Insurance Journal West 2019-04-01 by Insurance Journal

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April 1, 2019 • Vol. 97 No. 7

Contents News & Markets

Lloyd’s Issues Action Plan to End Sexual Harassment in Workplace Amid Recent Reports

A Mix of Flood Insurance Reforms

Insurers Cautious About Marijuana Insurance Market

Some Data Indicates Increasing Accident Rates in Marijuana States

Electric Scooter Injuries on the Rise

Conn. High Court Rules Gun Maker Can Be Sued Over Marketing

Special Report

Spotlight: Insurance Industry Facing Competitive Labor Market

32 Spotlight: Agencies

Looking for New Talent Have Their Work Cut Out for Them

34 Spotlight: Workers’ Comp and the Gig Economy

Closer Look: How Drones and Aerial Imagery Use Rose to New Heights in 2018

40 Claims Journal:

Misdiagnosis Most Common Reason for Malpractice Claims, Studies Claim

Claims Journal: Attorney Turned Criminal Apologizes to Insurers for Giant Workers’ Comp Fraud

Idea Exchange

Ask the Insurance Recruiter: Why Producers Change Jobs

The Competitive Advantage: How Errors & Omissions Lawsuits May Change

When Words Collide: Resolving Insurance Coverage and Claims Disputes

8 Things to Consider When Buying or Selling an Insurance Agency

New Flood Rule from Bank Regulators a Win for Consumers, Agents

Closing Quote: How Debt Is Used as a Strategic Tool for Growth

Special Report: Today’s Hot Markets

Departments 8 Opening Note 16 Declarations 16 Figures 20 People 6 | INSURANCE JOURNAL | APRIL 1, 2019

22 Business Moves

64 My New Markets

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That’s what it means to specialize. And you deserve a carrier that gets that. We make it a point to know all there is to know about a wide range of industries from construction and manufacturing to real estate, technology and more. With our deep specialization, The Hartford can help you develop customized solutions for the complex risks of your mid- to largesize clients – allowing us to be there for both of you in a way that many carriers cannot. The Buck’s Got Your Back. TheHartford.com/specialization The Hartford® is The Hartford Financial Services Group, Inc. and its subsidiaries. 19-ML-16509 © March 2019 The Hartford

Opening Note Write the Editor: awells@insurancejournal.com

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

ADMINISTRATION / CIRCULATION

Assaults on Woman a Common Cause of Workplace Injuries

omen suffer 70 percent of all nonfatal assault-related injuries involving days away from work and are disproportionately impacted by other safety issues, according to an analysis by the National Safety Council. The number of women who incurred assault-related injuries at work in 2017 totaled 12,820 – a 60 percent increase since 2011. By contrast, 5,530 men sustained assault-related injuries at work in 2017, the analysis found. Aside from assault, other work-related injuries and illnesses that disproportionately impact women include accidental injury by another person (59 percent), falls on the same level (57 percent), and ergonomic issues, such as complications from repetitive motion (61 percent). Women working in certain sectors experience a disproportionate number of various nonfatal injuries and illnesses, too. For example, 80 percent of the nonfatal injuries and illnesses in the healthcare sector involve women. In education, the figure is 61 percent and in management/ business/financial firms, 60 percent. Workplace injury and illness data including assaults are available on Injury Facts, the National Safety Council’s compilation of preventable death and injury statistics for nearly 100 years. “Our workplaces should be safe havens for everyone, and these data show us we can do more to protect women in the workplace,” said Nick Smith, interim president and CEO of the National Safety Council. “As employers examine the biggest risks facing their workforce, we urge them to consider these trends and make sure safety is extending to all employees.” As part of its observation for Women’s History Month in March, the council encouraged employers to examine historical safety trends involving women in the workplace so that safety measures are aptly addressed for those most vulnerable. The National Safety Council offers emergency preparedness training for the workplace, which includes active shooter instruction.

‘Our workplaces should be safe havens for everyone, and these data show us we can do more to protect women in the workplace.’

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

EDITORIAL

Chief Content Officer Andrew Simpson | asimpson@insurancejournal.com Editor-in-Chief Andrea Wells | awells@insurancejournal.com East Editor Elizabeth Blosfield | eblosfield@insurancejournal.com Southeast Editor/MyNewMarkets Amy O’Connor | aoconnor@insurancejournal.com South Central Editor/Midwest Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Don Jergler | djergler@insurancejournal.com International Editor L.S. Howard | lhoward@insurancejournal.com Columnists & Contributors

Columnists: Chris Burand, Mary Newgard, Bill Wilson Contributors: Rick Dennen, Mark Hollmer, Craig Poulton, Zachary Lerner

SALES / MARKETING

Chief Marketing Officer Julie Tinney | jtinney@insurancejournal.com West Sales Dena Kaplan | dkaplan@insurancejournal.com Romeo Valdez rvaldez@insurancejournal.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 Sales & Marketing Coordinator Ashley Berg | aberg@insurancejournal.com Advertising Coordinator Erin Burns | eburns@insurancejournal.com Insurance Markets Manager Kristine Honey | khoney@insurancejournal.com Senior Strategist Pam Simpson | psimpson@insurancejournal.com Social Media Manager Ly Short | Lshort@insurancejournal.com Marketing Administrator Gayle Wells | gwells@insurancejournal.com Marketing Director Derence Walk | dwalk@insurancejournal.com

DESIGN / WEB / VIDEO

V.P. of Design Guy Boccia | gboccia@insurancejournal.com V.P. of Technology Chris Thompson | cthompson@insurancejournal.com Ad Ops Specialist Jeff Cardrant | jcardrant@insurancejournal.com Web Developer Terrance Woest | twoest@wellsmedia.com Web Developer Ryan Kleshinski | rkleshinski@wellsmedia.com New Media Producer Bobbie Dodge | bdodge@insurancejournal.com Videographer/Editor Ashley Waldrop | awaldrop@insurancejournal.com

ACADEMY OF INSURANCE

Director Patrick Wraight | pwraight@ijacademy.com Online Training Coordinator Nathan Granitz | ngranitz@ijacademy.com

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Andrea Wells Editor-in-Chief 8 | INSURANCE JOURNAL | APRIL 1, 2019

Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Media Group, Inc., 3570 Camino del Rio North, Suite 200, San Diego, CA 92108-1747. Periodicals Postage Paid at San Diego, CA and at additional mailing offices. SUBSCRIPTION RATES: $7.95 per copy, $12.95 per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this publication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended to be legal, accounting, tax, technical or other professional advice. Readers are advised to consult competent professionals for application to their particular situation. Copyright 2019 Wells Media Group, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. Insurance Journal is a publication of Wells Media Group, Inc. POSTMASTER: Send change of address form to Insurance Journal, Circulation Dept, PO Box 708, Northbrook, IL 60065-9967 ARTICLE REPRINTS: Contact (800) 897-9965 x125 or visit insurancejournal.com/reprints

Open Letter from Verisk to the Insurance Industry On February 11, 2019, EagleView Technologies issued a press release concerning an intellectual property dispute between EagleView and Verisk (Nasdaq:VRSK). We would like to set the record straight. Verisk introduced 3-dimensional modeling of structures in 1997 through our own application called Sketch®, which was available to users of our Xactimate® product. In 2004, Verisk enhanced this capability by introducing the ability to import image and blueprint underlays, which enabled our customers to use aerial photographic images to construct and improve their models, including the calculation of roof measurements. In 2008, Verisk enabled customers to obtain EagleView roof reports through our Xactimate platform if they wished. This included Xactware-developed technology that converted the details of EagleView’s static PDF report into a fully editable, 3-dimensional plan in Xactware’s Sketch program. On July 15, 2015, EagleView was acquired by Vista Equity Partners, a private equity firm with $44 billion of assets under management. In the acquisition agreement, EagleView affirmed that Verisk was not infringing its intellectual property. On September 23, 2015—85 days after coming under Vista’s control—EagleView sued Verisk for the infringement of 153 claims across nine patents. Since this dispute began, EagleView has abandoned three patents and 142 claims. We have closely examined the 11 remaining claims and state confidently that our methods do not infringe the remaining few claims. Verisk was doing 3-dimensional modeling of buildings nearly 20 years ago and began imagery analytics in 2004 to bring innovation to our customers. Verisk continues offering improved products today to bring value and choice to the industry. Over the last 15 years, all of the source code, models, analytic methods, visualizations, and report formats of our aerial imagery offerings are 100 percent the product of the research and development of Verisk teams and make no use of any other party’s intellectual property. In spite of being attacked by lawsuit, on September 16, 2016, Verisk entered into a new agreement with EagleView to maintain the distribution of its products on our platform. Verisk did this for one reason only: to maximize choice for our customers. We eagerly look forward to the trial and the elimination of the last 11 claims that remain of EagleView’s original 153. Verisk has a long track record and bright future as a provider of aerial imagery solutions, and we look forward to serving our fast-growing list of customers in the years to come.

VeriskOpenLetter.com

News & Markets Lloyd’s Issues Action Plan to End Sexual Harassment in Workplace Amid Recent Reports

‘It has been distressing to hear about the experiences of women in the Lloyd’s market.’ By L.S. Howard

n the era of #MeToo when the ills of sexual harassment are regularly in the news, a recent article published by Bloomberg Businessweek indicates that some men working in the London insurance market still haven’t gotten the message about appropriate male behavior. With the devastating headline, “The Old DaytimeDrinking, Sexual-Harassing

Ways Are Thriving at Lloyd’s,” the article describes the 330-year-old London insurance market as “the most archaic corner left in global finance.” In the article, 18 women were interviewed, who detailed “an atmosphere of near-persistent harassment,” ranging from “inappropriate remarks to unwanted touching.” Ironically, the article was published on the same day as an announcement about this year’s “Dive-In”, an interna-

10 | INSURANCE JOURNAL | APRIL 1, 2019

tional festival for diversity and inclusion in insurance, which was originally launched in the London market and has been embraced by the insurance industry across the globe. Lloyd’s responded to the reports with an action plan designed to create “a safe and inclusive working environment,” which includes possible lifetime bans for the perpetrators of sexual harassment. Despite the bad behavior described in the article, the Lloyd’s and London markets

have made some progress with diversity and inclusion over the past decade. Women increasingly have entered leadership positions, including one of the most prominent examples, Inga Beale, who was Lloyd’s CEO between 2014 and 2018 and a self-described bisexual. When her departure from Lloyd’s was announced in June 2018, Lloyd’s Chairman Bruce Carnegie-Brown, reflected on her tenure, saying, she

continued on page 47

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News & Markets A Mix of Flood Insurance Reforms Conservation, CarFax-Like Disclosure, Means-Test for Rates Up for Discussion By Andrew Simpson

he federal flood insurance program has a knack for inspiring ideas from reformers across the political spectrum on how to improve government. If some of today’s reformers get their way, flood insurance will become a mandatory topic at real estate closings and a tool for protecting flood-prone lands from development. There will be a means-test for premium subsidies and an end to support for repeat flood properties. Also, rates charged by the National Flood Insurance Program (NFIP) will more

12 | INSURANCE JOURNAL | APRIL 1, 2019

accurately reflect the unique flood risk of individual homes under changes being developed by the Federal Emergency Management Agency (FEMA). There has for years been bipartisan support in the House of Representatives for a long-term extension and major reforms of the NFIP. But various bills championed by Rep. Jeb Hensarling, R-Texas, former chair of the House Committee on Financial Services, and passed by the House, have stalled in the Republican-controlled Senate. Now under leadership of Rep. Maxine Waters (D-Calif), who replaced Hensarling as head of the committee after Democrats gained control of the House, lawmakers are trying again. Bills now before the committee would, among other things, renew the NFIP until

Sept. 30, 2024. The program is currently set to expire at the end of May under one of the 10 short-term extensions Congress has approved since 2017. The current House proposals would also forgive the NFIP’s remaining $20 billion debt and boost funding for mapping, floodplain management, and mitigation for homes, businesses and infrastructure. “Everyone is at risk of flooding,” said Waters, stressing that it is “not just a coastal issue.” According to FEMA, floods are the nation’s most common and costly natural disaster, affecting all 50 states. During a Capitol Hill hearing last month, advocates spoke on the bills and added a few of their own ideas — and criticisms — to the mix for lawmakers to consider.

continued on page 14

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News & Markets continued from page 12 Means-Testing

“The NFIP is a textbook example of unintended consequences,” said Raymond J. Lehmann, director of Finance, Insurance and Trade Policy for the think tank R Street Institute. “While the program has provided incentives for mitigation, these have not gone far enough, and the availability of cheap flood insurance has played a role encouraging people to build in flood-prone regions.” Lehmann said the most significant new element is a proposed demonstration project for means-tested discounted rates. “Addressing affordability has been a topic toward which members have paid quite a bit of lip service over the past 15 years, but this is the first substantial proposal to do exactly that,” he said. The bill’s demonstration project would extend premium discounts to households making less than 80 percent of an area’s median household income, with discounted rates that would be capped at two percent of annual area median income. While Lehmann praised the approach, he warned that while the 80 percent threshold may be appropriate in some communities, it may be necessary to add an upper income cap in wealthy areas where the median household income is higher than the national median. He suggested that discounted rates should be calculated as a percentage of the policyholder’s own household income. A Government Accountability Office (GAO) report in 2012 found that 29 percent of subsidized policies were in counties in the top decile of median household

income, and 65 percent were in counties among the top three deciles. In contrast, just four percent of subsidized policies were in the bottom decile and just 10 percent in the bottom three deciles. The program’s existing subsidies also flow from inland areas to coastal counties, he added.

‘FEMA must complete the initial flood mapping of the entire nation to get ahead of development.’ Mortgage Disclosure

The mortgage disclosure idea came from Velma Smith who spoke on behalf of The Pew Charitable Trusts and called for a “national framework for flood risk disclosure to homebuyers and renters, not dissimilar to the existing requirement for lead paint disclosure for older homes.” This would be upfront disclosures about flood risk that would be made available before financial commitments are made. She described it as a CarFax for homes. “As many flood experts have noted, an understanding of flood risk is fundamental to preparedness and protection, but individuals frequently underestimate their own risk of flooding, the extent of the damage that flooding can cause, or both,” she told Congress. She said some consumers may not realize that a homeowner’s policy does not cover flooding while others may assume that their chances of significant loss to a flood are remote or believe that federal disaster assistance will allow for full recovery and restoration. “Many do not realize that for those liv-

ing in the one-percent-annual-chance or 100-year floodplain, the chances of a flood occurring during the lifetime of a 30-year mortgage are roughly one in four, far greater than for fire,” she said. Smith said sellers and lessors should be “compelled to share the information they know about past flood damages and claims, obligations to carry insurance based on previous access to federal disaster assistance, and designation of a home as repetitive loss property, which can have serious implications for flood insurance rates. They should also be compelled to share the results of any elevation survey completed on the property.”

Mapping

Among the many stressing the need for improved mapping of flood-prone areas was Maria Cox Lamm, South Carolina NFIP state coordinator chair, speaking for the Association of State Floodplain Managers, who told Congress that flood risk maps currently only exist for about one-third of the nation. That is, only 1.2 million of 3.5 million miles of streams, rivers, and coastlines have been mapped. Not to mention that some of the current maps are many decades old or were updated before the current standards using more accurate data and topography. Also, there is still a large inventory of pure “paper” maps that have never been modernized, and many other areas have never been mapped at all. As a result, many communities have no maps or data to guide development to be safe from flooding. “Floodplain mapping is the foundation

continued on page 18

Figures $12 Billion The amount former Massey Energy CEO Don Blankenship is suing news outlets and media personalities for defamation after his failed bid for a U.S. Senate seat in West Virginia. Blankenship says the news organizations plotted to destroy him by labeling him as a convicted felon or saying he was imprisoned for manslaughter. He spent a year in prison after being convicted of conspiring to break mine safety laws, the breaking of which is alleged to have led to a 2010 mine explosion in the state that killed 29 workers.

Declarations ‘About Damn Time’

“Today’s action to finally allow smokable medical marijuana brings four words to the lips of people across our state: It’s about damn time. It’s long past due that the state of Florida honored the will of the people and allowed doctors to determine their patient’s course of treatment.”

Florida Agriculture Commissioner Nikki Fried, an advocate for the repeal of the state’s ban on smokable medical marijuana, which was passed by the Florida Legislature in March. Voters approved medical marijuana in 2016, but lawmakers banned smokable forms in 2017.

Deceptive Coupons

“Pfizer enticed consumers with these coupons for one reason only, to sell its brandname drugs instead of a cheaper generic. These coupons were simply not a good deal for consumers, who were misled by Pfizer into thinking they were.”

Oregon Attorney General Ellen Rosenblum announced details of a $975,000 settlement after Oregon’s Department of Justice found the pharmaceutical giant misled consumers with deceptive coupons.

$190,000 A former site manager for a temporary staffing agency in New Jersey has been sentenced to three years in state prison for stealing this amount from the agency. Xiomara Jovel of Roselle, N.J., pleaded guilty in December to second-degree theft by deception.

15 MILES

The length of the path traveled by a tornado that destroyed or damaged numerous homes and other structures in the southern New Mexico community of Dexter in mid-March. The tornado's path was roughly 150 to 350 yards wide and it had estimated peak winds of 111 to 135 mph, according to the National Weather Service.

No Delay

“Every day the trial is delayed, we will lose more Oklahomans to prescription opioid overdoses.”

Oklahoma Attorney General Mike Hunter, who sued 13 opioid manufacturers in 2017, comments on the Oklahoma Supreme Court’s refusal to grant a delay in a trial over the lawsuit, as requested by drug companies. Hunter’s suit alleges the companies fraudulently engaged in marketing campaigns that led to thousands of overdose addictions and deaths.

Miles Wide

“It was miles wide. … It was the scope of the river’s breadth that really amazed me.”

Bob Henson, a meteorologist with Weather Underground, describing the Missouri River in the midst of massive flooding in Nebraska and the Midwest. Henson said it has been the wettest winter on record nationally, with 40 of the 48 U.S contiguous states seeing above average rainfall.

News & Markets continued from page 14 of all flood risk reduction efforts, including design and location of transportation and other infrastructure essential to support businesses and the nation’s economy,” Lamm said, noting that flood maps are also used for emergency warning and evacuation, community planning, and locating critical facilities like hospitals and emergency shelters. “FEMA must complete the initial flood mapping of the entire nation to get ahead of development,” she said. She supported additional funding for mapping beyond the current $400 million a year. She said a “stepped up commitment to mapping flood risk” is critical as the Trump Administration and Congress plan a major investment in building and repairing infrastructure. “America’s trillion-dollar coastal property market and public infrastructure are threatened by the ongoing increase in the frequency, depth, and extent of tidal flooding due to sea level rise, with cascading impacts to the larger economy,” Lamm testified. Inland, the situation is only slightly better, “but is still problematic,” she said. Some communities have strong local floodplain management regulations that exceed federal minimum standards and can identify floodplains before development takes place. But most communities do not have such standards, meaning that development occurs with no flood standards. She described how this situation plays out locally: “Well, this is what is happening in thousands of subdivisions across the country: areas that used to be cornfields and cow pastures are developing into tens of thousands of housing units. Later, after there is significant development at risk and often after a flood or two, FEMA comes in and maps it. Then the dynamic changes, and everything becomes adversarial. People think FEMA put a floodplain on them, when it was there all along. The property owner is mad because they have to buy flood insurance at high premiums because flood elevations were unknown. Realtors are upset because it is a surprise and may 18 | INSURANCE JOURNAL | APRIL 1, 2019

have an impact on the future salability of homes. And local elected officials fight to minimize the size of the mapped floodplain, spending thousands of dollars on competing flood studies.” She said the nation needs to start changing its mapping priorities so this does not continue to happen. “The entire dynamic can change if maps showing risk are available before development starts,” she said. “We must map today’s corn fields and cow pastures to assure that quality flood mapping precedes development.”

Denial of Subsidies

R Street’s Lehmann asked lawmakers to consider an additional idea to lessen the likelihood of development in flood-prone areas, which he noted will only make matters more difficult in future years as people need to be relocated as a result of sea level rise and climate change. “Over the next century, we may be forced to contemplate relocating potentially hundreds of thousands of Americans to higher ground should the Intergovernmental Panel on Climate Change’s projections prove accurate,” he said. “As a first step, it is critical that Congress reverse any federal policy that actively encourages Americans to move into harm’s way.”

Toward that end, the NFIP should cease writing coverage for any new construction in 100-year floodplains, he said. He likened this approach to that of the Coastal Barrier Resources System (CBRS), which bars federal subsidies to development across a 3.5-million-acre zone of beaches, wetlands, barrier islands and estuaries along the Atlantic Ocean, Gulf of Mexico and the Great Lakes. This law, signed by President Ronald Reagan in 1982, does not actually prohibit development within the CBRS but it prohibits programs like federal disaster relief, highway funds and the NFIP itself from operating in these areas. As a result, Lehmann said, more than 80 percent of the CBRS zones remain undeveloped. “Not only has the CBRS been successful in preserving fragile coastal habitats and ecosystems, but it has done so while actually saving taxpayer funds,” he said. This model of promoting conservation by removing federal subsidies has been adopted successfully elsewhere, including by the U.S. Department of Agriculture with its “swampbuster” and “sodsaver” conservation compliance programs that limit subsidies that could serve as incentives to convert wetlands to agricultural use, according to Lehmann. Also, the state of Florida prohibits new construction seaINSURANCEJOURNAL.COM

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News & Markets Lockton, Children’s Bureau Honored by Insurance Industry By Don Jergler

ervice was at the heart of Timothy J. Noonan’s main message. The Lockton Cos. president and CEO was talking about the service insurance professionals give to their clients and about the service the industry gives to communities. “Lockton associates are making a difference,” Noonan said in March in front of hundreds of insurance professionals and representatives of local nonprofit organizations attending the Insurance Industry Charitable Foundation Western Division’s annual Horizon Award Gala in Los Angeles. Lockton associates were honored with the IICF Western Division’s 2019 Golden Horizon Award during the gala, which also included the announcement that $415,000 in community grants went to 53 local nonprofits throughout the Western states during the first quarter of the year. Another $235,000 was raised by the gala through sponsorships, table sales, a live auction and individual donations, according to IICF. IICF presents its annual Golden Horizon Award each year during the gala to recognize an individual or organization in the insurance industry for dedication to philanthropy and the betterment of communities. Recent past gala honorees include: • Jim Darling, regional executive officer for Chubb’s Pacific region • Mark Wells, Publisher, Wells Media Group Inc. • Jeff Dailey, CEO of Farmers Insurance • Frank Robitaille, executive vice president of Armstrong/Robitaille/Riegle Lockton associates were honored for more than 50 years of giving back to communities. Associates with Lockton’s Pacific Series reportedly contribute an average of 5,000 hours and nearly $1 million annually to improve communities. For its 50th anniversary, Lockton launched a campaingn to donate 50,000 hours of volunteer service to children’s charities W2 | INSURANCE JOURNAL | WEST APRIL 1, 2019

Greg Barnes, a trustee with Children’s Bureau and a senior vice president and broker at Lockton, spoke during the Insurance Industry Charitable Foundation Western Division’s annual Horizon Award Gala in Los Angeles on March 22, 2019, about the relationship between Children’s Bureau and IICF that dates back more than 20 years. Photo by Danielle Klebanow. over the course of the year. Noonan accepted an honorary IICF grant on behalf of International Medical Corps, an international relief and development charity he personally supports. Each year the IICF also features a nonprofit and gives a donation to that charity at the gala. Jon Axel, managing partner of the Liberty Company Insurance Brokers, introduced the Children’s Bureau as this year’s featured nonprofit. IICF has partnered with Sesame Street on early literacy projects to bring books, reading and educational materials to underserved youth. The group in the past has used characters like Elmo and the Cooke Monster to promote the cause. “There’s nothing so special as having the children open these books and have the opportunity to meet the Cookie Monster,” Axel said. Greg Barnes, a trustee with Children’s Bureau and a senior vice president and broker at Lockton, accepted the honor. Barnes noted that the long relationship between Children’s Bureau, one of the state’s largest private nonprofit adoption agencies, and IICF has yielded some 1,000

volunteer hours, thousands of books and in excess of $80,000 in financial support for the charity. “This focus of collaborating is based on the notion that nothing happens in isolation,” he said. “A child’s lifelong health and success is intertwined with their early childhood experiences and relationship with their parents. In order to change the life path of at-risk children, we must include in our approach the families raising these children, the communities in which these children live, and the nonprofit systems that are woven through their lives.” IICF founders Bruce Basso and Jim Woods were also recognized at the dinner. The presenting sponsor of the gala was Lockton Insurance Brokers LLC. The Gold Sponsors were Farmers Insurance, Michelman & Robinson, Swiss Re, The Liberty Company Insurance Brokers, TOPA Insurance Group and Worldwide Facilities. Established in 1994, IICF has served as the philanthropic foundation of the insurance industry and reports contributing $31 million in community grants along with 300,000 volunteer hours by more than 110,000 industry professionals. INSURANCEJOURNAL.COM

ward of the state’s Coastal Construction Control Line from receiving subsidized insurance from the state-run Citizens Property Insurance Corp. Lehmann noted that barring new construction in 100-year floodplains from NFIP eligibility would not completely end development since developers might find private insurance. Nor would it relieve the challenges ahead with existing structures already in those zones. “It would, however, apply the ancient wisdom of the Hippocratic Oath: ‘first, do no harm.’ Where we can cease encouraging development of flood-prone land, without laying any new burden on any current resident, it is an opportunity we simply must take,” Lehmann said.

Repeat Flood

In terms of insurance rates, the Pew Trust endorsed changes to make coverage affordable while also rewarding mitigation, although it readily recognized achieving this is no easy task. Pew’s Smith offered a few guidelines. Any NFIP affordability program must be “carefully and tightly targeted” to policyholders that need it most. The program should also compensate clearly for the price signals new discounts convey. “Too many individuals assume that a low insurance rate INSURANCEJOURNAL.COM

equals low risk. Many will see a lowering of rates as confirmation of minimal risk. Where this is not the case, people should be fully informed and educated about their true risks. An affordability program should not feed flood complacency,” Smith testified. The place for NFIP to begin needed “financial and mitigation triage” is with the long-standing but still growing problem of repetitive loss properties that have strained the program’s finances, according to Smith. In some years, these account for as little as one percent of the program’s policyholders but 25 to 30 percent of its claims. The NFIP provides for a more rapid escalation of rates for repetitive loss and severe repetitive loss properties compared with other premium-discounted properties. It also directs FEMA to prioritize mitigation assistance to such properties and requires more rapid rate escalation if an offer of mitigation assistance is refused. “However, these are simply starting points to reducing the growth properties that flood over and over,” Smith said.

Rating Changes

For its part, separate from what lawmakers are doing, FEMA announced that the NFIP is modernizing its rating plan to more accurately reflect the actual flood risk of individual properties and incorporate the use of up-to-date technology, data and industry best practices. NFIP aims to have the new rates for all single-family homes nationwide ready by Oct. 1, 2020. “Our goal is to transform the NFIP through our insurance products and this new rating plan,” the agency said in a document announcing the change. The new rating plan is being designed to go beyond whether a home is inside or outside of the 100-year floodplain, and instead incorporate private-sector data to calculate a more realistic flood threat for each home and set costs based on that data. “Many people do not understand their flood risk, and as a result, don’t see the value of flood insurance. For example, more than 20 percent of NFIP flood claims

are filed for properties located outside the high-risk flood area,” FEMA said. The plan is likely to raise rates for many communities and homeowners with the greatest flood risk. Some worry it could also affect home values in those areas. Private insurers applauded the move, claiming it will make the NFIP more like an actual insurance program. “For far too long, the NFIP has kept rates artificially low, relying on taxpayer-funded bailouts while effectively encouraging building in flood-prone areas and, worse, leaving property owners vulnerable to flood risks they had no idea even existed,” said Jimi Grande, senior vice president at the National Association of Mutual Insurance Companies.

Other Matters

There was also support from insurance and real estate agents for requiring lenders to accept private flood policies as meeting federal purchasing requirements and for allowing consumers to move freely without penalty between the private insurance market and the NFIP as their needs and markets change. In February, five federal agencies (the Office of the Comptroller of the Currency, the Federal Reserve System, the Federal Deposit Insurance Corporation, the Farm Credit Administration, and the National Credit Union Administration) published a final rule outlining when federally related lending institutions must accept private flood insurance in satisfaction of the mandatory purchase requirement. The rule is currently scheduled to take effect on July 1, 2019. Florida independent insurance agent Christopher Heidrick said agents hope this move it will provide clarity for homeowners and lenders. “But more work remains to be done due to some limitations within the statutory definition of private flood insurance,” he said, speaking on behalf of the Independent Insurance Agents and Brokers of America. Agents are keeping their eyes out for any changes to the Write Your Own program and related payments to private carriers and agents for selling and servicing flood policies for the government. APRIL 1, 2019 INSURANCE JOURNAL | 19

People National

Ironshore Specialty Casualty has appointed Casey Hartley as senior vice president and head of programs. She will oversee the development, marketing and distribution of programs lines, working with programs administrators across Ironshore’s underwriting platforms in the U.S. Hartley was named to lead U.S. General Liability Lines for Liberty International Underwriters (LIU) in 2016. Previously, she served in various roles at LIU parent, Liberty Mutual Commercial Insurance. Tracey Sharis, senior vice president, has been appointed director of programs. Most recently, Sharis was senior vice president of operations and distribution for Ironshore Specialty Casualty and senior vice president of retail distribution. She joined Ironshore Specialty Casualty in 2011 as vice president for retail and construction business lines in the U.S. Sharis has held management positions for Aon Benfield in its facultative reinsurance group and with AIG’s Lexington Insurance Co. in property and casualty sectors. Kemper Corp. has hired Kimberly A. Holmes as senior vice president, chief

actuary and strategic analytics officer. Holmes will lead Kemper’s actuarial and analytics teams. Holmes’ direct reports include executives who lead the actuarial and data and analytics functions for Kemper’s specialty auto, personal insurance, life and health lines of business. She will report to Joseph P. Lacher Jr., Kemper president and CEO, and be based in Chicago. Holmes previously was senior vice president and global head of strategic analytics for AXA XL and held chief actuary roles at Endurance Risk Solutions, Endurance Specialty Insurance, Enterprise Reinsurance and Starr Excess Liability Insurance Co.

East

Brooks Insurance Agency, a Manalapan,

N.J.-based multiline wholesaler, has hired

Michael McCluskey as senior vice presi-

dent and broker. McCluskey specializes in placing professional liability insurance for the financial services sector, including 20 | INSURANCE JOURNAL | APRIL 1, 2019

investment banks, mergers and acquisitions firms, security dealers, investment funds and investment advisors. He began his career as an underwriting manager for Monitor Liability Managers. He later joined Crump Insurance Services and became president of the Professional Liability Division, a subsidiary of Marsh & McLennan. He moved on to form Cadence Insurance Brokers Inc. in 2008, and after 10 years of growth, he was acquired into Brooks Insurance Agency.

rience to her new title. She has served as a senior liability claims adjuster since coming to work for ASC in July 2015. Prior to joining ASC, Barnes worked for Crawford & Co., GAB Robins, Progressive Insurance and Auto Club. As claims manager, Barnes will train client managers, prepare status reports for discussion at client management meetings and continue to work with clients, customers, insurance carriers and their legal teams.

Optisure Risk Partners, a national

Midwest

insurance and risk management firm headquartered in Manchester, N.H., has hired Jackie Roy as an account execJackie Roy utive in the business insurance division, providing professional and commercial insurance and risk management programs. During the past 30 years, Roy was a business partner in the construction industry.

South Central

EPIC Insurance Brokers and Consultants

added Jose Palmer as a principal in the energy and marine practice within its property and casualty operations. Palmer is responsible for new business development and the design, placement and management of property and casualty insurance programs, providing risk management strategies for mid-market and large clients. Palmer has 20 years of insurance industry experience. He joins EPIC from Upstream Brokers, an Acrisure partner company, where he served as a vice president for more than seven years. Palmer spent the earlier part of his career with Willis of Texas Inc. and MaximGroup. Nashville, Tenn.-based Alternative Service Concepts (ASC), a national workers’ compensation and liability third-party claims administrator (TPA), has promoted Jolie Barnes to claims manager. She is based in Houston. Barnes brings more than 20 years of insurance industry expe-

Safety National Casualty Corp.,

headquartered in St. Louis, Mo., has made organizational changes to the company’s casualty field underSteve Cotnoir writing management roles. Steve Cotnoir, formerly vice president of large casualty, has assumed the role of executive director of casualty field underwriting. He will Dennis Zervos provide leadership over national field casualty and production underwriting. Cotnoir will report to Seth Smith, executive vice president of underwriting. Dennis Zervos, formerly vice president of large casualty, has assumed the role of regional vice president of underwriting. He will provide leadership over field casualty and excess production underwriting for Safety National’s New York and Philadelphia regional offices. Zervos is now a member of Cotnoir’s casualty senior leadership team. Scott Thompson, formerly assistant vice president of large casualty, has assumed the role of vice president of large casualty. In this position, he will provide leadership over casualty and production underwriting for Safety National’s San Francisco and Los Angeles regional offices. Thompson Scott Thomspon will now report INSURANCEJOURNAL.COM

directly to Cotnoir. Russ Edwards, formerly regional underwriting manager of large casualty, has assumed the role of assistant vice president of large casualty. He will provide leadership over casualty and production underwriting for Safety National’s Atlanta regional Russ Edwards office. Edwards will now report directly to Cotnoir.

The Global Insurance Accelerator (GIA), headquartered in Des Moines, Iowa, has appointed Nicole Cook as the group’s managing director, effective May 1. She joined the GIA on Feb. 11. During the GIA’s 2019 cohort, Cook will work alongside current Managing Director Nicole Cook Brian Hemesath. Her background includes finance, strategy, sales, technology and raising capital. She most recently served as chief operating officer of Speeko, a provider of an autoBrian Hemesath mated verbal communication. Cook began her career in investment banking at BMO Capital Markets before transitioning to startups. She also has experience as a seed stage investor, serving as managing partner of Five Island Ventures Partnership. On May 1, Hemesath will step down as managing director to assume a role as the GIA’s entrepreneur-in-residence.

Southeast

Nashville, Tenn.-based The General Insurance has tapped nationally syndicated on-air radio personality Bobby Bones as the company’s newest brand ambassador. The General will partner with Bones, who is also a New York Times #1 best-selling author, philanthropist and winner of

INSURANCEJOURNAL.COM

season 27’s Dancing with the Stars, across various media channels, including television, radio, digital and social media.

tion technology and software solutions to analytics and data management. San Diego-based

Bobby Bones

Newport Beach, Calif.-based Alliant has hired Yumi Yamazaki Colwell as first vice president of its employee benefits group in Atlanta. Yamazaki Colwell has experience in the global automotive and manufacturing industry, particularly in the U.S. and Asia, and will provide a range of benefits products to clients on both continents. Prior to joining Alliant, Colwell was area senior vice president and practice leader with a global insurance brokerage and employee benefits firm specializing in both the Japanese business segment as well as traditional commercial firms. Previously, she served as vice president with Japanese benefits broker Sumitomo Life.

Atlas General Insurance Services has hired John Gray as

business development manager in the Southeast. Gray, who joins Atlas from Appalachian Underwriters Inc., will work with the John Gray Atlas business development and marketing team to grow its presence in the Southeast by reengaging existing agency relationships and developing new ones. He will be based in Knoxville, Tenn. He previously worked with independent agents in an 11-state territory assisting brokers in using products across all lines of personal and commercial insurance.

West

Fresno, Calif.-based United Valley Insurance Services Inc. has named Michael O’Dell assistant vice president of business analytics. He has been with United Valley for 19 years and has had a range of responsibilities from informa-

Cavignac & Associates has Michael O'Dell named Jessica Rodriguez an account administrator with-

in the commercial insurance agency’s surety department. Rodriguez serves as the client contact within the department for processing bond requests. Most recently, she was a commercial insurance certificate customer service representative and account manager for Rock 10 Insurance Services. Her prior experience includes having served as office manager and Jessica Rodriguez small group health insurance agent for Steve Grady Insurance. Cavignac & Associates is a risk management and commercial insurance brokerage firm.

Chicago-based Mayer Brown announced that a team led by partner Kara Baysinger has joined the firm, adding to its global insurance capabilities and corporate and securities practice. As a partner based in Mayer Brown’s San Francisco office, Baysinger will serve as the co-leader of the U.S. insurance regulatory and enforcement group. She comes to Mayer Brown with partner Stephanie Duchene in Los Angeles. Also on the insurance regulatory and enforcement team is Matthew Gaul in New York. The team previously practiced at Dentons, where Baysinger was a co-leader of the firm’s global insurance sector. Baysinger has experience representing national and international insurance and reinsurance companies, insurance-related service companies, insurtech companies and other financial services entities. Baysinger began her career working in-house for insurance companies. Duchene focuses her practice on representing insurance companies, producers and insurance licensees and service providers in regulatory matters. APRIL 1, 2019 INSURANCE JOURNAL | 21

Business Moves Ensurise, Reese, Yeatman & Associates

National Brightway Insurance

Brightway Insurance, a national property/ casualty insurance retailer selling through a network of franchised independent agencies, launched its new Independent Agent Program with its first group of new owners. The new program was unveiled in January. The following agents have since launched their agencies nationwide: • Gary Weintraub, Brightway, The Gary Weintraub Agency in Pooler, Ga. • Andrew Gutierrez, Brightway, The Andrew Gutierrez Agency in Topeka, Kan. • Sandeep Rao, Brightway, The Rao Agency in Wilmington, N.C. • Aquarius Johnson, Brightway, The Aquarius Johnson Agency in Humble, Texas • Austin Vannoy, Brightway, The Vannoy Agency in Valdosta, Ga. • Jeremy Hill, Brightway, The Jeremy Hill Agency in New Orleans • Maria Puente, Brightway, The Maria Puente Agency in Tucson, Ariz. Brightway Insurance writes more than $572 million in annualized written premium.

East Amity Insurance Agency, New Hampshire Bar Association

Amity Insurance Agency Inc., a Quincy, Mass.-based agency, has formed a strategic alliance with the New Hampshire Bar Association. 22 | INSURANCE JOURNAL | APRIL 1, 2019

Under the terms of the alliance, Amity has purchased the insurance agency business from the New Hampshire Bar Association and will now be the association’s endorsed insurance agency. Previously, the New Hampshire Bar Association maintained its own agency as an option for professional liability (malpractice) insurance for its 7,000 members. Amity will extend the offer to provide professional liability to all of the New Hampshire Bar Association’s members, which is one of Amity’s core offerings. Additionally, Amity will open an office within the New Hampshire Bar Center in Concord, N.H. The firm will also add a new employee to its ranks, Sue Morand, who formerly was employed by the New Hampshire Bar Association. For New Hampshire Bar Association members, existing policies and coverages will continue in full force.

Ryan Specialty Group, Boston Insurance Specialists

Ryan Specialty Group LLC has agreed to acquire the assets and operations of Boston Insurance Specialists Inc., an independently owned wholesale insurance brokerage with offices in Mansfield and Westfield, Mass. Following the acquisition, BIS’ team will become part of R-T Specialty LLC, the wholesale brokerage unit of Ryan Specialty Group. BIS' specialty product includes property/ casualty, professional liability and personal lines.

Independent insurance agency Ensurise LLC has merged with the property/casualty insurance brokerage operations of Reese, Yeatman & Associates Inc. Following the merger, Reese Yeatman will continue to operate as Reese Yeatman Insurance from its downtown Bethesda, Md., location. Reese Yeatman is in its second generation of leadership under Michael Reese Jr., Thomas Riley and a staff providing commercial and personal lines of property/ casualty insurance. Ensurise is an independent insurance brokerage organization that partners with insurance agencies in the Washington, D.C., metro area.

USI Insurance Services, GFI Insurance Brokerage

USI Insurance Services, a provider of insurance brokerage and risk management, has acquired New York-based GFI Insurance Brokerage Inc. GFI provides commercial property/ casualty, employee benefit and personal risk products to clients in the Northeast region. Headquartered in Valhalla, N.Y., USI delivers property/casualty, employee benefits, personal risk and retirement products.

Relation Insurance Services, J. Deutsch Associates Inc.

Relation Insurance Services has agreed to acquire J. Deutsch Associates Inc., a New York City-based, privately owned and operated insurance agency. The acquisition deal is expected to bring together complementary portfolios and deepen Relation’s Education Solutions student health insurance offerings. Additionally, the acquisition expands Relation’s footprint in the Northeast. J. Deutsch Associates provides insurance to international students and scholars in the U.S. Relation Insurance Services is an insurance brokerage that offers risk management benefits and third-party administrator consulting services through its family of brands across the U.S. INSURANCEJOURNAL.COM

Midwest CFM Insurance, Cornerstone National Insurance

CFM Insurance Inc., a mutual insurance company headquartered in Concordia, Mo., has finalized its acquisition of Cornerstone National Insurance Co., a stock company based in Columbia, Mo. The group will maintain two separate companies, all owned by the mutual company policyholders. The new direction of CNI will yield the introduction of packaged business in the territories where it currently writes coverage. CFM has roughly 26,000 policies with annual written premium of more than $30 million. Cornerstone ended 2018 with more than $23 million in written premium and 17,500 policies.

South Central Arthur J. Gallagher, First Iowa Insurance Agency

Arthur J. Gallagher & Co. has acquired Cedar Rapids, Iowa-based Hammerberg Insurance Services Inc., doing buiness as First Iowa Insurance Agency Inc. Ronald Hammerberg, Robert Hammerberg and their associates will continue to operate from their current location under the direction of Patrick M. Gallagher, head of Gallagher’s Midwest region retail property/casualty brokerage operations, and Jerry Roberts, head of Gallagher’s Heartland region employee benefits consulting and brokerage operations. First Iowa offers commercial and personal property/casualty insurance, group and individual health, and individual life coverage and services throughout Iowa and the central U.S. Arthur J. Gallagher is an insurance brokerage, risk management and consulting services firm based in Rolling Meadows, Ill.

McGowan Companies, INSURANCEJOURNAL.COM

Edgewater Holdings

The McGowan Companies, headquartered in Fairview Park, Ohio, has purchased certain assets of the Chicagobased program administrator, Edgewater Holdings Ltd. Edgewater will be re-branded under the McGowan Program Administrators brand and will function as a division of McGowan & Company Inc. The Edgewater staff will remain in place, led by former Edgewater President and CEO Mark Kollar. Edgewater brokers will receive automatic appointments with McGowan. Edgewater specializes in working with insurance brokers to develop private label directors and officers, errors and omissions, employment practices liability insurance, cyber and workers’ compensation programs.

Hub International, Peak Financial Group

Hub International Ltd., an insurance brokerage headquartered in Chicago, has acquired the assets of Peak Financial Group LLC in Houston. Janine Moore and Darrell Ellisor of Peak Financial Group will join Hub Texas as senior vice presidents. Peak Financial Group is an independent firm specializing in retirement plan services, providing retirement plan design assistance and comprehensive employee education programs to businesses.

Southeast SPG, Insurance Programs of America, Risk Advisors of America

Specialty Program Group LLC, an operator of specialty insurance brokerages and underwriting facilities, has acquired the assets of Insurance Programs of America, Inc., a managing general underwriter, and Risk Advisors of America LLC, a retail insurance agency. The leadership of Insurance Programs of America and Risk Advisors of America will continue to run the operation. Orlando, Fla.-based, IPOA and RAA are a hospitality focused insurance distribution platform. The newly acquired team

will launch Specialty Program Group LLC’s hospitality platform. Headquartered in Summit, N.J., SPG focuses on expanding program underwriting and specialty businesses.

TriSure Corporation, Alera Group Inc.

TriSure Corp. has been acquired by Alera Group, a national insurance firm. Alera Group offers employee benefits, property/casualty insurance, risk management and wealth management. All TriSure employees will continue operating out of the firm’s existing location in Raleigh, N.C., under the name TriSure Corporation, an Alera Group Company LLC. TriSure is a risk management firm specializing in commercial property/casualty insurance. Alera Group, based in Deerfield, Ill., is an independent insurance agency.

West Hub, Ritehealth Solutions

Hub International Ltd. has acquired the assets of Lafayette, Colo.-based RiteHealth Solutions Inc. RiteHealth owner Rachel Zeman will join Hub Colorado as a senior employee benefits consultant. RiteHealth is an employment benefits brokerage firm. Chicago-based Hub is an insurance broker providing property/casualty, life and health, employee benefits, investment and risk management products and services.

Hanson Insurance, KMI Insurance

Hanson Insurance Group of Corvallis, Ore., has acquired KMI Insurance LLC of McMinnville, Ore. KMI will be merging into the Hanson Insurance Group name. Kelly McDonald of KMI Insurance will continue to serve as an advisor to his clients. KMI Insurance is an independent agency with specialization in agriculture, manufacturing, logging and real estate. Hanson is based in Corvallis and provides service in 37 states. APRIL 1, 2019 INSURANCE JOURNAL | 23

News & Markets Insurers Cautious About Marijuana Insurance

he marijuana industry is an opportunity for insurers as more states have legalized the drug. But there are still risks in play that could limit wider carrier participation, A.M. Best said in a new report, “Cannabis: New Opportunities for Insurers, But with Burgeoning Risks.” One of the key barriers is the federal government still classifies it as a controlled substance, continuing its status as an illegal drug even as individual states increasingly legalize its use. “Those directly and tangentially involved in the industry need insurance that addresses the specific needs of growers, retailers, distributors, property owners and lab researchers,” the report said. “However, despite growing demand from both producers and retailers alike, many carriers are reluctant to embrace the industry, owing to its classification as a Schedule I drug in the eyes of the U.S. federal government, under the Controlled Substance Act of 1970.” Because marijuana is not legal at the federal level, some carriers see marijuana

insurance as a “debatable” move, A.M. Best said. The market for marijuana is as wide as it’s ever been in the United States, with 33 states and the District of Columbia now allowing the use of medical marijuana. Of that number, 10 states plus D.C. also legalized recreational marijuana use (Canada made it legal as well in late 2018). The A.M. Best report identified a number of marijuana-related market segments that need insurance coverage. They include cultivation, dispensaries and retailers, infused products and landlords. Some insurers have responded.

25 Carriers

Approximately 25 carriers (mostly nonadmitted) provide coverage in the space in both the U.S. and Canada, A.M. Best said. The Lloyd’s Market offers coverage in Canada but doesn’t offer coverage to businesses in the U.S., because the federal government still considers it illegal. Carriers that have entered the market are typically partnering with “agencies

and producers that have a better understanding of the industry and the needs of cannabis businesses,” A.M. Best said. One example: Topa Insurance Group supports Cannasure, an Ohio-based MGA and wholesale brokerage solely focused on the cannabis industry.

Existing Coverage Limited

Insurers that are just entering the market offer basic policies that typically cover: commercial general liability, with limits of $1 million per occurrence/$2 million aggregate; property liability and product liability, both with limits of $1 million per occurrence/$2 million aggregate, A.M. Best said. The ratings agency warned that these limits may not be enough for marijuana business owners, who may need higher aggregate limits. Even insurers that jump in remain cautious. “Because this is an emerging market for insurance companies, insurers believe that their risk in these businesses is best man-

Some Data Indicates Increasing Accident Rates in Marijuana States

reliminary research indicates that the legalization of recreational marijuana in 10 states has increased accident rates, the Insurance Information Institute said. The group cited an October 2018 study by the Highway Loss Data Institute that shows collision claim frequency was 12.5 percent higher in Colorado and 9.7 percent higher in Washington than in nearby states that did not legalize recreational use of marijuana. Oregon also had a 1 percent greater rate of collision claims than neighboring states. “When a state legalizes marijuana, more people use the drug,” according to the institute’s white

paper. “More people using marijuana is associated with more people driving with THC in their systems. The standard personal auto policy does not address driving under the influence of any drug, including alcohol and marijuana. However, auto

insurance rates may be affected by the spread of marijuana legalization, particularly if such legalization is associated with an increase in impaired driving and related accidents.” Much of the institute’s report is based on a study by the Insurance Institute for

Market aged with their current limits. Another reason for the low limits is the challenge of finding reinsurers to back marijuana-related books of business, as reinsurance is typically a separate book or tower to cover these risks,” A.M. Best said. A.M. Best warned that shared limits between general liability and product liability, plus non-stacking endorsements and policies that often lack a duty to defend, remain problems for marijuana businesses.

Plenty to Gain

Insurers, if they can address these obstacles, stand to gain plenty by embracing coverage in the marijuana space. A.M. Best noted that the industry (medical and recreational) produced $8 billion in sales in 2017, while sales of illegal marijuana hit the $42 billion mark. Some projections call for legal marijuana sales to reach $22 billion by 2022, with illegal sales of the drug to drop to less than $5 million over the same period, as more states legalize use of the drug.

Highway Safety and the Highway Loss Data Institute released last fall. HLDI analysts estimated that the frequency of collision claims per insured vehicle year rose a combined 6 percent following the start of retail sales of recreational marijuana in Colorado, Nevada, Oregon and Washington, compared with the control states of Idaho, Montana, Utah and Wyoming. The combined-state analysis is based on collision loss data from January 2012 through October 2017. A separate IIHS study examined police-reported crashes before and after retail sales began in Colorado, Oregon and Washington from 2012 to 2016. IIHS estimates that the three states combined saw a 5.2 percent increase in the rate of crashes per million vehicle registrations, compared with neighboring states that didn’t legalize marijuana sales. Another study showed an increase in

the number of drivers involved in fatal accidents who tested positive for marijuana use. The National Bureau of Economic Research published in March 2018 found that the share of fatal accidents in which at least one driver tested positive for marijuana increased in Colorado and Washington after marijuana was legalized in both states in 2014. In Colorado the fraction of positive tests increased by 9 percent from 2013 to 2016; in Washington the increase was 28 percent in period.

Blood Test

A separate study by the libertarian-oriented Reason Foundation published last September points out that the presence of cannabis in a blood test does not mean the driver was impaired during the accident because THC remains in the blood long after its intoxicating effects subside. The Reason Foundation’s report, based

on a review of available literature, concludes that there is no definitive pattern related to cannabis legalization’s impact on traffic accidents. “Some studies, especially concerning medical marijuana, suggest that marijuana legalization might actually reduce fatalities by reducing drunk driving,” the Reason Foundation said. “All in all, no conclusive or definitive patterns related to cannabis legalization have appeared in the data or research to this point.” James Lynch, the Insurance Information Institute’s chief actuary, notes that there is no “breathalyzer” equivalent to detect marijuana impairment. Research into accident rates has not included California, where recreational use of marijuana did not become legal until January 2018. Janelle Dunham, a spokeswoman for the agency, said its most recent data on collisions is from 2016.

News & Markets

States Treat Electric Scooters as Bikes Even as Injuries Appear to Rise

By Jim Sams

entucky state Rep. Ken Upchurch says he doubts he will ever see an electric scooter in his rural district on the state’s southern border, but he was happy to help when a lobbyist for Bird Rides Inc. asked him to introduce legislation to support its “micromobility” scooter rental business. Upchurch, R-Monticello, said he has seen Bird and Lime scooters in Lexington and other cities. “It looks like an industry that is gaining some traction nationally,” he said. “I think especially in the metropolitan areas it’s going to be good for the consumer.” Kentucky Gov. Matt Bevin signed Upchurch’s House Bill 258 into law in March, ensuring that electric scooters will be treated the same as bicycles

under Kentucky law, with no requirement to register them with the state or purchase insurance. The law allows scooters to be parked on sidewalks as long as they don’t impede pedestrian traffic and excludes scooters from helmet requirements. Bird Rides Inc. and Lime have been pushing for legislation in state houses across the country to ensure that their rental electric scooters are treated as bicycles under motor vehicle laws. Like Kentucky, state legislatures in New Jersey, Utah and Virginia have already passed bills this year and legislation is being considered in at least 15 other statehouses stretching from Hawaii to Massachusetts, according to online records.

New Kind of Injury Claim

While state lawmakers have

been receptive, there is also a growing body of evidence that electric scooters are a new source of injury claims. In February, Consumer Reports reported that it found 1,500 people have been injured in U.S. electric scooter accidents since Bird and Lime released their scooters on city streets in late 2017. Consumer Reports said it based its findings on a spot tally from major hospitals and other public agencies, such as police departments. The Consumer Report’s findings were similar to the results of a study by University of California, Los Angeles. UCLA researchers examined data from 249 people who had been treated at emergency rooms at the UCLA Medical Center, Santa Monica and the Ronald Reagan UCLA Medical Center last September and August. They found that one-third of

the injured people arrived at the hospital in an ambulance, indicating the severity of their injuries, and 40 percent suffered head injuries. The UCLA research found that the scooter rider was injured in 92 percent of the scooter accidents. But in 8 percent of cases, other people were injured, including pedestrians. Only 4 percent of riders were wearing a protective helmet. Researchers also spent seven hours observing scooter riders at busy Los Angeles intersections and found that 94 percent of 193 people spotted riding scooters were not wearing helmets. Dr. Tarak Trivedi, the study’s lead author, said the study does not show that electric scooters are inherently dangerous. The research does not provide any comparison of the injury rate per miles driven on scooters compared to bicycles, for example. But Trivedi said he hopes the study raises awareness that scooters can cause serious injuries. He said the scooters are still a novelty to many. The people who ride them may not understand the risks. Trivedi said doesn’t own a car and he rides electric scooters, more so

improved balance, she said.

Some see electric scooters as a solution to the 'first-mile, last mile' transportation problem.

lately because his bicycle was stolen. He always wears a helmet. “People getting on these things aren’t really aware of the dangers,” he said.

Attorneys

Personal injury attorneys are very aware of the opportunity that scooters present to sue for damages when people are injured. Many law firms in Southern California are marketing themselves as “scooter injury attorneys.” Among them is Santa Monica lawyer Catherine Lerer. She has filed a class-action

lawsuit in Los Angeles County Superior Court against Bird and Lime and the scooter manufacturers, arguing that the companies should be required to include “adequate warnings and/or instructions” in their apps and on vehicles. Lerer said she represents more than 100 plaintiffs who have been injured by scooters, only some of whom are participating in the class-action. She said the scooter handlebars fall off, the wheels get caught on pavement imperfections and sometimes brakes freeze. “They are very dangerous,” Lerer said. “They are motorized vehicles that are defectively designed.” Scooters also can endanger passersby. Lerer said most often, pedestrians who are struck by electric scooters never find out who was driving. But in some accidents, blame can be assigned to automobile insurers and property insurers. One of her most recent clients is an 87-year-old woman who tripped over a scooter that was on the sidewalk outside Emeritus College in Santa Monica. Lerer said she’s filed a claim with Santa Monica Community College, which runs the school. The college risk manager did not return a call requesting comment. Lime spokeswoman Taylor Bennett said her company has led several safety initiatives. Lime recently launched Gen 3 scooter, which has upgraded wheels, better suspension, additional braking and

Political Push

Bird and Lime’s political push began in California, where both companies are headquartered. Gov. Jerry Brown last September signed into law Assembly Bill 2989. The measure bars electric scooters from sidewalks, but allows them on any road with a speed limit of 35 mph or less, and on any road with designated bicycle lanes. The bill requires helmets only for riders younger than 18. This year, lawmakers in other states have welcomed the companies’ message that electric scooters offer an emission-free solution to the “first-mile, last mile” transportation problem presented by public transit. In Virginia, the legislature has sent a bill to the governor that contains many of the policies the scooter companies are pushing for, including a provision that prohibits cities from passing ordinances that would prohibit parking scooters on sidewalks. Gov. Ralph Northam had until March 26 to sign or veto the measure. In New Jersey, a bill awaiting action by Gov. Phil Murphy would bar electric scooters from sidewalks, but allow them on bike paths. The bill also requires rental companies

to mark their scooters with identification tags. But some states are going their own way. The Hawaii House of Representatives has passed a bill that would specifically authorize the department of Transportation to regulate electric scooters and require operators to be at least 18. Lawmakers removed a provision that would have treated electric scooters the same as bicycles after bicycling advocates objected. And in Utah, the League of Cities and Towns pushed back against a provision that would have required municipalities to allow electric scooters to be parked on sidewalks. The final version of Senate Bill 139, which has received approval by the state Senate, requires scooter rental companies to indemnity local governments for any claims against them for actions by their customers. The bill also allows local governments to designate specific areas where the scooters can be parked, something that the League of Cities and Towns insisted on, said Director of Government Relations Rachel Otto. Otto said Bird and Lime’s lobbyists didn’t strenuously object to the language that requires indemnification, but they didn’t like the provision that allows local governments to regulate scooter parking. “Our guys are just very protective about having flexibility on how these things are regulated,” Otto said. “We stick by that core principle that a there’s not a one-size-fits-all approach.”

Sams is the editor of www. ClaimsJournal.com.

News & Markets Conn. High Court Rules Gun Maker Can Be Sued Over Marketing Ruling Seen At Odd with Previous State and Federal Court Opinions By Dave Collins

un-maker Remington can be sued over how it marketed the rifle used to kill 20 children and six educators at Sandy Hook Elementary School in 2012, a divided Connecticut Supreme Court ruled on March 14. Gun control advocates touted the ruling as providing a possible roadmap for victims of other mass shootings to circumvent a long-criticized federal law that shields gun manufacturers from liability in most cases when their products are used in crimes. Gun rights supporters bashed the decision as judicial activism and overreach. In a 4-3 decision, justices reinstated a wrongful death lawsuit against Remington and overturned the ruling of a lower court judge, who said the entire lawsuit was prohibited by the 2005 federal law. The majority said that while most of the lawsuit’s claims were barred by the federal law, Remington could still be sued for alleged wrongful marketing under Connecticut law.

Regulation of Advertising

“The regulation of advertising that threatens the public’s health, safety, and morals has long been considered a core exercise of the states’ police powers,’’ Justice Richard Palmer wrote for the majority, adding he didn’t believe Congress envisioned complete immunity for gun-makers. Several lawsuits over mass shootings in other states have been rejected because of the federal law. The plaintiffs in Connecticut include a survivor and relatives of nine people killed in the massacre. They argue the Bushmaster AR-15-style rifle used by Newtown shooter Adam Lanza is too dangerous for the public and Remington glorified the weapon in marketing it to young people, including those with mental illness. 28 | INSURANCE JOURNAL | APRIL 1, 2019

Remington, based in Madison, N.C., has denied wrongdoing and previously insisted it can’t be sued because of the 2005 law, called the Protection of Lawful Commerce in Arms Act. Remington had no comment on the court ruling. “We have no timeline for any comments to be made on the subject,’’ spokesman Eric Suarez wrote in an email to The Associated Press. James Vogts, a lawyer for Remington, has cited the 2005 federal law and previously said the Bushmaster rifle is a legal firearm used by millions of people for hunting, self-defense and target shooting. Lanza, 20, shot his way into the locked school in Newtown on Dec. 14, 2012, and killed 20 first-graders and six educators with a Bushmaster XM15-E2S rifle, similar to an AR-15. He shot his mother to death in their Newtown home beforehand, and killed himself as police arrived at the school. Connecticut’s child advocate said Lanza’s severe and deteriorating mental health problems, his preoccupation with violence and access to his mother’s legal weapons “proved a recipe for mass murder.’’ Nicole Hockley, whose 6-year-old son Dylan died in the shooting, said that a main goal of the lawsuit is to stop Remington and other gun makers from gearing their advertising toward troubled young men. “We have always said our case is about reckless sales and marketing to disturbed youth,’’ Hockley said. “We wanted our day in court. This is a step forward to ensure that manufacturers like Remington are not allowed to keep targeting people who are at risk.’’ A gun industry group, the National Shooting Sports Foundation, which happens to be based in Newtown, said the state Supreme Court ruling was an “overly broad interpretation’’ of an exception to the 2005 federal law. “The majority’s decision today is at

odds with all other state and federal appellate courts that have interpreted the scope of the exception,’’ the group said in a statement, adding it “respectfully disagrees with and is disappointed by the court’s majority decision.’’ Connecticut Chief Justice Richard Robinson focused much of the dissenting opinion on the intent of Congress to limit gun-makers’ liability. “Because the distastefulness of a federal law does not diminish its preemptive effect, I would affirm the judgment of the trial court striking the plaintiff’s complaint in its entirety,’’ Robinson wrote.

Military-Style

Joshua Koskoff, a lawyer for the plaintiffs, has said the Bushmaster rifle and other AR-15-style rifles were designed as military killing machines and should never have been sold to the public. He accuses Remington of targeting younger, at-risk males through “militaristic marketing and astute product placement in violent first-person shooter games.’’ “The families’ goal has always been to shed light on Remington’s calculated and profit-driven strategy to expand the AR-15 market and court high-risk users, all at the

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In this Jan. 28, 2013, file photo, firearms training unit Detective Barbara J. Mattson, of the Connecticut State Police, holds a Bushmaster AR-15 rifle, the same make and model used by Adam Lanza in the 2012 Sandy Hook School shooting, during a hearing at the Legislative Office Building in Hartford, Conn. A divided Connecticut Supreme Court ruled, Thursday, March 14, 2019, gun maker Remington can be sued over how it marketed the Bushmaster rifle used in the massacre. (AP Photo/Jessica Hill, File) expense of Americans’ safety,’’ Koskoff said. “Today’s decision is a critical step toward achieving that goal,’’ he said. The lawsuit seeks undisclosed damages. Military-style rifles have been used in other mass shootings, including in Las Vegas in October 2017 when 58 people were killed and hundreds more injured. The case was watched by gun rights supporters and gun control advocates across the country as one that could affect other cases accusing gun-makers of being responsible for mass shootings. Several groups, ranging from the NRA to emergency room doctors, submitted briefs to the court. The 2005 federal law has been cited by other courts that rejected lawsuits against INSURANCEJOURNAL.COM

gun makers and dealers in other high-profile shooting attacks, including the 2012 Colorado movie theater shooting and the

Washington, D.C., sniper shootings in 2002. Robert J. Spitzer, chairman of political science at the State University of New York at Cortland and an expert on guns and the Second Amendment, said the Connecticut ruling runs counter to the 2005 federal law. Even though the court allowed the case to proceed, he said, there still will be a high bar for successfully suing Remington.

“The likelihood they’ll succeed is small,’’ he said. Still, allowing the lawsuit to move forward means that there will be an opportunity for discovery that would unearth company documents that could be embarrassing for Remington. Since gunmakers have in recent history been shielded from litigation, company officials may have felt emboldened to openly discuss tactics, marketing strategies and other revealing details about business dealings. Remington filed for bankruptcy reorganization last year amid years of slumping sales and legal and financial pressure over the Sandy Hook school massacre.

Spotlight: Harder to Hire Insurance Industry Facing

Competitive Labor Market

ike other industries today, the property/casualty insurance industry is facing a highly competitive job market as it strives to fill positions needed to grow. The unemployment rate for the insurance industry is 1.7 percent, which continues the trend of virtually non-existent unemployment. This remains way below the national average — reported at 3.9 percent. Many insurers are trying to hire. More than 60 percent of carriers said in January that they expect to increase hiring this year over last, according to the latest Semi-Annual U.S. Insurance Labor Outlook Study conducted by the insurance recruiting specialist The Jacobson Group and broker Aon. “Anticipated increase in business volume and expansion into new markets are driving continued hiring,” said

Gregory Jacobson, co-chief executive officer of Jacobson. “This organizational growth, coupled with a shallow talent pool and virtually non-existent industry unemployment, results in an increasingly competitive labor market.” The desired increase in hiring may be a bit exaggerated. “January numbers are typically more optimistic,” said Jeff Rieder, head of the Ward division of Aon, during a webinar on the latest survey results. He said their numbers tend to fall a bit when companies are again asked in July. But there is little doubt that interest in hiring in insurance remains high. Part of it is due to more people than expected retiring

in 2018, as well as an uptick in turnover, according to Jacobson. The industry turnover rate is typically about 10 percent, but that was up about two points last year for carriers. It typically runs higher for agencies than carriers. The industry also appears to have pared down in certain areas in 2018 and may now be prepared to restock talent. Steven Weisbart, chief economist for the Insurance Information Institute (III), looked at Bureau of Labor Statistics (BLS) data and found that for the 12 months ending January 2019, property/casualty carrier employment actually dropped by 12,200 (-2.3 percent) to 519,400. Most of this reduction occurred in the

last seven months. However, the agent/broker segment came close to creating about as many jobs as carriers cut. The agent/broker sector added 11,200 jobs January 2019 over January 2018 (up 1.4 percent) to 828,400. Employment totals in the agent/broker sector had stayed flat at about 650,000 from 2009 to 2013 but have generally been rising since March 2013. Since March 2013, agent/broker employment is up by 170,000 (+32.0 percent), the III’s Weisbart found. The recent Jacobson Group-Aon study found job vacancies are still moderately difficult to fill. It takes about 49 days to fill a non-exempt position and 97 days to fill an

Top 10 Insurance Hiring Challenges

executive position. While technology is replacing some insurance jobs, Rieder said he thinks this has largely already taken place and there are areas where there are plenty of openings, many having to do with technology. The need for technology, claims and sales/marketing staff is expected to grow the greatest in the next 12 months. Technology, executive, actuarial and analytics positions are the most difficult for the industry to fill. Companies are using more temporary staff, and 18 percent of companies plan to increase their use, up from 12 percent in January 2018. The retiring workforce and tight labor situations are

not unique to the insurance industry. According to a report released in late 2018 by the Manpower Group, Solving the Talent Shortage, 46 percent of U.S. employers say they can’t find people to hire with the skills they need. For large organizations, those with 250 or more employees, the percentage is even higher. Some 58 percent of larger organizations reported talent shortages in 2018. Around a quarter of the employers surveyed for Manpower’s Talent Shortage report said they just aren’t getting applicants for the jobs they need to fill. And, for 21 percent of employers, the applicants they are getting

don’t have the necessary skills. The top 10 in-demand jobs across the U.S. today, according to the Manpower Group, are skilled trades, drivers, sales representatives, healthcare professionals, teachers, office support, technicians, management/executive, restaurant/ hotel staff and manufacturing. To improve their chances of attracting the candidates they need, companies are exploring new talent pools and different demographics that they might have overlooked before, utilizing both social and traditional media to reach potential candidates, increasing benefits such as more vacation time, and offering more money, according to the Manpower survey.

2018 survey by the Floridabased insurance industry recruiting firm, GreatInsuranceJobs.com, found that insurance organizations throughout the U.S. are having the same sort of difficulties when it comes to finding and hiring employees with the needed skills. The 2018 Insurance Industry Employment and Hiring Outlook Survey included carriers, agencies, brokerages, third party administrators and managing general agents. The top five job areas respondents to the 2018 survey said they needed to fill are: customer service/administration; sales; claims; underwriting; and technology. The top 10 staffing challenges insurance organization employers reported were: 1. Unqualified resumes 2. Turnovers from millennials 3. Retirements 4. Lack of skilled talent 5. Location (areas lacking in available insurance talent) 6. Difficulty finding sales personnel and account managers 7. Difficulty finding technology talent 8. Lack of candidate diversity 9. Cost of recruiting 10.Making the insurance industry attractive to young talent

Spotlight: Harder to Hire Agencies Looking for New Talent Have Their Work Cut Out for Them By Stephanie K. Jones

ewsflash to insurance agency owners seeking to onboard new employees: Expect to have to pay more, offer more and train more. Those trying to hire probably know that already. “What we’re seeing in particular in Texas, and I imagine in other places, too, is the market is extremely candidate-driven. We are facing a situation where, really, the industry is paying younger insurance professionals larger salaries than what their value is, than what they’re bringing to the table,” said Taylor Jones, college recruiting manager for Questpro Consultants, a Dallas-based staffing company solely focused on the insurance industry. That reality is creating big problems for smaller agencies especially, because larger agencies can usually afford to pay for that talent, Jones said. “The smaller, Mom and Pop shops are struggling to keep up with that.” Phil Lackman, CEO

of the Independent Insurance Agents of Illinois, said he’s seeing a similar situation in his state. “Hiring talent for independent insurance agencies has been and continues to be one of the biggest challenges we hear from our members.” As a result, agencies are having to readjust, particularly when it comes to hiring new producers, Lackman said. Whereas previously, it might have been standard practice for an agency to start a new producer at “a straight salary and a 20 percent commission and then nine months later put them on full commission, that’s changing. … I think agency owners understand to make a successful and long term hire, that particular model … just doesn’t work well today. It’s got to be a longer-term phase-in,” he said. Mary Newgard, partner

and senior search consultant for Capstone Search Group, a national recruiting firm for the insurance industry, told Insurance Journal that today’s job market favors employees and applicants. “Don’t kid yourself thinking that you don’t have competition,” Newgard said as part of Insurance Journal’s annual Agency Salary Survey. “It’s a candidate’s market.” Newgard said agencies can struggle to find solid candidates to interview for a position. “I think they are lucky to find two (good ones),” she said. “And if you find two, you better be willing to make a decision quick because those two candidates will each have three offers going at once. There are a couple of primary reasons for the hiring difficulties agencies are facing today. One is the fact that older workers are disappearing into retirement like Alice sliding down the rabbit hole. And, they will continue to do so at an alarming pace, Jones said. “The insurance industry is facing retirements on all fronts. By 2020, 40 percent of the

industry is of age to retire,” she said. The second reason? With the economy in full recovery mode from the recession that began in 2008, unemployment rates are at historical lows. Questpro’s Taylor said in her experience, Texas agencies first and foremost are seeking candidates for account management roles. “CSR, assistant account manager, account manager roles are the bulk of what we are always trying to fill. Every client that we speak to always says, ‘if you ever have an account manager, send them over, we want to see them, we want to meet them.’ Account managers and CSRs are the most popular openings for these agencies,” Taylor said. And agencies are willing to pay a “hefty price” for strong account manager candidates.

Agencies are looking for producers as well but are finding it difficult to attract top level sales professionals, she said. The high compensation packages top tier producers expect, along with non-compete agreements, are limiting the available talent pool for producers. So many agencies are looking for account manager candidates that have a producer mindset, Taylor said. “We’re seeing a shift from maybe more talented, more seasoned account managers to the younger, next generation of insurance talent who can start with that CSR role [and move to] the account management role after three-to-five years. But they want them to be production oriented, to have that mindset of always being producing and being comfortable being client-facing.” Agencies, especially the larger ones, also are investing in-house training programs in order to be more competitive

in attracting talent, Taylor said. They are “taking the time to develop really strong training classes, developing different universities, they like to call them. They’ll have property and casualty universities, they’ll have different continuing education opportunities. And they’ll market it as their own training class.” Some of the in-house educators are industry veterans who have extensive insurance knowledge but are not quite ready to retire. Because these educators are onsite, they are available to answer any questions trainees and new hires might have. Some agencies also develop a tiered training approach, offering one instructional channel for those who are brand new to the industry, one to those with some experience and another for experienced professionals who may just want to keep their license up to date or want to learn about a new insurance sector, like cyber, for instance. Lackman, with the IIA of Illinois, said hiring producers is challenging for both small and large agencies in Illinois, though the smaller agencies located away from large urban centers face obstacles that larg-

er firms might not. For one, there are just more candidates to choose from in a metropolitan area. And, he said, younger people are gravitating from the more rural areas of the state to the bigger cities. Still, “whether a large agency or a small agency in a small town in Illinois, some of the challenges are the same. Because it’s a unique position,” he said. Agencies are realizing the importance of investing in a training regimen. Some are turning to the agent association for assistance and some are developing their own programs, Lackman said. He cited an agency in Decatur that has developed a training program and has had success with young producers, giving them more time to learn the business and phasing them into the commissioned producer role over a longer period of time. While a smaller agency may need that new hire to be bringing in income as soon as

possible, the reality is that “the investment and training needs to be for a longer term than it once was. There’s a lot of competition out there,” he said. Both Lackman and Taylor said the agent/broker community needs to do a better job letting young people know about the positives of the agency universe compared with the carrier side. In Texas, Taylor said, there’s about a 50-50 split where about half of the young graduates coming out of the college and university risk management and insurance programs she works with are going to work in brokerages, especially the larger ones, and about half go to the carrier side. Lackman said because Illinois has a number of large, well-known insurance companies such as State Farm, Allstate and CNA, students graduating from insurance programs in his state tend to gravitate toward the company universe. Lackman and Taylor also said that young graduates in both states tend to want to be in the large population centers. Chicago in Illinois is a big draw, Lackman said. In Texas, Dallas and Houston, and San Antonio to a certain extent, are attractive to new grads, according to Taylor. But “Austin is the big-ticket item,” she said. “Austin is very popular.” As far as relocating to a city in Texas, that’s where candidates from all over the country want to go, she said.

Spotlight: Workers' Compensation Workers' Comp and the

Gig Economy: Status Quo Remains, for Now

By Mark Hollmer

he rise of an on-demand economy once threatened to put workers' compensation insurers in the hot seat, in large part because the question of how the sector could, or should, cover these individuals remained uncertain. Today, insurers aren’t exactly rushing to transform their workers' comp approach for gig workers. Instead, they are contemplating mixed data on the gig economy’s size and impact and are waiting for court and legislative decisions to establish clarity before making monumental changes. Some observers see the market as already doing its job for gig workers without further action needed, providing plenty of options for gig workers and other sole proprietors. “The individual market for workers' compensation has always existed. This is not new, and sole proprietors are numerically the largest single type of business in America,” said Robert Hartwig, a former head of the Insurance Information Institute and

current professor of finance risk management and insurance at the University of South Carolina. “They are not always compelled to purchase workers' compensation, but for those who do, solutions have been around for decades.”

Gig Economy Realities

While the gig economy has grown, it isn’t as large as some predicted. A study released by JPMorgan Chase last fall pointed to a gig economy stunted by workers who faced dropping pay, forcing them to seek more traditional jobs, depleting the growth trajectory of the sector as a result. Also, court conflicts about how to classify workers as “gig” employees or full-time staff continue. Still, temporary labor on a broader scale has become a significant part of the overall economy, now at 41.5 percent of an average company’s talent pool, according to a white paper from Ardent Partners (that doesn’t mention gig workers by that name). In the face of mixed data, carriers haven’t rushed to reinvent the wheel to meet early expectations of a relentless flood of gig workers facing

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a potential workers' comp coverage gap. “There were a lot of questions and concerns in the early days of the gig economy and the sister problem of the so-called shared economy (Airbnb). Largely, those insurance issues have been sorted out,” Hartwig said. Hartwig pointed out individual gig workers have “had no individual problem securing workers' compensation cover anyway” if they want it, noting the issue was the predicted volume of gig workers rather than their insurance needs. State laws have maintained sole proprietors don’t have to carry workers' comp cover, he said, and “by definition, if you are a gig worker, you are in effect a sole proprietor.” “The decision to purchase workers' compensation is the result of the individual and not the result of being declined coverage,” Hartwig said. Gig workers’ growth, Hartwig said, hasn’t put pressure on states or insurers to provide new workers' comp coverage options. States can use the residual market to provide workers' comp protection, but from what Hartwig said he has

seen, the size of these markets hasn’t expanded in the past five years because of any gig market expansion.

The Courts Will Decide

AmTrust Financial Services is one of the largest workers' comp insurers in the U.S. Matt Zender, the insurer’s senior vice president for workers' comp strategy, said the company has watched court challenges seeking to define gig workers’ status. The courts haven’t yet made any big change to the status quo, he said. “At this point, there doesn’t appear to be a guiding light [or] any court action that has caused us to change anything operationally,” Zender said. He said AmTrust covers few gig workers because the bulk of its business is workers who would be classified as employees. Zender added gig workers have still been classified as independent contractors that aren’t subject to workers' comp coverage. That will change with the resolution of some court cases and challenges into gig or contract worker status, such as one in San Francisco recently that redefined strippers at a local gentlemen’s club as employees rather than contract employees, Zender said. There have been other legal advances as well. In the U.K., as reported by Bloomberg and others, rideshare company Uber recently lost a U.K. appeal in a lawsuit that challenged its designation of drivers as contract workers. The law firm Fisher Phillips on its GIG Employer Blog cited a related case in North Carolina involving a $1.3 million settlement in a class action suit by drivers challenging their classification as contractors rather INSURANCEJOURNAL.COM

than employees. In April, the California Supreme Court adopted a new legal standard designed to make it harder for businesses to classify employees as independent contractors. As Fisher Phillips noted in a legal alert announcing that decision, the court expanded the definition of “employee” under California law, and it forces companies to prove independent contractors are properly classified. The firm noted the decision stems from the nearly 20-yearold Dynamex case, where drivers at the courier and delivery company sued because they had been reclassified as independent contractors rather than employees, even though they did the same tasks under each designation. Zender said he expects court cases like Dynamex and others to force major changes as to who can be defined as employees

deserving of workers' comp benefits, and at that point, AmTrust will act accordingly to adapt. “There has been a lot of movement recently, just the attention and the courses to try and clarify workers’ classification. [The courts] are trying to reconcile these two worlds, [and we need clarity] among the courts in what way we define workers and in what way that applies to be able to take any action really,” he said. With ongoing debates and court challenges, Zender recommends other insurers and observers “stay tuned.” “This is clearly an issue, [and] there is going to be a lot going on,” he said.

(Pam Simpson compiled some of the research in this article.)

Another View Bunker, a startup broker focused on independent contractors and small businesses, sees gig workers and their workers' compensation insurance needs as a lucrative proposition. “Bunker has worked with leading on-demand/gig platforms, along with insurers, to develop usage-based policies that include occupational accident, contingent liability and workers' compensation,” co-founder and CEO Chad Nitschke told Carrier Management via email. The coverage is designed for gig and on-demand platforms, targeting workers including couriers, warehouse workers, restaurant/hospitality employees and medical personnel. Coverage demand is high. Bunker added employees to handle growth. Bunker launched its first gig-related workers' comp products in early 2018, covering all of the workers on two on-demand/gig platforms, Nitschke said. As of the end of 2018, that has grown to 10 on-demand gig platforms. “In 2018, we surpassed one million hours of gig work covered and thousands of workers protected,” he said. “We expect to handily exceed those in 2019.”

Closer Look: Drones How Drones and Aerial Imagery Use Rose to New Heights Post 2018 Catastrophes By Amy O’Connor

he importance of drones and aerial imagery rose to a new level in the wake of 2018 natural catastrophes as insurers made them an integral part of their disaster recovery procedures, particularly following the hurricanes in the Southeast. From the images of Hurricane Florence’s floods across North and South Carolina to Hurricane Michael’s devastation in the Florida Panhandle, insurers were able to see the impact immediately and get straight to work handling claims for their customers, and gather data from the events from aerial images. “[In 2018] instead of being an experiment, it was really a

bigger part of their tool set,” said Cory Shelton, head of UAV Operations and Technologies for Geomni, a Verisk business. “They had an opportunity to vet and work with the data [in 2017] and realized ‘this is a critical part of our workflow now’ – that’s the biggest shift that’s occurred.” Geomni saw increased use of drones for post-catastrophe inspections compared with last year because of Hurricanes Florence and Michael in the Southeast and the wildfires in the West. “Usually what we find is we have carriers that are very anxious to get airplane imagery right after a catastrophe … They want that data as fast as possible,” said Shelton. “This was the first year that we start-

Aerial image of Hurricane Michael’s destruction in Mexico Beach, Fla. Photo courtesy of Geomni, a Verisk company.

Droner.IO pilot’s photo of Hurricane Florence damage in Myrtle Beach, S.C. Photo courtesy of PrecisionHawk 36 | INSURANCE JOURNAL | APRIL 1, 2019

ed getting requests from insurance carriers to have drone inspections executed shortly thereafter [the events] as well. Usually they’re more hesitant and they’re of the opinion, ‘Okay, we can wait this out, we’ll send drones if we need them.’” The company, formed five years ago as a spin-off of claims estimating software company Xactimate, currently works with four of the top 10 insurers in the country while nine of the top 10 work with its sister company Xactimate, according to Shelton. He said in the five years since Geomni started, the use of aerial imagery and drone technology by insurers has been growing fast, particularly for claims, but 2018 was a turning point. “Every single partner that we have, or even partners that we don’t have and we’ve just been in discussions with, are in one way either exploring a drone program or trying to fit it into their workflow,” Shelton said. Geomni focuses on geospatial operations, specifically airplanes, satellites, drones and gathering data. It currently has 12 operational hubs with airplanes and other remote sensing devices used to gather data. Shelton said the company has its own fleet of airplanes, as well as drones and drone technology and tools that are used to support insurance carriers that also deploy their own drones. Shelton said after insurers had an opportunity to vet drone services and use drones in their workflows for storms like Harvey and Maria in 2017,

they were anxious to deploy them after this year’s catastrophes to view overall damage to their books as well as start claims inspections for policyholders. Shelton said some carriers were even impatient about getting drone teams out to inspect damage right away. “That was a big shift from [2017] to [2018],” Shelton said. Shelton said because of the scale of the Hurricane Florence, which was primarily a flood event, Geomni relied more on aircrafts to gather data and received many more requests from insurers for that data than for drones. “It’s because of the scale of the disaster and that’s where airplanes shine,” he said. “You just don’t have the ability to gather as much data with drones as you do in airplanes.” Still, the use of drones after Hurricane Florence was “incredibly prevalent,” according to Irina Denisenko, vice president and general manager of drone technology provider PrecisionHawk’s pilot network of 15,000 commercially licensed drone pilots called Droners.io. PrecisionHawk announced a partnership with EagleView, which provides high-resolution aerial imagery, property data analytics and structural measurements to the insurance industry, shortly before Hurricane Florence made landfall on Sept. 14. Through the partnership, EagleView collects insurance claims imagery using drones piloted by PrecisionHawk’s network and the drone operators can use EagleView’s claims technology for remote claims inspections. INSURANCEJOURNAL.COM

PrecisionHawk had about 40 drone pilots actively working on claims inspections in the wake of Hurricane Florence and worked with about 20 or so carriers in the area of the storm. “We saw the first big usage of drones in a post-storm situation [in 2017] between the hurricanes in Florida and Houston [Irma and Maria], because so many places were unreachINSURANCEJOURNAL.COM

able,” she said. “It was more coordinated this time around and we were on top of it and were able to get ahead of it, so it was a smooth integration.” Tim Frank, vice president of marketing for NearMap, a global location content provider that specializes in high-resolution aerial maps provided through a cloud-based service, said its post-hurricane coverage for Florence covered more

than 4,500 square kilometers – from Newport, N.C., down to Myrtle Beach, S.C. – over a 28-day period, partly because the storm slowed quickly but went on for many days. The flooding from Hurricane Florence also made it difficult During Hurricane Michael, which was a more intense and rapidly-developing storm, the company captured 1,380 sq.km. of images over

the course of nine days. All images Nearmap collects are “stitched” together to create one seamless map that can be uploaded and used by businesses including insurance companies. The use of Nearmap’s imagery of the impacted hurricane areas increased by eight times between mid-August and mid-October 2018 compared

continued on page 38

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Closer Look: Drones continued from page 37 with the same period in 2017. “Any time there is an event like this, we definitely see an increase in activity,” Frank said. “We’re growing very, very rapidly. The adoption of location content and location intelligence is becoming very critical, because it automates much of the manual work.” Nearmap’s aircrafts regularly fly over the 430 largest urbanized areas in the U.S., representing 70 percent of the population, up to three times a year, according to Frank. During disasters – like Hurricanes Michael and Florence – the air-

crafts again fly over the affected regions so that insurers have access to both before and after images from its camera systems affixed to the aircrafts. “That data becomes very useful because you have both before captures, as well as captures that happen after those types of events. It’s very helpful in terms of validating damage claims,” he said. While many insurers are contracting out drone and aerial imagery services, a growing number are developing and utilizing their own technology. State Farm, which was the first insurer in the U.S. to receive

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It's very helpful in terms of validating damage claims. permission from the Federal Aviation Administration to operate unmanned aircrafts for commercial use back in 2015, has been actively using drones for aerial roof inspections since August 2016. In September, it was the first insurer granted a waiver by the FAA to inspect damage caused by Hurricane Florence. It then used drone technology to assess widespread damage, as well as for individual aerial roof inspections of cus-

tomers’ homes and property from Hurricane Michael after receiving an additional waiver for operations related to that storm. Jeremy Carnahan, a data analyst at State Farm’s RedLabs Department, the innovation area at State Farm focusing on new and emerging technology, said State Farm having its own in-house drone technology operation helps its customers and gives the insurer better and quicker access

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for inspections. “With the damage assessment piece for Florence and Michael, being able to go in once the storm has cleared and gather a wide range of footage of the damage is very helpful in determining the damage allocation and where to deploy resources,” he said. Before sending drones out for individual claims after a disaster, Carnahan said State Farm first evaluates each claim to see if using a drone makes sense. But being able to survey the area and the damage provides a better perspective than from the ground for its overall

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response efforts. “It allows us the insight of how we can access the areas that are heavily damaged,” he said.

The Future

The last two years suggest that drones and aerial-imagery will soon become commonplace after catastrophes, as well is in other areas for the insurance industry. “The potential is hard to even grasp – there are so many avenues to potentially look at. We will definitely be seeing more use and harnessing the power of aerial imagery, and drones in particular,” said Carnahan. Frank said as aerial imagery capture technology and services continue to increase and improve, he expects the insurance industry will begin to employ it in more areas of their business. “One of the big trends that we see becoming more prevalent in the future is the use of high-resolution aerial imagery to power machine learning that can then extract very important features from it. Not just related to damage, [but on] specific features on homes or on land – and that’ll be important,” he said. “It could be things such as flood plains; it could be things such as the type of roof material; it could be things such as water outlets that are close to specific areas that could represent flooding problems.” While aerial imagery and drone use have exploded on the claims side, on the underwriting side the adoption rate has been a “bit slower,” said Shelton. And even with the fast-adapting technology, the

use of drones and aerial imagery is not the only tool insurers use for inspecting claims. “We still do have to have a person physically on site [to inspect claims], so if flooding prohibits our access, sometimes that causes a delay. And that was one of the big challenges we faced with Florence was the weeks of flooding after the event,” Shelton said. The challenge for insurance companies right now, he said, is integrating the use of drones with the processes they already have in place. “[Insurers] all want to embrace it, but they’re looking for the technologies to bridge the gap between a flying camera, which is what a drone is, and a tool that’s really going to help them integrate it directly into their workflows as part of the claims settlement process. So that’s one challenge towards getting to that 100 percent or 90 percent adoption and acceptance,” he said. There are also plenty of carriers that are not comfortable settling a claim from imagery without having a human inspection. “That’s a big challenge and I think that’s going to require some time and it may require judicial precedents in order for that to actually occur,” Shelton said. “Of all the partners we work with, only two of them have actually been willing to

deny a claim based off of drone imagery.” Denisenko said even though the number of claims being inspected with drones is up from two years ago, the majority of claims still do not rely on drones or aerial imagery. “It’s still early in the market so I wouldn’t be surprised if it’s less than 50 percent or so. It’s been a low market penetration … it takes time,” she said. For those insurers that are embracing the technology, particularly after large-scale disasters, Shelton said its not because they’re just trying to defend their bottom line. “They came to us because they said, ‘Our policyholders are hurting and we really can make a difference in their lives by utilizing new technology.’ And I think that that’s a really great attitude for the industry as a whole,” said Shelton. State Farm says it will continue to apply new technology where it makes sense for customers. “We are making sure we are being innovative and utilizing all the tools available to make sure we help our customers recover as quickly as possible,” said Angie Harrier, State Farm spokesperson.

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Claims Journal

Misdiagnosis Most Common Reason for Malpractice Claims, Studies Claim

wo recent studies underscored the significance of misdiagnosis as a source of medical malpractice claims. Coverys, a malpractice carrier based in Boston, reported that a review of 1,800 closed claims against physicians from 2013 to 2017 showed 46 percent were related to the diagnosis. Those claims accounted for 68 percent of paid indemnity costs, according to the report. In 45 percent of the diagnosis-related cases, the patient died, Covery said. A separate report released by The Doctors Company, also a malpractice insurer, found that 38 percent of malpractice claims against physicians involving the treatment of children involved a misdiagnosis. The carrier reviewed 1,215 claims closed from 2008 to 2017. Missed, failed or wrong diagnoses are largely the result of inadequate medical assessments, according to The Doctors Company study. “Our research sheds light on the need to provide detailed explanations to parents or guardians regarding symptoms that should prompt immediate care when the child is sent home,” stated Darrell Ranum, study author and vice president of patient safety with the Napa, California-based carrier. Misdiagnosis has been identified as a 40 | INSURANCE JOURNAL | APRIL 1, 2019

leading cause of malpractice claims in other studies that examined inpatient care. In 2015, the National Academy of Medicine concluded that diagnostic error may be the third-leading cause of death among hospitalized patients and are responsible for the majority of paid medical malpractice claims. A 2017 study by University of Michigan researchers reviewed 62,966 malpractice claims filed by hospitalized patients and found 22 percent of them were diagnosis related. Those misdiagnosis claims were also more often associated with disability or death, the study concluded. The Coverys and Doctors Company studies bring the misdiagnosis problem in closer focus for primary care physicians. Coverys said the top allegation against primary care providers involved an inadequate patient assessment. That includes capturing a complete family history and a thorough physical exam. Allegations involving the ordering of diagnostic tests was the second-most common allegation among diagnosis-related claims. Referrals and followup were also frequently involved in claims. “Primary care physicians play a critical role in the delivery of a timely and accurate diagnosis, selection of treatment therapies, and the monitoring of high-

risk medications,” stated Robin Webster, a senior risk consultant for Coverys and co-author of the report. “Failure to correctly assess patient conditions during these complex phases of care can result in significant patient harm.” The Doctors Company study provided details on lawsuit payments in pediatric claims and long-term claim exposure. According to the study, 446 of the 1,215 malpractice claims reviewed (37 percent) resulted in payments. The average indemnity payment was $630,456 and the average expense paid was $157,592. The study also found that the vast majority of claims (76.7 percent) are filed within three years of the event. By five years, 85.1 percent of claims had been filed. However, 3 percent of claims were filed more than 10 years after the event. “This highlights the importance of quality documentation,” the study says. “Years after the alleged harm, it is still a factor in defending claims.” A failure to appreciate and reconcile signs, symptoms and test results was the most common patient assessment issue identified in the Doctors Company study. Clinicians failed to recognize the clinical picture from the available information, including patient history, reported symptoms, physical exam and test results. INSURANCEJOURNAL.COM

Attorney Turned Criminal Apologizes to Insurers for Giant Workers’ Comp Fraud O’Keefe said crooked doctors and lawyers get the most attention, but 85 percent ean Enrique O’Keefe said he started of the people involved in capping schemes out as a “humanistic attorney,” but are not licensed professionals. The real he became a mercenary and then a action is done by marketers, what O’Keefe criminal who netted $700,000 a year by called “the sign-up guys.” sending San Diego workers’ compensation “To the syndicates, doctors and lawyers claimants to dirty medical providers. are just high wage earners,” he said. O’Keefe apologized O’Keefe’s first sign-up guy was to an audience of Carlos Arguello, who went to work fraud investigators at his San Diego law practice at the and claims admintender age of 19. He said he had to istrators at the let Arguello go about a year later Combined Claims because 80 percent of the clients Conference last he brought to his office “could not month. Then he even articulate an industrial injury.” That was bad for his practice gave an eyewitness Sean O’Keefe addressing because doctors who treat injured account of life inside the Combined Claims workers don’t get paid if a claim is an organized crime Conference. denied. They would quickly stop syndicate that started treating his clients, he said. with an offer in 2011 by hospital owner But O’Keefe said what he failed to Michael D. Drobot to pay him $15,000 for understand at the time was that Arguello each patient he referred for spinal surgery wasn’t concerned about the doctors getat the Pacific Hospital of Long Beach. ting paid. He went on to operate another O’Keefe said insurers paid bills from scheme that bilked carriers by billing for Drobot’s hospital for years thinking they unnecessary copy services. were getting a discount. Arguello had his hand in bogus medical “You all approved the surgeries and bills as well. He was the founder of Centro when Mr. Dorbot’s office called you to pay Legal Internacional, a mill that the Orange the bills, his bills were 15 percent to 20 County District Attorney’s Office says had percent less at his shoe box hospital than they would have cost you if they had been worked with 20 to 30 workers’ comp and personal injury attorneys to gin up medidone at U.C. Irvine,” he said. cal bills. O’Keefe was brought down as part of O’Keefe was among them. He said the Operation Backlash, an investigation in scheme was designed to generate bills in Southern California capping schemes led as many ways as possible. The medical by the U.S. Justice Department that had provider that he worked with yielded 30 convictions so far. He was also mostly, San Diego chiropracinvolved in a separate referral scheme tor Steve Rigler, would enter with Drobot, who pleaded guilty in 2014 a patient’s information into a to bribing former state Sen. Ron Calderon in order to preserve an odd California rule, computer program that automatically generated referrals since repealed, that allowed hospitals to for diagnostic testing, durable bill insurers for the full cost of hardware medical equipment and pharused in spinal surgeries. maceutical services. Rigler Drobot and Calderon are now both was also arrested and pleaded serving time in federal penitentiaries. The Justice Department said the spinal surgery guilty as part of Operation Backlash. scam cost insurers $500 million over a Arguello also testified as 15-year period.

By Jim Sams

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a cooperating witness five miles away at the Orange County courthouse. There, the trail of the first of 10 attorneys and six others involved in the alleged billing scam, which the Orange County District Attorney’s Office said defrauded insurers out of $300 million. Prosecutors say the network generated 33,000 fraudulent workers’ compensation claims. O’Keefe said after he was confronted by investigators, it took him “about 10 seconds” to decide to cooperate. “My cooperation began like most cooperators: I was afraid of going to jail,” he said. “But along the way, I met people with extraordinary integrity who showed me exactly how far I had fallen afield.” He will soon pay his price. O’Keefe was sentenced in February to serve 13 months in prison and must report to U.S. marshals on May 29. He also owes $300,000 in restitution and $200,000 in taxes, “which I don’t have.” Teena Barton, a senior investigator with ICW Group’s special investigations unit, persuaded O’Keefe to tell his story. She said the presentation at the Combined Claims Conference was his sixth or seventh in a mea culpa tour, of sorts. O’Keefe said he isn’t paid any speaking fees. He wants to make amends. Barton said carriers need to understand medical mills are relentless and quickly replace any fraudsters who are caught. “They are moving east and we know where they are right now,” she said.

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Special Report: Hot Markets

By Andrea Wells & Amy O’Connor

nsurance Journal examined industries experiencing changes, challenges, expansions and growth in the past year. Here are five industry sectors and insurance market sectors that could offer opportunities for agents and brokers in the property/casualty insurance industry in 2019.

Telemedicine

The telemedicine market will generate significant growth in the next few years due to the rising geriatric population, growing demand for accessible healthcare services especially in remote areas, and technological improvements related to mobile and the internet. Telemedicine is transforming the healthcare industry and is expected to

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become the most used method of diagnosis and prescription worldwide. The U.S. telemedicine market alone is projected to surpass $64.1 billion by 2025, according to a new research report by Global Market Insights Inc. As the U.S. market for telemedicine continues to expand, so does demand for insurance coverage for these providers, according to Beazley, which launched its Virtual Care product in 2017. Telemedicine has been an exciting industry to

insure, Jennifer Schoenthal, Beazley Group’s healthcare underwriter/specialty lines, told Insurance Journal. Every day is a new risk in telemedicine, she says. “And no two accounts are alike,” she said. “Think ‘tele massage’ and a device that can detect concussions during sports games.” Beazley’s Virtual Care insurance product targets companies falling into the three main categories of telemedicine: platform and tech product designers, providers, and comINSURANCEJOURNAL.COM

panies utilizing platforms and contracting with providers. “The policy was designed to be very versatile so that we were able to capture most of the companies that are in the telemedicine field,” Schoenthal said. The market continues to evolve and expand. “We are seeing both standalone telemedicine companies and current allied health companies that are starting to add telemedicine to their suite of services,” she said. “I don’t see this slowing down anytime soon, especially as telemedicine continues to become a more main stream way of delivering healthcare services.” Telemedicine is also increasingly being used by workers’ compensation insurers, although usage in workers’ comp lags behind the commercial health setting, according to Dr. Stephen Dawkins, medical director at Cadaceus USA, an Atlanta, Ga.-based provider of medical management services in occupational health. However, Dawkins, a panelist at a recent Workers Compensation Research Institute event, thinks that may be changing. He has seen an uptick in interest by workers’ compensation carriers for virtual physical therapy, also known as telerehab, which provides virtual access to physical therapy and is intended to be a replacement for an in-person visit to an outpatient facility. While telemedicine has benefits for both users and the healthcare industry, it presents a few challenges for insurance professionals looking to target the market. “I think the biggest hurdle is that while there are many INSURANCEJOURNAL.COM

brokers out there that either focus on tech or on healthcare, the number of experts in both of these lines is somewhat limited,” Schoenthal says. That’s where specialty insurers can help, she adds. “We include affirmative coverage for bodily injury from technology failure and we don’t limit how medicine can be delivered,” she said. “Because of this we can write both tech companies that are designing technology for this field and allied health companies that are delivering medicine in this fashion.” Despite its potential, telemedicine is currently a specialty niche. A study published in December in the academic journal Health Affairs combed 2016 survey results from the American Medical Association to find that only 15.4 percent of physicians worked in practices

using telemedicine. But that may change. Private health plans, Medicare, most state Medicaid programs, and the U.S. Department of Veterans Affairs all cover some virtual doctor’s visits and the majority of states now have laws requiring private insurance companies to reimburse providers for care delivered remotely. A search on MyNewMarkets. com showed limited availability specifically for telemedicine classes, but Ultra Risk Advisors listed it as part of its imaging program that provides broad coverage and loss control services for stand-alone diagnostic imaging facilities and radiologists.

Breweries and Cideries

Craft brewers and cideries, especially the smaller “local” shops, represent a growing

niche market. While overall U.S. beer volume sales were down 1 percent in 2017, craft brewery sales continued to grow at a rate of 5 percent by volume, reaching 12.7 percent of the total U.S. beer market by volume. Retail dollar sales of craft brew also increased by 8 percent, up to $26 billion, and now account for more than 23 percent of the total $111.4 billion U.S. beer market. Craft production grew the most for the “local” and microbrewery space. Small and independent American craft brewers contributed $76.2 billion to the U.S. economy in 2017, according to the Brewers Association for small and independent craft brewers. The industry also provided more than 500,000 total jobs, with more

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Special Report: Hot Markets continued from page 43 than 135,000 jobs directly at breweries and brewpubs, including serving staff at brewpubs. Cider grew faster than beer, wine or spirits last year but remains less than 1 percent of the overall alcoholic beverage market share. Even so, cider retail sales were up 8.4 percent in 2018, generating more than $500 million in sales. Cider retail sales dollars are 10 times more than they were 10 years ago, according to the U.S. Association of Cider Makers. Today the growth is driven by a focus on local, Paul Martinez, program manager for Brewery PAK Insurance Program, told Insurance Journal. The Brewery PAK program insures around 1,000 craft breweries in 42 states. The program has been operating for the past eight years with steady growth of around 25 percent each year. Last year was a banner year — the program grew by 51 percent in 2018, driven primarily by growth in the smaller, local, or nano-breweries, Martinez said. “So as long as you have a local presence, in the local community, they like your beer, they’re behind you,” he said. The bonus, “I find the smaller the brewery is, the better their beer tastes because they’re making it on such a small scale and they’re putting their heart and soul into it as opposed to when breweries get larger, they get larger systems, the quality gets sacrificed.” Nano-breweries and cideries are finding their place in the market, Martinez added. “They’re not really looking to take over the world. They’re just looking to make great product, make great friends

and make a little money in the process,” Martinez said. An online search on MyNewMarkets. com for breweries, revealed three other markets targeting the specified class of business: Glencar Underwriting Managers Inc., Philadelphia Insurance Companies, and Worldwide Facilities LLC. These include individual coverages as well as broad offerings for this segment.

Intellectual Property

Intellectual property theft is a little understood and often overlooked financial risk to businesses, and with new and emerging technologies being introduced all the time, the risk is increasing. According to the World Intellectual Property Organization (WIPO)’s “World Intellectual Property Indicators 2018” report, intellectual property filing activity around the world reached 3.7 million in 2017, representing a 5.8 percent increase over 2016. In the U.S. specifically, there were 606,956 patent applications in 2017, up from 605,571 in 2016. According to WIPO, the U.S. holds 19.2 percent of the world’s patents; China is the leader with 43.6 percent and Japan falls below the U.S. with 10.1 percent. The growth of new technologies such as 3D printing, as well as the increasing digitali-

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zation of society and business, continue to increase liabilities for businesses and insurers, according to Thomas Varney, regional manager, Americas, for Allianz Global Corporate & Specialty, in a piece for Insurance Journal. “…[I]n today’s and tomorrow’s world of connected industries, where intangible assets such as data, networks, customer relationships and intellectual property can represent the major source of corporate value, more is also at stake if things go wrong,” Varney wrote. A shift among businesses from tangible to intangible assets makes protecting intellectual property more important than ever. According to Aon, $19 trillion — or nearly 85 percent of the value — of the S&P 500 is represented by intangible assets. IP alone accounts for more than 45.5 million U.S. jobs, Aon said. Aon launched a new Intellectual Property Solutions (IPS) team in March as part of

its New Ventures Group formed at the end of 2018. “Firms need to both identify and manage risks surrounding business-critical and proprietary data and develop and execute strategies for maximizing shareholder value from their [intellectual property] portfolios,” Aon said in a statement. The IPS team, headed up by Chief Commercial Officer Brian Cochrane, has developed consulting, valuation and risk transfer offerings to help clients secure their intellectual property. Marsh is also investing in its intellectual property offerings for U.S. companies. In February, it launched the IP Protect product backed by Ambridge Partners. The policy offers defense coverage for losses relating to patents, copyrights, trademarks, and trade secrets (by endorsement). More than $60 million in primary coverage is available from Ambridge with additional capacity available from excess liability insurers. “As the importance of IP rights and their related expenditures continue to rise, many organizations have sought an effective solution to protect their IP assets, products, and services, only to find inadequate coverage at a high cost,” said Jason Sandler, a vice president in Marsh’s U.S. Financial and Professional Practice. “With IP Protect, we now are able to provide clients with the broad coverage and meaningful limits they have been INSURANCEJOURNAL.COM

seeking — at a more affordable price.” An online search on MyNewMarkets.com for intellectual property revealed three other markets targeting this specified class of business: New Empire Entertainment Insurance Services, Cooper & McCloskey, Inc., and Intellectual Property Insurance Services Corp. These include individual coverages as well as broad offerings for this segment.

Greenhouses/Nurseries

The greenhouse and nursery market is blossoming after enduring a disappointing period during the Great Recession. The horticulture industry, which also includes garden centers and landscape design firms, began to rebound in 2013, according to a report by the American Society for Horticultural Science. Direct industry output for all sectors was estimated at $136.4 billion, the report said. Greenhouses, nursery and floriculture production accounted for 240,809 jobs in the U.S. and $20.3 billion in revenues. “Although the green industry has grown slowly in recent years, it remains an important contributor to national, state and local economies,” the report stated. In its state of the industry report, Nursery Management magazine found that about 66 percent of nursery owners expect sales to improve in 2019 versus last year. More than a quarter (35 percent) expect a 1-9 percent increase in gross sales compared with 2018 INSURANCEJOURNAL.COM

while about 16 percent expect gross sales to be 10-19 percent higher this year. One segment of the industry set to take off is cannabis growers. According to a 2018 article by Forbes, in Arizona, Colorado, California and Oregon, “cannabis is being cultivated in greenhouses in excess of 250,000 sq. ft. that are capable of yielding more than 50,000 pounds of flower.” Though obtaining insurance for cannabis operations, particularly large scale ones, can be difficult, more insurers are offering products for growers as more states legalize the plant. A recent A.M. Best report identifies a number of marijuana-related market segments that need insurance coverage. They include cultivation, dispensaries and retailers, infused products and landlords. Some insurers have responded. Approximately 25 carriers (mostly non-admitted) provide coverage in the space in both the U.S. and Canada, A.M. Best said. The Lloyd’s Market offers coverage in Canada but doesn’t offer coverage U.S. businesses because the federal government still considers it illegal.

Carriers that have entered the marijuana market are typically partnering with “agencies and producers that have a better understanding of the industry and the needs of cannabis businesses,” A.M. Best said. One example: Topa Insurance Group, which supports Cannasure, an Ohio-based MGA and wholesale brokerage solely focused on the cannabis industry. NIP Group, which offers a GrowPro program for greenhouse growers, nurseries and retail garden centers, recently entered into an underwriting agreement with AXA XL to expand its coverage offerings. The program includes proprietary stock coverages, including hydroponic stock. Some projections call for legal marijuana sales to reach $22 billion by 2022, with illegal sales of the drug to drop to less than $5 million over the same period, as more states legalize use of the drug. While there is opportunity for the insurance industry, there is also risk. Ian Stewart, a partner in Wilson Elser and chair of the law firm’s cannabis law practice team, told Insurance Journal

that he sees a potential wave of consumer class action lawsuits over cannabis as well as increasing risks for doctors. An online search on MyNewMarkets.com for nurseries/greenhouses revealed three other markets targeting this specified class of business: Agricultural Insurance Management Services, and Mark D. Fredricksen Insurance Services, as well as GP Insurance Brokers LLC which offers coverage for cannabis dispensaries and growers. These include individual coverages as well as broad offerings for this segment.

Cottage Foods

The cottage-food industry — foods cooked in a person’s home or other designated location and sold directly to a consumer — is growing. U.S. local food sales, including cottage-food sales, have jumped from $5 billion annually in 2008 to a projected $20 billion this year. Every state except New Jersey now allows home-kitchen cooks to make and sell non-hazardous foods with a low risk of causing foodborne

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Special Report: Hot Markets continued from page 45 illness such as baked goods, jams, jellies and other items that do not require time and temperature controls for food safety. Maine, North Dakota, Utah and Wyoming have gone further, enacting “food freedom” laws to expand upon cottage food laws to include potentially hazardous products like meat and poultry. These laws are stirring debate at the state level. Part of the debate centers on the economic rights of “smallbatch” home bakers and cooks versus public health and safety concerns. These private bakers, canners, and cooks want the liberty to sell their products to consumers free from the licensing requirements required of their larger

commercial counterparts, restaurants and food processing plants. At the same time, the existing regulations are designed to protect consumers from foodborne illnesses that can be caused by improperly prepared foods. While the federal government has authority over food in interstate commerce, it is state law that has traditionally regulated food produced for sale within state lines, according to “Cottage Food Laws in the United States,” updated in 2018 by the Harvard Law School Food Law and Policy Clinic. During the past few years, many states have passed cottage laws to regulate the industry adding increasing risk to cottage food makers.

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For example, what would happen if a customer had an allergic reaction to a cottage-made food and sought payment for related medical bills? Or a customer who might be injured at the home of a cottage food vendor? An insured may be liable and their homeowners insurance coverage may not respond to such risks, according to the experts at the Food Liability Insurance Program, or FLIP, based in Pleasant Grove, Utah. FLIP, part of the managing general agency Veracity Insurance Solutions, developed a business liability program in 2012 dedicated to insuring exposures associated with home cottage businesses and other food related vendors

FLIP is an online platform where someone can quote, bind and issue their own policy within 10 minutes, says Chris Van Leeuwen, vice president of business development at Veracity Insurance Solutions. “It’s very user friendly and efficient to help those in the food industry to purchase with ease,” he said. “A lot of people are buying this coverage on mobile apps.” Great American Insurance is the underwriting carrier. FLIP isn’t just for cottage food insureds. The program is available for broad class codes in the food industry, including caterers, mobile bartenders, mobile food trucks, and other mobile food vendors. The entire food industry is a market where Van Leeuwen says Veracity has seen consistent growth. “We have been able to develop specific coverages that respond better to these types of insureds,” he added. One example is its endorsement for stationary trailers. “A typical general liability policy will exclude trailers in their auto exclusion. But what if someone hits their head on that trailer or trips and falls over the trailer — coverage could be denied based on the auto exclusion,” Van Leeuwen said. “We try to recognize some of the unique exposures and field them if possible.” An online search on MyNewMarkets.com for cottage food listed a large number of markets for food trucks, caterers, push carts, including but not limited to: TAPCO Underwriters Inc., Mobile Food Trucks and Vendors Insurance Program, and McClelland and Hine, a division of Worldwide Facilities LLC. INSURANCEJOURNAL.COM

News & Markets continued from page 10 had “set in motion a series of changes aimed at modernizing the market and making it more efficient and inclusive.” However, the Bloomberg article had a different take on Beale’s experience as CEO, saying that she “pushed for modernization of technology, attitudes, and behaviors — and met resistance at every step.” Therefore, the question remains about the work environment that still prevails in the Lloyd’s and London markets, even if lip service is being paid to efforts toward diversity and inclusion. On March 26, in response to the Bloomberg article, Lloyd’s instituted a set of actions that is intended to increase reporting, impose strong sanctions on those found to be responsible for inappropriate behavior and create better understanding and awareness of the issues. It includes: • Provision of an independently managed, confidential and market-wide access point for reporting inappropriate behavior. • Confirmation that, where investigations conclude that individuals have a case to answer, they will be subject to sanctions from their own companies and also from Lloyd’s. They may be banned from

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entering Lloyd’s for a fixed period and potentially for life. • Undertaking an independent and market-wide culture survey to identify the scale and scope of the issue, and to inform further action. • A comprehensive review of policies and practices across the Lloyd’s market, with a view to identifying and sharing best practice. • Provision of training focused on prevention, as well as reporting and supporting those who have been subjected to inappropriate behavior. These actions are in addition to those already reported, namely: • A commitment to hear the accounts of the women who contributed to the article published by Bloomberg, in a safe and confidential space. • Changes to Lloyd’s Nominations Committee to increase diversity. Fiona Luck (Lloyd’s Board) and Vicky Carter (Lloyd’s Council) will join the Committee with immediate effect, succeeding Sir David Manning and Charles Franks. “It has been distressing to hear about the experiences of

women in the Lloyd’s market. No one should be subjected to this sort of behavior, and if it does happen, everyone has the right to be heard and for those responsible to be held to account,” said Lloyd’s CEO, John Neal. “I am pleased that the market has given its full support for a strong set of actions, and I am determined that Lloyd’s offers a safe and inclusive working environment for everyone.” The plan has been developed in collaboration with and endorsed by Lloyd’s Board and Council, and by the associations representing the Lloyd’s market – Lloyd’s Market Association (LMA) and the London & International Insurance Brokers Association (LIIBA). “Sexual harassment is simply indefensible in any workplace and all instances should be dealt with swiftly and appropriately. We, like all other industries facing this issue, must continue to deal with any reports of harassment, head on,” said Sheila Cameron, CEO of the LMA, which represents the interests of the Lloyd’s community, in a statement issued immediate after the Bloomberg article was published. “Both victims and witnesses of any form of workplace harassment must be encouraged to come forward,” she

continued. “Victims and witnesses must have confidence in the robust and fair processes and procedures put in place by the leaders of their companies, and those leaders have a responsibility to ensure their workplaces are safe from any form of harassment,” Cameron said. “In recent years the Lloyd’s and London insurance market has taken enormous strides to advance the diversity and inclusion agenda, particularly through the annual Dive In festival, which attracts thousands of market practitioners to participate each year, as well as other important initiatives such as the Inclusive Behaviours Pledge, which was signed by a large number of insurers, brokers and market associations.” Indeed, on the same day as the Bloomberg article was published, London’s Dive In organizers sent out a press release announcing the dates in September of the fifth annual festival for diversity and inclusion in insurance (Sept. 24-26.) The press release said the success of Dive In, shows “the overwhelming appetite for practical events that enable the insurance sector to translate awareness of the business case for diversity and inclusion into action.” More than 30 countries and 9,000 people are set to participate this year.

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Idea Exchange: Ask the Insurance Recruiter In Their Own Words: Why Producers Change Jobs Why Did You Decide to Start a Job Search? “I saw massive opportunities in the marketplace. I’m half the age of the average, 55-year-old insurance agent. I wasn’t going to sit around and wait for turnover to bring me a better deal.”

Q&A By Mary Newgard

We have a zillion newbies and plenty 50-plus year old veteran producers. I’ve tried the out-of-industry route. Frankly, my agency isn’t good at training. I want experienced, ‘hit the ground running’ sales talent at other agencies. How do I recruit producers from my competitors?

I’ve learned over the last 13 years of recruiting producers that you need empathy and understanding. The best way I can illustrate this is “In

Their Own Words.”

Below are interviews from several producers Capstone assisted in 2018. I hope you find their testimonies helpful, inspiring and eye-opening.

“It was all about job security. My agency’s management was in turmoil. There was constant hiring and firing.” “My compensation didn’t line up with the revenue I was bringing in.” “I needed to find a better fit - the niche I was selling in, location/ commute and culture.” “Inexperienced leaders were running the agency. Half the time the sales manager would blow off the meetings he set.” “The agency couldn’t take me to the next level. I was going to be stuck in small groups forever. They couldn’t help me ‘punch above my current weight class.’” “It was like being in an abusive marriage. My compensation was horrible. Staff retention was a joke. Once I realized, ‘Oh this is how I should have been treated the whole time, I was out of there.’”

“My search coincided with major life changes. I have a young and growing family. My priorities and long-term goals shifted.”

What Did You Experience in Your Search?

“Most agencies came across hungry to write new business and grow organically with young people.” “The interview process was one of two ways. Either the agency cared only about my relationship building potential or they grilled me on technical insurance knowledge. I found the nitty, gritty insurance scenario style to be very cumbersome. I went with the agency that employed the first strategy. I had one, one-hour interview and got an offer.” “Insurance wasn’t my only option. I was considering other industry sales positions simultaneously. I just wanted speed and efficiency. Not all interviews were like that.” “I spoke with a wide range of agencies – size, operations and management of new producers. The biggest differentiator was their approach to timing. I liked the ones with a sense of urgency. Lackadaisical = lazy + uninterested in me.” “I had to battle the reputation of my current firm. I worked hard to convince agencies I wanted more and was willing to work for it.” “My suitors came by word of mouth. Four agencies courted me until the end. Early on, I knew I didn’t want to stay in a churn and burn corporate environment.

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Some made me feel like a number even in the interview process.” “I was looking at multiple roles, in and out of the industry, in the local market and involving relocation. It was a lot to balance but helped me make the most informed choice possible.”

“I clicked with the executives. I felt the president understood my personality. He didn’t come across like hiring me was a part of a numbers game.”

Why Did You Choose Your New Agency?

“They had the infrastructure to teach me.” “They were willing to invest in resources beyond account managers and markets. They had tangible products besides what carriers offer. They were a true, full-service shop.” “The company was the first to

make me an offer. It met my criteria. They were speedy and transparent.”

“If I didn’t choose this agency, I would have gone out on my own. Knowing this, the agency set up a contract and comp plan that allowed me to feel like an entrepreneur. They pay commission across all lines. They won’t pigeonhole me into one identity.”

culture; their people actually enjoy coming to work.” “The agency I chose met my short-term needs (position and resources) with long-term plans (flexibility, supporting my passions, compensation and expanding my skill set). I was convinced of their culture when so many of the employees I met had 20-25 years of tenure. I interviewed at agencies where two years is considered good tenure. That wasn’t where I wanted to go.”

“Employee-owned with complete transparency. I interviewed with the service staff. They were candid, and it was refreshing. I chose

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

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Idea Exchange: The Competitive Advantage

How Errors & Omissions Lawsuits May Change

Artificial Intelligence and Private Equity Investments Will Play an Increasing Role

laintiff attorneys, at least the smart ones, must make sales decisions, too. Whereas a smart producer will create By Chris Burand a pipeline that filters prospects by probability of a sale, plaintiff attorneys need to filter potential cases for their win-ability and then filter that probability by the cost of trying the case. A low probability case must have a huge payoff, especially if the cost of trying the case is high. On the other hand, a high probability win will likely cost less to try, and these are the cases that smart attorneys dream will come their way.

Law is not about justice but which side can make the best case, and the best case can often be made more easily with more money. One filter the television attorneys use is they advise the first meeting is free. This creates more calls at the top of their sales funnel. They then identify the best cases to try through those first free meetings. Those meetings are meant to benefit the law firm’s sales volume with high hit ratio business post the first meeting. Then they build their brand by offering “free” legal services. It is a clever process.

New Developments

Two new developments will likely greatly affect their model and agents’ probability of being sued. The first is how artificial intelligence (AI) will decrease dis-

covery costs significantly. Again, plaintiff attorneys (the good ones at least) look at a case like this: probability of winning X potential amount to win > cost. If their cost can be significantly decreased, they can sue more people because their probability does not have to be as high, and the amount to be won does not have to be as large. This scenario is exactly the same for a manufacturer. If the cost of their raw materials decreases, then they can expand. Discovery is the cost of plaintiff attorneys’ raw material. Artificial intelligence (AI) is already reducing their cost because it can search documents thousands of times faster than humans. AI probably can search voluminous documents more thoroughly, too. This also means, if the court allows it, discovery can be expanded. The searches are also more exacting because AI does not get tired. I’ve done this work manually and after a few days, one’s eyes might glaze over. AI will also find little statements that when combined with other little statements, may identify problematic trends humans would have missed. For example, the difference in the words an account manager uses to document one file versus another file may indicate some level of discrimination or at least unfairness, even if unintentional. Combine more discovery volume with more hooks, and the probability of an increase in errors and omissions (E&O) suits is certain. The second change that will likely increase the odds of pursuing more difficult cases that potentially have large payouts will more likely affect those writing large accounts and carriers. However, a

small account with a big enough claim will be pursued more aggressively, too, all else being equal. This is the advent of private equity investing in lawsuits. According to an article in The Economist (Aug. 18, 2018), at least 30 different funds were created in the past 18 months (as of August 2018). These funds have invested approximately $2 billion specific to lawsuits. They expect large payouts on their investments as well. In other words, they believe they are investing in expensive suits that can be won with enough capital to support the suit through the appellate courts. Private equity changes the cost equa-

tion, too. Not only is more capital available, but now the risk is being shared beyond the law firm. This also enables the law firm to deploy its own capital on more suits. So often, law is not about justice, but instead about which side can make the best case, and the best case can often be made more easily with more money.

The Good News?

These developments are not all bad news. If plaintiff attorneys win more, insurance rates will increase. Another positive possibility is that this means clients (and agencies) probably should consider carrying higher liability limits. Subsequently, agencies also need to do a better job offering higher limits. In dozens and dozens of E&O audits Iâ&#x20AC;&#x2122;ve conducted, agents stop offering commercial and umbrella limits higher than $1 million. That is poor practice because nothing exists suggesting clients should not be offered higher limits, and good E&O practice dictates offering clients higher limits. With these changes in the plaintiff bar world, $1 million may not be

adequate more frequently than before. A third effect is the need to practice better document management. I cannot believe, in 2019, agents still have any belief that some magic number (say seven years) is how long they should maintain their files. Moreover, I cannot fathom why some agents still think they only need to destroy their paper records. For some reason, many still think electronic records have a different requirement. To be fair, some of their misunderstanding was created by awful advice from E&O carriers and associations over the years. Record retention is a complex aspect of the law, especially given privacy laws and new cybersecurity/privacy laws. The best advice I have is to keep records for as little time as you can and to engage a highly qualified attorney that specializes in record retention management for insurance entities to assist you developing a record retention policy. The use of an attorney also helps in case something goes wrong, because then you can say you acted on the advice of your attorney. This is important for many rea-

sons, including the conflict between state and federal record retention/privacy laws. The fewer records, the better when discovery is so cheap. The more records one has, the more likely AI can find a problem. A fourth result, and opportunity, is the need to better train staff so they operate on a consistent (AI will find inconsistency more quickly) and professional level. This includes training them on how to document files in a professional manner, using professional language and never including unnecessary opinions. Agencies that step up by improving their quality and management will reap the benefits of these changes in the plaintiffs bar. Their probability of being sued will decrease while reaping the benefits of higher rates because others did not improve their management. Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719485-3868. E-mail: chris@ burand-associates.com.

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Idea Exchange: When Words Collide Resolving Insurance Coverage and Claims Disputes Avoiding Claim Disputes Through Prevention

n last month’s column, I enumerated seven factors that enable one to avoid or prevent claim disputes: (1) Having a good By Bill Wilson historical perspective of the industry; (2) Understanding and embracing two foundational industry premises; (3) Engaging in proper policy form drafting and approval; (4) Seeking quality training and education; (5) Investing time in detailed exposure analysis; (6) Implementing sound and practical risk management/insurance processes; and (7) Advocating for policyholders and other beneficiaries of insurance.

Historical Perspective

One adverse outcome of mandatory INSURANCEJOURNAL.COM

continuing education, I believe, is the focus on “just in time” learning at the expense of broad foundational industry knowledge. When I entered the insurance industry almost 50 years ago, your education began with structured educational programs that taught the history of insurance, how the industry works in all facets, and then you initiated a journey of broad insurance coverage knowledge enhanced by a deeper dive into the subject matter critical to your job duties. The focus today is more on “getting hours” to satisfy regulatory bean counting criteria than attention to building expertise through the historical analysis of policy form evolution. That is evidenced by agent coverage questions and claim denial consultations I’ve been involved with over the past 30 years. During that time, I’ve written numerous articles on how fundamental policy exclusions like wear and tear, and mechanical breakdown are repeatedly misinterpreted by adjusters who seemingly do not understand the purpose, history

and evolution of these types of exclusions. The same is true for pollution, earth movement and flood exclusions. This point was made in a February email from Academy of Insurance director Patrick Wraight to Academy members headlined “History. We need to study history.” As Wraight pointed out, an examination of our past enables us to make good decisions today and gives us insight into the future.

Foundational Premises

The first foundational industry premise is that the purpose of insurance is to insure. This is no better evidenced than by a 1983 Travelers Insurance Company claims manual excerpt that said, “[There is a] requirement to meet the duty of good faith to the insured. The most positive way to do that is to look for coverage in our policies, and not to look for ways to deny coverage.” This is why policy insuring agreements, especially in liability

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Idea Exchange: When Words Collide continued from page 53 policies, are written so broadly. It doesn’t mean that we don’t look to exclusions and limitations in the policy, but the initial presumption is that coverage exists and finding coverage is the focus. The second foundational industry premise is that the mission of our industry is to assist individuals, families and organizations in minimizing their exposure to serious or catastrophic financial loss. This is why I’ve so often blogged critically about so many insurtechs. This is clearly not your mission when your website home page says, “Get insured in 90 seconds!” or you lead a consumer to believe that you can insure their auto exposures with nothing more than a photo of their license plate. “Fast, easy and cheap” is not a mission statement, given what is at risk.

Policy Drafting

Everything we do begins with the insurance contract. It doesn’t matter whether you’re an agent, broker, underwriter, adjuster, actuary, consultant, risk manager, educator, regulator, expert witness, attorney, etc. What we each do is governed by the policy forms that control whether a loss is covered or not. This begins with the competent drafting of form language. Just recently, I consulted on a homeowners insurance claim where damage to a detached garage and storage building was denied because there was an exclusion for “farm-like” structures. According to the adjuster, the garage building “looked like” a barn because it was painted red, had an upper storage deck like a hay loft, and had a weather vane on the roof. Policyholder attorneys refer to policy language like this as “weasel words” on the premise that they can be interpreted any way an individual chooses. I’d like to think that such wording is less the product of a deliberate attempt to

obfuscate, and more likely due to the fact that drafting policy language to accomplish underwriting intent is difficult. But, when a term is found to be ambiguous, the proper course of action is to pay the claim and fix the language rather than argue intent that is poorly communicated. The courts agree. And I’ve been involved in several claim consultations where the insurer, to the credit of the claims department, did exactly that.

Quality Education

Earlier, I referred to broad, historical (a.k.a. “just in case”) education as foundational. However, deep “just in time” learning is the next step in the process after the foundation has been built. I’m referring to a type of learning not always offered via CE programs, especially those of the fast/easy/cheap ilk. In addition, all too often someone attends a CE seminar or webinar simply because they need the hours. I recall once when an agency commercial lines producer waited until the last week to complete his CE requirement, then proceeded to literally follow me across the state, attending four consecutive personal auto seminars. I offered to allow him to teach the last session since he was now a subject expert. While we don’t always know what we don’t know, perhaps the best form of education is self-directed learning. This can take the form of formal development

programs or may simply involve diving into policy forms and reference materials. My primary industry mentor, the late John Eubank, CPCU, ARM, used to tell his students that 15 minutes per work day translates into 60 hours of education over a year.

Exposure Analysis and the Process

There’s an expression that goes, “What you don’t know won’t hurt you.” Unfortunately, in our industry, if we’re talking about risk, that phrase is patently false. As explained in last month’s column, there are three sources of coverage gaps that lead to disputes. First is the failure to identify and/or quantify exposures. This is a premier failure of the “We can insure you in 60 seconds!” insurtechs. No, they can’t. Well, at least they can’t with the assurance that the insurance provided is proper and reasonably adequate. I received an automated homeowners quote on one site. They never asked me if I had a boat dock (I live on a lake). Presumably, if they had, they likely would not have asked if it’s on my “residence premises” (it’s not, it’s on Army Corps of Engineers property). These questions are important because, otherwise, I’d have an uninsured $40,000 boat dock. That’s quite a hit at claim time to save a few minutes of risk analysis, allegedly to enhance the “customer experience.”

Web Resource: Join Bill Wilson for his monthly webinar series “When Words Collide” exclusively on the Academy of Insurance at:

www.ijacademy.com.

54 | INSURANCE JOURNAL | APRIL 1, 2019

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Second is the failure to insure or risk manage known exposures. Once you’ve identified loss exposures, have you matched them with the proper insurance policies and/or risk management techniques? In the April companion webinar to this article, I’ll provide numerous examples of when and how to do this and how this knowledge can make you far more competitive while minimizing your E&O exposure. (See www.IJAcademy.com for webinar details.) Third is the failure to quality-control policy deliverables and risk information. Another expression, you’re likely familiar with is, “Be careful what you ask for.” In this case, a more cautionary phrase is, “Be careful what you DON’T ask for.” When placing coverage, there are certain forms and endorsements you will request from the carrier. However, there are probably far more endorsements the insurer will provide that you didn’t ask for. So, you want to make sure that (1) what you asked for is there, (2) a form substituted for a requested form accomplishes the same thing or better, and (3) no exclusionary or limiting endorsements were added (e.g., any ISO CG 21 xx endorsement). If the latter is the case, then you’ll want to see if you can get them removed or a less onerous version substituted. In the companion webinar, I’ll give you some eye-opening examples of this, one from recent litigation I consulted on.

customer’s exposures. Next month, as we segue from avoidance and prevention to resolution and advocacy, I’ll illustrate the main points of this article with practical, real-life examples, enumerate how to distinguish between ISO and non-ISO policy forms (and why that’s important), and explain

“

how the cumulative knowledge in this series can make you more competitive while reducing your E&O exposure. Wilson, CPCU, ARM, AIM is the founder and CEO of InsuranceCommentary.com and the author of the book “When Words Collide: Resolving Insurance Coverage and Claims Disputes.”

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Advocacy

Although most of the articles remaining in this series will be devoted largely to advocating for customers at claim time, “advocacy” does not begin at claim time. As this list of preventative measures indicates, advocacy begins with the mindset that the purpose of insurance is to insure, with the goal being to minimize financial loss to the customer. It continues with advocating for policy form changes. In the companion webinar, I’ll explain how you may actively participate in a formal program to accomplish this. It carries throughout the exposure analysis and insuring process, for example, by being vigilant as to the accuracy of information used to cover and rate the INSURANCEJOURNAL.COM

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Idea Exchange: Mergers and Acquisitions 8 Things to Consider When Buying or Selling an Insurance Agency

nsurance agency acquisitions and deal values are near an all-time high and all expectations are that deal flow in 2019 will match or By Zachary Lerner exceed last year’s numbers. And while reported numbers tend to skew towards larger agency transactions there are many agency deals that involve small, local firms that do not appear in industry reports. The purchase and sale of insurance agencies, brokerages and producer firms pose unique risks and challenges not necessarily applicable to other industries, or even other types of insurance entities. While insurance agencies are not subject to all of the same standards applicable

to the acquisition of control of insurance companies, there are nevertheless many important diligence, drafting and even regulatory challenges to consider when contemplating the purchase of an insurance agency. This article will summarize a few of the many wrinkles that should be considered when consummating an insurance agency acquisition.

Regulatory Considerations

As an initial matter, while the purchase or sale of an insurance company is subject to a robust regulatory review and approval process under the laws of the insurance company’s home state, the process of acquiring an insurance agency is generally subject to less regulatory scrutiny. Nevertheless, a few jurisdictions expect, through informal positions, to be notified

of the acquisition. At least one state — Texas — requires pre-closing notification and exercises approval authority over the deal, or will otherwise allow the parties to consider the approval “deemed” when no notice of disapproval has been sent within a prescribed timeframe. Even an indirect change of control of an insurance agency can be subject to these regulatory requirements, particularly if the agency is licensed in all states. A change of the officers and/or directors of the agency usually requires enhanced regulatory disclosures as well. A number of states require agencies to make annual cybersecurity filings and a proper review of an agency’s practices should determine whether it has satisfied these fairly new requirements. For example, New York enacted in 2017 a set of insurance regulations applicable to “Covered Entities” (including insurance agencies) requiring them to submit annual certifications each year as to the maintenance of a cybersecurity program in com-

pliance with New York’s standards.

Agency Licensing

Any potential buyer of an insurance agency probably suspects that the agency needs to hold certain licenses — both resident and non-resident. But what licenses exactly need to be held and

who must hold them? An agency generally must hold an insurance agency, broker or producer firm license where such agency sells, solicits and/or negotiates insurance (a few states do not have entity licensing requirements). This requirement applies even if the agency acts in a wholesale capacity in a state by intermediating the insurance placement between a consumer’s retail insurance broker and an insurance company. Moreover, the agency must hold the

correct “lines” under its agency license. For example, many states do not allow a property/casualty insurance agent to place lines of insurance coverage such as life, health or title without obtaining authorization of such lines for their licenses as well. As such, a potential purchaser should confirm that its target holds all the requisite licenses based on where it transacts

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Idea Exchange: Mergers and Acquisitions continued from page 57

its business. And, such licenses should not have expired and contain all the proper lines of insurance both to continue to do its current business as well as write the lines of insurance that the buyer ultimately desires for the agency. Fortunately, even if a buyer wishes to convert the target company from a corporation into a limited liability company subsequent to purchase, this can be accomplished under applicable corporate conversion laws without having to re-apply for agency licenses. Insurance agencies may also need to hold “managing general agent” licenses or registrations depending on the nature and volume of their activities. While such term is loosely used as a business term in the insurance industry, it has a highly technical definition under the managing general agent laws of those states. They relate to the total amount of annual premiums produced by the agency for a particular insur-

58 | INSURANCE JOURNAL | APRIL 1, 2019

ance company and whether the agency performs certain material, outsourced tasks for the insurance carrier, such as binding ceded reinsurance or adjusting insurance claims. In addition, managing general agent agreements are highly regulated under state law and must contain a variety of specific statutorily mandated provisions. What if the agency is placing coverage with unauthorized insurers? Generally, this will require a “surplus lines” broker license to be held by the insurance agency as well, which brings up an additional host of diligence considerations. Does the agency adequately conduct a “diligent search” of the admitted insurance market before placing coverage with unauthorized insurers? Is it appropriately paying the applicable surplus lines premium tax to the “home state” of the insured? Is the agency advertising surplus lines products,

where such activities are heavily regulated under applicable state law? These are just some of the myriad issues that can arise from a review of the licenses of an insurance agency. Finally, what if the agency has affiliates that also are being purchased, such as claims adjuster firms and third-party administrators? Depending on the jurisdiction, these entities may be subject to their own licensing requirements and must be reviewed independently to determine compliance with the laws of the states where they do business.

Individual Licensing and Activities

What about individual employees or independent contractors of agencies? These individuals also must hold individual insurance producer licenses; they cannot simply “borrow” the licenses of their co-workers or officers or directors of the

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agency. Additionally, each agency must have an individual “designated responsible producer” that is personally responsible for the agency’s actions and holds the same licenses and lines of insurance as held by the agency. While most states provide exceptions from insurance producer licensing requirements for individuals who only engage in administrative tasks and are not compensated based on insurance sales, many agencies employ or contract with “customer representatives.” It is important for a potential buyer to conduct the appropriate due diligence to determine whether such individuals should, and do, hold appropriate licensure depending on the scope of their activities. Any review of such activities must necessarily take into account applicable telemarketing laws, particularly with respect to call centers that conduct outbound telemarketing.

Moreover, some agencies take aggressive positions by characterizing their agents as independent contractors for payroll, benefits, tax and other accounting purposes. It is important to carefully examine whether the activities of an individual agent for the agency require the agent to be treated as an employee or as an independent contractor.

Appointments, Foreign Qualifications and DBA Names

On top of confirming satisfaction of agency licensure requirements, the majority of states require that an insurance agency (and any individual producing on the agency’s behalf) be appointed by each and every insurance carrier with which the agency places insurance products. The task of confirming that an agency and its applicable employee insurance producers hold all required appointments is

time-consuming when compared to confirming that an agency holds its required licenses. This is why many due diligence investigations will confirm a sampling of insurance carrier appointments, usually based on insurance carriers for which the agency has its highest annual insurance sales and/or commission payments. This may also require that the seller affirmatively represent in the purchase agreement that all required appointments are held. In addition, an insurance agency may not be in compliance with the corporate laws of a particular state if it has not properly obtained its foreign qualification to do business from the applicable secretary of state or equivalent state governmental agency. Simply holding a non-resident agency license in a state is not always sufficient, and we have on occasion seen states impose back-taxes and fines in connection with the failure of an agency to have properly obtained its foreign qualification. Insurance agencies also frequently use fictitious or trade names, commonly referred to as “DBA” names. DBA names will often need to be registered with the applicable departments of insurance and often cannot contain specific words or verbiage that may be misleading or insinuate affiliation with other entities or governmental units. As such, a proper diligence undertaking will analyze any potential DBA issues as well.

Ownership of Insurance Customer Accounts and Policy Expirations, and Exclusivity Provisions

Insurance agencies face dual competition concerns. They must be able to obtain and maintain relationships in the face of competition with other agencies, but they also must combat the potential of losing customers directly to the insurance companies and/or wholesale general agencies with which they do business. As such, in order to adequately protect the fruit of the agency’s blood, sweat and tears, it is customary to see producer agreements contain “policy ownership of expirations or renewal” provisions that grant the agency the right to renew its

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Idea Exchange: Mergers and Acquisitions continued from page 59

client accounts upon policy expiration provided that the agency is not in default under the applicable agency agreement. In other words, once a policy expires, the insurance company is usually prohibited from actively soliciting or utilizing its other agents to solicit renewal business of the agency’s customers, unless otherwise required to renew under applicable law. While it is the norm for an agency to retain the right to its customer accounts and expirations, if an agency agreement grants account ownership rights to any other entity, the results can severely impact a potential purchaser. Even if the principals of the selling agency are bound by non-solicit and non-competition provisions under the purchase agreement, insurance customers are not widgets, but rather people who can choose to work with whomever they would like. Insurance companies and their agents are not going to be bound by the non-compete. Therefore, if the agency does not have the right to its account expirations, attrition to other agents or directly to insurance carriers may skyrocket. At the extreme, it is possible that an agency is bound by an exclusivity obligation to produce business only for particular insurance companies or general agencies, which could substantially restrict future business opportunities. Thus, it is crucial to carefully diligence any carrier agreements in order to identify such provisions.

Compensation, Contingent Commissions and Profit-Share Arrangements

Insurance agencies survive and thrive off their commissions. As insurance players get more sophisticated, the trend is to move away from traditional “flat” commissions based solely on a percentage of premium generated and instead to “contingent commissions” based on other metrics. This might include the amount of business placed with an insurer, policy persistency results and the “loss ratio” or performance of the risks placed.

While contingent commission structures are not necessarily a cause for concern, they should be carefully analyzed prior to entering into a definitive transaction agreement. Of interest to the potential liability of a purchaser are “clawback” and “loss carryforward” provisions. Simply put, many insurance carriers do not want agencies to get the upside without sharing in the downside as well, so they will sometimes require agencies to return commissions when books of business perform inadequately. What this can mean for a buyer at first blush are endless opportunities for growth and expansion when, in reality, poor performance could require that the buyer dip into its own pockets to return commissions already paid to the seller. While appropriately drafted representations, warranties and indemnification rights may help limit this exposure, a thorough understanding of an agency’s performance and its potential clawback liabilities can impact the valuation of the agency, as well. Besides commissions, agencies continue to look for other ways to receive revenue and/or business and often turn to charging insureds “policy fees” or other fees in connection with the placement of insurance. Many states substantially regulate and, in some cases, prohibit such practices, often depending on whether the fee is charged with respect to a surplus lines product. Agencies also have increasingly been entering into “marketing agreements” with insurance carriers to provide agencies with additional compensation for engaging in the marketing of insurance products. While not impermissible per se, agencies are restricted as to the amount of commissions they may receive under some lines of insurance (typically in the Medicare and title insurance spaces). A marketing agreement that serves only to circumvent such rules and regulations may be found to be in contravention of certain state and federal laws. Many agencies also enter into referral

arrangements with non-licensed entities that can trigger applicable state law where violations are often contingent on whether the non-licensed entity is compensated based upon a successful referral.

Premium Trust Accounts, Fiduciary Obligations and Successor Liability

Unless premium payments are directly remitted by insureds to insurance carriers, agencies are generally required to hold premiums collected from their customers in “premium trust accounts” as a fiduciary for their customers and the respective insurance companies. Any commingling of personal funds in the premium trust account is strictly prohibited. In some cases, an insurance carrier may require an agency to maintain a premium trust account dedicated solely to that insurance carrier. When an agency has violated its fiduciary duties with respect to a premium trust account, the headaches for a buyer can turn into full-blown migraines. As an initial matter, a buyer may have insurance consumers as well as insurance companies demanding premium (or return premium) owed to them when the seller has absconded with trust funds. The purchase agreement will need to carefully consider successor liability concerns as states often differ as to what parties will be responsible. But careful drafting may only serve as mild painkiller to the arguably greater concern that insurance agencies are heavily reliant on their ability to do business with insurance companies. Agency appointments can often be rescinded with relative ease even if appointments have been properly assigned to the buyer. Therefore, even if a buyer has only purchased the assets of an agency and has left all liabilities behind, an insurance carrier may demand that the buyer “do right” by the insurance carrier or otherwise face having its appointment rescinded and business flow cut off. Even if the buyer genuinely had nothing

to do with the improper maintenance of the seller’s trust account before closing, it may be left in the unfortunate position of having to fork over considerable funds to insurance companies simply for the right to continue doing business while hoping that the seller didn’t decide to let the trust funds ride in Vegas when it comes time for indemnification.

Earn-Out Mechanisms and Indemnification

Earn-outs and other deferred purchase price mechanisms are particularly popular in insurance agency transactions due to the very nature of the business. If customers don’t like new management, they may simply find a new agency. Therefore, it is not uncommon to see the purchase price bifurcated into numerous components, particularly as to smaller transactions with greater risk of consumer attrition. For example, we have seen some agency deals where the overall purchase price is heavily contingent upon the occurrence of future renewals of the policies comprising the purchased book of business. Moreover, and particularly with respect to agency transactions where the principals of the seller continue servicing the purchased book of business, earn-outs often will include payments in connection with the growth and expansion of such books as well. A risk-conscious buyer often will demand the right to set off any earn-out payments due to the seller against any indemnification payments owed to the buyer, particularly if due diligence efforts uncover any risks as discussed in the preceding sections above. We hope this article helps any potential buyer or seller of an insurance agency understand what's involved in the acquisition of an insurance agency. While not substantially different or necessarily more challenging than the purchase of any other kind of entity, agency acquisitions present a number of unique challenges and issues to consider. This article has sampled just a few considerations that parties should

take into account during the diligence and drafting process when consummating an insurance agency deal. Lerner is a partner in Locke Lord’s New York office and is a member of the Insurance and Reinsurance Department. He maintains a general corporate practice with an emphasis on insurance regulatory, transactional and reinsurance matters.

Idea Exchange: Flood

New Flood Insurance Rule from Bank Regulators a Win for Consumers, Agents and Brokers

If Implemented Wisely, Flood-Exposed Properties Could Benefit from Expanded Market

hile lawmakers continue their struggle to agree on the longterm reauthorization of the financially burdensome National Flood Insurance Program, federal lending regulators have concluded their own six-year struggle to issue a final rule implementing the mandatory acceptance by lendBy Craig Poulton ers of private flood insurance as required by the last long-term reauthorization of the NFIP–the Biggert-Waters amendment. This could prove to be good news for consumers and the agents and brokers who introduce them to private flood insurance options. The new private flood insurance rule will become effective on July 1 but is expected to be adhered to by lenders and insurers in short order as a practical matter. The mandatory acceptance provision in the new rule proclaims a breakthrough for flood insurance buyers and taxpayers, as it leaves no room for a few uninformed lenders to impede the growth of private flood insurance. If lending regulators

implement the rule wisely, as it appears they will, owners of flood-exposed homes and businesses, mortgage lenders and taxpayers will benefit.

Where We Have Been

The Biggert-Waters Flood Insurance Reform Act of 2012 was designed in part to encourage the sale of private flood insurance by forcing federal lending regulators to stop years of unsanctioned actions that denied some borrowers access to better coverage and lower premiums through the private flood insurance market. Unfortunately, after being instructed by Congress to encourage growth of the private flood insurance market, these well-intended lending regulators proposed a rule in 2016 that was universally criticized by insurers, lenders and state regulators as overly burdensome and practically impossible to administer. The proposed rule would have required lenders to warrant in writing that the subject policy agreed with the Biggert-Waters definition of private flood insurance. That definition was broadly recognized as being terribly flawed. The unpopular proposed rule was criticized as being unnecessary and redundant, as more qualified state

regulators already assure that the intent of the Biggert-Waters definition is accomplished. Most crucially, the proposed rule added unnecessary cost to a lender’s acceptance of a private flood insurance policy when compared to acceptance of an NFIP policy. For these reasons—along with the fact that the proposed rule ran counter to existing lender and regulatory norms relating to acceptance of all other forms of property insurance such as homeowners, windstorm and earthquake—the inevitable and ironic result of the proposed rule would have been the essential elimination of private flood insurance from the market. This is the exact opposite of what Congress intended.

Where We Are Going

In a triumph of common sense, federal lending regulators have included a “mandatory acceptance” provision in the final rule implementing Biggert-Waters private flood insurance provisions that requires a lender to accept private flood insurance policies containing certain characteristics and/or a specified statement demonstrating compliance. This sensible provision allows lenders to process most private flood insurance policies in the same way other types of property insurance such as homeowners, windstorm and earthquake policies are processed. Unfortunately, as mentioned above, the final rule also contains a provision that deals with lenders’ discretionary acceptance of private flood insurance that may prove problematic for some agents and brokers and, most importantly, their flood insurance clients. The McCarran-Ferguson Act clearly conveys regulation of private insurance to

the states. The courts have ruled that very specific instruction from Congress is necessary for a federal regulator to preempt state insurance regulation. No such specific instruction relative to discretionary acceptance of flood insurance exists. So, it seems that the discretionary acceptance portion of the final rule is a solution in search of a problem.

The mandatory acceptance provision in the new rule proclaims a breakthrough for flood insurance buyers and taxpayers, as it leaves no room for a few uninformed lenders to impede the growth of private flood insurance. Lenders have always had, and continue to have, the right of discretionary acceptance of private flood insurance policies on the same basis as they accept all other types of property insurance. Considering that Biggert-Waters only addresses the issue of what lenders must accept, not what they may discretionarily accept, the discretionary portion of the rule serves no real purpose. If implemented wisely, the discretionary acceptance provision will have no detrimental impact on the flood insurance market. If imprudently implemented, it has the potential to inhibit the use of low-limit flood insurance endorsements, parametric flood insurance for communities and individuals and manuscript insurance policies, and may well lead to other unintended consequences.

What’s Next

As lending regulators take a more enlightened view, one might hope for similar thinking to be articulated by the NFIP, which continues to be under a Congressional requirement to cover the nation’s flood insurance needs through participation of the private market “to the maximum extent practicable.” NFIP Administrator David Maurstad is well qualified, experienced and strongminded — just the kind of person who might be able to overcome regressive elements within the NFIP that seem bent on inhibiting consumer access to private flood insurance. Roadblocks such as the “continuous coverage” rule, which penalizes a subset of consumers who wish to return to the NFIP from the private market, and the recent attempt to eviscerate a “midterm” cancellation provision for insureds wishing to cancel NFIP policies replaced by private flood, must end.

An NFIP that fights to assure access to more private market choices would save taxpayers billions of dollars. Agents and brokers should understand that it can flood almost anywhere, and best practices demand that they offer their clients solutions responsive to this risk. Very few Americans are buying flood insurance, and if more private, as well as NFIP coverage is quoted, outcomes will improve for everyone. However, this can only happen when insurance professionals begin thinking about flood as a peril to be quoted on every property policy as a matter of standard practice, and when all attempts to inhibit the availability of private flood insurance cease. Poulton is CEO of Salt Lake City-based Poulton Associates LLC, which administers the country’s largest private flood insurance program, the Natural Catastrophe Insurance Program at CATcoverage. com. Follow him on Twitter @nciptweets.

APRIL 1, 2019 INSURANCE JOURNAL | 63

My New Markets Logistics Operations

Market Detail: AmWINS Group, Inc.’s

(www.amwins.com) AmWINS Specialty Logistics Underwriters (ASLU) is a specialist in the nuances of logistics insurance offering creative products to protect a client’s assets and avoid costly chain disruptions that can occur when shipping goods both domestically and globally. Target clients include freight forwarders. Each policy issued by ASLU is tailor-made for each client in accordance with the services they provide, as well as the individual exposures attached to them. Services provided by a freight forwarder may include: international or domestic transportation brokerage; customs house brokerage; non-vessel operating common carriers (NVOCC); indirect air carriers (IAC); motor truck carrier (MTC); warehousemen. All risk coverage is available for clients through their insurer for ocean and inland shipments, as well as for goods in storage/ warehouse. Program highlights: admitted paper through A-rated carrier; all necessary coverages under one package; dedicated staff for the life of the policy; timely response to brokers; timely quoting, binding and issuance of endorsements; work with the insured to standardize the insurance-related portion of their contracts and minimize their exposures; customize a coverage package suitable for each individual insured; certificate issuing platform for shippers interest and warehousing with full report capabilities; worldwide claim settling agents. Coverage is backed by government funds to pay claims in the event of bankruptcy. Coverage and limits include: $15 million any one conveyance on shippers interest ocean cargo; $15 million any one conveyance on shippers interest domestic transit; $15 million any one location for third-party warehousing; $5 million any one conveyance for carriers legal liability. (NVOCC, IAC, MTCLL & Contingent); $1 million any one occurrence for freight forwarders E&O; $15 million any one location for warehouse legal liability. Minimum premium of $10,000. Submission requirements include: ASLU application or full broker application; contracts of carriage/warehousing in use by

the insured; 5-year loss experience; other information, if necessary, requested upon submission. Available limits: Minimum $10,000, maximum $15 million Carrier: Argo States: All states Contact: Alex Rosas at 754-260-2199 or email: alex.rosas@amwins.com

Miscellaneous Professional Liability

Market Detail: SIS Wholesale Insurance Services (www.sisinsure.com) offers over 4,000 eligible classes needing E&O coverage, including: administrators, advertising agencies; billing services (medical & non-medical); business consultants; collection agencies; computer data process; consultants – human resources; customs brokers/freight forwarders; drug testing; event planners; executive search services; graphic design; home inspections services; property preservationists; litigation consulting services; management consultants; social services; software consulting services; telemarketers; travel agents; tax preparation/bookkeepers; and trustees. Coverage highlights include: broad definition of insured; professional services crafted for each risk; independent contractors coverage; bi-lateral extended reporting period; worldwide coverage; claims-made form. Available limits: As needed Carrier: Unable to disclose States: All states Contact: SIS Wholesale at 866-716-7242 or e-mail: wholesale@sisinsure.com

Workers' Compensation

Market Detail: Pascal Burke Insurance

Brokerage, Inc. (www.pbibins.com) offers workers' compensation for contractors and roofers with a preferred program requiring 3 years of loss runs. A-rated carrier with competitive rates. Available limits: Minimum $500,000, maximum $1 million Carrier: Unable to disclose, admitted States: Ala., Ark., Ariz., Calif., Conn., Del., Fla., Iowa, Idaho, Ind., Kan., Ky., Md., Mich., Minn., Mo., Miss., Mont., N.C., N.D., Neb., N.H., Nev., Ohio, Okla., Ore., R.I., S.C., S.D., Tenn., Texas, Utah, Va.,

Wis., W.Va., and Wyo. Contact: Pascal Burke at 949-285-1249 or e-mail: pascal@pmaxins.com

Flood Insurance (Private Market)

Market Detail: Flood Risk Solutions, Inc. (www.floodsol.com) offers private market primary and excess flood products. Coverage highlights include: A-rated paper including coastal geographies in Florida, Louisiana and Texas; $5 million in primary limit (commercial and residential; up to $500 million in excess limit available; more than 20 insurers) with TIV’s of up to $2 billion considered; business income coverage available, as well as content coverage; ability to write in critical flood zones; replacement cost endorsement; coverage equal or greater to the baseline NFIP policy. Available limits: Minimum $50,000; maximum $500 million Carrier: Various, admitted and nonadmitted available States: Conn., Del., Fla., Ga., La., Mass., N.J., N.Y., and Texas Contact: Brendan Moeller at 813-336-8226 or e-mail: bm@floodsol.com

Medicinal & Recreational Cannabis Motor Truck Cargo

Market Detail: CannGen Insurance Services, LLC (www.canngenins.com) offers $250,000 per conveyance limit, per vehicle, for cash, money, securities and cargo. ISO forms used. Classes include fleets up to 50 revenue generating units. Minimum premium starting at $5,000. Available limits:

Maximum $500,000

Carrier: Unable to disclose, nonadmitted States: All states Contact: CannGen Insurance Services

at 888-751-3141 or e-mail: cannapp@ CannGenins.com

Metal, Plastics, Textiles Manufacturers

Market Detail: Boston Insurance Brokerage LLCâ&#x20AC;&#x2122;s (www.bostonbrokerage. com) coverage includes: primary; excess;

buffer; difference-in-conditions; inland marine; ocean marine; and quota-share. Deductible buy downs and single peril options available. Available limits: As needed Carrier: Unable to disclose, admitted and nonadmitted available States: All states Contact: Gordon Bewick at 866-331-1997 or e-mail: gbewick@bostonbrokerage.com

April 1, 2019

LifeSecure Insurance Company 10559 Citation Drive, Suite 100 Brighton, MI 48116

Athene Annuity and Life Company 7700 Mills Civic Parkway West Des Moines, IA 50266-3862

The above company has made application to the Division of Insurance to transact Life, Accident and Health Insurance in the Commonwealth of Massachusetts.

The above company has made application to the Division of Insurance to amend their Foreign Company License to transact Variable Life or Variable Annuities 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 02118-6200, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.

Builder's Risk - Personal & Commercial

Market Detail: Halcyon Underwriters (www.halcyonuw.com) offers builder's risk in all states at a competitive rate on all types of projects with top-rated carriers. Halcyonâ&#x20AC;&#x2122;s underwriting practices, client retention, continued organic growth, data analytics, risk management and efficiency deliver profitable performance results for carrier partners in both soft and hard markets. Available limits: As needed Carrier: Lexington, Hartford, Zurich, Safehold, Markel, Ironshore, Vault States: All states Contact: Jason Mata at 321-527-2180 or e-mail: marketing@halcyonuw.com

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April 1, 2019

Patriot Life Insurance Company 1 Mutual Avenue Frankenmuth, MI 48787-0000

United Life Insurance Company 118 Second Avenue SE Cedar Rapids, IA 52401

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

INSURANCEJOURNAL.COM

Applied Underwriters www.auw.com 2, 3, 68 Brighthouse Financial www.brighthousefinancialpro.com 4, 5 EZLynx www.ezlynx.com 13 Frenkel & Company www.cosmeticinsurance.com 63 InsurBanc www.insurbanc.com 55 K&K Insurance Group www.kandkinsurance.com 15 Louisiana Commerce & Trade Assoc. www.lctacomp.com SC3, S3 Midlands Management Corporation www.midlandsmgmt.com SC2 Monarch E&S Insurance Services www.monarchexcess.com W1 Philadelphia Insurance Companies www.phly.com 11 St. Johns Insurance Company www.stjohnsinsurance.com S3 Summit www.summitholdings.com SC1, S1 Texas Mutual www.texasmutual.com SC2 The Hartford Insurance Group www.thehartford.com 7 Verisk Insurance Solutions www.verisk.com/insurance/ 9

APRIL 1, 2019 INSURANCE JOURNAL | 65

Closing Quote How Debt Is Used as a Strategic Tool for Growth

I By Rick Dennen

When the idea of borrowing is unappealing, insurance businesses may often look to another option for extra capital – equity financing.

f you would like to expand or transform your insurance business, you will likely need to invest additional capital — debt and/or equity. This could mean borrowing, which means taking on debt. However, most insurance professionals are conservative by nature, and their attitudes toward borrowing often spill over into their business lives. There is some wisdom in avoiding debt, particularly for individuals. One of the first financial lessons most people learn is to live within their means. However, when it comes to business borrowing, “debt” is not the most accurate term. A better choice is “leverage,” because it describes the role borrowing can play. When your insurance business borrows, you are leveraging other people’s money to achieve a purpose that will increase your business’s value. When the idea of borrowing is unappealing, insurance businesses may often look to another option for extra capital: equity financing. Equity financing consists of giving up part of the ownership in the business by assuming new partners or selling shares to new investors. As with most things, there are pros and cons to using debt or leveraging and equity financing.

Debt vs. Equity When you

66 | INSURANCE JOURNAL | APRIL 1, 2019

decide to secure financing for your business, you need to determine whether equity or debt financing is the best fit. The biggest differences are ownership and control. With equity financing, the business exchanges a portion of existing equity or ownership for capital. Your position will be diluted, and you now have new partners and/or investors. When optimizing debt, ownership structure and control of operations remain in place, eliminating the risk of the business getting pushed in a direction you don’t want it to go.

Debt as a Strategic Tool

Once you have decided to optimize using debt to expand or transform your business, it is important to use that debt strategically. Before borrowing, create a strategic plan outlining the growth initiatives, reasons they are attainable and plans for reaching them to determine whether the return on investment warrants borrowing. Your plan should also include a budget to ensure adequate cash flow to cover all expenses, including loan repayment. Next stress test — how will your business fare if your profits don’t meet your expectations? The time you invest into the planning process will help you determine whether borrowing is the right choice.

Options for Businesses

In addition to being strategic in planning for growth, it is important to be deliberate when considering financing options. For those who have little or no experience in commercial lending, local commu-

nity banks are often the first lender considered. But banks are often hesitant to lend to insurance businesses because future commissions are the primary assets. Banks look for tangible collateral, such as equipment, inventory and real estate. As a result, insurance businesses frequently find it difficult to obtain bank financing without providing personal assets as collateral. Another option is to apply for a loan guaranteed by the Small Business Administration. Historically, SBA loans take longer to process, involve a large amount of paperwork, have relatively small lending limits, can require a second lien on your home and a guarantee from your spouse. An alternative is to explore cash-flow based lending through a specialty lender who understands your business and is accustomed to working within the confines of the insurance industry. A specialty lender will allow historical and projected cash flow from commissions to serve as collateral and take into account carrier ratings, contract rights, retention rates and loss ratios. While taking on debt can be daunting, planning strategically, setting realistic expectations and carefully researching your funding options will put you on the path to successfully leveraging capital to grow or transform your business. Finally, if your growth exceeds the cost of your debt, then use it. Dennen is president and CEO of Oak Street Funding. Email: rick.dennen@ oakstreetfunding.com. INSURANCEJOURNAL.COM

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Expect big things in workers’ compensation. Most classes approved, nationwide. It pays to get a quote from Applied.® For information call (877) 234-4450 or visit auw.com/us. Follow us at bigdoghq.com. ©2019 Applied Underwriters, Inc., a Berkshire Hathaway company. Rated A+ (Superior) by A.M. Best. Insurance plans protected U.S. Patent No. 7,908,157.