now licensed to issue policies in 37 states, is a provider of workers’ compensation insurance with more than 250 employees and nearly $200 million of reported premium.

People National

Hiscox, headquartered in Hamilton, Bermuda, named Leigh Hellrung as chief operating officer in the U.S.

Hellrung brings over 20 years of industry experience to the role.

Before joining Hiscox, Hellrung was head of workplace solutions service operations at Farmers Insurance and previously served as director, strategy and planning, at Zurich Financial Services.

Farmers Insurance added Eric Coleman as president of Business Insurance.

ence. Most recently, he spent 16 years in various leadership positions in marine claims at Liberty Mutual.

McGill and Partners, headquartered in London, appointed Duncan Milne and Cabot Lyman as partners to the firm’s U.S. property team.

Milne joins as a partner and head of U.S. property. He brings over 16 years of industry experience, most recently serving as the Greater New York property leader at Aon.

Harrisburg branch manager, will succeed Scheffler. In her new role, Scheffler will be responsible for the execution of the business’s growth and portfolio management plans.

Graham will lead local delivery of Chubb’s offerings through retail distribution partners in Delaware, Maryland, Pennsylvania, Southern New Jersey, Washington, D.C., Virginia and West Virginia.

AXIS Capital Holdings

Limited appointed Pauline Morley as head of E&O in the U.S.

Boston.

McDougald previously worked at Marsh for 34 years, serving in various leadership roles in New York and Boston.

Maryland

Insurance

With more than 20 years of insurance industry experience, Coleman comes to Farmers from Nationwide where he held various senior leadership roles in its commercial business over the course of his career.

Berkshire Hathaway Specialty Insurance (BHSI), headquartered in Boston, expanded its global marine capabilities in the U.S., launching ocean marine insurance.

BHSI named Ben Wyatt as head of marine and Chris Frick as head of marine claims in the U.S. Both Wyatt and Frick are based in New York.

Wyatt comes to BHSI with more than a decade of experience in marine insurance. He was most recently head of cargo at Ascot Group.

Frick has more than 30 years of insurance industry experi-

Cabot joins McGill and Partners as partner, U.S. property, bringing a decade of experience from Aon, where she served as senior vice president and team leader in the property practice.

East

Berkshire Hathaway Specialty Insurance (BHSI) promoted Amy Bowman to head of multinational. She was previously vice president of multinational.

Bowman has more than two decades of experience as an attorney and in insurance leadership. She joined BHSI in 2014.

Chubb promoted Melissa Scheffler to chief operating officer of Personal Risk Services (PRS).

Currently, Scheffler serves as regional executive officer for the Mid-Atlantic region. Bryce Graham, who currently serves as the Philadelphia and

Morley joins AXIS with more than 35 years of professional liability underwriting and leadership experience. Most recently, she served as senior vice president, miscellaneous professional liability and architects and engineers liability at Argo Pro.

Commissioner Kathleen A. Birrane has announced she plans to resign effective June 30 and to return to private practice at DLA Piper, the law firm where she was a partner until being appointed commissioner in May 2020.

Birrane was appointed to lead the Maryland Insurance Administration by Gov. Larry Hogan in 2020 and confirmed by the Senate in 2021. She remained as insurance commissioner after Gov. Wes Moore took office.

Midwest

Jodi Rosensaft joined Alliant Insurance Services, headquartered in Irvine, California, as managing director, advisory leader — representation and warranties insurance, Alliant Specialty, in the company’s mergers and acquisitions (M&A) vertical. She is based in New York.

Before Alliant, Rosensaft served as transactional risk chief strategy officer for North America at Marsh.

Victor, headquartered in Bethesda, Maryland, appointed Tim McDougald president of its Victor U.S. specialty underwriting business. He is based in

Leif Assurance, headquartered in St. Louis, hired Vincent Sanfilippo as a construction risk advisor.

Sanfilippo has more than 15 years of experience in insurance and construction. He most recently served as operations manager at Parker Land Group.

Applied Underwriters, headquartered in Omaha, Nebraska, named Gregg Holtmeier vice president of strategic development.

Holtmeier has been in the insurance and reinsurance fields since 2000. He

Leigh Hellrung

Eric Coleman

Duncan Milne

Cabot Lyman

Jodi Rosensaft

Kathleen Birrane

Vincent Sanfilippo

previously served as chief strategy officer and executive vice president (EVP) at BMS Group, EVP at Guy Carpenter and EVP at JLT Re.

Alera Group, headquartered in Deerfield, Illinois, appointed Kyle Samuel as executive vice president of national operations. Samuel brings more than 30 years of experience in the insurance industry. Before joining Alera Group, Samuel served as chief operating officer at McGriff.

RT Specialty, the wholesale distribution division of Ryan Specialty, headquartered in Chicago, promoted Jason Murrey to president of commercial lines binding authority.

Murrey joined RT Specialty in 2017 through the acquisition of N-Surance Outlets where he served as president and CEO.

South Central Berkshire Hathaway Specialty Insurance (BHSI) appointed Hart Humble head of Customer & Broker Engagement for the South Central U.S. Humble is based in Houston.

Humble has spent more than 30 years in the insurance industry. Her experience includes senior level roles in business development at insurance companies and brokers.

Southeast Tampa-based Slide Insurance named former Farmers Insurance vice president Charles “Chas” Powell senior vice president of sales.

Powell has more than 20 years in the industry and began his career at his family’s insurance agency in Florida. He most recently was vice president of independent agency distribution with Farmers/ Foremost.

Alliant Insurance Services added John Garner as a producer in its employee benefits group, based in Atlanta.

Garner was previously a benefits consultant at OneDigital and is licensed to sell health, life and accident insurance.

West

USG Insurance Services Inc., headquartered in Tampa, Florida, hired Calvin Chen as an associate producer/ broker in the company’s Irvine, California, office.

Chen has over 18 years of experience in client consulting, revenue/lead generation and sales.

Crest Insurance Group in Tucson, Arizona, named Andrew McMurrey a commercial lines broker in Tucson and hired Kyle Jacobo as an employee benefits broker in Scottsdale.

McMurrey previously served as an aircraft pneudraulic systems mechanic in the Arizona Air National Guard and a wheeled vehicle

mechanic in the U.S. Army.

Jacobo most recently worked as a financial representative at Northwestern Mutual.

WCF Insurance, headquartered in Sandy, Utah, promoted Janice Co to chief operating officer.

Co joined WCF in 2022 as the senior vice president of small business.

Kris McFarland retired from WCF as senior vice president and chief human resource officer, and Jill Christensen has been appointed to the role.

Riedley has over 37 years of experience in the insurance industry. Before joining WCF in 2017, he served as the chief underwriting officer of commercial insurance for Farmers Insurance.

Curtis joined WCF in 2020 and has served as underwriting manager, director and vice president during his tenure.

Island Insurance, headquartered in Honolulu, appointed Mike Onofrietti as senior vice president, chief actuary and chief risk officer.

Debra Chong has been appointed vice president of business services, product and data management.

Christensen joined the WCF team in 2002, starting in the claims department before transitioning to human resources in 2013. She has an extensive background in talent development, recruiting, benefits and compensation.

Onofrietti has more than 35 years of experience in the insurance industry, and has been with Island for more than 15 years.

Chong has more than 25 years of industry experience, including 18 years at Island Insurance.

WCF also promoted Bill Riedley to senior vice president of small business and Nate Curtis to chief underwriting officer of small business.

Honolulubased IC International appointed Nova Kim as vice president.

Kim has more than 30 years of experience in the insurance industry, most recently with Island Insurance as its agency partners program manager since 2010.

Kyle Samuel

Charles Powell

Calvin Chen

Andrew McMurrey

Kyle Jacobo

Kris McFarland

Jill Christensen

Nate Curtis

Mike Onofrietti

Debra Chong

Nova Kim

Janice Co

Spotlight: Political Risk

Global Election Super-Cycle Raises Risk of Political Violence, Large Insurance Losses

By L.S. Howard

Almost half the world’s population will go to the polls before the end of 2024, which raises the threat of political violence and possible large insurance losses, according to Allianz Commercial in a recent report.

An unprecedented “super-cycle” of elections around the world this year “create the potential for conflict and unrest, with rising extremism and misinformation compounding the threat,” said the report titled, “Managing the increasing threat of political violence and civil unrest.”

While large-scale terrorist attacks were the biggest losses in the political violence and terrorism insurance space in recent years, they have been overtaken in certain regions by major losses from strikes, riots,

and civil commotion (SRCC) events, according to the report.

“As unrest can now spread more quickly and widely — thanks in part to the power of social media — financial costs are mounting,” the report said.

It noted that economic and insured losses from such activity can be considerable, resulting in significant losses for companies and their insurers. “For example, economic and insured losses from just seven civil unrest incidents in recent years cost approximately $13 billion.” (See sidebar.)

The report cited the Allianz Risk Barometer, published in January 2024, which showed that businesses are more concerned about political risks and violence than they have been for many years. Political risk and violence has risen to eighth position in the list of concerns for businesses across

the globe, its “highest ranking since 2017,” when the business world was uncertain about the ramifications of the UK’s Brexit vote and the election of Donald Trump in the United States.

Anti-government protests erupted in 83 countries during 2023 (including in seven coun-

tries that had not experienced major protests in the past five years), which were “driven by factors such as high inflation, wealth inequality, food and fuel prices, climate anxieties, and concerns about civil liberties or perceived assaults on democracy,” the report said.

Increasing Demand for Political Violence Insurance

As a result of these looming threats, multinational companies are showing increasing demand for political violence insurance, the report said.

“The sustained political violence and strikes, riots and civil commotion (SRCC) activity in evidence around the world is a challenge not only for businesses but also for the broader insurance market because the coverage goes well beyond the political violence and terrorism class of business,” according to Srdjan Todorovic, head of Political Violence and Hostile Environment Solutions, who was quoted in the report.

He noted that almost all

A demonstrator runs on the third night of protests sparked by the fatal police shooting of a 17-year-old driver in the Paris suburb of Nanterre, France, on Friday, June 30, 2023. (AP Photo/Aurelien Morissard, File)

property classes of insurance offer SRCC coverage.

“Interest for political violence coverage continues to increase while reinsurance capacity and general appetite is reducing. Insurers continue to search for solutions to limit and better monitor their exposures as they note the deteriorating global situation,” Todorovic added.

“Businesses with multi-country exposures are showing a greater interest in political violence coverage than clients with smaller and simpler production and supply chains,” he said.

The report noted that political violence activity can affect businesses in many ways. “Those in the immediate vicinity of unrest can suffer business interruption losses and material damage to property or assets, while indirect damage can be inflicted on companies in the form of ‘loss of attraction’ or ‘denial of access’ to their premises,” the report said.

Business Continuity Plan

Businesses should protect their people and property by ensuring a robust business continuity plan is in place in the event of an incident, increasing security and reducing or relocating inventory if they are highly likely to be affected by an event, Todorovic recommended.

“Using scenario planning and tracking risks in areas key to their operations, particularly transport and manufacturing centers, can raise businesses’ awareness of where the risk of political violence or unrest might be intensifying,” the report said.

The report recommended that businesses should review their insurance policies. “Property policies may cover political violence claims in some cases, but insurers also offer specialist coverage via the political violence market,” it stated.

Super-Cycle of Elections

To put the risk of the super election cycle into context, Allianz Commercial pointed to the U.S.’s “headline election” in November, “when a narrow result could inflame existing tensions, particularly in the battleground states that could dictate the election’s outcome.”

“Any unrest around the November election is likely to be focused on the battleground states as well as the capital Washington DC,” said Todorovic.

The U.S. election should be viewed as a series of events, rather than a single event, the report said, quoting risk management consultants Crisis24, a partner of Allianz Commercial.

Other elections this year include EU elections in June, elections in India in April/May, in South Africa in May, and in Mexico in June.

The European Parliament elections in June “could see radical right parties gaining

votes and seats. This shift builds on electoral trends seen in Europe in 2023 and risks intensifying cultural and ideological divisions,” the report added.

“The rise of far right and populist politics in Europe is a cause for concern because polarization and unrest within societies are fueled by fear. They undermine trust in institutions and challenge people’s sense of a common purpose built on shared values,” Todorovic said.

“So many elections in one year raise concerns about the fueling of populism and polarization, with tensions playing out in heightened civil unrest. In addition, we expect to see increased activity around environmental issues, not only from activists, but also from those who are pushing back against government climate mitigation policies,” Todorovic added.

Mounting Costs of Civil Unrest

Economic and insured losses from the seven civil unrest incidents listed below cost approximately $13 billion, collectively, according to Allianz Commercial.

Damages to infrastructure and output in Peru during protests between December 2022 and late January 2023 had a price tag of $1.3 billion.

Economic losses suffered by Colombia in 2021 during anti-government protests were $3 billion.

Insured losses after the 2019 demonstrations in Chile were $3 billion.

Insurance claims for the South Africa riots of July 2021 were $1.9 billion.

Insured losses after unrest in the US following the death of George Floyd in 2020 topped $2 billion.

The Yellow Vest or Gilets Jaunes protests in 2018 in France cost retailers $1.1 billion.

Estimated insured losses from riots in France in 2023, following the shooting of teenager Nahel Merzouk by police were $1 billion.

Spotlight: Cyber

How Do Insurers Define Systemic Cyber Risk?

By Elizabeth Blosfield

Systemic cyber risk is being discussed as a growing concern for insurers as technology advances and interconnectivity increases, but how is this risk defined? That may be one of its gray areas.

“As you go through different owners of risk in the ecosystem, the word systemic means a lot of different things,” said Matt Prevost, chief underwriting officer for cyber at Chubb. “So, in the ecosystem of cyber insurance, whether it be reinsurers, ILS (insurance-linked securities), all the way down to the primary market talking about this, there’s a tendency to be almost philosophical at this stage.”

Prevost was speaking on a panel about systemic risk at the Property Liability Underwriting Society’s 2024 Cyber Symposium held in New York City.

Part of the challenge is that systemic risk is typically situational, said Mark Camillo, CEO at CyberAcuView, an industry consortium of cyber insurers.

“I think the part that I find challenging

when we define systemic risk is we talk about vulnerabilities, and those vulnerabilities might be in lots of people’s environments,” he said. “Really, it is situationally dependent. I think that some

Dani Tobler, head of Cyber, Swiss Re

Mark Camillio, CEO, CyberAcuView

vulnerabilities, depending on how they exploit the different layers of defense and different organizations’ environments, could create the systemic risk. But it doesn’t always create systemic risk. I think that’s part of the challenge that cyber writers have.”

Dani Tobler, head of Cyber at Swiss Re, said his team is talking about systemic risk from a reinsurance perspective as losses that affect several clients across geographies either within one class of business or beyond classes of business.

“If we get into the space across classes of business, we’re approaching the part which is uninsurable, so war would be a typical example,” he said.

Because of its situational nature, Camillo said one solution to some of the confusion is to move away from calling it systemic risk altogether.

“It just really is a single event that impacts more than one company,” he said. “It’s different things to different people.”

A lack of clarity right now isn’t necessarily a bad thing, however. Camillo said conversations around how the risk is defined mean large, established players with a global footprint in the industry are now gaining a more complete view of the risk, which can help them understand how to solve for it.

“Instead of having these philosophical ‘What is systemic risk?’ conversations, insurers are actually getting into the weeds and either agreeing or disagreeing on what their view of the risk is — whether it be reinsurance, whether it be an ILS market, whether a private insurer — but also the policyholders are actually starting to understand what we’re focused on,” he said. “Those conversations help us. So, I think broadly talking about this helps us underwrite even the attritional risks better … It just kind of keeps informing the underwriting.”

As underwriters are reaching a better level of assessment and awareness around attritional risk, they’re thinking about how to price and engage their risk appetite for systemic, as well, said Erica Davis, global co-head of Cyber at Guy Carpenter and moderator of the panel.

“So, all of these different parts are sort of

working together, and I can definitely say from a Guy Carpenter perspective, we did see the trends that Dani (Tobler) spoke to about starting to really shape and design reinsurance around the more systemic future,” she said.

As insurers explore this risk, different definitions are emerging — some that are peril-based and others that offer broader language, as well as structures to segment out attritional versus systemic losses, Tobler said.

‘It just really is a single event that impacts more than one company. It’s different things to different people.’

“But again, these are all good developments,” he said. “The market, I think, is developing an understanding of what those nuances are.”

As the market evolves, Tobler said insurers will need to continue examining creative approaches to challenges regarding widespread cyber risk. This may mean living through a gray area for a while until the market can reach a point of more clarity.

“I do think that the fact that we’re talking about this, the fact that there are certain platforms to work on some of these issues, is definitely a positive development so we can tackle some of these longer-term challenges,” he said.

“I think these solutions for systemic require new concepts and approaches and still a lot more discussion. That’s really important. I think to get there, we need to go through this phase of many ideas, many proposals, and some will prevail in the end.”

Blosfield is deputy editor for Carrier Management, a sister publication to Insurance Journal. Email: eblosfield@wellsmedia.com.

Spotlight: Cyber Report: Cybercrime ‘A Thriving Business’ as US Claims Frequency Rises

By Nehemiah Balaoro

Cyber claims frequency in the United States rose 13% last year, a new report shows.

According to the 2024 Cyber Claims Report published by Coalition, an insurer focused on digital risks, cybercrime is “a thriving business that adversely impacts” the economy. In 2023, there were more than 880,000 complaints sent to the FBI with reported losses totaling $12.5 billion.

Although overall claims severity decreased in the latter half of the year, it did not offset a first half spike driven by increased ransomware claims.

Frequency/Severity

Last year, claims frequency remained below the historic high of 2021, yet overall claims frequency increased by 13% year-over-year in 2023. The

overall claims severity rose 10% year-over-year, with an average loss of $100,000 due to the surge of ransomware claims in the first half of the year, according to the report.

More than half (52%) of all reported cyber matters were handled without any out-of-pocket payments by the policyholder.

Coalition representatives Rob Jones, head of claims, Shelley Ma, incident response lead, and Mike Volk, senior product marketing manager, hosted a webinar after the release of the report to break down trends and cyber claims.

“Severity stabilized in the latter half of the year after a volatile start,” Jones said. “After spiking to an average loss amount of more than $236,000 in the first half 2023, businesses with more than $100 million of revenue saw severity cut in half, but still a 21% increase

year-over-year.”

Claims frequency rose across businesses of all revenue amounts. Businesses with between $25 million and $100 million in revenue saw a 32% increase. Frequency for businesses with more than $100 million rose 14%, while businesses with less than $25 million in revenue experienced an 8% increase, the report shows.

The report shows ransomware accounted for 19% of reported claims, making it historically the largest source of claims severity. “The ransomware variants that drove losses shifted,” Coalition said in the report. “LockBit ransomware had two variants that appeared in the second half of the year.

Among Coalition policyholders, LockBit 3.0 accounted for 12.9% of all ransomware claims and LockBit 2.0 accounted for 2.09% of claims. Notably,

the LockBit ransomware gang was briefly taken offline by law enforcement in early 2024 before reappearing three days later.

Coalition said funds transfer fraud (FTF) frequency rose 2%, while FTF initial severity increased 24% year-over-year to an average loss of more than $278,000.

Claim frequency for “other events” (such as errors, legal, privacy, media, third-party compromise), increased by 21% year-over-year, while severity for “other events” increased by 28% to an average loss of more than $53,000, the report shows.

While claims related to business email compromise (BEC) fell 8%, cybersecurity trends point to threat actors using generative artificial intelligence (AI) tools to launch more sophisticated attacks.

“Phishing emails are becoming more credible and harder

to detect, and threat actors are believed to be using AI to parse information faster, communicate more efficiently, and generate campaigns targeted toward specific companies — all of which may contribute to increases in FTF claims,” the report states.

Proactive Steps

The report called out the advantages of proactive steps, and best practices. For example, businesses that use a boundary device to protect their network — if their best practices include updating firmware and monitoring all endpoints — are able react quickly if the boundary device has been compromised. These technologies are critical to business operations.

However, these devices are also often prime targets for threat actors.

“These tools are considered indispensable for managing cyber threats, and yet at the same time our research has found a concerning trend that certain boundary devices with known vulnerabilities could actually increase the likelihood of a cyber claim,” Ma said. “The findings of our claims report were eye-opening, especially regarding the increased risk that’s faced by organizations using boundary devices such as firewalls and VPNs.”

The report showed relative claims frequency for Coalition policyholders using Cisco Adaptive Security Appliance (ASA) devices, which both

SOME THINGS ARE JUST BETTER TOGETHER

enable remote access and protect networks with firewall, antivirus, intrusion prevention, and VPN capabilities, surged in 2023.

Businesses with internet-exposed Cisco ASA devices were nearly five times more likely to experience a claim in 2023, up from being roughly twoand-a-half times more likely to experience a claim in the previous two years.

“Several critical vulnerabilities impacting Cisco ASA devices were discovered in 2023, likely contributing to the increased relative frequency,” Coalition said in the report.

“Security researchers discovered that the ransomware gang Akira was actively exploiting a Cisco ASA vulnerability from

2020, which posed a significant risk for businesses that has continued into 2024.”

Fortinet’s variety of boundary devices are often exploited by threat actors because of the level of privileged access that can be gained by compromising them. Businesses with internet-exposed Fortinet devices were twice as likely to experience a claim in 2023, according to the report.

“Policyholders using internet-exposed Remote Desktop Protocol (RDP) were two-and-ahalf times as likely to experience a claim in 2023,” Ma said.

Balaoro, a student at California State University, Long Beach, is working as an intern for Wells Media Group.

Like working with a Wholesale & Specialty Insurance Association member to find a custom solution to a nonstandard risk. WSIA members will help you craft costeffective, innovative solutions for your specialty and nonstandard risks. Combining the strength of the former AAMGA and NAPSLO organizations, WSIA members are your source for expert solutions.

Special Report: Entertainment

Potential Risks and Insurance Implications

By Patrick Wraight

You don’t have to look very far to understand that the gaming (gambling) industry in the United States is booming.

What was only available for those who wanted to travel to Las Vegas or Atlantic City is now available on your smartphone. Even before the expansion of betting apps, we watched a rising gambling economy driven by

partnerships with indigenous tribes who could capitalize on legal reasons why they could support casinos where other communities could not.

According to the American Gaming Association, total gross gaming revenue in the U.S. topped $11 billion this year through the end of February. That’s up almost 7% over the same period last year and if gaming growth continues at that pace, the gaming industry could push $70 billion in

revenue in 2024.

In a recent twist in this story, news outlets have reported that the popular arcade/ restaurant chain Dave & Busters announced that they plan to allow patrons to use their app to place bets on the arcade games that they are playing.

Competition in the old skee ball tournament is no longer just for bragging rights. Now, I can challenge you to a game and I may have to put my

money where my mouth is.

With any change in the way business is done, as in the case of Dave & Busters’ gaming app, or whenever a business adds a new product, the risk characteristics of that business are modified. As such, it is imperative that the business conduct a thorough risk assessment so they can make themselves aware of the potential risks associated with this new direction and manage those risks accordingly.

What Are the Potential Risks?

At present, the gaming risk to businesses like Dave & Busters seems minimal. They will use the same kinds of disclaimers and notices that other businesses use. You might see placards that indicate that if you have a problem gambling, call this number or scan that QR code and we will get you some help. There may be a disclaimer in the app that requires a tap to indicate that the user has read it and understands it. That seems to be the tactic that most gaming services use.

There could be a risk of change in demographics. This may be a part of their plan, but the introduction of betting could create an atmosphere where parents decide that this is no longer the family-friendly outing that it used to be. Parents could be most concerned about exposing their children to the language of gambling or they might just not like the idea that the kids could be playing a game next to a group of people who are gambling.

There could be a risk of reputational damage. The more active users an app has, the higher the chance that the app gets the attention of hackers looking for personally identifiable information that they can leverage for their gain. The addition of betting could create an atmosphere of extreme competition, where the enjoyment of the game takes second place to winning the game.

Competition is a great thing and can bring out the best in people. It can also bring out the worst in people. The more someone loses at a game, the higher the possibility that they might let their emotions

around losing get out of control. Add to this situation the presence of adult beverages and the possibility exists that people could get out of control. Maybe an actual fight breaks out. Maybe it’s just a shouting match, but going back to the change in reputation, this adds to the chance that families might just stop spending their money there and find a new way to have a night out.

What happens if an underage person gains access to the betting side of the app? Maybe you say that underage gambling isn’t an issue, but since the early days of online gambling, it’s been happening. A child could gain access to the app, have their parents’ card linked in the app, and then go crazy making bets, losing money, and having a grand time. That is until the parent finds out.

When that happens, is there a business risk involved? The parents complain and say that D&B allowed their kid to run up

charges that they didn’t authorize. D&B says that they should have supervised their kid in the app. The bank says that it’s not exactly fraud because they gave the kid access to the bank account in the first place. Then there’s anger. Then there are lawyers.

Of course, these are just the thoughts of someone who sees risk in every activity. These are not all of the potential risks that could be associated with this activity and they have no statistical data behind them. They are observations only to spur your thinking on the topic.

How Can a Business Mitigate the Risks?

Of course, just by bringing up the idea of these additional risks, it becomes important to look into ways that they can be mitigated, because why dwell on potential problems without offering solutions?

As we first observed, the first line of defense will be to

place posters in strategic areas directed at those customers who know or suspect they likely have a gambling problem. Those posters should be creative and relate the signs of a gambling addiction. They should include ways for people with gambling addictions to access help, normally via a toll-free number or QR code. Additionally, any app should also include disclaimers of liability and the same warnings that gambling can be addictive. Those disclaimers should include links to, or phone numbers for, resources to help those with a gambling addiction.

Competition is a great thing and can bring out the best in people. It can also bring out the worst in people.

continued on page 26

Special Report: Entertainment

continued from page 25

It might be useful to increase gaming surveillance. There should be cameras placed throughout the gaming space so that potential problems can be identified in advance.

Additionally, they could increase the number of security personnel with a mix of clearly marked security and surreptitious security. These personnel can help to defuse any potential situations before they become situations. When it comes to abuses in the app, there would likely need to be an age verification system to enter into the gambling area of the app. The app could also implement limits as to the number or value of bets placed in a certain period.

Insurance Implications

As a former underwriter, I

look at the addition of access to gambling as a significant change in the risk characteristics of the business and I would want to understand the risk more fully before offering any liability insurance renewals.

The addition of gambling could cause the incumbent insurer to thoroughly investigate the risk for a full understanding of the new risks.

This kind of change in risk characteristics is the kind of thing that often creates a significant change in insurance pricing and terms. It also creates the potential of a nonrenewal on the grounds that the risk has become less understandable for the underwriter. In some cases, some underwriters might look at this as such a significant change that they issue a cancellation notice on those grounds.

Future Questions

The future is always cloudy, but with the addition of a layer of possibly addictive gaming, there are some potential policy changes that may develop.

The first could be that CGL policies begin to include a gaming exclusion that excludes any part of the operation where the insured engages in gaming, gambling, or other activity where:

• one party offers money or other compensation in return for the chance of a potentially larger return;

• or one party offers money or other compensation against another party’s money;

• or other compensation where the winner keeps their offering and receives the offering of the other party.

The second is the increase

in market share of gambling or gaming specific insurance, similar to liquor liability insurance, where carriers will choose to write this stand-alone policy for entities engaging in gambling or gaming activities.

The third is an increase in litigation which may spur additional regulatory action. The more open and public any kind of business becomes, the more open they are to litigation. For example: A person becomes addicted to gambling and it destroys his family financial situation. This causes him to take his life out of regret, shame and the other emotions that stack up. His wife and family sue the app and any other entity associated with his gambling addiction for his death and the other injuries sustained because of it. This, in turn, impels states to increase regulation of the gaming industry more.

The above might seem like a very pessimistic way to look at a multi-billion-dollar industry, but sometimes when you look at the risks associated with a new business venture, a difficult picture may appear. This isn’t to say that D&B should or should not enter into an app-based gambling business; or that they haven’t analyzed this risk and decided that they are willing to proceed with certain risk management measures in place. This is a just a reminder that every business venture includes risk and those risks shouldn’t be ignored. They should be considered, mitigated, managed and planned for.

Wraight is director of Insurance Journal's Academy of Insurance. He can be reached at pwraight@ ijacademy.com.

My New Markets

California

Workers’ Comp Program

Market Detail: The FIVE100 Program is provided by CAWorkersCompensationInsurance.com.

The workers’ comp program includes five unique dividend plans offering up to 40% return premium. These dividend plans, often referred to as participating insurance policies, enable employers to participate in the insurer’s profits, translating into potential cost savings and rewards for your clients. All dividend plans are not guaranteed. Plans are subject to dividend eligibility guidelines and must be approved by the insurance carrier. The dividends plans are not available on contracting classes, high hazard or non-emergency medical transportation. This workers’ comp program provides 100% upfront commissions — above industry average on select coverages; direct bill issued; paid 45 days from binding. Program highlights: AM Best “A” rated admitted market; over 350+ class codes; competitive rates; new ventures will be considered. Submission requirements: Completed Acord 130; 3-5 years of currently valued loss runs (within 90 days of the effective date); new ventures — resume on owner(s); current experience modification worksheet (if available).

Available Limits: Not disclosed.

Carrier: Admitted; rated A by AM Best. States: Available in most states and District of Columbia. Not available in Alaska, Hawaii, Maryland, New Hampshire, New Mexico, North Carolina, Oregon, Washington and Wyoming. Contact: Michelle Dempsey; mdempsey@ CAWorkersCompensationInsurance.com; 800-926-6771.

Ocean and Air, Import and Export Cargo Insurance and Custom Bonds

Market Detail: Insurance broker Seaport Marine specializes in global ocean and air cargo insurance. The firm caters to the needs of exporters, importers and forwarders, offering an accessible online program for convenient shipment insurance. Our services include competitive pricing, diverse coverage options, and efficient support. Additionally, we offer errors and omissions (E&O) liability insurance,

general liability insurance, and ocean transportation intermediary (OTI) bonds, providing extensive risk protection in various business operations. Has pen.

Available Limits: Not disclosed. Carrier: Not disclosed.

States: Available in 50 states plus District of Columbia.

Contact: Bruce Bickoff; seaportinsure@ gmail.com; 949-351-5424.

Towing, Tow Trucks, Auto Haulers, Monoline Physical Damage, Monoline Cargo

Market Detail: Western Skies MGA is a licensed wholesale and E&S brokerage that specializes in insuring towing and auto hauler accounts. Our premiere program is our Benchmark Insurance Company Towing Program, and we also have access to the Benchmark Specialty Insurance non-admitted program in certain states. We also offer monoline cargo and monoline physical damage markets, which are both admitted and non-admitted depending on the risk. All are A-rated carriers and offer competitive terms. We have strong insurance carrier relationships and full underwriting authority for those risks, including hard-to-place accounts. With a team of seasoned professionals, the very latest in data management technology and communication systems, as well as the implementation of consistent standards of practice, Western Skies is the transportation partner you can trust.

Available Limits: Not disclosed.

Carrier: Benchmark Insurance Co., Benchmark Specialty Insurance, PMA, Lloyd’s, Crum & Forster; admitted, non-admitted; rated A.

States: Available in Arizona, Arkansas, California, Colorado, Florida, Illinois, Kentucky, Nevada, New Mexico, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee and Virginia.

Contact: Ann Jenkins; ann.jenkins@ westernskiesmga.com; 702-534-3610.

New Venture Markets

Market Detail: American Standard Transport Risk Managing General Agency currently has two A-rated trucking markets that will accept new ventures. New venture owner must have three or more years of experience in industry; drivers over 23 years of age; MVRs with no more than one minor violation in last three years. Forward your application, new venture narrative, MVRs, and equipment list. Not available in all states; has pen.

Available Limits: Not disclosed.

Carrier: Non-admitted; rated A. States: Available in Arizona, California, Delaware, Florida, Georgia, Illinois, Iowa, Kansas, Missouri, Nevada, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas and Virginia.

Contact: Darren Yancy; dy@astr1.com; 817-447-9046.

Special Report: Entertainment

How to Succeed in the Entertainment Insurance Business:

Get creative producing with a small cast of underwriters and limited capacity.

By Andrea Wells

Even during the post-pandemic boom in the entertainment industry, when event and live performance venue attendance reached pre-COVID-19 levels, insurance markets in the sector could be difficult.

Now, the post-pandemic momentum may be slowing as entertainment businesses contend with rising costs of doing business, staffing shortages, and an insurance market that remains somewhat restrictive and more expensive.

The entertainment insurance market features a small cast of experienced underwriters with reduced appetite and limited capacity — much as it did a year

ago. Just as the entertainment businesses must get creative to find talent and sell tickets, the insurance market requires agents to get creative to find the coverages and limits that their clients need and can afford.

“Coming out of Covid, there was a really big surge in activity in year one and two, which was super exciting for us,” said Mona Grabowski, vice president - entertainment at HUB International, which specializes in music festivals, live events, and touring. “This year has been tougher.”

The biggest concern for music festival and live event clients is finding qualified talent to run the show. “I think a lot of people didn’t come back

from Covid in terms of production teams so I think having the bodies to make events happen has been a challenge,” she said.

Costs are up overall and at times production equipment for live events can be hard to come by, she added.

“Obviously cost is a big concern,” Grabowski said. “Prices are up for everything.” Some of her large music festival clients say expenses overall are 25% to 30% more than before the pandemic. “It’s just been a lot, and then we’ve seen insurance rates spiking each year. This year, we’re seeing about a 15% increase on liability across the board,” she said.

After years of growth, some music festivals are shutting their doors. At least 10 shows

in the U.S. have been canceled this year, according to recent report by Bloomberg. More budget-conscious consumers are a factor, but so are rising costs for staffing, stages and the performers.

According to Scott Carroll, underwriter/broker, Take1 Insurance, a division of U.S. Risk, new event productions have slowed the most but the live event market overall remains vibrant.

“We still see a lot of interest and activity but certainly on the live side [of entertainment], we see still a significant slowdown in new clients,” Carroll said. He said this includes any business with a live audience component, including conventions.

For Carroll, whose book includes about 90% live entertainment, new clients were coming into the space every week prior to the pandemic. But new client activity has slowed dramatically, he said. “So we might be seeing a few a month now where we probably were seeing north of 25 a week, and I find that to be directly related to the pandemic.”

Carroll agrees risings costs are the culprit. “They’re looking at it through a much more critical lens of the investment required to carry the equipment, to rent space, to house the equipment … And they’re doing the projections and saying there’s not enough for me to jump into this space like before.”

Underwriting Changes in Live Events

When it comes to insuring live events, legacy insurance companies continue to be active in entertainment but have cut back their appetite, Grabowski says. “Most of my markets are so niche — I haven’t seen any of my live event markets exit the space — but they have sort of tightened their belt on capacity,” she said.

Catastrophic events at large music festivals in recent years, such as the 2021 Astroworld festival where 10 people were killed in a crowd surge, make carriers nervous, Grabowski added. Those types of tragedies “reverberate” throughout the niche insurance market, and “so everybody revisits the ways in which they’re underwriting,” she said.

“Thankfully,” she said, her markets have not pulled up stakes, but she would like to see more markets come into the space “because it’s very

limited, and that is a challenge that we face as brokers in this space.”

Carroll agreed that the main insurance players in live events are still interested and while appetites remain “fairly broad” there has been some tightening in certain areas.

“There’s a lot of limits reduction so carriers do not want to write $10 million limits anymore,” he said. “They want to write $5 million and, in many cases, they’re cutting back even further for touring entertainers, shell corps, some live events, and service firms.”

For example, a carrier might offer $1 million/$2 million occurrence in aggregate, and then might give a $1 million or $2 million in excess liability, Carroll said. “So then we can go to the excess market to fill out a $5 million additional excess layer, or a $10 million layer,” he added. “We’re having to do more layering now, which is certainly an indicator that the markets are not putting too many eggs in one basket like they were willing to do before.”

Carroll added that aside from reduced limits some carriers max out on the number of events they are willing to take on. They might say, “We’re doing 10 festivals this year,” he added. “We’re not doing more than 10, or we’re not doing more than two a month, whatever their scenario might be,” he said. “That has changed the festival space a little bit.”

Today’s underwriting tightening has made it difficult in a small niche space like music festivals, Grabowski said.

“The markets that used to put up $10 million in excess are no longer offering that, or will only offer very limited capacity,” she said. Rates have

gone up dramatically and adding in additional layers from additional carriers is always a challenge. “That has created some issues for us and I think pricing too also becomes a limitation in capacity for the festival themselves,” she added. “What can they afford to buy? Whereas $10 million might’ve been what they would’ve spent five years ago but now they are having to buy $5 million this year because that’s their budget. It’s been very difficult.”

Carroll says that while some festival organizers are cutting back, he’s seen expansion in events that offer a series model.

“We’ve actually seen an increase in scheduling of a series of festivals. So, in other words, it’s not just one festival, but it’s a series of festivals that starts with one so they build the concept and then they take that from city to city to city,” he said. “That’s a new concept that I haven’t seen before,” he added.

From an insurance carrier perspective that’s a positive, he said. “We were able to get more attention on that concept than we have been able to get on a single festival because there is an outline of how that festival works. The template is the same — same security firm, same concessionaire, the same everything.”

Another area of growth in live events is immersive entertainment, Carroll added. “That space is big right now, things like the Van Gogh Exhibit, where you are part of the experience.”

Grabowski is also seeing more activity with interactive festivals and festivals with a mission.

“Last year I was able to work with a few festivals that had a really great mission — one was on mental health and another was on heart disease,” she said. “I love having a mission behind a music festival so I hope to see more of that.”

Safety, Emerging Risks

Safety is one of the biggest concerns when insuring festivals — whether it’s extreme weather, active shooter preparedness, security, crowd surge, or the safety of artists, festival attendees and staff.

“What’s important as a broker is to make sure that when you’re partnering with a music festival that you start from the ground up,” Grabowski said. “I’m looking at their event safety plan, I’m making sure that it covers all aspects of risk transfer. We’re talking about making sure that every vendor that steps on site has an insurance policy in place and has adequate limits, making sure that whoever’s providing the liquor liability has adequate limits and they’re protecting the promoter.

“I’ve worked with many festivals, startup festivals and some very experienced that have never gone through that process with a broker. It’s really important that they understand the scope of their exposure.”

The biggest concerns today in terms of safety are security, active shooter risk, extreme weather, and now crowd surge, she added.

“Weather is always a massive concern, especially with outdoor festivals,” she said. “How are they tracking? Are they using a professional service tracking company to work continued on page 30

Special Report: Entertainment

continued from page 29

with them to make sure that they’re tracking appropriately? Are they working with the best vendors out there, the best staging and rigging out there to make sure that their stage isn’t going to go anywhere in high winds?” she said.

Carroll added that political risk coverage has been more in the conversation than it’s ever been in entertainment. “There is a concern that there could be, by virtue of an artist, some kind of a connection to a political issue — that didn’t exist before,” he said. “We didn’t really think about it before.”

“When you bring up the subject of terrorism, it quickly morphs into active assailant. Everybody sort of draws the conclusion of active assailant, which is a far greater issue,” Carroll said. “But I do believe

Film

and TV

Wthat exposure is a very substantial exposure that has changed.”

Two concerts by an American Jewish artist, Matisyahu, famous for his peace anthem song titled, One Day, were cancelled in February after pro-Palestinian protesters targeted venues where he was set to perform. Both venues cited staffing safety concerns after being targeted by protesters.

“The most important thing for us is that they’re having a safe event,” Grabowski said. “We don’t want any claims, but beyond that, we don’t want any injuries and we want everybody to go and have a wonderful experience and go home that night and be safe.”

Talent

Grabowski says one of the

more challenging aspects of writing entertainment risks today is finding underwriters that understand the entertainment market.

“I would love to see underwriters more knowledgeable in this space,” she said. “Working with an underwriter that’s not comfortable underwriting a large music festival, creates a lot of challenges for us as a broker, so I would like to see definitely more talent behind the scenes on the underwriting side for sure.”

John Hamby, senior managing director, national entertainment practice leader, Risk Strategies/DeWitt Stern, agrees.

“There’s fewer experienced underwriters and it is just so time consuming to get answers and quotes out of many of the carriers these days,” Hamby

hen it comes to insuring the film and television industry, premiums that skyrocketed in 2020-21 have settled down, according to John Hamby, senior managing director, national entertainment practice leader, Risk Strategies/Dewitt Stern.

“Rates seem to have flattened for standard productions, but underwriting has become more stringent for audience participation/immersive productions and shows that contain higher-risk activities like strenuous choreography,” according to Risk Strategies’ State of the Insurance Market Report 2024.

Hamby says that halfway through 2024, he’s not seeing rate increases for the most part. “However, I think that’s principally because the rates and premiums pre-covid were so low,” he added. “Unsustainably low.”

In Hamby’s view, today’s rates for TV/film are about where they should be. “And we don’t really foresee increased rates this year or next year, and candidly, maybe not even beyond that,” he added.

Even commercial auto for film and TV has remained flat, he said.

The Writers Guild of America (WGA) and Screen Actors Guild (SAG-AFTRA) strikes last year led to the stoppage of most film and TV productions, which slowed down insurance buying habits. “It almost felt like a similar impact that Covid had. It was about a 90% shut down of projects,” he said.

While production has begun rolling again, it has been slower the past six months. “I think that the streaming companies are reassessing, ‘Do we really want to produce 200 projects this year? Maybe we’ll do 140,’” Hamby said.

One area that’s delivering ongoing opportunity is unscripted TV, Hamby said. “We see a huge amount of reality TV, what we call unscripted,” he said. “The demand for that kind of content with all the streamers is extremely high.”

said. “I would love to see that change — that’s simply going to require an investment from the underwriting community to staff up and enhance their staff.”

Given today’s shrinking underwriter talent pool, Hamby doesn’t see that changing anytime soon. “We’ve seen a lot of movement from underwriters just getting out of the business, and there’s not people to replace those leaving, especially in the entertainment space.”

Carroll hopes for a more aligned industry where venues find an insurance market in tune with their liability needs.

“There seems to me to be a miss between what venues are seeking in terms of limits needed versus where the market is — it used to be that both were right in line,” Carroll said. “A venue wanted $10 million of protection. Carriers were willing to provide $10 million of protection. If it got beyond $10 million, they wanted you to go to the excess market. What we’re now seeing is venues still want $10 million, but the insurance industry wants to only give $5 million or less.”

That creates a great deal of difficulty in filling that need for the venue, he added. “I’d like to see both come to parity.”

Social inflation trends are challenging the live events space, he added. “I think this is true of many industries, of course, but certainly in the entertainment space it’s challenging our industry because our carriers are pulling back and some excess carriers have left the space,” he said.

“We’ve got to get back to the point where there is more of a balance so more carriers come into the space.”

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Closer Look: Talent

Unifying Voices in Insurance: Forum Brings Together Industry Groups to Discuss Diversity,

By Jahna Jacobson

Bringing more diversity to the insurance industry will take intentional, deliberate effort and teamwork. That’s the encouraging outlook from a panel of diversity, equity and inclusion (DEI) thought leaders that inspired the crowd at the Unifying Voices – Empowering Diversity in Insurance event, sponsored by United Insurance Networks, in Chicago.

The panel discussed challenges they face, successes they are seeing now, and what the industry can do to create a more diverse and inclusive future. Panelists included members and leadership from several insurance diversity organizations, including the National African American Insurance Association (NAAIA), Latin American Association of Insurance Agencies (LAAIA), the Asian American Insurance Network (AAIN), Association of the Professional Insurance Women (APIW) and Link USA, the LGBTQ+ Insurance Network.

Celebrating and implementing diversity measures is challenging in today’s political climate when many people are questioning the need or importance of diversity and inclusion initiatives and programs, said Javier Naranjo, president and CEO of Everest Insurance Programs and immediate past president of LAAIA.

“It’s difficult for us to do sometimes,” Naranjo said. “And it’s difficult for those who don’t understand the importance of why we need diversity, why

is that important?” he said. “So, I think all of us need to carry that torch, so to speak, and open the doors for people sometimes.”

It can feel as though underrepresented communities bear a disproportionate part of the burden for making progress happen, Naranjo said. “Why do we need to do this? Why is it our responsibility to do it?” he said. “I would say forget about the why and just do it, and you’ll find that better results and opening up those doors of communication leads to good results.”

Finding Community

Brett Carter, a vice president and managing director at The Jacobson Group, and the president of the Chicago chapter of NAAIA, said he stumbled into the insurance industry 26 years ago and found himself alone in the crowd. “I didn’t really see anyone that looked like me in the organization largely or at the events that I would go to,”

Equity and Inclusion

Carter said. “That stuck out to me ... it didn’t always feel good, and it didn’t necessarily feel bad, but it didn’t necessarily feel good.”

After 10 years in the business, he found NAAIA and attended one of the group’s Chicago events. “I saw so many faces that looked like mine, and they were at all different levels of the industry, senior executives, middle managers, entry-level folks,” Carter said. “I felt so inspired and proud and just hopeful. So I’ve been involved with NAAIA ever since.”

LAAIA started out as a small organization in 1969, but now has four chapters, Naranjo said. “At that time, it was Cubans, seven Cuban agents, retail agencies started this organization,” he said. “There was no power. We could not individually get the ear of a company to serve our communities and to listen to the needs of the communities.”

The spirit of community

continues to drive the organization, which now has chapters across the country, he said.

“We are the second responders with the industry,” Naranjo said. “We aren’t the ones that run into the burning buildings. We aren’t the ones that pick up people from accidents on the street, but we’re the ones that make people whole. So, it’s important that there is a connection between the risk takers, the companies, the general agents, the retail agents, and the communities that we serve.”

Chris Riley, senior vice president and national practice leader at Amwins Group Benefits and co-chair of Link USA, said it will take a concerted effort among underrepresented groups to overcome the barriers inside the industry and society at large. “There’s so much divisiveness in the country, politics being played with human lives literally today, and there is just such a need to make sure that

everybody is represented really well,” Riley said. “I think everybody needs to find their place in the industry, and it’s so important that we are here together.”

Hiring Diverse Talent

Finding and hiring diverse talent is critical for a more inclusive industry, but the first step is convincing the industry to make the effort, panelists said.

“One thing that I think I hear a lot is people will say, ‘I would like to find diverse talent, but I can’t find it. I don’t know where it is.’ We’re here, the talent is here, so are you really looking?” Carter said. “If the talent is here, you just have to really look. Who are you sending to find the talent?”

Carter often hears people say that finding and hiring diverse talent differs from finding talent. “No, no, no. It’s not different,” Carter said. “You’re dealing with human beings. You just have to be willing and intentional about it and connect in an authentic way,” he added.

“You can’t just go to the HBCU (historically black colleges and universities) career fair, slap down some brochures and think that your job is done,” Carter said. “You have to really intentionally connect with people.”

Jeff Chen, vice president of claims at EMC and AAIN representative, said it’s time to stop waiting for companies to get on board and to start recruiting diverse talent one-on-one.

“Let’s do this ourselves,” he said. “Whenever I’m at a networking event for my organization or any organization,

I’m not sitting in the corner on my cell phone trying to get a few more emails done; I’m meeting as many people as I can. And not only am I meeting people, I’m talking to people about, ‘Hey, I’m from EMC, I love where I work. And let me tell you why.’”

Additionally, “every time I go to any AINN networking event, I’m shaking hands. I’m talking to people, ‘Hey, you do this. Are you happy? You’re not? Have you heard of EMC? We’re looking for somebody just like you right now. Give me your name. Give me your resume. Let’s have a conversation,’” he said.

“We have the power to start pushing these changes ahead,” Chen added. “Let’s stop waiting. Let’s make ourselves undeniable.”

Finding and hiring team members from the LGBTQ+ community presents unique challenges, Riley said, because about 50% of people who identify as LGBTQ+ are not out in the workplace. “We often say that we feel like we’re constantly coming out professionally because we don’t know whether we can be our authentic self with certain

people. ... We don’t know if that’s going to put an account at risk, whether we’re going to get somebody to give us the opportunity to earn their business,” Riley said.

“So, when you’re trying to go to your Rolodex, it’s kind of hard to find out, well, who amongst us is part of the LGBT community?” Riley said. That’s why making the industry more inclusive as a whole and across the board is critical. “Because what we’re trying to do is make sure that the LGBT community that’s within the insurance industry today, and the future individuals, look at the insurance industry and say it is more diverse. It is more inclusive.”

When individuals can bring their authentic self to work, then they’re going to give 100% of their effort, according to Riley. “And when they do that, our respective companies are going to benefit. We all win.”

Riley said the diversity of roles within the industry could help draw a more diverse field of job candidates. “This industry is not just a Jake from State Farm and Flo from Progressive,” Riley said. “It’s accounts, it’s finance, it’s marketing, it’s event planners,

it’s actuaries. There are so many career opportunities here that I think the LGBT community and many people just don’t even think about the insurance industry as an opportunity. So, our mission is to kind of change that.”

Empowering Each Other

The panelists concurred that forums like the Unifying Voices event are a big step toward cooperation and collaboration between groups to make the industry more diverse.

“We want to see everyone win and succeed, but it’s not always easy to really reach out and connect with people that are different than you,” Carter said. “We all need to have courage, reach out, become active allies to all of us and really help support everyone. ... We are different, and that’s okay, but we’re far more similar than we are different.”

Increasing diversity is a process that will inevitably have growing pains, Naranjo said. While there may be bumps in the road, tough conversations are important. Despite any differences, the goals are the same. “We want a better workplace. We want to help our communities. We want opportunities for growth as individuals within our own organizations,” he said.

Those common goals are worth fighting for, Chen said. “It’s not about color, gender, background; it’s about the fact that we’re all here,” Chen said, adding that the work is not done. “The work is ongoing.”

But with effort from all communities, the future is bright, Carter added.

Michael Blackshear, chief compliance and privacy officer, and head of DEI, Ryan Specialty, delivered opening remarks at the forum.

Idea Exchange: ESOP

Is an ESOP in Your Future? Don’t Overlook This Valuable Succession-Planning Tool

2024 marks 50 years since Congress passed legislation codifying the tax benefits of employee stock ownership plans (ESOPs). Senator Russell Long, then chairman of the Senate Finance Committee, personally saw to it that ESOPs received favorable treatment in the Employee Retirement Income Security Act (ERISA) of 1974.

By Scott Freiday

Despite being enshrined in our tax law for half a century, ESOPs have been slow to catch on. Few insurance agencies have availed themselves of the ESOP structure. Not many independent agency owners are aware of their tax advantages or that they’re an attractive alternative to selling

to a third party.

But when properly structured, an ESOP may well be the best option for certain types of owners who want to stage their exit from the business, retain control of their firm and take care of their employees. ESOPs offer unique advantages that often outweigh other methods of perpetuation.

Who Is an ESOP Right For?

ESOPs aren’t for everyone, but they do warrant a closer look for well-run agencies that have at least 20 employees, little or no debt, an employee-focused culture and a strong management team.

Stable companies with consistent and reliable cash flows make the best ESOP candidates. Does this sound like the independent agency system?

Consider that when it comes time to

retire, most agency owners would prefer to keep the business in the family or sell to their top managers. In other words, they want their agencies to stay independent. They may also want to leave lasting legacies in their communities.

Internal buyouts aren’t always possible, so an owner may end up selling to a private equity firm. All things being equal, independent owners would rather not be acquired by a larger firm that likely doesn’t share their goals, will replace their staff, isn’t community-focused and requires an earn-out to receive full payment.

This makes an ESOP a very appealing option, especially for the far-sighted owner who has the patience to wait a few years for a payoff.

Julius Anderson, president of Anderson Insurance Associates in Charleston, South Carolina, converted his agency to an ESOP

in 2020. “As I approached my golden years, I wanted to make sure my agency remained a locally owned, viable independent business,” he says. “Selling to a larger agency didn’t appeal to me because I wanted our agency to remain a cornerstone of our community. An ESOP was an attractive way to perpetuate what we had built and take care of our employees.”

Advantages of an ESOP

The beauty of an ESOP is that it fulfills the owner’s need for a fair price but also ensures the business they built lives on.

Here are the advantages of an ESOP in a nutshell:

• A retiring owner can pass their business on to their employees rather than an outside firm.

• The owner receives fair market value for their firm from the ESOP.

• A 100% ESOP can result in a tax-free corporation and faster repayment of debt since the loan’s interest and principal are fully deductible.

• With a partial ESOP, the owner retains a controlling interest in their ownership of the agency.

• Employees have a new retirement plan worth more than their 401(k) plan benefits. Employees have an incentive to work together to ensure the company succeeds.

How Does it Work?

Owners sell all or part of their stock to an ESOP trust that holds company shares on behalf of the employees. According to ESOP specialists Pilot Hill Advisors, ESOPs can be partially or 100% leveraged, depending on whether the owner wants to exit the business completely or stage their exit.

With 100% leveraged ESOPs, usually half or more of the transaction is financed by a bank loan and internal cash, and the remaining amount comes from a subordinated seller note. Often the bank refinances the seller’s note after the first note is paid off.

In a partially leveraged ESOP, the ESOP purchases a minority stake in the agency, which is financed through a bank loan or internal cash. The ESOP can buy out the owner when the owner is ready to retire.

Owners can finance the entire transaction with pre-tax dollars, meaning the debt used to finance the purchase is deductible from taxation. In addition, ESOPs can be used to create a 100% tax-free company since the ESOP is a pension plan and doesn’t pay taxes. The beneficiaries pay the taxes when they take their retirement money out of the ESOP.

The owner

can stage their retirement at their own pace.

What About Control?

Because the owner doesn’t have to sell all of their stock at once to an ESOP, they can retain control of their firm as long as they continue to own the majority of the stock. The owner can stage their retirement at their own pace.

In Anderson’s case, he wanted his agency to become a 100% ESOP company. After receiving a portion of the value of his agency in the initial transaction, he took a subordinating note for the remaining balance. “I wanted to send a message to my employees that this is your company,” he explains, “not a hybrid of part mine, part yours.”

While employees do have an economic interest in an ESOP company, they don’t own or vote shares of stock. The ESOP trust holds the shares for the benefit of the participants. These shares are paid out when a participant retires, usually over a five-year period. The ESOP accomplishes this by buying back the stock from the participant at fair market value.

ERISA requires that a trustee be appointed as a fiduciary to the ESOP trust. Among other duties, the trustee must determine the fair market value of shares each year and ensure that participants receive the distributions they are entitled to when they retire.

An Owner with Vision

It takes an owner with foresight and vision to create an ESOP company. The owner will need to do a feasibility study, conduct a valuation, file a plan with the IRS and obtain funding. The transition

requires planning, the assistance of ESOP experts and lenders, and a willingness to defer a potentially large payoff over several years.

But for the owner who believes in rewarding talented employees and wants to build a culture where next-generation leaders can flourish and share in their agency’s growth, an ESOP may be perfect. ESOPs allow the owner to provide very generous retirement benefits to their employees. Plan participants receive more retirement income than they could accumulate on their own, about three times as much as non-ESOP participants, according to the National Center for Employee Ownership (NCEO).

An agency with an ESOP is also likely to see greater retention and better job satisfaction than one acquired by an outside firm. NCEO reports that ESOP companies grow faster than would have been expected without an ESOP, with lower turnover and higher productivity. In fact, six of the Insurance Journal’s top 100 agencies are ESOP companies.

“It’s not an overnight decision,” Anderson says of his firm’s transition to an ESOP. He stresses the need to work with advisors and banks that are familiar with both independent agency operations and ESOPs. “Not every bank understands ESOPs,” he says. “Find professionals you can be comfortable with sharing information about your financials and book of business. This is an investment you’re making.”

In sum, ESOPs aren’t for the owner who simply wants to cash in or sell to the highest bidder. They’re for owners who care about their people and their legacy. They’re also a great way to stage an exit. Any owner of a midsized agency who’s thinking about retirement should definitely consider an ESOP.

Freiday is senior vice president and division director of InsurBanc, a division of Connecticut Community Bank, N.A. Started in 2001 as a vision of the Big “I,” InsurBanc finances acquisitions and perpetuations, including ESOPs. InsurBanc also helps agencies become more efficient by providing cash-management solutions. Freiday can be reached at sfreiday@ insurbanc.com.

Idea Exchange: Professional Liability Underwriting Society

The History of the Professional Liability Underwriting Society

The Origin Story of Bringing the Best Together

The Professional Liability Underwriting Society (PLUS), as it exists today, does not have a written narrative or any acknowledgment on its website about how the organization was created, the timeline, the individuals primarily involved, or all the events that had to occur to make the organization a reality.

By Angelo J. Gioia

If you look at the PLUS Wikipedia page, it says it was founded in 1990 with 300

members. However, neither statement is true since PLUS — an organization I helped create — had its first conference in 1987 with about 125 attendees and a membership of 200.

Today, PLUS stands as a testament to the vision and perseverance of its founders. While many of its current 40,000-plus members may not be familiar with its rich history, they are part of a thriving community that is shaping the future of professional liability underwriting. The current executives, though not present at its inception, are steering the organization towards new horizons, their focus on the

future a testament to the enduring legacy of PLUS.

For me, this is an opportunity to pay tribute to the individuals whose unwavering dedication and hard work brought this dream to life. Unfortunately, some of our esteemed colleagues have passed away, but their legacies will forever be etched in the history of PLUS, and we must always remember their invaluable contributions.

Recently, I spoke with one of my oldest and dearest friends, Robert Hansen. Robert and I forged our friendship while studying at The College of Insurance (TCI) in the early seventies in New York City, now

known as St. John’s University, Maurice R. Greenberg School of Risk Management Insurance and Actuarial Science. We reminisced about our shared experiences, including the honor of being each other’s best man at our weddings, a testament to the deep bonds formed during those formative years.

After college graduation, we both landed our first full-time underwriting position in professional liability with the National Union Insurance Co., working for Leo Gilmartin. National Union is one of the many companies of the American International Group, aka AIG. It was a fantastic insurance company that was exceptionally innovative, creative and different from its competitors, and it provided us with a tremendous learning opportunity. At the time, I did not realize that I would be working with and for several individuals who would significantly impact my professional career and my success in the industry, and would also play a role in the future success of PLUS.

opportunity to transfer to San Francisco to set up the first regional branch office; Robert was given a similar chance to establish a branch operation in Atlanta.

My primary area of responsibility was the California Association of Realtors (CAR) and the California State Bar Association. Through this lawyer’s program, I got involved with the American Bar Association Standing Committee on Lawyers Professional Liability, which meets twice a year. While attending these meetings, I realized we had a void in the marketplace and that there was a need for a professional organization that would embrace all areas of professional liability, not just lawyers, and become the meeting place for carriers, brokers, agents and attorneys to get together to discuss topical issues and where education would be the critical element to its foundation.

were getting any pushback from the carriers and was extremely interested in our progress in developing our designation/ education programs. Bill would always advise me that this was a substantial undertaking and that the people involved and I should be patient and recognize that this was an opportunity to create something different.

Building PLUS

During this time, the organization continued to create interest and develop a presence in the professional liability insurance community across the United States. We held multiple after-work functions in both Chicago and New York.

As I was reflecting with Robert, it hit me that my storyline parallels the history of PLUS. It seems that the origin of the Professional Liability Underwriting Society is shrouded in mystery, as only a few people know how it started. When, why, who was involved, and who played critical roles in its development and success?

Beginnings

Professional liability insurance was a relatively new line of insurance in the 1970s, and only a handful of insurance companies were writing the class. The professional liability industry was fascinating; it was stimulating, challenging, and rewarding, with tremendous upside and opportunities, including travel. More importantly, since this was pre-internet, it served as a conduit for me to meet thousands of other like-minded professionals throughout the country who had chosen the same career path.

As a reward for my dedication and work ethic, I was promoted and offered an

At these meetings, I met attorney Ron Berman, who played an integral role in developing and structuring the Professional Liability Underwriting Society and later served as general counsel and my good friend. Also, it was here that I met Bill Gates Sr., an attorney who was chair of the standing committee. (Editor’s Note: Bill Gates Sr. is the father of Bill Gates Jr., founder of Microsoft.)

Bill would become a mentor and sounding board, so when I mentioned the idea of creating a national professional insurance organization encompassing all professional liability lines, he liked the idea and offered to incorporate the PLUS organization in the state of Washington when we were ready. If memory serves me right, he incorporated the organization in 1986. In 1997, the organization was redomiciled as a domestic non-profit in Minnesota.

I made it a point to call Bill multiple times during the following years to determine his availability to meet at the upcoming ABA conference for Lawyers Professional Liability and to provide updates on how we were progressing. More importantly, he wanted to know if we

At one of these meetings, I met Dave Smith, an insurance agent in Vermont. Dave heard about what we were doing and flew into Chicago with few details other than that we were attempting to create a professional liability association. Dave met the people who attended the meeting and instantly wanted to be involved. It was then that I realized that the word was spreading, and it was only a matter of time before we could launch. Dave would later become the PLUS President in 1994.

Our last hurdle to becoming operational would prove to be the most time-consuming. For the organization to continue to move forward, we needed to find an association management company willing to take over and oversee the day-to-day functions and management. We had no revenue or infrastructure, and our only tangible asset was a prospect list of a few hundred interested parties. All that changed the day I flew into Minneapolis and met with Robert Hansen, who took me to meet Ed Harrington, president of the Harrington Companies. Ed saw my passion and commitment and recognized the tremendous upside to my offering. While I may have carried the ball, Ed provided the fundamental block to get PLUS into the endzone and score. We would not be here today without him.

After the meeting with Ed, I called Bill to say that we had added the final piece and were ready to launch, so I needed him to incorporate PLUS. (The last time I spoke continued on page 38

Idea Exchange: Professional Liability Underwriting Society

continued from page 37

with Bill was after our first conference; I called him to thank him for his help and counseling.)

Key Individuals

Reflecting on our history and remarkable accomplishments, I must acknowledge three key individuals who would significantly influence our success.

First, Bill Mullin. Bill was instrumental in being the voice and person behind the PLUS Foundation. He also served in a critical role in developing the Founders Award.

Second, Leo Gilmartin, who became a close friend and mentor. Leo oversaw professional liability at AIG. He drafted many professional liability policies and was a pioneer in updating professional liability coverage.

To describe Leo, I would use the famous line from the movie Rudy, “He was 5-foot nothin’, 100 pounds and nothin’ with not one speck of athletic ability.” Still, he would make his presence known as highly knowledgeable and personable when he was in the room. He and Bill Mullin were instrumental in developing the PLUS presence in the New York insurance community.

Professional liability insurance was a relatively new line of insurance in the 1970s.

Third, my good friend Doug Boyce, PLUS’s first president, played a crucial role in helping us build our Chicago and Midwest presence, which allowed us to establish a stronghold for the operation.

I am confident that we would have failed if Bill, Leo, Doug and Robert had not committed to the cause. I owe them particular thanks.

I also need to acknowledge Stephen Sills and Bill Holland for their contributions and tremendous efforts in developing and establishing the Registered Professional Liability Underwriting designation (RPLU). In addition to his leadership role in helping create the RPLU program, Stephen was responsible for hosting the opening night reception for several years while acting as CEO of Executive Risk, a company he founded. Initially, it was Robert Hansen who contacted Bill Holland, who, in turn, approached Dr. Bill Feldhaus from the University of Georgia and, with the assistance of Stephen Sills, created the structure and foundation of

the RPLU program.

With the Harrington company managing and overseeing the convention operation, we had our first conference in 1987 at the Knickerbocker Hotel in Chicago, with slightly over 125 attendees. It was a success. It also didn’t hurt that Dennis Busti, then president of Reliance National Insurance Co., was our keynote speaker and substantially contributed to our cause. More importantly, my credit card, which the Knickerbocker Hotel held to cover any overages, was not charged. We finally made it!

A Labor of Love

Looking back, I now recognize that PLUS was a labor of love for everyone involved. People shared thoughts and ideas — collaboration and cooperation at its finest. People are willing to work together and put aside their differences for the organization’s greater good, intending to “Bringing the Best Together.”

Today, PLUS has over 40,000 members, making it one of the most significant insurance associations in the world. They offer curriculum training, an RPLU designation with over 4,000 members achieving this accomplishment, cyber practitioners, and several certificate programs.

This is in memory of my friends Ron Berman, Bill Gates Sr., Dave Smith, Bill Holland, Leo Gilmartin, Ed Harrington and Dennis Busti — they would be amazed at what we accomplished if they were alive today. I also want to thank everyone, including our past presidents and officers, board members, all the volunteers, the corporate sponsors, the fantastic membership for their contributions and ongoing support, and the excellent staff in Minneapolis for making the dream a reality.

So now it has been said, and now it can be written.

Remember: When determination and dedication become your destination, success will follow.

A recognized expert witness and author in the field of professional liability, Gioia is founder of PLUS and executive director of AgentsofAmerica.org.

Idea Exchange: The Competitive Advantage

The Relevance of Standard Carriers to Commercial Lines

Question: Are standard, admitted, insurance carriers relevant commercial markets?

Arthur J. Gallagher stated in their 2020 10K that 50% of the total U.S. commercial property/casualty market is written through alternative markets. An Aon report several years ago placed that number at 52%.

so big does not equal profitable. But this is heavily skewed by three carriers who are primarily personal lines carriers. Their losses averaged to be almost 21 percentage points worse than normal.

meaning their premium is inflated. They move to an alternative market and decrease their premium by 10%.

By Chris Burand

According to the latest A.M. Best estimates, as of 2022, surplus lines premiums, almost all of which are commercial, now constitute 11.3% of all direct written premiums (this percentage increased in 2023). Relative to commercial lines, surplus lines direct premium written equals roughly 25% of all commercial premiums. Commercial premiums, excluding reinsurance, are approximately 45% of total premiums. With 50% of commercial premiums being in alternative markets and 25% written in surplus lines, this means standard admitted carriers are now only writing 25% of commercial premiums. Roughly 975 carriers write commercial insurance in the U.S.

The top 50 commercial writers (including surplus lines writers and reinsurers) write almost 80% of all premiums. The top 17 write 51%. Those remaining 925 carriers write approximately 20% of the 25% written by standard admitted carriers (which equals 5%) of all commercial premiums. Split between 925 carriers, this equals an average market share of .0054%. In other words, these carriers writings, generally, are immaterial to commercial lines. Worth noting is some are niche companies relative to a line of business or a state, or even a line of business within a state, and in that environment, they are important. But we only have 50 states and typically these are workers’ compensation carriers.

Interestingly, at least in 2022, the largest commercial writers’ loss ratios were materially worse than the industry segment,

And this point is a good segue. Dabbling in insurance is a bad strategy. Dabbling in commercial lines when your primary focus is personal lines is a bad strategy. Dabbling in auto dealers when your primary focus is multi-family property is likely a terrible strategy.

Which brings me back to whether standard carriers are relevant to commercial lines. Obviously around 500 carriers are not relevant. But are admitted carriers overall relevant?

According to A.M. Best’s 2023 Market Segment Report, Feasibility and Utility Sustain Rated Captives’ Excellent Profitability, the “Captive Insurance Composite” has “outperformed those [fiveyear average combined and operating ratios] of the [Commercial Casualty Composite] by wide margins.”

A 10-percentage point profit advantage is common with well managed captives, which indicates to some degree, though not entirely, that the better risks have migrated to the alternative market. Additionally, the percentage in the alternative market space is larger than these numbers suggest.

Take a highly profitable account that is rated, at least partially, within the law of large numbers. This means they will be subsidizing the worse accounts,

Total commercial premiums in non-alternative risk markets are around $360 billion. Add the other 50% and total premiums are approximately $720 billion. But if I take $100 billion out of the regular market and reduce premiums by 10% because they are the best accounts, that is actually the equivalent of moving $110 billion. Apples-to-apples then, if the premiums had remained the same without reductions, the alternative risk marketplace would have much more than 50% of the market.

This also means the remaining business

in the standard market is not as good and is no longer subsidized to the same extent by good accounts.

Additionally, surplus lines is no longer a market of last resort for commercial lines by any means of the imagination. Many of the surplus forms are superior to what the admitted markets offer. Many vital coverages are only available in surplus lines. And some carriers are now preferring, through their own surplus subsidiaries, to place business in these surplus lines markets to get around outdated regulatory rules.

If the majority of premiums have moved to alternative markets and the only market for critical coverages is in surplus lines, the standard admitted commercial market is by definition, some combination of a niche

market and adverse selection market.

Reality and Strategy

Given this current environment, if I were running a standard carrier writing admitted commercial lines, assuming it is not a highly specialized niche segment/ state, then I would:

1. Recognize Reality. Recognize the reality of the market and understand what is left to write. Accept the reality that as an admitted market, I am now, at best, the Jack and not the King. I’ve lost the pre-eminent position at which admitted commercial lines carriers have traditionally been placed. These numbers are real, and it is time to move past denial. All the data presented here is publicly available. Some differences exist between data sources and timing and therefore, variances should be

expected, but whether the result is 25% or 20%, the story is the same.

2. Decide on a Strategy. Is the strategy to recover the best accounts that have left the regular market because carriers were too focused on premium growth rather than pricing better accounts more accurately? I see a lot of carriers taking quality accounts completely for granted these days and I see more and more good accounts are losing patience. If the commercial carriers do not wake up to their position, their market share will continue to decrease with adverse accounts growing as a percentage of their books. As the old saying goes, you can’t charge enough for bad accounts. Or is the strategy to simply take the better accounts from the other admitted carriers and become a bigger fish in a shrinking pond?

Agents and Brokers

If you are an agent or broker, the strategy is more obvious. Leaving your best accounts with carriers that are inept, dabblers, or need them to subsidize the adverse selection they’ve already incurred is a bad strategy. Better brokers and agents have and are creating and using better alternatives. They will take your better accounts.

The next step that will seriously move the needle is when someone begins developing programs for property, homeowners, and small commercial multi-peril liability and property. Based on some of the press releases I’ve read recently, at least one broker has initiated such a program.

The commercial market has changed. The facts are undeniable. What strategy will you implement to adapt?

Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719-485-3868. E-mail: chris@burand-associates.com.

Idea Exchange: Is It Covered?

Logic & Language and Forms & Facts The Problem(s) With Hail Claims – Part 1

A Cautionary Tale for Insureds and Insurers

Last year while I was out of town, a roofing company showed up at my home and told my wife there had been a hailstorm recently, so they were visiting impacted neighborhoods and providing free inspection services. She let them on the roof and, of course, they found extensive hail damage even though the storm they referred to did not deposit any hail in our immediate area that we were aware of.

By Bill Wilson

So, to confirm their diagnosis, we contacted two roofing companies that we had used in the past at homes we’ve owned. Both of these companies had been in business locally for decades. Neither company found any hail damage to our roof. Neither of these companies follow storms looking for work, as both are usually backlogged with jobs.

The company that did claim we had damage I’d never heard of and they had apparently come here from about 150 miles away. Despite that, they had allegedly found hail damage at nearby homes and the homeowners insurers for those homes paid to have new roofs installed. Perhaps they actually did have damage … or maybe the insurers weren’t as vigilant as they could be?

The Issues

Regardless, this practice is just one of several issues that often accompany hail damage claims, but let’s focus on real problems regarding inarguable hail damage rather than conjecture. The first issue involves discovery and reporting of damage, which I’ll address in this month’s column.

Next month, we’ll examine other hail damage issues such as actual cash value vs. replacement cost policy provisions, percentage deductibles, special cosmetic

damage exclusions, existing “marring” exclusions, and Pair or Set clauses, the latter of which I’ve used to get roof, siding and shutter claims covered under homeowners policies. But, first, let’s examine discovery and reporting issues.

Discovery and Reporting of Hail Damage

A few homeowners policies require “notice” without regard to timeliness. Most homeowners policies require “prompt” notice of damage or notice “as soon as practicable.” Some require the arguably more stringent “immediate” notice of damage.

More restrictive policies, such as those that are the subject of this article, indicate specific time limits such as one year or 365 days from the date of loss or damage-causing event. Case law is all over the place on

hail claims where the damage may only be discovered months after it occurred when revealed by a major rain storm that results in interior water intrusion.

Court Case — Majority Opinion

Most recently, the Colorado Supreme Court decided two cases — Gregory v. Safeco Insurance Co. and Rumkel v. Owners Insurance Co. — by a very narrow 4-3 majority decision. In both cases, hail damage claims were denied based on the late reporting of damage under policies that included very specific time limits on reporting.

Previously, the Court had established that, in order to deny coverage for untimely notice, the insurer must show prejudice due to the late notice. However, this position had previously been limited largely to

uninsured/underinsured motorist coverage and third-party liability claims, not to first-party homeowners property claims.

In their decision in these cases, the Court concluded that the notice-prejudice rule does apply to occurrence-based, first-party homeowners policies. Their decision was based on two principal reasons.

First, the purpose of such reporting restrictions in insurance policies is to allow the insurer to properly investigate and, if warranted, establish a defense while evidence and testimony is still reasonably fresh and reliable. In the Court’s opinion, this apparently is not enough of an issue in first-party property claims where damages and cause(s) of loss are evident over time.

Second, referring to a 2001 decision of the Court in Nationwide Mutual Fire Insurance Company, 16P.3d 223, 229-30, when determining whether the notice-prejudice rule applies, one must consider the “adhesive” nature of insurance contracts, the public policy objective of compensating victims, and the inequity of granting the insurer a windfall due to a technicality. In other words, as I stress in my book “When Words Collide: Resolving Insurance Coverage and Claims Disputes,” the purpose of insurance is to insure.

When it is clear that a loss is covered, courts should not be unreasonably swayed by contract language that essentially provides a loophole or an inequitable means of avoiding coverage.

In the present cases, the Court effectively established that, unless late reporting is prejudicial to the insurer, the limitation in the insurance policy is, as a matter of equity, unenforceable. In addition, the burden of proof as to prejudice falls on the insurer, not the insured.

Court Case — Minority Opinion

On the other hand, in the 4-3 decision, the minority included a dissenting opinion based largely on the freedom to contract, despite the assertion of the majority regarding the adhesive nature of insurance contracts. The reality is that pretty much no homeowners read the policies they buy and certainly do not compare multiple policies when making an insurance purchasing decision, so adhesion is, to that extent, quite real.

The minority opinion’s primary focus appeared to be the potential impact the majority decision could have on the marketplace given the premise that the date-certain notice requirement in a property policy assists insurers in underwriting and pricing the coverage. They have a point, but it did not sway the majority in reaching a decision they based in large part on public policy issues. State insurance regulators, as a matter of public policy, have often suspended restrictive policy language regarding reporting and documentation following disasters.

Another point expressed in the minority opinion was that property policies impose an obligation on insureds to be aware of the condition of their property. This presumably means that, if the insured suspects they may have insurable damage, they should report it to the insurer promptly. This raises the issue of how reporting potential claims following every significant storm might adversely impact underwriting and pricing for insureds. Do insurers really want to encourage and deal with an influx of such reporting?

Possible Solution?

An interesting point in this discussion is when a very specific 365-day reporting requirement only applies to wind or hail damage. Such a restriction might seem reasonable, even generous, for a fire claim, or if a pipe bursts and floods a home. But for a claim that is not readily apparent to a consumer, is it? It would make more sense if a specific limitation applied to most claims except for “hidden” losses like hail damage or plumbing leaks. Often, hail damage is only discoverable when it manifests itself months later in the form of a roof leak during a significant rainstorm.

ISO homeowners policies used to exclude water damage from repeated seepage or leakage of water from plumbing systems that occurred over weeks, months or years. However, often such leaks are hidden in walls or other nonvisible spaces and it can take weeks, months, or even years for the damage to reveal itself. As a result, in their 1991 countrywide homeowners filing, ISO removed this exclusion and, since that time, relied on the Neglect exclusion to deny such claims. That being said, many, if not most, insurers continue to exclude repeated seepage or leaking plumbing claims, which makes one wonder how such policy provisions may be considered in the future in Colorado given the decision discussed here.

The reality is that there is very little in the way of encouraging loss control in personal lines, and homeowners should do a much better job of periodically inspecting their property to catch and/or prevent damage. However, is it reasonable to expect insureds to have their roofs inspected after every storm? And, again, is it in the best interest of insurers to have to devote claims services to such inspections?

What do you think? Feel free to voice your opinion. Be sure to tune in next month when we discuss a half dozen or so additional issues dealing with hail and windstorm claims.

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.” Email: Bill@InsuranceCommentary.com.

Idea Exchange: Ask the Insurance Recruiter

Process Improvement Is the Secret to Recruiting Success

Isee a lot of insurance agencies sink a never-ending amount of time and money into recruitment in the hopes it will solve the frustrations related to finding candidates and filling jobs. The problem with focusing too much on tools and resources is that it’s hard to buy your way out of hiring struggles. Believing if you just have ‘more’ — more internal recruiters, more job postings, more technology, and more candidates then hiring success will come — is a false narrative.

Process is the only way to achieve sustainable hiring success. With an optimized process you can achieve goals I’m certain you’ve thought about before — proactive recruitment, pipeline building, competing for top talent, etc. Here’s how to get started.

Don’t Let Time Become Your Frenemy.

A simple fix that I see so many insurance organizations fail to do is set timelines and deadlines. Do so before starting a search, otherwise you’ll find places to make excuses, become disengaged, get distracted, or pin your hopes on one candidate in the process.

During annual planning, mark every approved hire on the upcoming calendar in two spots — the ideal hire date and 90-120days before that as the search launch.

As the year unfolds, with each planned and unplanned job opening, set deadlines to complete specific recruiting tasks like when to post jobs, complete database

searches, run LinkedIn lists, send referral messages, and engage outside recruiters. This keeps sourcing and advertising on task.

Get Everyone to Row the Boat in the Same Direction.

Too often I see a “figure it out as we go” approach to hiring. Standardized recruiting workflows help you recruit and hire more efficiently.

Start by position. For example: “Every client service position requires these steps to source, interview and hire candidates.” Then, define roles and responsibilities to avoid the hiring team duplicating efforts. Use templates. They are underutilized to prep hiring managers for interviews. Give hiring managers a Q&A guide to ensure no question goes unanswered, thus avoiding a lot of back and forth with candidates after interviews and that pesky issue of inappropriate interview questions that lead to E&O exposures.

Make Decisions Based on Numbers Rather Than Feelings.

A statement that should never be made pertaining to recruiting is, “I feel.” When it comes to determining talent acquisition success, everything starts with evaluating your resources using raw data.

1. How much time do people involved with hiring spend on recruiting tasks? Is that a valuable use of their time relative to their skills, compensation, and the primary

job we pay them to do? I see far too many commercial lines directors and CHROs with six-figure salaries screening resumes, sending LinkedIn messages, and scheduling interviews. It makes no sense but happens for a lot of reasons, mostly issues of capacity and lack of organization.

By Mary Newgard

2. Do we have recruiting software that makes sense for our job and candidate management workflows? Technology should fit your process not the other way around. The HRIS and ATS systems were created by people who know nothing about recruiting or insurance. Far too often agencies use cumbersome systems (with too many unnecessary bells and whistles). Then they build workarounds, abandon the system for Outlook folders, or let the system be a warehouse for applications.

You can’t expect to build talent pipelines, work ahead of openings, or recruit passive candidates if you don’t control the quantity and quality of information in your recruiting database.

3. Do we look at key performance indicators to understand where our recruiting can improve? The most common recruiting KPIs are time-to-fill, cost-per-hire and quality-of-hire. If you don’t like what’s been going on in recruiting, then evaluate historical data to get an idea of what you can do differently.

Audit files to find missed opportunities and hidden costs that contribute to recruiting inefficiencies.

Gather feedback from candidates about their interview experience to increase engagement and satisfaction.

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.

Idea Exchange: Emerging Risks

Data Privacy, Human Trafficking Risks on the Rise

The world can at times feel smaller and more connected than ever before. And though there are many tangible benefits to such intermingling of markets, people and products, potential risks nevertheless remain.

By Lee Shavel

With greater connectivity comes the increased potential for breaches of private data. With bigger and more global workforces comes potential exposure to various forms of human trafficking. These are two risks insurers should be following as they have the potential to impact the industry as the year progresses.

The Increasing Threat to Personal Data Privacy

It’s no secret that data privacy has become a serious issue for many state legislatures — and a growing source of potential liability for companies. At least 50 bills addressing data privacy were introduced in 2023, compared to 34 bills in 2022, according to a Verisk analysis. Additionally, multiple states have enacted privacy-related legislation.

While “privacy” may be a fairly generic term, there are a variety of specific concerns that could fall within its orbit, such as biometric privacy, pixel tracking, and, increasingly, popular chatbots. In fact, more than 100 lawsuits have been filed since mid-2022 alleging privacy violations in connection with users’ interactions with website chatbots.

The popularity and potential privacy concerns associated with chatbots appear poised to increase in the coming years with the quick advancement of generative artificial intelligence (GenAI) tools. A little over a year since the public debut of one particularly popular chatbot, enthusiasm

for GenAI among enterprise users appears to be continuing at a fever pitch. According to one survey published at the end of 2023, 67% of enterprises are using this technology and 18% already have applications in production.

The popularity and potential privacy concerns associated with chatbots appear poised to increase in the coming years …

Like many digital technologies, GenAI models appear vulnerable to cyberattacks. These attacks can occur whether a model is publicly accessible (i.e., via a chatbot on

a website) or private (i.e., behind an organizational firewall). These exposures may come with a costly price tag for companies: By at least one account, the average cost of a data breach to U.S. organizations has been marching steadily higher — from $5.4 million in 2013 to $9.5 million in 2023.

If the growing adoption of GenAI applications is influencing the risk of data breaches, it may, downstream, potentially become a concern for insurers writing cyber or directors and officers (D&O) lines of business.

A Rise in Forced Labor Across Several Industries

Recent research and investigative reporting in the U.S. indicate that the record-breaking migrant crossings at the

U.S.-Mexico border may be contributing to an increase in compelled labor across the country. A recent analysis by Verisk Maplecroft found a year-over-year increase of forced labor violations between the final quarters of 2022 and 2023, fueled in part by the recent influx of undocumented workers.

More than 27 million people are subjected to some form of forced labor, which, according to the U.S. Department of Homeland Security, can include work compelled through force, fraud or coercion. Forced labor generates an estimated $150 billion globally each year, making the practice the most profitable criminal activity in the world behind only drugs and arms trafficking.

A wide variety of industries may be

potentially exposed, from mineral and resource extraction to cocoa and palm oil production to the training of large language models (LLMs) that power the increasingly influential AI chatbots offered by prominent tech companies.

A growing body of evidence suggests that some tech companies looking to capitalize on the fast-growing generative AI industry are harnessing the same model of digital supply chains to label and annotate data, a crucial component in training the LLMs that power AI chatbots and image generators. Demand for scalable AI training data has led to reports of exploited child labor in places such as Pakistan and Kenya — where workers were reportedly paid less than $2 an hour to train one popular AI chatbot to be less toxic.

The data-labeling industry is projected by some estimates to be worth anywhere between $17 billion and $70 billion by the beginning of the next decade. As this industry continues to grow, so too may the global demand for affordable — and exploitable — labor.

Data privacy and forced labor are complex issues exacerbated by the rapid advancement of GenAI. As the technology continues to gain traction, insurers need to closely monitor these associated risks.

Shavel is president and chief executive officer of Verisk, a data

Idea Exchange: Minding Your Business

Power of the Mastermind: Part Two

Editor’s note: The following article is a continuation of Part One, published inInsurance Journal’s May 6, 2024, issue in the Minding Your Business section.

What is a mastermind group? A mastermind group is simply an alliance of two or more individuals dedicating themselves to a specific goal. It is a way to get all the knowledge, expertise, and connections the group needs to achieve their goal.

There are two basic types of mastermind groups: One that is focused on the success and vision of one individual, and one that is focused on helping everyone in the group.

By Catherine Oak and

The mastermind group created by Andrew Carnegie was solely directed at his personal vision. The 50 men focused on one main goal: the building of a steel empire. The originator of this type group is the driving force behind the goal. He/ she gathers together a group of people who have the knowledge, expertise, and connections he or she lacks.

Consider this a personal board of directors. It can be a formal board that meets periodically at one place. Or, it can be informal, where one meets with their advisors individually on the phone or in person to go over issues and ideas. This personal board of advisors could and should include the management team, a CPA, attorney, business consultant, friendly peers, vendors, customers, HR experts and fellow business owners in other industries.

The second type of mastermind group is one where all members of the group meet to support one another in achieving a goal. The people in this kind of group are not totally focused on one person’s project/goal all the time. Instead, the members help each other brainstorm and strategize, and introduce leads or other people and resources that might help a member with their goal.

A mastermind group solves the problem of how to get the expertise, experience, resources, and specialized knowledge one does not have.

To get these resources, guess what? There is a price to pay. The creator of the group needs to make sure that the other members are generously compensated in one way or another. This is usually through the sharing of ideas and supporting each other. Some groups are run by a paid facilitator that can also offer other services. It is a good idea not to have family and close friends as members of your mastermind group. The dynamics of the relationship will interfere with the openness of the advice and opinion.

The economic and social landscape has shifted radically in the last few years. Business owners need to learn to think differently just to maintain the status quo. With the current trends, things look as if they’re going to get a lot more confusing in the months ahead. A mastermind group is a way to share ideas, opinions and experience to keep a business owner up to date with today’s rapidly changing environment.

Elements of a Mastermind Group

The basic foundation of a great mastermind group starts with a clear and definite purpose. For the second kind of group, where people with different goals come together to help each other, the purpose is that when one person is discussing their goal, everyone else must be focused in that moment on helping that person get what they want, to the best of their ability.

The second crucial element in a mastermind group is harmony. There must be a complete meeting of the minds, without reservation on the part of any member.

Bill Schoeffler

For a successful alliance, each member subordinates his or her personal needs to the needs of the overall outcome or goal. If at any time the harmony of the group is damaged, it must immediately do something to restore it, including eliminating a member, if that becomes necessary. Never try to operate a mastermind alliance that includes negative people. A general positive attitude is required.

Other key elements to a successful mastermind group include:

• Establish guidelines for how the group is to operate.

May 20, 2024

Sequoia Insurance Company

4455 LBJ Freeway, Suite 700 Dallas, TX 75244

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

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

May 20, 2024

Positive Physicians Insurance Company

850 Cassatt Road, 100 Berwyn Park, Suite 220 Berwyn, PA 19312

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

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

• Create an agenda for each meeting prior to the meeting.

• Start out sharing a success or break through.

• Everyone must participate in some way at each meeting.

• Commitment to the group and each other.

• Maintain a balance of attention and sharing by each member.

• There should not be any direct competitors in the group.

• Members should have similar success and experience levels.

May 20, 2024

Trisura Insurance Company

210 Park Ave. Ste 1300 Oklahoma City, OK 73102

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

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

May 20, 2024

Incline Casualty Company 13215 Bee Cave Parkway, Suite B-150 Austin, TX 78738

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

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

• Members should also have a diversity of skills and abilities.

A mastermind is about moving one forward and helping one achieve a dream or a goal. The group is an effective way to share resources, skills and experience, so that the goal can be achieved much faster than if one operated on their own.

Oak is founder of the international consulting firm, Oak & Associates. Schoeffler is an associate of the firm. Phone: 707-935-6565. Email: catoak@gmail. com. Website: www.oakandassociates.com.

May 20, 2024

Company 471 E Broad St Columbus, OH 43215

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

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

May 20, 2024

Motorists Mutual Insurance Company 471 E Broad St Columbus, OH 43215

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

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

Closing Quote

FTC Noncompete Ban Includes Key Revisions, But Faces Uncertain Future

By Charles Symington

When the Federal Trade Commission (FTC) issued its final rule banning the use of most noncompete agreements, many insurance agents were naturally concerned by how the regulation might harm their businesses and the Big “I” heard from hundreds of insurance agency owners and executives within hours of the FTC’s announcement.

Independent insurance agencies rely — for appropriate and legitimate reasons — on employment agreements to protect their investments, customer relationships, and the goodwill and value of their businesses. Any measure that would prohibit or unduly restrict their ability to utilize these tools would be troubling.

The FTC rule takes aim at noncompete agreements and defines them as a term or condition of employment that “prohibits,” “penalizes,” or “functions to prevent” a person from working elsewhere or operating a business after leaving a particular job. Among the agreements that would be banned are those that expressly prohibit a person from working elsewhere, those that require a person to pay liquidated damages to do so, and severance agreements in which a person is paid only if

they refrain from competing against a former employer. Pending the outcome of several legal challenges, the rule is scheduled to take effect on Sept. 4, 2024.

Agents who want to understand the impact of the regulation on their business should consider its key elements and take note of crucial revisions incorporated in the final text. Items to note include:

Exemption for Business

Sales. The initial version of the rule, released in January 2023, included an exemption allowing the use of noncompete agreements in connection with the sale of a business, but it only applied to sellers possessing at least a 25% ownership interest in the entity.

The Big “I” and others successfully argued that this arbitrary ownership stake restriction should be eliminated. The final rule deletes the limitation and freely allows the use of noncompete agreements that are “entered into by a person pursuant to a bona fide sale of a business entity, of the person’s ownership interest in a business entity, or of all or substantially all of a business entity’s operating assets.”

Other

Employment Agreements. The regulation targets noncompete agreements and does not prohibit the use of other employment covenants. Nonsolicitation, nonpiracy, nondisclosure and other types of employment agreements are unaffected by the rule if their use does not penalize or prevent a worker from switching jobs or starting a new business. Protecting the

ability of independent agents to use these alternatives in reasonable ways is a top priority for the Big “I.”

Existing Noncompete Agreements: The FTC’s initial proposal would have nullified any noncompete agreement entered into before the rule’s effective date. The final regulation takes a different approach and allows existing noncompete agreements with “senior executives” to remain in force. The rule defines a “senior executive” as someone who earns more than $151,164 per year and serves in a “policy-making position,” which is a term also defined by the rule. All other noncompete agreements will be invalidated after September 4 and businesses are required to disclose to affected workers that the agreements are no longer enforceable.

Will The Ban Survive Legal Challenges?

Now, the question about whether the rule will actually take effect looms. At least three legal challenges have been filed. The various plaintiffs have asked the courts to delay the rule’s implementation and to ultimately toss it aside. The biggest legal issue is whether the FTC possesses the statutory authority required to issue such a sweeping substantive rule. Many legal observers believe the FTC has overstepped its bounds.

Historically, states have been responsible for regulating noncompete agreements and legislation addressing their use is certain to arise in the future. California, North Dakota

and Oklahoma have banned their use in most contexts for more than a century while Minnesota enacted a similar law last year. More than a dozen other states have restricted the use of noncompete agreements over the last decade with laws that ban their use in certain industries (e.g., healthcare) or for workers who earn less than a specified amount.

The Big “I” believes any legislation of this nature should, at a minimum, expressly permit noncompete agreements to be used when a business is sold, and not restrict the reasonable use of confidentiality, nonsolicitation and other employment agreements. In the last year, more expansive and onerous legislative proposals have been actively considered in some states, including in New York and Maine, and the agent community has opposed such measures.

Employment agreements, including noncompete agreements in some instances, are important business management tools for independent insurance agents. Protecting their reasonable use must remain a priority.

Symington is president & CEO of the Independent Insurance Agents & Brokers of America (the Big “I”).