IBAMAG.COM ISSUE 6.09 | $12.95
WHOLESALE E&S MARKET REPORT 2018 IBA illuminates the opportunities for brokers in a rapidly growing E&S market BOOST YOUR CYBER KNOWLEDGE How to stay on top of a complex market that’s constantly evolving
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RISK MANAGEMENT IN THE #METOO ERA
Help your clients navigate the new exposures the movement has brought to light
IN SICKNESS AND IN HEALTH
Expert advice on gaining a foothold in the medical malpractice space
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ISSUE 6.09
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CONTENTS
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UPFRONT 04 Editorial
New threats are disrupting even the most traditional lines of insurance
44 FEATURES
WHOLESALE E&S
Awareness around cyber insurance is growing – so how can brokers capitalize on it?
28 48
MARKET REPORT 2018
SPECIAL REPORT
WIRED FOR GROWTH
WHOLESALE E&S MARKET REPORT 2018
What’s behind the ongoing expansion of the E&S market, and where are the key opportunities for brokers across the country?
FEATURES
PEOPLE
Marsh Digital Labs’ Sastry Durvasula reveals how the brokerage giant is driving the industry forward by doubling down on technology
INDUSTRY ICON
LEADING THE DIGITAL AGE
Gallagher Bassett CEO Scott Hudson reveals how his company is harnessing new technology to improve the claims experience
24 2
08 Statistics
Despite a recent dip, M&A activity among brokerages is still going strong
10 Head to head
Is on-demand insurance the future of the industry?
11 Opinion
Insurers must be careful not to let bias creep into data analysis
12 News analysis
The #MeToo movement is exposing businesses to a host of new risks
14 Intelligence
This month’s big movers, shakers and new products
18 Workers’ comp update
The challenge of standing out in a soft workers’ comp market
20 Technology update
How smart home sensors are helping slash non-weather-related water claims
PEOPLE 55 Career path
From his time at Harvard Business School to heading up ACORD, Bill Pieroni has never stopped learning
56 Other life
Climbing every mountain with Adirondack-area agent Kirk Pero
50 FEATURES
TIME FOR A CHECKUP?
What do brokers and agents need to know before jumping into the medical malpractice space?
IBAMAG.COM CHECK IT OUT ONLINE
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Put partners first.
We do. Collaboration with partners to take their business to the next level. Partnerships that span 35 years.
E&S/Specialty nationwideexcessandsurplus.com A.M. Best rating of A+ (Superior), FSC XV Fortune 100 company Nationwide and the Nationwide N and Eagle are service marks of Nationwide Mutual Insurance Company. Š2018 Nationwide
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UPFRONT
EDITORIAL
The only constant is change
F
rom cyber attacks to terrorism to climate change, the ‘staid’ insurance industry has had to deal with plenty of modern and unconventional risks in recent years. For proof of this evolution, you need look no further than what is often seen as the most traditional insurance segment of all: marine. Widely regarded as the earliest developed form of insurance, marine can trace its roots as far back as medieval times, though the first true marine market was established at Edward Lloyd’s coffee house. Today, however, marine insurance looks remarkably different as an array of new threats have emerged, from the extreme weather that has hit the so-called ‘new Bermuda Triangle’ (made up of the South China, Indochina, Indonesia and Philippines maritime regions) to the opening of new shipping routes as the polar ice caps melt and wildfires threaten the West Coast of the US and Canada.
The balance between the benefits and threats of new technology is tough for businesses to manage – presenting opportunity for insurance brokers New threats are emerging beyond the oceans, too. Shipping companies are being forced to ramp up their cyber defenses in light of the NotPetya ransomware attack, which struck global shipping giant Maersk last year. Modern technology might be making ships more efficient, but it’s also adding risks. “As we have more technology on board, we still have to look at what happens if that technology fails, either through a loss of power or a voltage spike on board through the generators, or through an outside influence from a cyber attack or a jamming of signals,” Andrew Kinsey, senior marine risk consultant at Allianz Global Corporate & Specialty, told IBA. The balance between the benefits and threats of new technology is tough for firms to manage – presenting an opportunity for insurance brokers who are true experts in the field to become a trusted advisor to their clients by educating them on these developments and on methods to mitigate their risk exposure. Successful brokers know they can’t afford to stand still and rely on traditional approaches anymore, even in this seemingly conventional sector. Indeed, the message to the insurance industry at large is clear: The only constant now is change. The team at Insurance Business America
www.ibamag.com MAY 2017 EDITORIAL Managing Editor Paul Lucas Journalists Alicja Grzadkowska, Lucy Hook, Bethan Moorcraft, Ksenia Stepanova News Writers Lyle Adriano, Krizzel Canlas, Terry Gangcuangco, Mina Martin, Gabriel Olano Staff Writers Hannah Go, Libby MacDonald, Nicola Middlemiss, Joe Rosengarten, Ryan Smith, Heather Turner Copy Editor Clare Alexander
CONTRIBUTORS Peter Kochenburger
ART & PRODUCTION Designer Joenel Salvador Production Manager Alicia Chin Traffic Manager Ella Dayandante
SALES & MARKETING Vice President, US Market Cathy Masek Vice President, Sales John Mackenzie Media Sales Managers Chris Anderson, Desiree McCue Mktg & Comms Manager Lisa Narroway
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Insurance Business America is part of an international family of B2B publications and websites for the insurance industry Insurance Business Canada john.mackenzie@kmimedia.ca T +1 416 644 874O Insurance Business UK nathan.beach@keymedia.com T +44 20 7193 0935 Insurance Business Australia peter.smith@keymedia.com.au T +61 2 8437 47OO Insurance Business NZ peter.smith@keymedia.com.au T +61 2 8437 47OO Insurance Business Asia peter.smith@keymedia.com.au T +61 2 8437 47OO Printed in Canada Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as the magazine can accept no responsibility for loss.
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UPFRONT
STATISTICS
M&As mellow out
A BLIP ON THE RADAR Despite a 16% reduction in the amount of deals between the first quarter of 2017 and the same period this year, insurance brokerages’ appetite for consolidation remains high compared to earlier in the decade. According to analysis from Optis Partners, the recent dip in acquisition activity isn’t a sign of a slowdown, but rather a momentary pause as large transactions are finalized and integrated.
Broker acquisitions have fallen slightly since last year, but interest has by no means flagged The number of broker acquisitions recorded in the first half of 2018, while still high at 280, marked a drop relative to the 333 transactions recorded in the same period in 2017. The industry appears to be catching its breath while integrating last year’s flurry of M&As, but interest in consolidation is still strong. The first half of 2018 still holds the record as having the
611
Total number of insurance brokerage acquisitions in 2017
588
Brokerage acquisitions between June 2017 and June 2018
second highest semi-annual number of M&As. With agency valuations at historical levels, sellers continue to make the most of buyer interest. Several high-profile organizations are responsible for much of the industry’s M&A activity: Acrisure is leading the pack so far in 2018, followed closely by Hub International, AssuredPartners and Gallagher.
8
Q1
Q2
Q3
Q4
67%
Insurance brokerages that have made more than 10 acquisitions in 2018
Percentage of acquirers backed by private equity
Source: Agent & Broker 2017 Merger and Acquisition update, Optis Partners, July 2018
WHO’S BUYING?
Source: Agent & Broker 2017 Merger and Acquisition update, Optis Partners, July 2018
8
Public
All other
80% 70% 60% 40% 30% 20% 10% 018
17
1H2
-20
017
2H
16
1H2
-20
016
2H
15
1H2
015
-20
2H
14
1H2
-20
014
2H
13 -20
1H2
013
2H
12
1H2
-20
012
2H
11
1H2
11 20
-20
2H
10
0% -20
41 33 19 15 14 14 13 11
1H-
Acrisure Hub International AssuredPartners Gallagher Alera Group Broadstreet Partners OneDigital NFP
Private
90%
010
NUMBER OF DEALS
PE/hybrid
100%
2H
BROKERAGE
Private equity-backed/hybrid groups were by far the most common type of acquirer, representing nearly 70% of the deals so far in 2018. Private equity’s influence in the insurance sector has been steadily rising since the beginning of the decade; in 2010, private equity-backed deals represented only around 30% of transactions.
Percentage of transactions
As it has been in previous years, Michigan-based Acrisure is out in front in terms of insurance M&As in 2018, racking up 41 deals so far.
1H2
THE MOST ACTIVE ACQUIRERS
Source: Agent & Broker 2017 Merger and Acquisition update, Optis Partners, July 2018
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Number of acquisitions
200 180 160 140 120 100 90 80 60 40 20 0
2014
2015
2016
2017
2018
Source: Agent & Broker 2017 Merger and Acquisition update, Optis Partners, July 2018
WHO’S SELLING?
THE HALFWAY POINT
At a time when agency valuations are running high, Optis concluded that many owners are choosing to capitalize on this seller’s market – and Optis partner Daniel P. Menzer believes this trend shows no signs of slowing. “Many owners of vibrant and solid agencies are still looking for the right buyer, and at least as many active and aggressive buyers are ready to meet the demand,” he says.
The 280 transactions that marked the first half of 2018 ranks as the second highest semi-annual total, exceeded only by the first half of 2017.
350 300 Number of transactions
NUMBER OF ACQUISITIONS (HALF-YEAR TOTAL)
TYPE OF AGENCY SOLD Property & casualty
Property & casualty/employee benefits
Employee benefits
All other
2015 -1H
250
234 240
200 100
2017 -1H
50
18
333 280
20
17
2018 -1H
1H-
16
17
-20 2H
20 1H-
15
16
-20 2H
20 1H-
-20
14
15
2H
20 1H-
13
14
-20 2H
20 1H-
12
13 20
-20 2H
1H-
12 20
-20 2H
11
011
10
-20
1H-
2H
1H2
20
-20 2H
10
1H-
2016 -1H
Source: Agent & Broker 2017 Merger and Acquisition update, Optis Partners, July 2018
Source: Agent & Broker 2017 Merger and Acquisition update, Optis Partners, July 2018
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UPFRONT
HEAD TO HEAD
How successful can on-demand insurance be? Coverage that can be controlled by users via a smartphone app is here – but is it the future of the industry?
Alex Maffeo
Spiros Margaris
Danish Yusuf
CEO Boost Insurance
Venture capitalist/advisor Margaris Ventures/Wefox Group
Co-founder and CEO Zensurance
“There’s a fine line between gimmicky and convenient. As consumers continue to flock to on-demand/sharing economy platforms, the need for insurance products that can adapt quickly will increase. Distribution of these products is the X factor. The modern consumer tries to think about insurance as little as possible. Nobody thinks, ‘Hey, I should research a one-day renters’ policy after I book this Airbnb,’ but they might buy coverage as they check out on Airbnb. Direct-to-consumer approaches will have a hard time scaling. Insurance is an add-on feature of the on-demand economy, not the product, and it should be sold as such.”
“My opinion on on-demand insurance is biased since one of our Wefox Group insurtech portfolio companies, ONE Insurance, is currently expanding using this strategy: geo-triggered data gathered from mobile phone GPS, which allows customers to draw short-term conclusions about insurance modules in their lives. While this may sound far-fetched to some in the insurance industry, I strongly believe that all insurance providers must provide on-demand insurance solutions to gain a competitive edge and even just survive. Thus, the main challenge facing the insurance provider is to assess the risk in order to provide on-demand insurance.”
“Today’s insurance policies are based on traditional definitions of a business. However, two major forces are changing these traditional notions dramatically. First, the growth of the gig economy – forecasts show that 50% of workers will be in the gig economy by 2020 and 80% by 2025. Second, fewer people own assets; rather, they rent them as needed. The demand for this is inevitable: Once significant portions of the economy don’t fit into traditional risk models, insurers will have no choice but to adapt. The biggest question is whether the insurers can accurately and profitably price on-demand insurance.”
MEETING THE DEMAND In July, XL Catlin announced a partnership with Slice Labs to create what they’re touting as the first on-demand cyber insurance product geared toward small and medium-sized businesses. The same month, insurtech firm Trov unveiled its first on-demand coverage for single items, which can be turned on and off by the user and is only paid for when in use. While Trov’s product is currently only available in Arizona, the company has additional US rollouts planned for later in 2018. “Insurance lags way behind the expectations of today’s connected consumer,” Trov founder and CEO Scott Walchek said in a statement accompanying the product’s release. “What iTunes did to change the way people buy and enjoy music, Trov is doing for insurance.”
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UPFRONT
OPINION
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The dark side of Big Data Big Data is the superhero fighting insurance fraud, but with this power comes responsibility, writes Peter Kochenburger BIG DATA, predictive analytics and artificial intelligence are reshaping insurance underwriting, marketing and claims handling. Fighting fraud may be the most advanced use of these tools and is often the most championed. However, without appropriate regulation and transparency, these same tools can unfairly target individuals and companies, with potentially grave consequences. The most frequent and promising use of these tools appears to be the analysis of particular claim. Data analytics companies and insurers are developing a far deeper and more comprehensive understanding of potential connections among individuals and claim service providers, types of claims, and how and where they occur. This allows them to make more accurate immediate estimates of the likelihood of fraud when a claim is first made, and to use the data to further refine their predictive models. It’s a given that these models will produce false positives based on incorrect assumptions, information and predictions, as was the case prior to Big Data when adjuster experience and instinct were primary. It is essential that flagged claims are speedily evaluated by an experienced adjuster so valid claims aren’t sidetracked and actual fraud is investigated. More troubling is the development and use of predictive models purporting to establish a ‘propensity for fraud,’ especially when based on information or characteristics unrelated to a particular claim. This data can include comprehensive criminal arrest (not just conviction) records, credit and bill-paying
habits well beyond traditional credit reports, social media use (or non-use), and shopping habits. Further, these models may be used to screen applicants for this propensity at the underwriting stage, before the possibility of a claim could have arisen. Insurance has now entered the world of Minority Report. Even leaving aside the appropriateness of pricing a product based on predictions of future criminality, these models create multiple
The more this type of non-claim-related information is used for insurance purposes, the more likely it is for implicit biases to creep in. When inaccurate data and flawed models result in higher premiums, denied coverage and the classification of valid claims as potentially fraudulent, individuals will not only be treated unfairly in a specific transaction, but potentially tagged as an undesirable customer in the future, contributing to a vicious downward cycle. The lack of transparency to consumers and regulators, along with inadequate rights of consumers to obtain and correct information, makes it much harder to evaluate and correct a model’s data and predictions. Insurers and data modeling companies, rather than regulators or legislators, are the innovators in the use of Big Data and AI to combat insurance fraud. However, to paraphrase the Gospel of Luke – or Ben Parker, if you prefer – with this power comes responsibility. Insurers that use these technologies have an obligation to be the gatekeepers in determining whether and how a specific risk or other underwriting factor, claims process or fraud assessment tool is used.
“The more this type of non-claim-related information is used for insurance purposes, the more likely it is for implicit biases to creep in” concerns. First, is the data used by the model accurate, and are consumers aware of what personal information has been collected and how it is used? If not, then how can they determine whether this information is correct or change their behavior to improve their score? Second, even if this data is accurate in one sense, all models contain preconceptions, including decisions on what data to use and what to omit, which can reflect improper biases. For example, using criminal records as an underwriting tool could ignore the fact that policing and prosecutorial decisions might not be race-neutral. As the Department of Justice documented in its investigation of the Ferguson, Missouri, police department, African-Americans may be arrested more frequently for the same crime, even when controlling for population size.
They should understand the assumptions or factors built into any models they use, as well as the likely results for current and future policyholders. They should independently test and evaluate potential biases, and assess the potential costs and benefits to the company and policyholders. Equally important, they should be able to explain these issues clearly and in the level of detail needed by their regulators, whom the public and elected officials will call upon to justify their regulatory actions (or inactions).
Peter Kochenburger teaches insurance law at the University of Connecticut Law School. He is an NAIC consumer representative, has been elected to the American Law Institute and is a graduate of Harvard Law School.
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UPFRONT
NEWS ANALYSIS
#MeToo opens up new risks As the #MeToo movement seeks to establish a culture of corporate accountability, organizations are facing an increased need for better risk management and more robust EPL coverage
THE #METOO movement has dominated international headlines since the hashtag first went viral last October, and it brings with it some significant business risks and insurance implications. Workplace issues such as bullying, discrimination and harassment have come under the microscope, presenting a far more significant concern to organizations than they did just a year ago. Companies today face both employment and reputational risk as a result of these issues, says Eleni Petros, employment practices liability insurance practice leader at Marsh. While employment-related issues have traditionally been seen as the respon-
same way that cyber risk isn’t just about the IT department, it’s about the board too, this is another example of that.” The #MeToo movement has already produced litigation, particularly in the US, including some high-profile examples that have involved significant financial damage. The Weinstein Company, whose disgraced ex-chairman Harvey Weinstein has been accused by more than 70 women of numerous counts of sexual harassment and assault, filed for bankruptcy in March as a result of the scandal. In that light, employment practices liability [EPL] insurance is becoming
“We are seeing more of an interest in EPL coverage … because defending these claims can be extremely costly” Eleni Petros, Marsh sibility of HR, the increased awareness in society means they are quickly climbing the risk agenda. “#MeToo is more than just an employment risk for companies – it’s also a risk facing boards,” Petros says. “This is no longer just an HR issue … it’s one of the many risks that a company needs to consider. In the
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increasingly important and is already seeing a growth in demand, Petros says. “We are seeing more of an interest in that coverage from companies than we used to,” she says, “and I think the reason for that is because defending these claims can be extremely costly for companies.” While the claims environment for EPL
has been benign in recent years, that is slowly changing. As a result, underwriters are beginning to take a closer look at companies seeking EPL cover to make sure they’re fostering the right kind of culture. “From talking to underwriters … I definitely think that when they’re looking at EPL insurance, they will put more scrutiny on the kinds of questions they ask companies and will place more emphasis on the training programs that are in place at these firms,” Petros says. That includes evidence that a company has diversity and inclusion policies in place and provides unconscious bias training to employees. “If you have a situation where the culture isn’t right top-down,” Petros says, “then the danger for boards and directors is that the claims against them will be ‘you knew this conduct existed and you did nothing about it.’” Reputational crises are increasingly a
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#METOO BY THE NUMBERS
30%
Value a company could lose, depending on its preparedness and behavior during a crisis
57%
Board members who say they haven’t discussed sexism at work or the impact of the #MeToo movement
12 million
Facebook posts that included the #MeToo hashtag during a 24-hour period in October 2017
threat to businesses in the post-#MeToo era as well. Thanks to social media, an incident inside a company can become a viral sensation overnight – and can directly impact that company’s bottom line. Recent research from Aon uncovered
to 20% or lose up to 30%, depending on their risk preparedness and behavior in the immediate aftermath of a crisis. This points to a need for companies to carefully manage their risk in this area. A significant gender pay gap, for instance,
“Savvy companies that develop and use a robust risk management framework … can often see a net gain in value post-event” Randy Nornes, Aon that the direct impact of reputationrelated events on a company’s stock price has doubled since the introduction of social media. In times of crisis, investors often use information about a company shared on social media to reassess their expectations of future cash flow. Ultimately, Aon found, companies could boost their value by up
could severely damage an employer’s brand and reputation, Petros says, potentially leading to disgruntled shareholders claiming that senior management failed to properly manage reputational risk. “It will raise scrutiny,” she says. “If companies have a massive gender pay gap, I think there will be questions raised by
329
Number of high-profile executives and employees accused of misdeeds in the six months after the #MeToo hashtag went viral Sources: Aon, Boardlist, Temin & Co., CBS News
employees as to whether they are being paid the same amount of money as the person next to them.” And although reputational risk continues to weigh on corporate executives as one of their leading concerns, says Randy Nornes, enterprise client leader at Aon, risk management tools have evolved, allowing companies to better meet this risk head-on. “Savvy companies that develop and use a robust risk management framework can not only better navigate reputation events, but can often see a net gain in value post-event,” Nornes says.
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UPFRONT
INTELLIGENCE CORPORATE ACQUIRER
TARGET
PRODUCTS COMMENTS
Evergreen Pacific Insurance Corporation [EPIC]
Revolution Insurance Services
The deal provides EPIC with a group insurance platform to market employee benefit plans
Higginbotham
Colt Risk Management Services
CRMS is an independent commercial insurance broker specializing in aviation risk
Hub International
Benefit Broker Services, Cypher Systems Group, Southland Insurance Brokers
The three Canadian companies provide employee benefits and pension plan solutions (Benefit Broker), servicing for large group and affinity programs (Cypher), and home, auto, travel and commercial insurance (Southland)
Marsh
Wortham Insurance
Marsh’s purchase of the Houston-based brokerage, first announced in June, has been finalized
Seeman Holtz Property & Casualty
Asenbrenner Insurance Agency, JEM Insurance Services
Asenbrenner sells P&C insurance in Wisconsin, while JEM is one of Florida’s fastest-growing insurance agencies
SOBC DARAG
Peachtree Casualty Insurance Company
SOBC DARAG is a joint venture between international insurer DARAG and US-based runoff specialist SOBC
Starr Insurance
Aspen Insurance
Starr is purchasing Aspen’s aviation book, which has an estimated value of more than $50 million in GWP
AmWINS introduces specialty marine MGAs
Global wholesale brokerage AmWINS Group has announced the launch of two specialty managing general agencies in the marine sector: AmWINS Specialty Logistics Underwriters [ASLU] and Sentinel Marine Underwriters [SMU]. Both ASLU and SMU will become part of the underwriting division of AmWINS. Insurance capacity for both MGAs is being provided by Argonaut Insurance Company, a member of Argo Group International Holdings. Policies will be issued on admitted paper and will be offered across all 50 states.
Seeman Holtz expands its geographic footprint
Seeman Holtz Property & Casualty has bolstered its presence in Florida and made new inroads into the Midwest with its recent acquisitions of JEM Insurance Services and Asenbrenner Insurance Agency. Located near Seeman Holtz headquarters in Boca Raton, JEM offers insurance for auto, home and personal property. “JEM Insurance Services is another example of a high-quality agency that we look to acquire,” said Marshal Seeman, president of Seeman Holtz Property & Casualty. “It’s even more special because it happened to be around the corner from our corporate offices.” Asenbrenner, meanwhile, has served Wisconsin for nearly three decades, offering personal and commercial insurance, including auto, life and workers’ compensation. Led by John Asenbrenner, the firm is one of the fastest-growing insurance agencies in Wisconsin. “Adding Asenbrenner Insurance Agency will strengthen our existing footprint in the Midwest,” Seeman said. “With this addition, we are better able to consolidate carrier relationships to provide even better value to our clients.”
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QBE develops SMB risk control solution
Global insurer QBE has come up with a solution to the risk control conundrum for small and medium-sized business’s. The firm’s Risk Solutions Center, linked directly to QBE’s Global Risk Solutions team, uses technology to proactively engage business owners and make it easy for them to learn about and plan for the risks they face. “The Risk Solutions Center is a central point of contact for our policyholders, the general public and our agent and broker partners to get access to QBE loss prevention advice,” said QBE North America VP Mark McCormick.
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PEOPLE AIR Worldwide launches new wildfire model
Catastrophe risk modeling company AIR Worldwide has released an updated wildfire risk model for the US. The model gives a comprehensive view of the risk of wildfire to property within 13 Western states, accounting for the variability of weather and its impact on fire behavior. “AIR is building on our experience in modeling wildfires by introducing a fresh approach to estimating the hazard on both local and national levels, and accounting for the full range of vulnerabilities in residential, commercial and industrial lines of business,” said AIR executive vice president Dr. Jayanta Guin.
Mortgage startup Blend enters insurance
San Francisco-based Blend, which is known for its digital lending platform that helps homebuyers secure mortgages online, has announced it is expanding into insurance with the launch of Blend Insurance Agency. The new division will be led by Greg Isaacs, who will head a team of 20 employees. “For the consumer, insurance is a major piece of getting your mortgage and purchasing your home,” Isaacs told Bloomberg. “The home purchase and mortgage process is complicated and stressful, and insurance is often an overlooked piece of that.”
Tower Hill Specialty expands to new states
Ohio-based Tower Hill Specialty [THS] has expanded to four new states: Georgia, Indiana, Texas and Wisconsin. Launched in 2017, THS is the MGA subsidiary of Tower Hill Insurance Group; it offers property insurance for homeowners with niche risks, including seasonal and rental homes, fixer-uppers, manufactured homes, and vacant properties. “We specialize in offering valuable products at competitive rates to underserved markets,” said THS CEO Manny Rios. “Employing the latest technology and analytical tools, we’re into keeping it simple for the agent and the customer.”
NAME
LEAVING
JOINING
NEW POSITION
Miguel Criscuolo
Starr Companies
AGCS
Executive underwriter, crisis management
Jeremiah Glassford
Balch & Bingham
EPIC Insurance Brokers and Consultants
Senior client executive
John Ingersoll
N/A
CSAA Insurance
Vice president of corporate innovation
Emil Issavi
N/A
Aspen Re
CEO
Michelle Jensen
Ice Miller
XL Catlin
Underwriter, M&A
Adam Johnson
Transport Risk Management
Allianz Global Corporate & Specialty
Underwriter, North America aviation
Naveed Khalidi
Allied World Assurance Company
XL Catlin
Underwriter, M&A
Thomas Lillelund
Aspen Re
AIG
CEO, AIG Europe SA
Michael Rogers
National Security Agency
CyberCube
Board member
Scott Setzer
Berkley Aviation
Allianz Global Corporate & Specialty
Executive underwriter, North America aviation
Jonathan Wismer
Zurich Insurance Group
AIG
Senior vice president
Aspen Re appoints new CEO
With Thomas Lillelund leaving to head up AIG’s European operations, Aspen Insurance Holdings has named Emil Issavi as the new CEO of its reinsurance business. Issavi has been president of Aspen Re since 2014 and previously served as chief underwriting officer. He joined the company in 2006 as casualty treaty head before becoming the head of casualty reinsurance in 2008. “We’re delighted to name Emil as our new leader for Aspen Re,” said Aspen group CEO Chris O’Kane. “Emil’s appointment will provide continuity and is a testament to the significant strength-in-depth that we have across our leadership team at Aspen.”
AIG names new senior VP
Global insurer AIG has appointed Jonathan Wismer to the position of senior vice president; he will also take on the roles of deputy chief financial officer and chief accounting officer. An industry veteran, Wismer has 23 years of experience across Fortune 100 firms, with a particular focus on P&C business. He most recently served as group controller for Zurich Insurance Group at its Switzerland headquarters. “This is an exciting time to join the finance leadership team at AIG,” Wismer said, “and I look forward to continuing the important work of this group in serving the company’s businesses and stakeholders while advancing shareholder value.”
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UPFRONT
WORKERS’ COMP UPDATE NEWS BRIEFS EMPLOYERS unveils redesigned corporate website
Small business workers’ compensation insurance provider EMPLOYERS has launched a new corporate website that features responsive design, a new three-step ‘request a quote’ feature, and new blog and social channels to provide clients with industry news and insights on workplace safety best practices. “Whether looking for claim information, medical provider locations or to request a workers’ compensation insurance quote from an agent, the website content is now more easily accessible for small businesses and insurance agents,” said Ty Vukelich, EMPLOYERS’ VP of corporate marketing.
AIA speaks out against potential WC changes in Illinois
The costly and controversial Illinois workers’ comp system is on the verge of change. Healthcare professionals have urged amendments to the state’s Workers’ Compensation Act that would allow them to file claims in circuit court to collect interest on payments not received for services rendered to injured workers. However, Steve Schneider of the American Insurance Association expressed concern that “if these amendments are passed into law … it could take a really long time for a claim to be settled … [and] if you can’t close out a claim, that’s when it becomes very expensive.”
Pinnacol mobile platform Cake wins over small businesses
Cake, the mobile workers’ comp platform launched last year by Colorado-based Pinnacol Assurance, was recently spotlighted in a new case study by Forrester Research, which notes that
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Cake “has won more customers, increased its profits and enjoyed higher Net Promoter Scores than expected in the six months since its first policy sale.” In the first two months after its launch, Cake exceeded its 2017 revenue projections by 140%, and by the end of the first quarter of 2018, it had surpassed revenue projections by 500%.
ChronWell launches farm program in California
Insurtech startup ChronWell has launched a pilot program in California that could disrupt the state’s workers’ compensation system with technologyenabled triage and care coordination services. The AI-backed mobile platform will be used by California Farm Management to support Cream of the Crop Companies, which employs 5,000 to 7,000 workers. The pilot program will use ChronWell’s Recovry solution, which quickly addresses on-site injuries. Injured employees can use the platform to consult with a healthcare professional, who will determine the best course of action by recommending self-care, on-site care or a healthcare facility. The service also provides follow-ups with the worker and manages the claim.
Ohio construction company owner found guilty of fraud
Honorato Camacho, a construction company owner from Dayton, Ohio, has been ordered to pay $255,434 in fines and serve five years of community control after being found guilty of under-reporting his payroll to avoid workers’ compensation premiums. An Ohio Bureau of Workers’ Compensation investigation found that Camacho under-reported the payroll for Field Construction by more than $3.5 million from 2013 to 2015. He pleaded guilty to a fifth-degree felony count of workers’ compensation fraud.
The need for reinvention How can brokers articulate value to workers’ comp customers amid market swings, M&A and the tech revolution? The workers’ comp market is approaching its fourth year of soft market conditions. Rates are generally decreasing, litigation costs are down, and lots of new capital is entering the marketplace. A soft market, to some, translates into a profit opportunity. Private equity firms have backed new capacity in the market, applying more pressure on insurers to reduce rates and increase competition. The problem is, this new capacity often has no experience to draw from to predict market trends. Eventually the market will harden, which will likely result in a retraction of private equity investment and the reduction of capacity. This background of “naïve capacity” isn’t the only challenge workers’ compensation insurers have to contend with today, according to Viviane Woodcock, president of the workers’ compensation practice at RT Specialty. Another trend impacting market dynamics is the growing prevalence of merger and acquisition activity. “Large brokers are acquiring lots of smaller brokers, and the same is true for carriers,” Woodcock says. “Retail and wholesale brokers are consolidating into much larger entities, which is changing the distribution models for both carriers and wholesalers. Brokers who used to work on an independent basis are now aligned with some of the bigger carriers.” In such a market, experience is paramount, she adds. “At RT Specialty, we’re tackling these challenges by running our workers’ compen-
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sation division with a laser-sharp focus on showing our expertise, our negotiation skills and our extensive market knowledge. We’re more than just a wholesaler; we’re specialized consultants for our retailers.”
be,” she says. “It’s not just placing the account with the cheapest market – it’s placing the account with the market that’s going to best respond to the needs of the client.” According to Woodcock, winning customers
“You can’t work out of fear and be preoccupied about someone else bringing a lower quote in. Rather, focus on bringing your value to the forefront” In a soft market, customers can sometimes lose sight of what coverage or market best suits their needs, Woodcock points out. The temptations of low rates and super-fast service can sometimes have a detrimental effect on insurance decisions. “A lot of tools come into play in making sure a client is serviced the way they should
in this type of market comes down to finding a way to articulate your value. “There may be cheaper options in the marketplace, but they’re not always better options, and you must be able to justify why,” she says. “You can’t work out of fear and be preoccupied about someone else bringing a lower quote in. Rather, focus on bringing your
value to the forefront and responding to each individual client’s unique needs.” As the market pendulum swings, carriers, wholesalers and brokers will have to find ways to reinvent themselves to stand out – not just in the value they provide, but also in how they do business. For instance, investing in technology to reduce costs, increase efficiencies and enhance services will be crucial. However, Woodcock warns insurers and brokers to “reinvent yourself without compromising the most important aspect – the personal relationship.”
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UPFRONT
TECHNOLOGY UPDATE
Getting smart with sensors Smart home sensors are helping one insurer put a lid on non-weather-related water claims
mind at all times.” The Notion sensor has eight different functions that work simultaneously. Homeowners can use the technology to monitor and receive instant mobile alerts about exposures like water leaks, changes in temperature, sounding smoke alarms and the opening/closing of doors, garages and more. Homeowners can opt into having their data sent through to their insurance company, which can help the insurer
“We want to make the insurance process proactive rather than reactive”
Closing the floodgates on non-weatherrelated water claims in the home has become a bit easier with the help of sensor devices connected to the Internet of Things [IoT]. According to Travelers, these claims – which include plumbing, sewer or appliance leaks and failures – account for 20% of all home insurance claims. In July, Travelers tapped home sensor provider Notion to offer connected monitoring systems to the insurer’s customers in California. The Notion system will provide
NEWS BRIEFS
data-driven insights to customers to help prevent and mitigate threats such as water leaks, fire damage and theft. “We truly believe in the combination of IoT and insurance,” says Notion CEO Brett Jurgens. “The future of home security, home monitoring and home insurance should be a fully integrated, combined offering, which gives homeowners a lot more than what stand-alone insurance offers them today. We want to make the insurance process proactive rather than reactive in order to give homeowners peace of
or broker reduce loss and predict behavior. “Smart home solutions like ours ... boost customer interaction and engagement,” Jurgens says. “We have shown large conversion increases when Notion is offered alongside a home insurance policy. Once the homeowner buys the policy, we can also help a lot with retention because we’re in their pocket. We help homeowners to understand their exposures so that they can relate back to their insurance company not just as a commodity, but as a valuable service.” Since Notion launched 18 months ago, the firm has seen zero non-weather water claims. While Jurgens admits Notion “won’t be able to continue this run forever,” he says the success so far is a testament to how much smart home technology can influence behavioral change.
New technology could add billions to insurers’ profits
Big Data represents a $2.4 billion opportunity
According to new research from Accenture, US insurers could collectively boost their annual profits by using artificial intelligence, machine learning and data analytics. Accenture found that insurers using such technology to reinvent the customer experience and drive human/ machine collaboration are seeing up to tenfold returns on their investment. The firm estimated that widespread adoption of intelligent solutions could boost industrywide profitability by between $10.4 billion and $20.8 billion.
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Big Data investments in the insurance industry are expected to account for more than $2.4 billion by the end of 2018, according to market research firm SNS Telecom & IT. SNS pointed out that insurance has found a host of applications for Big Data, from targeted marketing and personalized products to usage-based insurance, more efficient claims processing, and proactive fraud detection. SNS projected that insurance’s investments in Big Data will grow at a compound annual growth rate of around 14% for the next three years.
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THE FASTEST GROWING AGENCY NETWORK FOR A REASON.
FIND OUT WHY www.smartchoiceagents.com 888.264.3388
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UPFRONT
TECHNOLOGY UPDATE Q&A
Heather Cherry Agency Buzz product manager INSURANCE TECHNOLOGIES CORPORATION [ITC]
Years in the industry 3 Fast fact Cherry holds a degree in rhetoric and writing from the University of Texas
Nurturing prospects with email marketing How can agents best use email marketing? Email marketing is a great way for insurance agents to nurture leads. You can provide very personal, targeted campaigns to guide the buyer through each step of the sales funnel. Effective email marketing is a great way for insurance agencies to gain more credibility as trusted advisors because they can reach out to the buyer throughout the purchase process and help them along the way.
How important is email communication in retaining clients? Selling a policy and then forgetting to follow up with the client is a common mistake. In my opinion, losing touch with the client makes an agent look a little disingenuous. A good way to keep the communication going is through email newsletters. They enable agencies to provide tips and tricks and share important information about the agency or the local community. Agents can use email newsletters for cross-line campaigns, and they can also send out policy renewal and expiration reminders and other technical information.
What methods can agents use to gain newsletter subscribers? We always suggest agencies have a dedicated landing page for newsletter subscriptions. This page should provide a little blurb about what subscribers can expect to receive in their inboxes. It’s very important for agencies to highlight the value of the email newsletters.
Insurtech firm helps brokers harness IoT
Insurtech startup Plasmatic Technologies has come up with a solution to assist P&C carriers and brokers in leveraging connected home technology. Plasma’s Alana Connected Home System harmonizes data from the connected devices homeowners are already using, giving insurers the ability to develop and deploy smart home products and initiatives. The cloud-connected platform is fully branded to the insurance company and includes features like a robust messaging system to alert homeowners to potential risks in the home.
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I have some clients who post an example of a previous newsletter so people know what they’re going to be seeing in their inboxes and start looking forward to it. A key suggestion for anyone getting newsletter sign-ups, either in office or online, is to get as much information on the subscriber as you can. The more information, the better, so that later down the road you can target them with other email campaigns based on the information they’ve given you.
What tone works best for email marketing? It all depends on your agency’s branding, personality and who you’re trying to target. If your brand is very professional and you’re trying to sell complex commercial policies, your audience may be more receptive to a more formal, professional tone. If you’re marketing yourself as a young, hip agency trying to sell renter’s insurance to college graduates, you may want to have a less formal tone.
How can ITC’s Agency Buzz help? Email marketing lies at the foundation of a successful prospecting campaign. ITC’s Agency Buzz increases closing ratios and improves client retention by keeping agents in front of their prospects and clients through consistent, personal communication. It has various filters, which enables agents to segment the audiences of their email marketing campaigns and allows them to extend prospecting campaigns throughout the entire sales cycle.
AXIS launches insurtech partnership unit
AXIS Capital Holdings has announced the launch of AXIS Digital Ventures, a new unit that will lead efforts to partner with insurtechs to explore high-value reinsurance applications, new product opportunities, and new distribution and reinsurance business models. “We are accelerating our efforts to leverage digital technologies … to drive innovation, increase efficiency, enhance profitability, and identify new products and solutions that will deliver more value to our clients and partners,” said AXIS Capital’s Albert Benchimol.
Drone provider enhances capabilities
Drone solutions provider Kespry has unveiled new high-resolution thermal inspection capabilities for commercial and industrial properties. Touted as being more efficient, particularly in regard to roofing inspections, Kespry combines high-resolution imagery with pixel-level thermal data, allowing users to determine specific locations of heat damage. The firm’s commercial roof solution also incorporates accurate roof dimensional analysis to pinpoint areas of concern.
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PEOPLE
INDUSTRY ICON
MAKING A DIFFERENCE Gallagher Bassett’s Scott Hudson reveals how the company is keeping pace with digital innovation and evolving customer expectations to ensure the claims process is as efficient as possible IN THE relationship between an insurer and a client, the moment of truth often comes at claim time. Whether the claim involves a medical malpractice lawsuit, an employee who gets injured on the job or a collision involving a company vehicle, loss comes in many forms. As the president and CEO of global claims manager Gallagher Bassett [GB], Scott Hudson knows the importance of helping claimants navigate difficult situations. Recently, one of GB’s clients experienced an employee fatality, and the resolution manager assigned to the claim took it upon herself to make sure the individual’s personal effects were sent home to the family. The client wrote to GB, praising the resolution manager’s action – another ‘go beyond’ moment that sets GB apart from other claims service providers. “When I get notes like that, it’s proof that our people are living and realizing the vision of who we are as a claims management company – having an impact on people’s lives, making a difference, putting people’s lives back together,” Hudson says. “Insurance is a promise, and we in claims are the fulfillment of that promise.” Hudson joined GB in early 2010, after Gallagher CEO J. Patrick Gallagher Jr. was scouting potential successors for the company’s claims arm and reached out to Hudson about the position. Hudson had already established a relationship with Gallagher
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while working as a consultant at Bridge Strategy Group, so he had intimate knowledge of the organization, its culture and the industry as a whole. Hudson admits that because he’d never worked directly for a risk and claims management organization, Gallagher was taking a
captives. Despite their different needs, they all seem to agree that GB is doing something right. Advisen, a provider of specialty risk data for the commercial P&C insurance market, recently revealed that GB landed at the top of its claims satisfaction survey of more than 500 risk managers.
“Our people are living and realizing the vision of who we are as a claims management company – having an impact on people’s lives, making a difference, putting people’s lives back together. Insurance is a promise, and we in claims are the fulfillment of that promise” gamble by bringing him on as the next leader of GB, but it was a bet that paid off. “On day one, many people thought I was just a consultant and were wondering how I would lead,” he says. “But today I am proud to say that I am viewed as a ‘claims guy,’ and I love this business.”
Leading the pack GB’s clients are a diverse group, ranging from corporate and public entities to carriers and
Getting that seal of approval from customers was a meaningful moment for the company. “It’s really satisfying seeing the excitement in our people when they know that the work they’re doing is recognized by industry leaders and that we’re making a difference,” Hudson says. Claims management is an area of the insurance business that is especially sensitive to customer expectations – a challenge Hudson knows well. Moreover, as digital innovation has
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PROFILE Name: Scott Hudson Title: President and CEO Company: Gallagher Bassett Services Based in: Rolling Meadows, Illinois Years in the industry: 8 Career highlight: Witnessing the work of his team making a difference in the lives of Gallagher Bassett’s clients
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PEOPLE
INDUSTRY ICON
opened up lines of communication, customers expect faster results. “Ten years ago, it was acceptable to return a phone call within 24 hours; now people expect a phone call to be returned immediately,” Hudson says. “So we’re innovating to ensure the interaction we’re having with people who have a claim is via technology that runs that communication in real time. There’s a wealth of additional information available to our resolution managers that they can introduce into the claim handling process, so they’re given new tools and new data, and
announced it was acquiring WCD Group, which is headquartered in New Jersey and focuses on managing and mitigating risk across several industries. GB was attracted to WCD Group’s risk mitigation components, which it hopes to develop further. “Our clients are just as interested in the loss prevention side of risk and claims management, so this was a natural fit from that standpoint,” Hudson says. “They’re very strong in real estate, construction and property, which fits very well with our overall offering, so it’s always about building deeper
“Ten years ago, it was acceptable to return a phone call within 24 hours; now, people expect a phone call to be returned immediately. So we’re innovating to ensure the interaction we’re having with people ... is via technology that runs that communication in real time” they have to be able to quickly assess, evaluate and decide whether it has relevance in the handling of a particular situation.” The rules for the insurance industry are also evolving, which means that GB has to stay on top of changing regulatory standards. “The work that we do is in a highly regulated industry, and every day, whether it’s state or federal governments, they are introducing new regulations, so I think the challenge is understanding the expectations from all parties involved,” Hudson says, adding that as the world gets more complex, it’s raising the bar to perform even higher. “We have to work to make sure our people are properly equipped to work effectively in our environment.”
Partners in performance Evolving services and offerings is part and parcel of growing a business. In July, GB
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expertise and new capabilities that work well for our clients.” The WCD purchase is the latest of several acquisitions, including National Transportation Adjusters, an Arizona-based long haul and commercial fleet third-party claims administrator, and TriEx Health, Safety & Wellness, a provider of occupational health and safety services in New Zealand. Looking to the future of the company, Hudson sees more growth and innovation on the horizon. “We’re a global company, and we’re constantly looking to expand our global reach to guide and guard those who need us most,” he says. “In parallel with expanding geographically, we’re also expanding our offerings and solutions to be in the best position to serve our clients everywhere around the world. It’s an incredible time to be at Gallagher Bassett.”
GALLAGHER BASSETT BY THE NUMBERS
1962
Year the company was founded by Jim Gallagher and Sterling Bassett
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Number of tenets in The Gallagher Way, Gallagher’s set of guiding principles
4,800+
Number of organizations GB partners with across a variety of sectors
60+
Countries around the world in which Gallagher Bassett manages claims
$4.6 billion
Parent company Gallagher’s total adjusted revenue for 2017
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Get to Know AmTrust. Visit d42.amtrustinsurance.com or call 855.297.6809 AmTrust AmTrust is is AmTrust AmTrust Financial Financial Services, Services, Inc., Inc., located located at at 59 59 Maiden Maiden Lane, Lane, New New York, York, NY NY 10038. 10038. Coverages Coverages are are provided provided by by its its property property and and casualty casualty insurance insurance company company affiliates. affiliates. Consult Consult the the applicable applicable policy policy for for specific specific terms, terms, conditions, conditions, limits limits and and exclusions exclusions to to coverage. coverage.
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FSC FSC “XV,” “XV,” Stable Stable Outlook Outlook
31/08/2018 4:42:34 AM
SPECIAL REPORT
WHOLESALE E&S REPORT
WHOLESALE E&S MARKET REPORT 2018
What are the biggest growth drivers in excess & surplus lines, and where are the best opportunities for brokers in this booming market? Heather Turner reports THE SURPLUS LINES market continues to perform strongly, even amid lingering political uncertainty and endless waves of digital disruption and natural catastrophes. For the last seven years, E&S service offices have seen premium increase by close to 70%, according to Norma Carabajal Essary, CEO of the Surplus Lines Stamping Office of Texas [SLTX]. “The current state of the market shows significant stability, interest and growth,” Essary says. “Part of it is there is a bit better understanding from other stakeholders about what surplus lines provides and what it does in the industry.” This year, the 15 managing service offices across the country witnessed another increase in total premium, which jumped by more than 9% to reach $15.7 billion, according to the 2018 mid-year analysis conducted by SLTX. Premium volume from the largest contributing states – California, Florida, Texas and New York – added up to $12.1 billion, accounting for 77% of total premium, and these markets’ individual premium growth rates ranged from 8% to 13%. Of the remaining individual states, Washington,
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Utah and Illinois all saw double-digit increases, while four other states – Oregon, Arizona, Idaho and Nevada – managed to achieve more than 5% growth in premium. Meanwhile, total filings reached 2.2 million, a 5% increase from 2017, and seven states –
after experiencing some of the best premium growth in the country last year. Nevertheless, the positive numbers across the board continue to support an overall picture of a growing surplus lines market. “The wholesale, specialty and surplus lines
“Retail agents and insurance buyers continue to trust and rely on their wholesale partners to solve their most complex risks. As a result, we see top-line growth in most of the top five excess & surplus product lines” Brady Kelley, WSIA Illinois, Minnesota, Nevada, North Carolina, Oregon, Pennsylvania and Utah – experienced an increase of more than 10%. Interestingly, despite seeing more filings, Minnesota was the only state to record a decrease in premium halfway through the year, a bit of a downturn
marketplace is strong, highly competitive and on a continued pattern of growth,” says Brady Kelley, executive director of the Wholesale and Specialty Insurance Association [WSIA]. “Surplus lines premium reached a historic $42.4 billion in direct written premium in
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IT ALL COMES DOWN TO EXECUTION. AND OURS IS UNRIVALED.
If your client has a complex risk situation, you don’t have to go it alone. Our wholesale specialty risk professionals have deep experience and the drive to find superior placement for even the toughest risks. We team with retailers to design creative solutions for all sized accounts. Our innovation, tenacity and responsiveness enable us to repeatedly out-execute the competition. Find your RT Specialty broker at rtspecialty.com.
rtspecialty.com Agribusiness | Aviation | Casualty | Construction | Energ y | Environmental | Healthcare | Life Science Professional & Executive Liability | Proper ty | Real Estate | Transpor tation | Workers’ Compensation www.ibamag.com
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FEATURES
SPECIAL REPORT
WHOLESALE E&S REPORT 2018 MID-YEAR WHOLESALE PREMIUMS BY STATE WASHINGTON $468 million 62,009 items
IDAHO $55 million 9,689 items
MINNESOTA $251 million 24,740 items
ILLINOIS $821 million 77,962 items
PENNSYLVANIA $640 million 109,737 items
NEVADA $142 million 18,864 items OREGON $192 million 32,757 items
CALIFORNIA $3.45 billion 320,905 items
WHY MAKE RISK RISKIER?
NEW YORK $ 2.25 billion 171,961 items
UTAH $152 million 16,698 items
NORTH CAROLINA $357 million 90,488 items ARIZONA $291 million 40,844 items TEXAS $3.06 billion 524,970 items
MISSISSIPPI $211 million 74,796 items
FLORIDA $3.32 billion 601,455 items
MID-YEAR PREMIUM BY REGION
West: $4.75 billion
South: $6.95 billion
Northeast: $2.89 billion
Midwest: $1.07 billion Source: Surplus Lines Stamping Office of Texas
2016, and we anticipate 2017 growth, to be reported in September’s A.M. Best special report on the segment, will outpace the past couple of years. Coupled with the statistics compiled by the 15 states with stamping offices … we have strong indicators of the market’s growth and health as we head in to the last half of the year.”
Where are the opportunities? Positive capital levels, increased competition and an improving economy are all driving the surplus lines market to innovate and expand specialized insurance solutions for complex risks, taking the
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sector to new heights. “Retail agents and insurance buyers continue to trust and rely on their wholesale partners to solve their most complex risks,” Kelley says. “As a result, we see top-line growth in most of the top five excess & surplus product lines, as reported by A.M. Best, which include other liability, allied lines, fire, inland marine and commercial multi-peril lines of business.” Kelley believes the market’s biggest opportunities lie in its ability to create value for the insurance buyer through “technical expertise, access to strong and stable insurers, and cost-effectiveness.”
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MID-YEAR PREMIUMS: 2017 VERSUS 2018 $291 million $269 million
AZ
$3.45 billion
CA
$3.2 billion
$3.32 billion
FL
$2.99 billion
$55 million $51 million
ID
$821 million $737 million
IL $251 million $257 million $211 million $210 million
MN MS
$357 million $357 million
NC $142 million $133 million
NV
$2.25 billion $1.99 billion
NY $192 million $172 million
OR
$640 million $614 million
PA
$3.06 billion $2.77 billion
TX $152 million $131 million
UT
$468 million $398 million
WA $0
$50 $100 $150 $200 $250 $300 $350 $400 $450 $500 million million million million million million million million million million Mid-year premiums 2018
WSIA members are experts. When you need
$1 $2 $3 $4 billion billion billion billion
a custom solution to a nonstandard risk, look
Mid-year premiums 2017
for help and choose a Source: US Surplus Lines Service Offices Mid-Year Assessment
“Without this marketplace, we see a more significant disruption, because we have to have someone who is prepared to take on things that no one else knows how to do” Norma Carabajal Essary, Surplus Lines Stamping Office of Texas
WSIA member to craft cost-effective, innovative solutions for your specialty and nonstandard risks. A recent Conning, Inc. analysis concluded that wholesale distribution does not increase the cost of the transaction to the insured, and you
He also notes the potential for growth opportunities in cybersecurity and in emerging products such as flood insurance alternatives to the NFIP.
What lies ahead? Given the pattern of strong market performance over the past few years and the positive markers present today, the surplus lines market has shown zero signs of a slowdown – especially considering the ever-present need for more comprehensive,
expert-driven insurance coverage. “The surplus lines industry will be prepared to take on the capacity measures when asked to,” Essary says. “As we try to push out really good informational resources to stakeholders, they’re beginning to understand [surplus lines] much better, [and] that drives interest [in the market]. Without this marketplace, we see a more significant disruption, because we have to have someone who is prepared to take on things that no one else knows how to do.”
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deliver an expertly tailored solution. Risk averted.
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M
SPECIAL REPORT
WHOLESALE E&S REPORT
R
Regional perspective
WEST The West continues to serve as an effective gauge for the excess & surplus market nationwide – not only does it have the largest number of reporting states, but most of those states have also experienced the biggest growth increases at the mid-year mark. Washington and Utah led the way, reporting 17% and 15% increases in premium, respectively. Utah also saw a significant 38% uptick in items, the second highest rate of all states. Overall, the Western region gained an additional $350 million in premiums, an 8% increase from last year. A strengthening economy and a construction boom in major metropolitan areas, such as Los Angeles and San Francisco, have been the primary growth drivers for the surplus lines marketplace, especially in California. Benjamin McKay, executive director of the Surplus Line Association of California, says you only need to “count the number of cranes to realize how much construction growth there is [in California]; that’s a big part of our market and business.” The uptick in construction has led to a corresponding increase in construction defect claims. “The region has experienced an expansion in residential construction, so that affects construction defect losses, which then has an impact on the overall insurance market and the excess & surplus market,” says Tim Turner, chairman and CEO of RT Specialty. Notwithstanding the challenges, opportunities have sprouted in various sectors in need of specialized insurance placements. “Commercial construction and infrastructure have affected the market in a positive way,” Turner says. “There are a lot more projects, causing more new business to be written.” Climate issues are also a significant driver of premium growth. In addition to water restrictions in Arizona, California is in the midst of a record-breaking wildfire season.
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“[The wildfires] have increased the amount of business coming into the surplus lines marketplace” Tim Turner, RT Specialty According to Turner, this phenomenon has had a large impact on the excess & surplus marketplace due to the significant P&C losses that have resulted from the fires. “[The wildfires] have increased the amount of business coming into the surplus lines marketplace,” he says, “and it affects not just residential homes and commercial structures, but also commercial businesses that are now at risk because of the impact from the wildfires.” As for the wildfires’ future impact, McKay says unanticipated fires in low-risk areas, such as the ones in Santa Rosa last year, have “changed the dynamics” of the surplus lines space. “The areas that are traditionally viewed as lower-risk, once they get hit, the admitted market says, ‘We have to rethink our models, because these maps [indicate] that this
county never catches on fire; now it did,’” McKay says. “You probably get the typical reaction from the admitted markets, which is that they pull out to a greater degree than they would. That void can then be filled by the surplus lines marketplace.” Unsurprisingly, earthquake, general liability and technology are all areas that are also rife with opportunity in this region. “[Technology] is definitely a growth category,” McKay says. But, as he points out, there are two ways to look at technology: first, the technology itself that is insured – think drones and autonomous cars – and second, the technological platforms that deliver insurance products. “The admitted market has figured out how to [offer insurance] online, and the surplus lines market is struggling to figure out how to make that work,” he says.
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SPECIAL REPORT
WHOLESALE E&S REPORT TOP COVERAGES BY PREMIUM VOLUME
FLORIDA
NEW YORK
Commercial property Commercial general liability Homeowner’s Commercial package Excess commercial general liability
$0
Primary general liability
$1.43 billion
Primary property
$571 million
$477 million
Excess liability/umbrella/ medical malpractice
$270 million
$331 million
E&O, D&O
$210 million
Commercial multi-peril
$116 million
$300 million
$792 million
$600 million
$900 million
$1.2 billion
$1.5 billion
TEXAS
$199 million $93 million
$0
$200 million
$400 million
$600 million
$800 million
CALIFORNIA
Property – fire/allied lines
$1.12 billion
General liability/commercial premises liability
$580 million
Excess/umbrella
$191,724
Workers’ compensation Aviation
$492 million
Excess liability
$59,741 $41,504
Professional (including E&O)
$183 million
Automobiles
$20,527
Property – package
$181 million
Professional liability/E&O
$19,120
$0
$300 million
$600 million
$900 million
$1.2 billion
$0
$50,000
$100,000
$150,000
$200,000
Average premium amount per transaction Source: California, Florida, New York and Texas surplus line stamping offices
Insurance For Specialty Home Risks
Source: California, Florida, New York and Texas surplus line associations
Personal Lines l Commercial Lines l Agri-business
Vintage Homes High Value Homes Seasonal Homes Secondary Homes 34
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SPECIAL REPORT
WHOLESALE E&S REPORT Regional perspective
MIDWEST The Midwest’s two reporting states are a bit of a mixed bag halfway through 2018: Although premium growth in Minnesota declined 2.32% year-over-year, Illinois gained momentous traction with an 11% increase. That continues a trend seen over the past few years, during which the two states have experienced highs and lows, reporting everything from significant growth to steep decreases in premium volume. This ebb and flow of the markets should continue in the coming years. From the perspective of Burns & Wilcox senior vice president Jeff Diefenbach, the Midwestern surplus lines market has remained consistent. “What we’re seeing, and it’s probably beyond just the Midwest, is that retail agents are more reliant on us for product knowledge and expertise, [especially] in areas of the marketplace where they’re just not that familiar with exposures,” he says. “I think we’re in a period of transition where our E&S product line knowledge and expertise can help clients or insurance agents place complex business exposures that they don’t handle all that often. That’s where we find ourselves winning in this kind of changing marketplace.” Those areas in need of expertise – environmental exposures, product exposures and professional lines – are where brokers will find the greatest opportunities in the Midwest. Specifically, Diefenbach mentions cyber liability as an area with increased activity, which should come as little surprise. He also notes how the aging population has affected surplus lines when it comes to healthcare and insuring senior care facilities. In terms of challenges for wholesale brokers, like many of his counterparts, Diefenbach sees the move toward direct online business in the E&S space as an
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“Retail agents are more reliant on us for product knowledge and expertise, [especially] in areas of the marketplace where they’re just not that familiar with exposures” Jeff Diefenbach, Burns & Wilcox emerging threat brokers need to address. “I see a lot of the simple exposures that we are doing going online, but we are continuing to work closely with retail agents and brokers for their specialized
needs,” he says. “We did a survey, and of the agents we surveyed … 20% to 30% do their E&S business online. I think if we don’t address that gap, the standard market is going to figure it out for us.”
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SPECIAL REPORT
WHOLESALE E&S REPORT TOP E&S WHOLESALERS
TOP E&S INSURERS
All Risks Ltd.
AIG
AmWINS Group
Argo Group
Brown & Riding Insurance Services
Berkshire Hathaway
Burns & Wilcox
Chubb
CRC Swett
Markel Corporation
Risk Placement Services
Nationwide E&S/Specialty
RT Specialty
W.R. Berkley
US Risk Insurance Group
XL Group
Worldwide Facilities
Zurich Insurance Group Source: Compiled using data from state surplus lines stamping offices
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SPECIAL REPORT
WHOLESALE E&S REPORT Regional perspective
SOUTH
C
Of all four regions, the South accumulated the largest total premium at mid-year ($6.95 billion), 92% of which was brought in by Florida and Texas. In total, the Southern states experienced a 10.3% increase in total premiums, amounting to an additional $650 million – the largest dollar gain among all regions. For most of the South, the housing market has been a key driver of the economy and remains the major factor behind the overall rise in premium, according to Brown & Riding SVP George Sella. “The renovation housing market has started booming for the past two to three years, but in the last 18 months, it’s really picked up quite a bit,” he says. “We’ve seen a huge influx of apartment buildings going up everywhere.” He also pinpointed a specific market that’s primed to become a game-changer: senior housing. “I think this is part of the biggest potential in the future, especially in the South,” he says. “In Florida, areas of Georgia and South Carolina, there have been huge developments of senior housing all over the place.” Meanwhile, the Texas market has seen boosts in specific lines and risk areas, including D&O, which increased by an astounding 74%. “It appears, at least from looking at our records, that a lot of that is following what’s happening on the political and social front coming from the Weinstein lawsuit and the #MeToo movement,” says SLTX CEO Norma Carabajal Essary. Extreme weather events, meanwhile, have had less of an impact on the E&S market in the South, given the steady flow of capital. “In general, there’s still so much capital in the marketplace – from private equity firms, bonds, etc. – that some weather events aren’t going to drastically change the market,” Sella says. Rather, he attributes any notable change to a general hardening of the market, fewer reductions and slightly fewer players. One additional influencing factor in the South could be the federal
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“In general, there’s still so much capital in the marketplace … that some weather events aren’t going to drastically change the market” George Sella, Brown & Riding government’s proposed infrastructure upgrades. “What our government is going to do in terms of infusing capital into infrastructure, what kind of funding the states are going to get – I think the South has a huge need for a lot of the infrastructure and public jobs,” Sella says. “Once that comes into the marketplace, there’s going to be a big influx in the E&S industry.” Meanwhile, in the private sector, increased premiums and reduced competition throughout the region are likely due to a more challenging legal climate in Florida and construction defect issues that are cropping up in South Carolina and spilling over to North Carolina. Amid the ongoing developments, E&S players must continue their efforts to educate end buyers about the merits of the industry. Sella also recommends putting more focus on automation to cater to smaller accounts, which he identifies as a unique opportunity for the South. “The E&S industry is traditionally more hands-on, because it handles more complex accounts,” he says. “But more of the smaller accounts are moving into E&S as well, so it’s a big opportunity that we can adapt to and create some automation around this.”
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SPECIAL REPORT
WHOLESALE E&S REPORT Regional perspective
NORTHEAST Halfway through 2018, New York has doubled its growth rate from the previous year, while Pennsylvania emerged from a negative year in 2017 to a 4.26% premium increase. The latter also had a significant 11% spike in items. Overall, the Northeast had the highest growth rate nationally – an increase of 11% in total premiums. Similar to other surplus lines markets across the nation, the Northeast experienced a relatively soft 2017, and according to John M. Grise, SVP at Worldwide Facilities, not much has changed. “Much like they have been for the past several years, the property & casualty rates as a whole have been decreasing – some lines more drastically than others,” he says. “For example, data security and privacy pricing continues to become increasingly more competitive with new capacity in the market, and as much as 20% to 30% decreases in rates. Workers’ compensation rates continue to decrease, more drastically in some states than others, but still another year of decreases. “However,” he adds, “there are pockets of casualty lines that remain firm, most notably New York construction. The action over claims continues to keep new markets from entering the space and rate reductions at bay.” That outlook is reiterated by RT Specialty’s Tim Turner, who singles out construction as the “big factor for the increase in surplus lines placements and the firming marketplace, especially in New York.” In addition, capital markets are playing a key role in driving rates in the Northeast and elsewhere: “Insurance has yielded significant returns as it relates to aggregation plays in the retail agency space, the wholesale space and the deployment of capital into new capacity on the carrier side, which will continue to artificially
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“Data security and privacy pricing continues to become increasingly more competitive with new capacity in the market, and as much as 20% to 30% decreases in rates” John M. Grise, Worldwide Facilities depress rates,” Grise says. The uptick in construction claims is a perfect example of the increasing need for insurance expertise, which creates significant opportunity for wholesale brokers. By partnering with retailers to offer strong trading platforms, Northeast wholesalers are in a position to capitalize on specialized insurance needs. For example, Worldwide Facilities’ offering of exclusive programs – including ocean cargo, intermodal and auto hauler – within the traditional brokerage model has
positioned the company for continued growth in the Northeast, Grise says. However, even a market poised for growth isn’t immune to challenges. The trend of retailers consolidating their use of wholesalers is a looming concern for professionals in the market. Other challenges, Grise says, are the broadening of direct market appetites and the growth of new online platforms, but he expects these hurdles to push the surplus lines market to differentiate itself from the competition.
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FEATURES
SECTOR FOCUS: CYBER INSURANCE
Wired for growth IBA spoke to four industry experts to get the inside track on the cyber insurance market
THE CYBER insurance market continues to grow at an impressive pace in the US. In 2017, the cyber market grew 37% from the previous year, reaching almost $2 billion in premium. With more companies purchasing coverage and personalized cyber products growing in popularity, there’s a good opportunity for savvy agents and brokers to take advantage of
Another key trend was the steep increase in the average cost of IT forensics and call centers, which Jeremy Barnett, senior vice president of marketing at NAS, attributes to the increasingly complex nature of cyber attacks. “Finding out exactly what happened and what data may have been exfiltrated after an attack is getting more difficult,” he says.
“The price is at a compelling point, and there is enough awareness in the business world for everyone to realize what they are facing and the benefits of having the insurance policy” Jeremy Barnett, NAS Insurance the of current expansion. An analysis of 2017 cyber claims data by NAS Insurance identified some key trends. The first was that number of identities impacted by breaches surged last year. In healthcare, there was a 232% increase in the number of identities impacted in 2017, while for non-healthcare policyholders, there was an 85% increase in the number of identities impacted.
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“It takes time to remediate the issue and find out how widespread it was. Sometimes when malware shows up on a computer or server, it’s not immediately obvious how far and wide it spread. There may still be remnants of the virus lurking elsewhere on the network.” NAS also discovered that the cyber world hit another unwelcome milestone in 2016: The average financial loss resulting from
CLAIMS ARE GETTING BIGGER The latest claims data from NAS Insurance reveals that a third of cyber claims in 2017 were above the $100,000 threshold.
$300,000 or more 8% $200,000 to $300,000 10% $150,000 to $200,000 5% $100,000 to $150,000 10% $75,000 to $100,000 5% $50,000 to $75,000 10% $25,000 to $50,000 20% $10,000 to $25,000 17% $500 to $10,000 15%
Source: NAS Insurance
cybercrime – including wire transfer fraud, telecommunications fraud and phishing attacks – exceeded $100,000 for the first time. However, the average loss for a cybercrime claim remained consistent between 2016 ($117,229) and 2017 ($116,697). NAS data for 2017 shows that 23% of cyber claims exceeded $200,000 – a huge sum for most small and medium-sized enterprises. This can be attributed to cybercriminals getting more sophisticated in their methods. The practice of obtaining fake email addresses that appear to be genuine – and then posing as a person in the organization and asking for a wire transfer to be executed – is getting more complicated, harder to detect and increasingly successful for hackers. “Generally, if a wire transfer is made to a cybercriminal, that is covered by a cyber policy,” Barnett says. “Once the funds have been transferred to the criminal, the bank will not claim responsibility because they are acting on what they perceive to be a legitimate order from a customer. But if the policyholder
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ORDINARY PEOPLE GETTING THE EXTRAORDINARY DONE
is not able to get reimbursed by the bank, the policy will provide protection.”
Awareness is growing While NAS’ cyber clients are distributed among all sectors, Barnett has noticed an increase in business from one particular group: small and medium-sized organizations. It might have taken these smaller firms longer to realize the value of cyber coverage, but recent developments are making cyber a must-have for companies for any size. “The price is at a compelling point, and there is enough awareness in the business world for everyone to realize what they are facing and the benefits of having the insurance policy,” Barnett says. “Smaller businesses get access to a host of technology services they otherwise wouldn’t when they buy insurance from a company like us. Insurance is of great benefit in the event of an incident, but it also gives businesses access to affordable services that help them avoid an incident.” It’s not only cybercriminals who are getting
industry doing enough to combat new threats and address clients’ ever-increasing demands? “While we can always do more, I think the industry is evolving faster with cyber than in any other area in P&C insurance right now,” Schibuk says. “You can’t go more than a week or two without seeing a new product or risk management tool launched … The overall market is fairly competitive right now, as there are lot of carriers piling into the space. While pricing is under some pressure, I think a lot of the more sophisticated buyers and brokers understand that you get what you pay for and you can command a higher price for a better product.”
Building expertise The ever-evolving nature of cyber risks means that carriers are forced to tweak and update cyber policies more regularly than in other segments of insurance. As a result, policies do vary in their features, and it can be difficult for brokers and agents to know exactly what to expect from a cyber policy. A willingness to do
“I think the industry is evolving faster with cyber than in any other area in P&C insurance right now” James Schibuk, Arch Insurance Group more sophisticated; clients are now more knowledgeable about risks they face when running their organizations. The majority of cyber clients at Arch Insurance Group are middle-market companies, which the insurer defines as those with $1 billion or less in revenue. James Schibuk, Arch’s vice president of E&O, cyber, technology and media, has noticed more clients starting to ask about risk management services and a placing greater emphasis on how a specific type of claim or situation will be handled. But is the insurance
the research and an understanding of how to read forms are crucial for brokers and agents in the current market. “The industry is getting closer to having standardized language and policies, but there are still a lot of nuances between carriers,” says Robert Pizarro, AVP of professional lines underwriting for AmTrust Financial Services. “How limits are structured also varies from carrier to carrier. On first-party coverages, some will go ahead and do the notifications per number of people breached,
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FEATURES
SECTOR FOCUS: CYBER INSURANCE
TOP CAUSES OF CYBER-RELATED LOSS HEALTHCARE POLICYHOLDERS
while others will just give a set limit in terms of cost. In terms of limits, that’s where agents and brokers need to pay more attention with respect to placing coverage for their insureds.” Cyber is clearly a growth opportunity, but brokers and agents need to have some crucial knowledge under their belt about how the coverage works and how to best present it to the client before they can start to expand their books of business. “Coverage is driven by two major things: the loss of private information and the failure to protect computer systems,” says Shiraz Saeed, national practice leader for cyber risk at Starr Insurance Companies. “However, a lot
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NON-HEALTHCARE POLICYHOLDERS
Negligence
Hacking
Ransomware
Ransomware
Physical theft
Physical theft Source: NAS Insurance
people confuse the two and do not identify the correct exposure for each particular client.” Delivering information to current and prospective clients in an effective manner is also crucial. Saeed encourages brokers and agents to develop a sales presentation that walks clients through the exposures and the different coverage modules, explains the legal
framework, and outlines the potential impact of business interruption. “Agents or brokers must be able to explain exactly what coverage a policy will provide to their clients,” he says. “It requires a grassroots effort from the broker or agent to explain everything, and the only way they can do that is by getting training from the carriers.”
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FEATURES
BROKERAGE INSIGHT
Leading the digital age Sastry Durvasula is leading the digital transformation of Marsh – and the industry as a whole. He sat down with IBA to talk about the tech revolution that’s disrupting insurance IBA: What was the inspiration behind the creation of Marsh Digital Labs? Sastry Durvasula: My team is a new organization within Marsh responsible for digital, data and analytics across the company; we are just coming up on our first anniversary. We created Marsh Digital Labs as an incubator for emerging tech, innovative products, new business models and digital partnerships. The insurance industry has a lot of work to do on the digital front with many opportunities ahead. We wanted to specifically focus on driving experimentation and co-innovation with our clients for a few reasons. One, the risk landscape itself is changing; insurance clients are taking on different risks that didn’t exist before. Two, the technology landscape is rapidly changing every year, whether it is from artificial intelligence [AI], blockchain or the Internet of Things [IoT]. And third, we wanted to partner with insurtechs to build new models and opportunities. Insurtech is still in its beginning stages, but we see it as a big opportunity for the industry.
IBA: Which technologies are at the forefront of transforming the insurance industry? SD: The three technologies that we’re betting big on are blockchain, AI and IoT. To me, blockchain has the highest potential in
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leveling the playing field, because it can create a level of collaboration across the industry that we haven’t seen before. It can also create new business models that were not possible previously, as well as take out a lot of inefficiencies. As an example, we recently announced the first commercial blockchain for proof of insurance. There’s a lot of proof of insurance validation that happens throughout industries, and there’s a range of friction points, so we see this as an ideal use for blockchain. As insurance brokers, the industries we support will also get disrupted to some extent by blockchain, and we do see insurance playing an important part in that environment, so we partnered with IBM and ACORD to make sure blockchain for proof of insurance becomes an industry standard. With AI, I believe the biggest impact will be intelligent automation, all the way from
customer engagement to core underwriting decisions. I think there will be several aspects that will be automated and made more intelligent with data science, machine learning, chatbots and more. In my mind, insurance is one of the founding fathers of data and analytics, but the data has not been truly unleashed to the extent possible. Now we will begin to see more of that in use, whether it’s through automated underwriting or natural language processing for data capture, or the integration between AI and IoT. Finally, there is IoT, which probably has the deepest penetration already in the risk and insurance industry, but how we will actually integrate IoT into the insurance mainstream will be our focus moving forward. One of the pilots we’ve been working on with clients has been wearables, and how we can receive real-
A DIGITAL TRAILBLAZER In August 2017, Sastry Durvasula joined Marsh in the newly created role of chief digital officer and chief data and analytics officer. As head of a global team, he is responsible for leading the strategic design, development and delivery of Marsh’s digital products, data and analytics, and client-facing technology across the firm’s global businesses. He’s also focused on building new digital-native businesses and partnerships in the small commercial and consumer segments. Prior to joining Marsh, Durvasula served as enterprise head of data and digital technology with American Express, where he was responsible for the transformation and delivery of internal- and external-facing data and digital capabilities, in addition to developing innovative products, partnerships and experiences.
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FAST FACTS: MARSH DIGITAL LABS
Based in Silicon Valley, Marsh Digital Labs is an incubator within Marsh’s digital, data and analytics organization
Focuses on experimenting in emerging technologies and developing new products and business models
“In my mind, insurance is one of the founding fathers of data and analytics, but the data has not been truly unleashed to the extent possible” time signals from wearables to provide recommendations on workers’ safety or to assist in workers’ compensation claims.
IBA: What’s your advice to insurance professionals who are still hesitant to embrace new technologies? SD: Marsh, other brokers and insurance carriers all have a unique opportunity with the data we have to unleash it and create ideas and products that were once not practical because of the lack of technology. First, having an agile mindset is so critical to embracing new
technologies. Insurance is a highly regulated industry, so by design, the approach is to strive for perfection. But when you are in digital, perfection is not the solution. We have to drive a balance between a fully baked product and test-and-learn releases with customers. Next, curiosity to learn is important. Insurance professionals deal with a lot of digital things in their personal lives, but they haven’t fully made that switch yet in their professional lives. These are critical in making the impact of technology in insurance truly scalable and sustainable.
Leverages cloud-based and API-driven platforms to build new capabilities
Key emerging technologies of focus include artificial intelligence, blockchain and the Internet of Things IBA: What do you think is in store for insurance in the near future in terms of technology? SD: The real change happens when insurance professionals collectively take technology and drive it forward. At Marsh Digital Labs, we are excited to help drive that change and create a deeper impact in the industry. I also think insurtech will help the industry the same way fintech helped the financial sector. It’s a force from a different side that pushes the entire industry. To sum it up, the future is full of opportunity.
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FEATURES
SECTOR FOCUS: MEDICAL MALPRACTICE
Time for a checkup? While medical malpractice is an inherently complicated line of insurance, it holds plenty of opportunity for knowledgeable brokers
THE FUNDAMENTAL functions carried out by healthcare facilities and professionals are often overshadowed by the endless noise that surrounds the sector. In addition to saving lives and improving quality of life, the healthcare sector is a massive profit-making industry and a political football. While the
different from other businesses. In most industries, a mistake can be fixed with a sincere apology or the recall of a product, whereas in healthcare, a mistake can sometimes lead to a lifelong disability or death. That’s why medical malpractice policies play such a crucial role in keeping the
“Brokers and agents should be mindful that the business of providing healthcare is immense and ever-evolving, with recent changes that have not been all positive” Karl Olson, Burns & Wilcox Brokerage people who work in healthcare facilities are driven by a desire to help others in need, organizational leaders are propelled by the need to keep growing revenues. Hospitals and other healthcare facilities are businesses, and are run as such. They are often staffed by overworked caregivers, physicians and surgeons who struggle to keep up with the workload. But despite facing the same challenges as businesses in other sectors, healthcare is fundamentally
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US healthcare system running smoothly. The coverage enables medical professionals to carry out their tasks safe in the knowledge that an honest mistake will not lead to financial or reputational ruin. Carrying medical malpractice insurance is vital for physicians and is required by law in most states. “The most common medical malpractice claims are related to failure or delay in diagnosis, failure to treat or improper treatment, surgical errors, patient falls, and birth inju-
ries,” says Joanne Gundersen, VP and medical malpractice lead at QBE North America. “The nature of claims in medical malpractice has remained consistent for our typical client, which is a medical facility that provides care outside of the acute care setting.” Despite a lack of surprise in the types of claims being lodged, Gundersen has seen an increase in large, severe claims in hospital settings. Batch claims, where multiple claimants arise in one particular setting, are also becoming more common. In order to minimize the costly losses associated with such claims, Gundersen and her team analyze trends and claims data and then create risk management solutions specific to each client. “It’s important to tailor the policy to the specific needs of the client and to be flexible to the coverage needs,” Gundersen says. “That’s how we built our policy form. It’s almost like building blocks, where you can add on or take off coverage as needed. Professional liability is always the base, but a client may or may not want general liability. They can turn on or off features like sexual misconduct and choose whether the policy is claims-made or occurrence in nature. It’s all about specializing and being flexible.”
Coverage costs Medical malpractice policies cover a wide range of expenses associated with malpractice suits, including attorneys’ fees and court costs, arbitration costs, settlement costs, punitive and compensatory damages, and medical damages. The coverage also pays damages if a physician is found liable, but it doesn’t cover liability arising from criminal acts or inappropriate alteration of medical records. The price of coverage can vary wildly, depending on a physician or facility’s area of expertise; specialties that are sued most often face the highest insurance premiums. According to 2017 data compiled by Capson Physicians Insurance, specialists were more likely than primary care physicians to have
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Saving the Chemical Industry Money on their Insurance Premiums
THE BEST AND WORST STATES FOR MEDICAL MALPRACTICE STATES THAT PAY OUT THE MOST IN MEDICAL MALPRACTICE CLAIMS ($ per capita, 2017)
STATES THAT PAY OUT THE LEAST IN MEDICAL MALPRACTICE CLAIMS ($ per capita, 2017)
New Hampshire $38.83
Texas $3.25
New York $33.45
North Carolina $3.06
New Jersey $28.61
South Dakota $1.91
Massachusetts $26.36
North Dakota $1.39
Consumer Specialties Insurance, RRG (CSI) is an exclusive Risk Retention Group providing agents with customized General Liability and Umbrella coverage (including Products Liability) for their specialty chemical manufacturer and distributor clients. Program Highlights
Limits Available up to $5,000,000 on either Occurrence or ClaimsMade Basis;
Can Add Limited Pollution Coverage up to $1,000,000;
$250,000 of Product Withdrawal Expense Provided; Hired and Non-Owned Auto Liability (includes primary liability and
primary hired physical damage)
Pennsylvania $24.69
Wisconsin $1.11 Source: Diederich Healthcare
been named in a malpractice lawsuit. Surgeons and OB-GYNs led all other specialties: A massive 85% of specialists in both groups have been sued at least once during their career. Capson reports that, on average, medical malpractice insurance can cost OB-GYNs anywhere from $85,000 to as much as $200,000 per year, while for cardiovascular and neurosurgeons, coverage can cost between $50,000 and $150,000 per year. Capson also found that, among general practitioners, 42% physicians faced at least one claim by age 45, and 77% faced at least one claim by age 65. Medical malpractice insurance can cost those doctors anywhere from $8,000 to $50,000 per year. Across all specialties, an estimated 7% of physicians have a claim annually, and 2% make an indemnity payment; the median indemnity payment is $111,749.
Emerging trends Uncertainty around the future of the Affordable Care Act is creating confusion
for all parties involved in the healthcare industry. So far, the ACA has proven resilient against Republican efforts to repeal it and the Trump administration’s attempts to defund it. However, with premiums projected to soar by an average of 15% in 2019, the future does not look positive for the ACA. As it stands now, though, the ACA has provided more patients with access to health insurance, which has placed increasing pressure on the healthcare system. “We have seen increased use of mid-level providers, such as nurse practitioners and physician’s assistants, to take the pressure away from the MDs,” Gundersen says. “We also have customers looking for integrated products; they want one-stop shopping. That’s why, in addition to the traditional features, we are offering managed care errors and omissions and management liability like D&O.” Changes in the way care is delivered, thanks to technological innovations such as electronic medical records and telemedicine, are also having a significant impact on
BROADENING ENDORSEMENT includes blanket waivers of subrogation and blanket additional insureds; JUST ADDED—Cyber Security/Crisis Management Endorsement provides valuable crisis management, cyber liability, privacy breach/notification protection on a sublimited basis.
*NEW LOWER MINIMUM PREMIUM STARTING AT $3,500 for Small Businesses! 15% Commission on New Business!! 10% Premium Credit Available Upon Completion of HCPA “Product Care” Stewardship Program Go To www.csiplus.com for our PROGRAM APPLICATION, FAQs, PROGRAM BENEFITS AND E-BROCHURE. CSI is the chemical industry’s leading risk retention group, providing chemical manufacturers and distributors with a financially stable source of liability insurance for over 25 years. We are the exclusive partner of The Household & Commercial Products Association (HCPA - www.thehcpa.org), the industry’s leader for education and legislative advocacy. With membership in the HCPA, your clients can participate in HCPA's Product Care stewardship and best practices program. CSI Policyholders that participate receive additional premium discounts. CSI is endorsed by HCPA and administered by Ames & Gough.
Contact Ames & Gough at 703-827-2277 or email us at csiplus@amesgough.com for more information. 8300 Greensboro Drive l Suite 980 McLean, VA 22102 l www.amesgough.com www.ibamag.com
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FEATURES
SECTOR FOCUS: MEDICAL MALPRACTICE
AVERAGE MEDICAL MALPRACTICE PAYOUTS Quadriplegic, brain damage, life care $1,130,592 Major permanent injury $622,168 Significant permanent injury $450,251 Death $385,648 Major temporary injury $215,247 Minor permanent injury $204,316 Minor temporary injury $75,502 Emotional injury only $75,392 medical malpractice claims. The evolving nature of reimbursement methods has been another major influencer on the industry, explains Karl Olson, VP and professional and management liability practice leader at Burns & Wilcox Brokerage. “Reimbursements heavily impact any
Another trend in the industry is the creation of new facilities outside the traditional hospital setting, such as long-term care and specialized care facilities, surgicenters and urgent care clinics, which Olson believes presents compelling new opportunities for brokers and agents. First, however, brokers
“It’s important to tailor the policy to the specific needs of the client and to be flexible to the coverage needs” Joanne Gundersen, QBE North America healthcare organization’s ability to sustain operations,” Olson says. “Influences include changes to Medicare reimbursement rates, the ongoing changing perceptions of the Affordable Care Act, transparency of billings, costs of pharmaceuticals and costs to comply with complex regulations.”
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and agents need to develop an understanding of how the healthcare system operates and the pain points faced by medical facilities and the professionals that work for them. “There are challenges in working with healthcare entities and medical providers, and brokers and agents should be mindful that the
Insignificant injury $26,032
Source: Diederich Healthcare
business of providing healthcare is immense and ever-evolving, with recent changes that have not been all positive,” Olson says. “Many research reports suggest that more than 50% of physicians feel burnt out and that over-regulation limits their ability to provide a high level of care.” Olson also encourages brokers and agents to get to know the healthcare environment in their region. What carriers are active in their state? What ancillary coverages are important to healthcare providers: D&O, cyber liability, managed care errors & omissions, or provider excess/stop loss? “Partnering with an experienced wholesale broker with carrier relationships and market intel will help win deals and acquire customer relationships,” Olson adds.
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PEOPLE
CAREER PATH
LEARNING MACHINE Living by the credo that the process of learning never stops, Bill Pieroni has come a long way from humble beginnings
The child of first-generation Italian immigrants, Pieroni hankered for stability. Despite not speaking English until after he began elementary school, he achieved academically and set out to become a doctor “We were poor growing up; I wanted stability. I didn’t have college-educated parents to guide me, so when choosing majors, I thought only of the well-worn paths of law or medicine”
1980s
HEADS TO MED SCHOOL
1996 STUDIES AT HARVARD When one of Pieroni’s colleagues asked for a letter of recommendation for business school, it sparked an idea that culminated in a bargain “I thought, ‘Wow – she got in with my letter,’ but I don’t have my MBA. I was in the car telling my wife about it, and [before even broaching the idea] she said no. I said, ‘Let me apply [only] to Harvard,’ thinking I’d never get in. I applied and got in”
1986 PIVOTS TO BUSINESS Pieroni remembers vividly the healthcare reform that changed the face of medicine during his time in the field and the troubled reactions it prompted from physicians. Not wanting to spend his career constantly facing disruption, he dove into the microfiche at his local library to decide his next career move “I looked up newspaper ads from the middle of the Depression to see who always had a job. Accountants were always in demand”
1997 PROVES HIS VALUE While working as a consultant for McKinsey and then Accenture, Pieroni found himself in a constant quest to demonstrate his value “Clients aren’t hiring you because of your last good ideas; you have to justify your existence every day. Consulting is a brilliant thing to do if you don’t know what you want to do; you expand your skill set. You see so many different firms, problems, cultures. You have to be a learning machine”
2001 JOINS BIG BLUE Bought on board as general manager of global insurance at IBM, Pieroni developed some strong opinions about technology’s role in the industry
“The insurance industry is judged harshly for its legacy technology, but ... we need to begin with the understanding that our industry was one of the early adopters of tech, and that creates an accumulation of culture” 2016 SERVES THE INDUSTRY Now in his third year as CEO of ACORD, Pieroni saw his move to the global standards organization as a chance to bring together his skills to transform and realign the organization to better serve the industry “When you think about how standards come about, it’s through people. If people don’t use it – and get value out of it – it doesn’t matter”
2006 SEES BOTH SIDES Roles as a senior vice president at State Farm and then global chief operating officer at Marsh allowed Pieroni to view insurance from both the insurer and broker perspective “Being a consultant is one thing; being inside is another. It really gives a unique perspective. I wish I could say it was part of a master plan, but it wasn’t. I’m lucky I had these roles”
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PEOPLE
OTHER LIFE
TELL US ABOUT YOUR OTHER LIFE Email iba@keymedia.com
Hikers who climb all of the Adirondacks’ High Peaks are known as Forty-Sixers – the sa me nu mber as Daryl Pierson’s badge
PEAK CONDITION When Kirk Pero laces up his hiking boots, he does so in memory of a fallen comrade HIKING IN the Adirondack Mountains has been part of Kirk Pero’s life since he was a child. So when Pero – who works as both a Farmers insurance agent and an investigator with the City of Rochester – heard of Peaks for Pierson, a hiking group formed in memory of Daryl Pierson, a young officer and hiking enthusiast killed in the line of duty, it seemed like the perfect fit. Pero – who taught Pierson at the police academy – heads out a few times a year with friends from the Rochester Police Department on hiking trips dedicated to conquering some of the Adirondack High Peaks on their collective to-do list while also “paying tribute and remembering.” There are other benefits to the hikes, of course: the physical challenge, the tranquility of the surroundings and the natural beauty of the landscape. “Once you go there,” Pero says, “you want to go back.”
15
Number of high peaks Pero has climbed
56
4
Most peaks Pero has climbed in a single day
3
Pairs of hiking boots Pero owns
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