Insurance Business America issue 2.04 by Key Media

IBAMAG.COM ISSUE 2.4

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NOT ALL RISKS ARE BLACK AND WHITE.

The chameleon is well known for its ability to change color and adapt to its surroundings. It is nature’s solution to surviving in a challenging environment. Risk comes in every color —it’s rarely black and white. The risk management world is always changing. RSG Underwriting Managers’ specialty MGU facilities excel in this world by using experience, creativity and expertise to provide unique solutions to challenging risks. Contact RSG Underwriting Managers at (855) 201-2000 or visit www.ryansg.com.

RSG Underwriting Managers, LLC, is a Delaware series limited liability company and a subsidiary of Ryan Specialty Group, LLC, specializing in underwriting management and other services for insurance products distributed through agents and brokers. In California: RSG Insurance Services, LLC, Lic. #0E50879. Direct Group Limited (Registered No. 2461657) and Millennium Insurance Brokers Limited (Registered No. 3566382) are insurance distribution businesses and are authorized and regulated by the Financial Services Authority. © 2014 Ryan Specialty Group, LLC

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Needle found. Haystack avoided.

Construction • Education • Financial Institutions • Healthcare • Manufacturing Professional Services • Real Estate • Retail • Technology • Wholesale Distribution

Keep clients of any size from getting lost in the weeds. Guide them to insurance knowledge at the new CNA.com Please remember that only the relevant insurance policy can provide the actual terms, coverages, amounts, conditions and exclusions for an insured. All products and services may not be available in all states and may be subject to change without notice. CNA is a registered trademark of CNA Financial Corporation. Copyright © 2014 CNA. All rights reserved.

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PROD CONNECT

Contact the editor:

iba@keymedia.com

COPY & FEATURES

MANAGING EDITOR Vernon Jones ASSOCIATE EDITOR Caitlin Bronson CONTRIBUTORS Allison Landa, Liz Brown, Maggie Crowley, Jim Masiello PRODUCTION EDITOR Ann Diaz

ART & PRODUCTION

CORPORATE CHIEF EXECUTIVE OFFICER Mike Shipley CHIEF OPERATING OFFICER George Walmsley MANAGING DIRECTOR Justin Kennedy CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil

CODY Artist: nb Job Colors: 4

SALES & MARKETING VICE PRESIDENT Cathy Masek NATIONAL SALES MANAGER James Donnellan MEDIA SALES MANAGER Molly Hummel COMMUNICATIONS MANAGER Lisa Narroway MARKETING EXECUTIVE Alex Carr

DESIGN MANAGER Daniel Williams GRAPHIC DESIGNER Joenel Salvador, Marla Morelos, Red Redrico

Editorial inquiries Caitlin Bronson Caitlin.Bronson@keymedia.com Advertising inquiries James Donnellan james.donnellan@keymedia.com Molly Hummel molly.hummel@keymedia.com Subscriptions subscriptions@keymedia.com Key Media 7807 E Peakview Ave Suite 115 Centennial, CO 80111 United States of America tel: (720) 452-2600 Offices in Sydney, Auckland, Manila, Toronto ibamag.com 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 IB magazine can accept no responsibility for loss

Gutter in Spread: NA

Tried, true and largely gray-haired – it’s a stereotype of the insurance profession and one that’s arguably accurate. Well, actually, there’s little argument, which is why it’s so refreshing to see ambitious young people entering the industry and bringing with them innovative change. Over the last two months, we’ve asked you to tell us about your “Young Guns” – insurance professionals under the age of 40 who have already made their mark on this business despite their limited number of years. You responded, and we have sifted through hundreds of remarkable individuals to narrow down that group to 40 leaders prepared to take the industry on to greater achievement. We hope you’ll find these young professionals – ranging from CEOs to top producers – inspiring, and that you’ll take the time to learn from their stories. Really, our intention is that their triumphant tales – replete with individual analysis on what the industry must do to win more young people just like themselves – will help inspire change in the way American insurance courts and manages emerging talent. We also hope you’ll take a look at the results of our Producers on Carriers survey, which asked you to rank your priorities when selecting an insurance carrier. While linchpin features like claims handling and competitive rates came out on top, agencies of different sizes held a slightly different set of priorities when assessing carriers. What was really surprising was the value producers place on carrier distribution channels, sending a message to insurance providers that if they want to succeed in today’s market, they can’t devalue the role of an independent insurance agent.

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YOUNG GUNS ARE MAKING THEIR MARK

PROOF

EDITOR’S LETTER / 2.04

4 | SEPTEMBER/OCTOBER 2014

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Job Colors: 4

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THERE ARE SOME RISKS ONLY A SPECIALIST CAN HANDLE.

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CONTENTS / 2.4

Contents 4 | Editorial:

44 | Excess & surplus lines

Young guns are making their mark

Insurance Business America takes a look at the top 10 players in this booming sector and reveals the secrets of their success

08 | Analysis:

FEATURE Oil & gas: A wellspring of opportunity Oil & gas is the fastest growing industry in the US, and yet this market remains remarkably untapped by insurance agents

Where you live has a lot to do with how you prepare for natural disaster

FEATURES 10 | Producers on carriers Insurance Business America’s original industry research reveals which aspects of a carrier’s oﬀering producers really care about

24 | Workers comp Challenges abound but rich pickings are still there for the producer willing to engage in some smart cost-cutting. Here’s how – and why – to do it

32 | Artisan contractors Independent artisan contractors are building on an economic rebound, opening up new business for well-positioned producers

50 | Healthcare: The ACA eﬀect Big changes in healthcare mean big opportunity for property/casualty producers catering to that industry

REGULARS 40 | Producer proﬁle: Weed warrior Legalization of recreational marijuana has taken niche agency owner JB Woods to a new high

49 | Favorite things The CEO of NFP talks the Caribbean and cabernet 54 | Business strategy: Website reboot Producers need the right tools to produce, and a website redesign may be key to re-arming your business

55 | The Last Word Jim Masiello, CEO of the Strategic Insurance Agency Alliance, asks: Will the independent distribution channel survive?

CHECK IT OUT ONLINE: InFocus: Environmental InFocus: Cyber liability

SPECIAL REPORT

InFocus: Hospitality

Young Guns Meet 40 young stars already making waves in the insurance industry

Special reports: Women of Inﬂuence Latest jobs ibamag.com

6 | SEPTEMBER/OCTOBER 2014

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STATISTICS

WHEN DISASTER STRIKES GLOBAL INSURED LOSSES IN 2014

Top 3 natural disasters by number of incidents and by nation, 1900-2014

3% TROPICAL CYCLONE

Canada:

UK:

1. FLOOD: 37 2. STORM: 35 3. WILDFIRE: 20

1. STORM: 38 2. FLOOD: 31 3. EXTREME TEMPERATURE: 8

United States:

45%

1. STORM: 465 2. FLOOD: 166 3. TROPICAL CYCLONE: 104

SEVERE WEATHER

12%

FLOODING Mexico:

0.40% EARTHQUAKE

1. TROPICAL CYCLONE: 77 2. FLOOD: 61 3. EARTHQUAKE: 30

Nigeria: 1. EPIDEMIC: 52 2. FLOOD: 41 3. STORM: 5

23%

WINTER WEATHER

0.10% WILDFIRE 5%

WINDSTORM

India:

Brazil:

1. FLOOD: 254 2. TROPICAL CYCLONE: 103 3. EPIDEMIC (VIRAL, BACTERIAL, PARASITIC): 68

1. FLOOD: 122 2. LAND MASS MOVEMENT: 23 3. DROUGHT: 18

MOST EXPENSIVE U.S. NATURAL DISASTERS

Insured losses by type of event for the ямБrst half of 2014

13%

DROUGHT

$7.25 BILLION SEVERE WEATHER

$2.43 BILLION WINTER WEATHER

$10 MILLION TROPICAL CYCLONE

$2.49 BILLION DROUGHT

$20 MILLION WILDFIRE

$10 MILLION EARTHQUAKE

Source: Aon Benfield Source: Aon Benfield, 2014

9 COSTLIEST NATURAL DISASTERS

China earthquake, 2008 $85 billion

Indonesia earthquake/tsunami, 2004 $14 billion

Europe drought/ heatwave, 2003 $13.5 billion

Myanmar Cyclone Nargis, 2008 $10 billion

Haiti earthquake, 2010 $8 billion

China earthquake, 1976 $5.6 billion

Source: Aon Benfield

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HARD TO PLACE PROGRAMS? IBAMAG.COM

TOP 8 STATES FOR INSURED LOSSES IN 2013

Russia:

$1.9 BILLION

1. FLOOD: 54 2. WILDFIRE: 22 3. EXTREME TEMPERATURE: 21

OKLAHOMA

China: 1. FLOOD: 237 2. EARTHQUAKE: 143 3. TROPICAL CYCLONE: 132

$1.5 BILLION TEXAS

$907 MILLION COLORADO

$845 MILLION MINNESOTA

Japan: 1. TROPICAL CYCLONE: 118 2. EARTHQUAKE: 58 3. FLOOD: 48

Philippines: 1. TROPICAL CYCLONE: 286 2. FLOOD: 136 3. LAND MASS MOVEMENT: 33

$773 MILLION NEBRASKA

$762 MILLION GEORGIA

$661 MILLION ILLINOIS

Indonesia:

Australia:

1. FLOOD: 167 2. EARTHQUAKE: 114 3. VOLCANIC ERUPTION: 56

1. STORM: 66 2. FLOOD: 60 3. TROPICAL CYCLONE: 36

$593 MILLION LOUISIANA

Source: Insurance Information Institute, 2014

MOST UNINSURED NATURAL DISASTERS OF 2013

UNINSURED

THUNDERSTORMS 37%

WILDFIRE 38%

WINTER STORMS 35% Source: Munich Re and Insurance Information Institute

Bangladesh Cyclone Gorky, 1991 $2 billion

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FLOOD 87% OF LOSSES

Pakistan earthquake, 2005 $5.2 billion

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Bangladesh tropical cyclone, 1970 $90 million

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FEATURE / PRODUCERS ON CARRIERS

U D O R P N O

S R E C

able i l e r and a carrier, s e t e ra oosing a v i t i t pe ch m o t o c s , e dling n it com n a h ms key whe i a l c Quick ation are reput cers say u prod

R R A C Quick claims handling, competitive rates and financial stability are top of mind when producers evaluate prospective carrier partners, according to a new survey conducted by Insurance Business America. Provoking hundreds of responses from across the US, the survey asked independent agents and brokers to share their priorities in choosing a carrier by rating 10 significant features: technology and automation capabilities, range of products offered, reputation and financial stability, competitive rates, quick quotes, marketing support, education and training, underwriting expertise, claims handling and overall commitment to the broker distribution channel.

S R IE

With pointed responses and candid critique, producers revealed both their priorities and their pain points in the crucial agent-carrier relationship. Size and commercial focus of respondents differed, but several key themes emerged. Despite the oft-speculated future of the independent agency model, producers’ main areas of concern still centered on their clients. Respondents’ highest-rated priorities all fell back to their desire to provide value to the end customer: claims handling (8.31 out of 9), competitive rates (8.29) and financial stability (8.14) outweighed more personal concerns like marketing support (6.85) or education and training (6.69). In fact, these were rated as among the least important aspects of a carrier’s offering across all agency sizes. Respondents noted that while they appreciate the support, they already lean heavily on resources from organizations like the Big “I” or their own materials to meet these needs.

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The attitude can be best described by one respondent, who wrote simply, “My biggest concern is the carrier’s commitment to the insured.” That isn’t to say producers are entirely without thought for their own needs. Commitment to the broker distribution channel was rated the fourthmost important priority in a carrier (7.99), with producers expressing dismay over “mixed signals” from insurers who sell directly as well as through independent agencies. That point feeds into perhaps the most widely expressed theme of all—that producers want to do business with carriers who value them as partners. Survey respondents crave frequent, open and informed communication, whether through an inperson visit or simply a human voice on other end of the line.

OPEN AND COMMUNICATIVE CLAIMS RELATIONSHIPS ARE VITAL According to the survey, transparent claims handling with frequent and detailed updates for both producers and policyholders is the most important consideration producers make when placing business. Nearly 64% of participating

producers rated claims handling as a 9 on a scale of 1–9, while another 20% rated it an 8. That means roughly eight out of 10 producers rate claims handling as among their top priorities when evaluating a carrier. For Claudia McClain, agency principal at Everett, Wash.-based McClain Insurance Services, the claims handling process is really where “the rubber meets the road,” and a carrier must perform or face an unlikely renewal. “If there is one thing a carrier should strive for, it’s opening and closing claims quickly,” says McClain. “At the time of loss, it’s a ‘moment of truth’ situation. Often, the way the claim is handled will be the determining factor on whether the client will stay with them for years to come, or jump ship.” Despite the emphasis producers place on the claims relationship, however, there seems to be room for improvement on the carrier side. Producers noted that an unacceptably high number of claims departments offer poor response times and keep the producer in the dark on claim status. When a claim does get settled, many carriers are less than timely in making payments, which snowballs into a much bigger issue at renewal time.

A CARRIER’S MOST IMPORTANT QUALITIES On a scale of 1-9, how much of a priority do you place on the following aspects of a carrier’s oﬀering?

9 8 7 6 5 4

8.31

Claims processing

8.29 8.14 7.99 7.95 7.94 7.82 7.60 6.85 6.69 Carrier Commitment Underwriting Technology Quick Range of Marketing Education

Competitive rates

reputation and ﬁnancial stability

to the broker distribution channel

expertise

and automation capabilities

quotes

products oﬀered

support

and training

2 1 0 SEPTEMBER/OCTOBER 2014 | 11

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FEATURE / PRODUCERS ON CARRIERS

Such a “black hole,” as one survey respondent termed it, is not acceptable–especially as producers are often the first to receive a claims call. New technological capabilities offering online forms and real-time updates have been implemented by some carriers, but widespread adoption would do much to ease this pain point and engender greater loyalty from both producer and policyholder.

accustomed to explaining why investing a little more money in a policy is a better decision, and urge carriers not to play the numbers game— especially when pressure to compete with direct, online distribution is high. Underwriting expertise, which was rated 7.95 out of 9 by producers, may help carriers meet these expectations.

COMPETITIVE—NOT CHEAP—RATES

Though the insurance sector remained largely unaffected by the 2008 financial crisis, the troubles of major players like AIG shook many producers. Already considered an important criterion, financial ratings from trusted agencies like A.M. Best and Standard & Poor’s took on new meaning in the wake of the recession. Several major natural disasters, which have meant large losses for many insurers in recent years, only heightened the importance of sound finances. Several survey respondents noted they refuse to do business with carriers boasting anything less than an A+ rating. “My reputation is always on the line—especially now,” noted one producer. “Working with a reputable carrier is helpful.” Producers may be right to be concerned.

Outside of claims handling, producers were most adamant about their expectations on competitive rates (8.29 out of 9). While the financial bottom-line is certainly a concern, survey respondents emphasized that it is reasonable rates they’re after—not prices so low they call the future stability of the carrier into question. Instead, value for quality sets a carrier apart from the competition. Producers say they are

“If there’s one thing a carrier should strive for, it’s opening and closing claims quickly”

FINANCIAL STABILITY IN STORMY SEAS

PRODUCERS SPEAK OUT: 5 WAYS CARRIERS CAN IMPROVE

“Phone menus that communicate a gate-keeper bent are a huge turnoff. It seems appreciation for the broker distribution channel is on the rise, but policies that make it more timeconsuming or frustrating for brokers will prove fatal to carriers.”

“It’s a breath of fresh air to actually talk with an underwriter who gets it and still picks up the phone. Many don’t get a shot at my business as they’ve proven not to remember that I am their client and personal relationships are an important part of a true partnership.”

“It’s best not to give your agents mixed signals—ultimately, either your business model is direct or it is through agents/ brokers. Mixing the two is a sure-fire way to annoy agents. Do you hear me, Progressive?”

“Carriers need to contract with brokers of all sizes. We do $30 million a year and still can’t get direct contracts with The Hartford, Nationwide or AIG. I would love a shot at the business; give me the opportunity to use the platform and we’ll generate the business.”

“We have ‘fired’ companies with poor automation! Can’t afford to keep them in our efficient office. If quoting isn’t user-friendly, most mainstream carriers won’t get quoted. Even in the niche area, if one carrier has greater ease of use, they get more of the business.”

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DIFFERENT AGENCY SIZES MEAN DIFFERENT PRIORITIES Agencies reporting a larger annual policy volume also reported a slightly diﬀerent set of priorities when it comes to choosing a carrier.

Claims processing:

Technology and automation capabilities:

Competitive rates:

Quick quotes:

Carrier reputation and ﬁnancial stability:

Range of products oﬀered:

Commitment to the broker distribution channel:

Marketing support:

Underwriting expertise:

Education and training:

Large 8.42 Medium 8.28 Small 8.60

Large 7.79 Medium 7.98 Small 7.93

Large 8.60 Medium 8.28 Small 8.35

Large 7.76 Medium 7.97 Small 7.51

Large 8.10 Medium 7.78 Small 6.72 Large 7.49 Medium 8.10 Small 8.36

Large 7.66 Medium 8.00 Small 8.02

Large 7.64 Medium 7.50 Small 7.44

Large 6.78 Medium 6.84 Small 6.84 Large 6.36 Medium 6.51 Small 7.37

Note: Some survey respondents chose not to report annual policy volume; their responses are included in the overall rankings, but not in this breakdown.

According to a 1987 court decision, Higginbotham & Assoc. v. Greer, 738 S.W.2d 45 (Tex. App.), producers are not a guarantor of a carrier’s financial condition but they are required to use “reasonable diligence” in determining insurer solvency. This ruling has been interpreted differently by courts, and in certain jurisdictions, producers face hefty E&O risk if a carrier partner goes under.

MESSAGE TO CARRIERS: VALUE YOUR AGENTS While the topic of the independent agency model didn’t crack producers’ top three priorities, it certainly garnered a lot of attention from respondents. Producers ranked “commitment to the broker distribution channel” as the fourth-most important

priority when selecting a carrier (7.99), edging out such concerns as underwriting expertise (7.95), quick quotes (7.82) and range of products offered (7.60). Smaller agencies were even more adamant that carriers stick to this distribution model. Survey respondents who reported annual policy volumes of between $1m and $10m rated the issue as their third-highest priority (8.10 out of 9), while agencies earning less than $1m rated it second most important (8.36 out of 9). During a time when the independent agency is considered less vital to carriers, producers are naturally anxious to ensure their partners are fully committed to supporting them in the future. Many expressed confusion and even anger when insurers promote products through both their online presence and the offices of independent agents. SEPTEMBER/OCTOBER 2014 | 13

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FEATURE / PRODUCERS ON CARRIERS

“It seems as if many of our standard markets are welcoming any distribution channel ... This is a slap in the face to those of us who have spent our entire career supporting them” As a local leader of the Insurance Office of America in Aliso Viejo, Calif., Alicia Igram is dismayed by what she sees as lack of discrimination on behalf of carriers, even when some distribution channels historically leave a lot to be desired. “It seems as if many of our standard markets are welcoming any distribution channel,” Igram says. “[They’re] even working with payroll companies that are notorious for telling employers that most of the employees should be classified as 8810 Clerical. “This is a slap in the face to those of us who have spent our career supporting them.” Even carriers who work solely with independent agents still garnered distrust from producers. Several respondents expressed confidence that carriers would drop independent agents as soon as “selling direct” became economically feasible. Other respondents were less fearful. McClain admitted to being comfortable with multiple distribution channels, “as long as there isn’t different pricing in each channel.”

SIZE MATTERS…SOMEWHAT While the core priorities of producers remained the same across agencies of all policy volumes, the survey did reveal a few interesting divisions in addition to the comparative importance of commitment to brokers. Agencies reporting less than $10 million in annual policy volume were far less likely to give weight to carrier reputation and financial stability, for example. Mid-sized agencies of between $1 million and $10 million in policy volume rated it as

the third-least important factor in choosing a carrier (7.78), while reputation and financial stability ranked dead last with small agencies of less than $1 million (6.72). Similarly, underwriting expertise was rated less important to agencies bringing in more than $10 million in policy volume (7.66 compared to 8.00 for mid-sized agencies and 8.02 for small agencies). Many producers and owners of these larger agencies commented that they prefer to keep underwriting either in-house or confined to a managing general agent. Larger agencies did place more importance on a carrier’s product range, however, as compared to their smaller counterparts. These respondents rated “range of products” as their fifth-most important priority, as opposed to low seventh- and eighth-place slots for small and mid-sized agencies, respectively.

CARRIERS SHOULD SPECIALIZE, TOO The shifting sands of consumer sentiment have already altered many aspects of the insurance industry, and producers noted in comments that it’s time carriers embraced some of these changes— namely, specialization. The call to find a niche has echoed among producers and wholesalers for years; now, producers want carriers to adapt as well. In answering questions on the range of products offered by carriers, many producers noted that it isn’t quantity but quality that counts. Product range ranked as the third-least important quality of an insurance carrier overall, and it didn’t break into the top four priorities for any sized group. Producers carried a simple message throughout: Better to have an arsenal of full coverage in a few areas than incomplete offerings for all markets. “Just like we can’t be all things to all consumers, we don’t expect our carriers to be able to offer every product,” says McClain. “The value of an independent agent is that we can seek out other partners if needed.” It may eventually make the difference between carriers that win producer business and those who fail.

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Produce

PRODUCERS ON CARRIERS Rate Your Carriers

Insurance Business America conducted a survey in August to learn what independent agents and brokers care about most when selecting a carrier (see feature for results). Stay tuned for the second part of the survey late September, when you will be asked to rate your carriers on what areas they perform well and where improvement is needed. This is your chance to give feedback on what you need to be more efficient and successful in commercial insurance – don’t miss out!

Rate your carriers on: • Technology & Automation • Range of Products • Carrier Reputation and Financial Stability • Competitive Rates • Quick Quotes • Marketing Support • Education & Training • Underwriting Expertise • Claims Processing • Commitment to the Broker Distribution Channel

Carriers will be rated in the November/December issue of Insurance Business America. For more information, contact Caitlin Bronson at Caitlin.Bronson@keymedia.com

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SPECIAL REPORT/YOUNG GUNS

Meet the 40 young stars making waves in the insurance industry

oung Guns—the expression was popularized by the Hollywood antics of the Sheen brothers in a big-budget Western, but at Insurance Business America, the phrase is a celebration of some of the best and brightest stars in the industry who just happen to be young. We reached out to brokerages, agencies, insurers and others to come up with this list of 40 talented professionals under the age of 40. Each is set to lead the industry in the decades to come. Be they brokers or underwriters, vice presidents or promising young producers, this year’s crop of Young Guns represents the new face of insurance—a mix of the traditional work ethic that has been the industry’s backbone for years and the technological savvy that it needs to build future strength.

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Colleen Giles-Harris Age: 33 Director of Centralized Office Services, RPS Scobie Group The first female elected as president of AAMGA’s Under Forty Organization in 2010-2011, Colleen Giles-Harris has been instrumental in improving RPS Scobie Group efficiency. Giles-Harris’ operating procedures streamlined RPS, ridding the company of duplicate work at branch offices and reducing expenses. With just one year in the industry, she took over a national program that is now the single largest policy within RPS Scobie Group. This program alone produces over $200,000 in commission income.

Cason Burdett Age: 36 Vice President & Division Manager, U.S. Risk Underwriters Cason Burdett’s managerial role in the energy division of U.S. Risk has caused the program to flourish. His aggressive business development plan resulted in a year-over-year growth rate of 50% in premium income from 2012 to 2013. The current growth rate for 2014 is in excess of 35%. Burdett’s leadership resulted in improved product and services offered only to energy insureds. He also oversees the creation of an energy division news publication that is distributed to agents and brokers quarterly. In addition to his energy focus, he oversees three underwriting programs that show consistent growth and profitability.

Gino Orrino

Trae Vaughan Age: 31 Partner, Brock Insurance Agency Becoming partner at 29 years old, Trae Vaughan’s production matches principals and agents who have been in the industry for as long as he has been alive. Vaughan is one of the highest producing agents for his demographic in Georgia. Since he joined Brock Insurance Agency in 2009, the agency’s total production has increased by 20%. Vaughan’s expertise is recognized by his peers, who describe his style as “leading by example.” Experienced underwriters defer to his judgment on accounts, and the agency staff looks to him for inspiration and drive. “His enthusiasm is infectious, and everyone around him feeds off of his desire to be the best he can be,” says Ramsey Brock, director of marketing at Brock Insurance Agency.

Age: 38 President, Orrino Capital Services, LLC At the age of 29, Gino Orrino started his own agency, Orrino Capital Services, currently at $5 million in revenue. Orrino has increased his premium volume since 2012 by 72% without any acquisitions. Within the same time frame, he increased membership at New York Young Insurance Professionals by 21%. Orrino is a strategic leader. Instead of looking at the broad picture of insurance, he concentrates on niche product carriers with exact marketing strategies that enable him to “chase” specifics in the vast marketplace. His tactics are also key for his office. Using personality metrics, Orrino assigns staff the tasks that complement their personalities. As a result, productivity and customer satisfaction are at all-time highs.

Jeff Robinson Age: 28 Commercial Underwriter, Risk Placement Services, Inc. With just four years in the industry, 28-year-old Jeff Robinson has kept his focus on his clients. His book of business has grown 40%, 228% and 37% in the last three years, respectively. Robinson’s desire to learn and his client-focused work ethic have made him one of the two largest new-business producers at Risk Placement Services. He out-produces those who have more than 15 years of experience in wholesale underwriting. Recognizing a need, Robinson partnered with his manager to create a new program for a client in the telecommunications industry this past year. The exclusive program has grown the agent’s production by 586%. SEPTEMBER/OCTOBER 2014 | 17

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Matt Stitham

Christopher Cook

Age: 35 Vice President of Western Zone and Excess Casualty, XL Group Matt Stitham is an expert in excess casualty underwriting. He joined XL Group in 2007 with a primary casualty background. Stitham absorbed the excess casualty industry so well that he is responsible for $10 - $12 million in revenue within the Western US office. At a recent team meeting, he was awarded the Excess Casualty Rockstar Award for being the underwriter with the most lead umbrella premium. His production has put XL closer to being one of the market’s top three for lead umbrella markets, with Stitham’s team surpassing their GWP plans for the year by 10%. Along with his production, Stitham is recognized by his peers for relating to clients on another level. “He is very much a people person—quick to ingratiate himself—building strong relationships with our brokers and clients,” says colleague Chris Weirsky. “He builds trust and confidence.”

Age: 35 President, Alliance Insurance Services Founder Christopher Cook built Alliance Insurance Services from the ground up. Starting in 2004, Cook took what he had learned about the insurance industry in two years and grew his one office to three offices in North Carolina and Florida. Alliance Insurance Services was named a Best Practices Agency by the IIABA in 2013 and 2014.

Michael Gramm Age: 35 Vice President of Excess Casualty & Surplus, XL Group Michael Gramm was recently promoted to vice president of Excess Casualty & Surplus, where he now manages all of XL Group’s excess casualty business. When Gramm started with the company in 2012, he created and led a completely new excess auto book. He brought in over $2 million in new gross written premium himself in the first two months of business. As a result of the success he fostered, he was promoted to leader of all excess products.

Justin Breen Age: 28 Lead Sales Representative, Liberty Mutual As a lead sales representative at Liberty Mutual, Justin Breen has shown that he earned his title with a series of firsts. Breen is the first agent in Liberty Mutual history to achieve a monthly production award 48 times out of 48 months in his first four years. His sales drive earned him the Liberty Elite title, which is only awarded to the top 20 agents countrywide. Breen is the youngest rep in history to receive it. To continue his education in the insurance industry, Breen got his LUTCF designation within his first two years, a designation held by only 10% of insurance agents nationwide. Passionate about customer service, he trains a support team to follow up and review files with his clients. Breen’s methods are distributed to all of Liberty Mutual’s sales team via coaching videos.

Lisa Lemanski Age: 35 Owner and Manager, Meiers Lombardini Lemanski Insurance When Lisa Lemanski started at Meiers Lombardini Lemanski Insurance, the 28-year-old company had no social media presence. With her expertise, Lemanski branded the entire company and created a solid media presence in just two years. Social media has kept the company growing – with a 25% referral increase in the last three years – and created community engagement. “Even some of our older clientele who have been with the company a long time have commented on Facebook posts,” says Will Lemanski, Lisa’s husband and co-owner at Meiers Lombardini Lemanski Insurance. “You wouldn’t think that would happen.”

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Kevin Strong Age: 34 Director of Global Programs and Network Services, XL Group In just nine years, Kevin Strong has become the expert in international insurance. Working with AON Services and Marsh USA in previous years, Strong designed complex insurance programs and coordinated global servicing. Joining XL Group in 2012, Strong launched the Global Program Center of Excellence to strategically prepare XL to offer local insurance coverage globally. His leadership added 10 countries to their books, enabling XL to operate in over 150 countries. That same year he was named one of Risk & Insurance’s Power Brokers.

Matthew Hulburt Age: 30 Assistant Managing Director, Burns & Wilcox Insurance Matt Hulburt joined Burns & Wilcox Insurance as an intern in 2008, but his ease with customers soon marked him out for greater things, and he was moved into a management trainee position. Within two years, Hulburt was one of the top 50 producers in the company. Today, he’s one of the company’s top 20 producers and an accelerated management candidate. Hulburt was instrumental in taking Burns & Wilcox’s Sacramento location from a $13 million office to a $27 million office in less than four years.

Jill Roth

Liam Hutelmyer

Age: 34 Executive Vice President of Marketing, Ahart, Frinzi & Smith Insurance Agency Jill Roth is a leader in creating political change and involvement through insurance. IIABA awarded her the 2013 Young Agent of the Year designation for her presence on their political committee. During the four years she has been a Young Agent board member of Independent Insurance Agents of Virginia, Roth has worked to expand diplomatic involvement with her peers. A national committee member for IIABA, she is responsible for 15 states as their national liaison.

Age: 29 Underwriter, AmWINS Transportation Underwriters Liam Hutelmyer started his career six years ago as an underwriting assistant. Now he’s an underwriter with a book of business worth more than $4 million. Hutelmyer helped develop an in-house rating system that increased efficiency and gave AmWINS a competitive edge. In 2013, Hutelmyer was named MVP of the AmWINS Group for embodying the company’s mission, vision and principles. When he’s not helping his company reach new heights, Hutelmyer is active in local charity, participating in his community’s Meals on Wheels program.

Jacob Shuler Age: 39 Founder and President, CECO Insurance Jacob Shuler has built CECO Insurance from the ground up by focusing on the insurance needs of small businesses – particularly group health insurance solutions – for the past 10 years. Shuler’s talent and determination led him to punch far above his weight; he single-handedly achieved Platinum Broker status with United Healthcare – a rank usually held only by longestablished firms with multiple agents. He was also named to Humana’s Leadership Circle. “He offers everyone on this team the resources to achieve our own personal and professional goals all while helping local businesses achieve their objectives,” says employee Laura Boehm. “The culture of the organization and the level of success we’re already experiencing has made this an opportunity of a lifetime. All that he has accomplished is inspiring, and I greatly appreciate being given the chance to do the same for myself.”

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Luke Bauckham Age: 34 Director, Corrie Bauckham Batts Limited Luke Bauckham joined the insurance industry in London when he was just 18. Starting as a processing clerk, Bauckham rose quickly through the ranks, and last year joined the board of Corrie Bauckham Batts, serving the company’s American wholesale clients. He’s also served on the board of the American Association of Managing General Agents’ Under Forty Organization, providing important insight on the London market to American members of the UFO.

Erin Dey Age: 35 Director of Sales and Agency Relations, J.M. Wilson Erin Dey joined J.M. Wilson as a property and casualty underwriter in 2009. In 2011, she proposed the creation of her current position as director of sales and agency relations. In that position, she maintains and develops relationships with the company’s Michigan agents and is preparing to manage the growth of agent relationships in Tennessee and North Carolina. She also writes and instructs continuing education courses, leads a sales development team and works to improve the company’s internal processes. She’s served on the Michigan Professional Insurance Agents’ Young Insurance Professional committee for the last two years and recently accepted a position on the Michigan PIA.

Tony Fierro Age: 39 President, K&S Insurance Agency Tony Fierro was named president of K&S Insurance in January of this year. With more than $1.5 million in annual commissions, Fierro is in the top 1% of producers. He’s also not hesitant to share his expertise; Fierro mentors a production staff of 13 agents, and has grown the agency from $4.5 million in revenue for 2009 to an estimated $9 million for 2014. Under Fierro’s leadership, the agency has seen an average annual growth of 15% and has gone from 28 to 47 employees. Fierro has also improved the company’s service model, adding internal claims, loss control and stewardship services to better assist clients in managing risk.

Kevin Duke Age: 29 Divisional Vice President, Great American Insurance Kevin Duke was just a trainee when he joined Great American six years ago. He shot quickly through the ranks, from underwriter to zone officer and finally to divisional vice president. Duke now oversees a team of 40 people in a territory spanning the Midwest, Southwest, Northwest and California. His talent has helped the division grow by 30% in the last few years.

Michael Moore Age: 37 Managing Director of Property & Casualty, Gus Bates Insurance & Investments Michael Moore was recruited to start Gus Bates Insurance & Investments’ property and casualty division. In just four years, he’s taken it from an idea to a division with more than $8 million in premiums, and added personal lines to the portfolio of services. Moore has worked tirelessly to get his company into the most competitive markets; recently, Gus Bates joined the SBMP regional group of agencies that includes more than 300 markets. An active member of his community, Moore is also a member of the boards of the Child Study Center and Cystic Fibrosis Foundation.

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David Malloy

Matthew Peterson Age: 37 President, Mills Insurance Group/Peterson Insurance Services Matthew Peterson opened Mills Insurance Group in 2008. Since then, he’s grown the business to almost $10 million in annual underwritten premiums, focusing mainly on commercial lines. The company is now the preferred insurance agency in the country for snow removal contractors. Peterson recently started Peterson Insurance Services as a managing general agent specializing in the snow removal industry. He also helped develop the first industry standards for snow and ice management contractors. Peterson Insurance Services recently developed two programs with an A-rated national carrier to improve product offerings for the industry. Prior to the development of those programs, snow contractors dealt with inflated prices and reduced coverage.

Age: 37 President, PMC Insurance Group After joining PMC Insurance Group 10 years ago, David Malloy quickly became one of the company’s top producers. Rising through the ranks, Malloy became the company’s chief operating officer, and finally the president. In between, he’s been a leader in various sales, operational and strategic initiatives. Malloy recently reorganized the company into four regions to more strategically align with customers’ needs. As a result, PMC had the best year in its history, marking an 88% growth in new business over the prior year. Malloy has also been intimately involved in the development of several value-added services designed to make life easier for clients and improve business for agents.

Robert H. Sanders Jr. Age: 34 Executive Vice President, Preferred Specialty A strong advocate for independent insurance agents, Robert H. Sanders Jr. started with E&S wholesaler Preferred Specialty in 2003. Sanders serves on the IIABSC Young Agents Committee and has been honored with the IIABSC Chairman’s Citation for his service to the industry. He also speaks on surplus line issues to insurance and risk management students at the University of South Carolina. Sanders serves in a leadership role in the young member division of the AAMGA.

Brent Hanrath Age: 37 Underwriter/Broker, Risk Placement Services An 11-year industry veteran, Brent Hanrath joined RPS in 2008 as a transportation underwriter and was promoted to underwriter/broker within three years. He was the 2013 RPS Rookie of the Year, and in 2014 won the Underwriter of Excellence award. He’s on track for organic growth of 30% over last year.

David James Age: 24 CEO, The Right Choice Insurance Agency David James started The Right Choice Insurance Agency when he was just 18 years old. In a little more than five years, he’s grown that agency to 30 employees representing more than 20 insurance companies and $10 million in premium. James has won Safeco Insurance’s Presidential Award and Hasting Mutual’s Choice Award three years running. Right Choice was the country’s top agency for Encompass Insurance in 2012. James was also named one of Detroit’s top entrepreneurs in 2014, the youngest to be so honored and the only honoree in the insurance business. “David has not only done a great job growing the agency, but he has been instrumental in my development as an agent,” says Right Choice agent Nicholas Shaheen. “When I started working for David, I was a young agent struggling to make it. David has mentored and coached me to being the top producer in the agency the last two years. … David goes above and beyond, working with all of the agents to make sure they are on the path to success, just as he is.”

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SPECIAL REPORT/YOUNG GUNS

Kristen Skender

Wendy Booth Age: 34 Regional Sales Director, Small Commercial, The Hanover Insurance Group Since joining The Hanover Insurance Group in 2010, Wendy Booth has established herself as a force to be reckoned with in the property and casualty insurance industry. Booth has been instrumental in expanding the company’s reach across a 10-state area. She has driven the company’s partnership distribution strategy and established it as one of the leading companies in the Pacific and West regions. Under Booth’s leadership, her region has achieved double-digit premium growth every year, grown new business each year and doubled the number of large, productive Pacific Region agents. In 2014, Booth received Hanover’s prestigious President’s Service Award.

Luke Proctor Age: 35 Director of Finance/M&A, The IMA Financial Group After joining IMA in 2003, Luke Proctor spent his first few years working directly with Rob Cohen, the company’s president and CEO, as head of strategic planning. As Proctor’s industry expertise grew, he began building Signature Select, a retail insurance subsidiary providing personal and business insurance services for small to midsize organizations. Since Signature Select opened its doors in 2009 with Proctor as president, its commercial platform has seen growth of 1,000%. “In merely five years, Luke has proven that Signature Select can provide IMA with a key strategic solution to achieving future growth in markets that have historically been largely neglected,” says colleague Erin Larrabee. “This clearly illustrates Luke’s tremendous talent and acumen in the insurance industry.” Proctor was named the Wall Street Journal’s Finance Student of the Year in 2003. He was also named to the Wichita Business Journal’s 40 Under 40 in 2009 and was honored as Wichita’s Insurance Industry Person of the Year in 2011.

Age: 30 Director of National Sales and Marketing, USG Insurance Services When Kristen Skender came to work at USG eight years ago, she was fresh out of college. Hired to run a small marketing department, Skender quickly expanded her expertise to include virtually all aspects of an E&S wholesale operation. Skender has also grown the marketing department dramatically, even taking on projects for outside companies. Skender is the recipient of NAPSLO’s Dana Roehrig Award and Steven R. Gross Next Generation Award.

Lawrence Leifer Age: 32 VP and Senior Underwriter for Professional Liability, North America Construction, XL Group Lawrence Leifer joined XL Group in 2011 to help build a North American construction insurance team from the ground up. Leifer helped launch the team’s professional liability coverage and service – which now represents 21% of XL’s construction book of business. Since Leifer assembled the team, it has more than quadrupled in size, building a significant book of professional liability and professional pollution liability business.

Cherise Gonzalez Age: 34 Personal Lines Manager, Risk Placement Services, Inc. Cherise Gonzalez joined Risk Placement Services in 2009 and quickly became a leader in the office. Due to those leadership skills, Gonzalez was chosen to participate in the Global AJG London experience offered to four RPS employees. When Hurricane Sandy hit the coast of New Jersey, Gonzalez put her new London contacts to work. She was instrumental in proposing an addition to the company’s personal lines contracts in London, providing impacted New Jersey homeowners with a solution that hadn’t been readily available before the storm. Gonzalez is the immediate past chair for the IIABNJ’s Young Agents Council. In 2007, she received the personal lines High Achievement Award from Travelers Insurance.

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Stefania Perciballi

Quincy L. Branch Age: 37 President and CEO, Branch Benefits Consultants Quincy Branch started Branch Benefits Consultants with a small book of life and health business he purchased from the agency at which he’d previously worked. Within three years, Branch had grown his life and health business several times over. In the last year, Branch added property and casualty lines and, starting from scratch, grew the lines to millions in written premiums. Branch serves as chairman of the IIABA Young Agents Committee. In his first year in the position, he grew national membership by more than 15%. Branch has given numerous public presentations at national and state meetings, overseen two national Young Agents leadership meetings, raised thousands of dollars for insurance education at the high school and college levels, and represented Young Agents at meetings with federal elected officials. He’s also on the steering committee of the Nevada Young Agents Committee and was honored this year as the Nevada Young Agent of the Year.

Age: 35 Program Manager, Medical Professional Liability, Meadowbrook Insurance Group Stefania Perciballi started at Meadowbrook in 2003 as a desk underwriter in the medical malpractice division. Over the next decade, her talent in the field sent her up through the ranks until she assumed leadership of the division in 2013. She’s enhanced Meadowbrook’s SafetySurance online risk management portal to make specific malpractice resources available to physician policyholders, and has built a network of malpractice prevention consultants. Perciballi has been instrumental in expanding Meadowbrook’s medical malpractice division beyond the company’s home state of Michigan into Ohio and Connecticut.

The staff of The Insurance Shop Age: 26-36 Producers, The Insurance Shop In an industry where most agents are 45 and over, all eight producers at The Insurance Shop are under 40. Josh Frerking (28), Shannon Dye (30), April Melvin (31), Curt Sieve (34), Justin Bartmess (34), Melinda Langworthy (34), AJ Schrage (35) and Alex McFarland (36) field between 800 and 1,000 inbound leads per month – and they’re all producing at a high level. The online insurance agency is on pace to write about $10 million in new business this year. “The young staff of producers is by design because it is a reflection of what we look for in a salesperson,” says sales manager Tim Davis. “With our online model, we want to find producers that are technologically savvy, have superb written and verbal communication skills, and are comfortable with asking difficult questions over the phone or through email. “Our producers act as the eyes and ears of the agency. As a bunch of Millennials, our producers understand our marketing platform at a high level and give our IT staff constant feedback on what changes work and don’t work for our online marketing,” Davis adds. “They identify industry trends and appetite changes quickly, and help us apply that information to our web site. The producers will identify carriers that we need to target for new appointments, niche programs that we can market, and will help create marketing materials.”

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FEATURE / WORKERS COMPENSATION

CUTTING THROUGH THE COSTS Higher rates. Rising medical costs. Greater regulation. All a factor, but not a problem for workers comp producers who employ these costcontrol measures.

Commercial lines producers have always faced a tall order when it comes to workers compensation: Deliver competitive choices in a market where appetites shift daily and differing state regulations add increased headaches. Now, external pressures like low interest rates and rising medical costs have made that mandate even more significant. According to a 2014 report from Wells Fargo, rate increases are expected through at least the third quarter, along with continued movement toward higher deductible program structures. The future of the federal

Terrorism Risk Insurance Act also presents a powerful wild card. Tina Miller, executive director of Virginia-based wholesaler Mid Atlantic, says all these factors have made it difficult to operate with certainty in the market—especially across state lines and multiple business classes. “Carrier appetites could change daily. It’s really sporadic,” says Miller, an industry veteran of nearly 30 years. “It’s very difficult then for us because we work on past experiences—we know that a certain carrier is going to give us a good rate, but then we

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9 WAYS TO PROTECT AGAINST PREMIUM FRAUD learn the carrier doesn’t want this particular class anymore. We end up having to call the retail agent back to say sorry.”

A ‘VERY BIG’ ROLE Fortunately, workers comp rates aren’t ironclad. Even in administered rate states, an enterprising producer can score significant cost reductions for clients—sometimes transforming into savings of 20 and 50%, says AMAXX Risk Solutions President Rebecca Shafer. “Employers have a lot of control over their workers comp costs. The problem is that they don’t know that, so they tend to just write off their premiums as ‘X’ without looking into it,” says Shafer. “Many times, the broker or agent doesn’t know that either and so they don’t offer any help, but there is a very big role they can play in reducing costs significantly.” As the first point of contact with an account, producers have an intimate knowledge of the insured’s operations and exposures that can help with proper classifications and even employer education and safety efforts. With the right combination of product offerings and value-added services, savings to an employer’s out-of-pocket costs can start rolling in around 30 days, translating into a better overall experience mod as bad claims years roll out on a three-year basis.

CARRIERS, WHOLESALERS MATTER The first step to reducing workers comp costs is also one of the most basic: shopping carriers. It’s a common argument in favor of the independent agent’s value, but when it comes to workers comp, many producers let things slide. “There’s always a little bit of wiggle room,” advises Hale Johnston, senior vice president and Western regional manager for workers comp carrier EMPLOYERS. “If the buyer is just throwing up their hands and saying ‘workers comp is workers comp,’ the agent should be informing them that there are ways to manage costs and carriers that pay dividends in administered rate states.” Choosing the wrong carrier is actually one of the biggest drivers of undesirable experience modifiers and high costs, Johnston says. In his 23-year career, Johnston has seen experience mods as high as 200% due to “buying insurance poorly.” “That’s all avoidable if the agent finds the right carrier,” he says.

EMPLOYERS Fraud Investigations Vice President Ranney Pageler says there are several ways producers can protect themselves in the event of workers compensation premium fraud. They include:

Obtain an original signature on the application. Get somebody to sign something to validate authenticity, rather than relying on electronic signatures.

Identify the person you are dealing with. Get a driver’s license from the person who is purchasing the policy.

Determine and identify the “responsible parties.” Who came in your door? Be able to identify these people.

Familiarize yourself with the business. Are they in your neighborhood? Do they have a physical address rather than a P.O. box? If not, these could be red flags of potential premium fraud.

Keep notes of phone calls. Who is calling on behalf of the company? Is it the same person every time, or do these callers change?

“Many times, the broker or agent doesn’t know there is a very big role they can play in reducing costs” Rebecca Shafer

Have a responsible party acknowledge the estimated annual remuneration. Find a third-party source to obtain quarterly wage and withholding report forms.

Obtain as clear a picture as possible of the actual corporate structure. Know who is in charge and how the business works. Keep good notes on any changes.

Keep and maintain all original records, regardless of electronic filing. Electronic filing only places additional emphasis on original records that are maintained by insurance producers. Many search warrants and subpoenas are issued for these records.

Report all claims in a timely manner. Over time, companies are better able to invent circumstances that may reduce or limit payout.

Carrier fit is especially important for agents working with small businesses. As the overlooked and underserved majority, small businesses are often sent to the market of last resort. However, Johnston believes that’s the last place they should be. “The premiums are small, but there’s always a better fit,” he says. “Finding the right fit is a key component of reducing costs, particularly for small businesses.” SEPTEMBER/OCTOBER 2014 | 25

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FEATURE / WORKERS COMPENSATION

THE BIGGEST MISTAKE IN WORKERS COMP DISCUSSIONS According to workers comp attorney J. Bradley Young, communication with injured workers is the number one way employers can reduce claim costs, and producers have an important role to play in that process. That’s something severely lacking in today’s workplace environment, says Young, who works as a partner with Harris, Dowell, Fisher & Harris in St. Louis. “I still deal with employers every day that feel that if they educate their workforce about comp laws, they’re simply telling their employees how to get more money out of comp claims,” Young says. “I don’t think that’s the case.” Instead, Young believes many comp claims—particularly ones that involve attorneys—are a product of uncertainty rather than a desire to bleed the employer dry. Often, claimants say they would not have hired an attorney had the employer simply kept them in the loop regarding their rights. All that secrecy breeds distrust toward the employer, which can result in lawsuits and heightened comp claims. That’s where a producer can help. Educating insureds on how to speak with their employees regarding workers comp rights is vital, as it can help business owners save on their insurance bills down the road. “Whether it’s lunch meetings, breakfast meetings, or in-house seminars, these scenarios can be facilitated by brokers,” Young says. “They just have to have the will and the access to someone who can do the speaking—they can even do it themselves.” Producers even beneﬁt from the events. “The insured knows that brokers aren’t being paid for making that investment in the company,” he says. “It’s a value-added service, and insureds get that and appreciate it. Operations run more smoothly, and it gets reciprocated with loyalty to the broker.”

Going straight to carriers isn’t the solution here, however. Accessing these markets through a wholesaler is preferable in nearly all instances. In fact, Miller describes wholesaler expertise as “one of the top advantages a retail agent may have.” “As a wholesaler, we have 30 markets we can go to,” Miller says. “We also have sizable books that give us a little more pull with an underwriter or an edge to get our accounts worked on. We also know the markets pretty well—we can work quickly to find something.”

GETTING CLASSIFICATIONS RIGHT Another advantage of working with a wholesaler—and another way of controlling costs—is more accurate classification codes on an account. Miller says underwriters at Mid Atlantic often run into operations that have been misclassified due to producer misunderstanding. “We have been asked to rate a particular piece of business based on the classifications agents put on applications, but we feel because of the employer’s operations it’s not classified

correctly,” Miller says. “At the end of the year, the insured may be audited, so we try to figure that out before we do any work on it.” While many such mistakes originate from lack of experience, others emerge from a less innocent motive. Ranney Pageler, a 24-year workers comp veteran and vice president of the fraud investigations department with EMPLOYERS, says he is “absolutely flabbergasted” by the amount of premium fraud currently in the marketplace. In fact, figures from the Fiscal Policy Institute suggest that such fraud costs carriers $489 million each year in premiums in New York City alone. But artificially lowering one’s risk profile doesn’t just hurt carriers. Those low rates mean higher premiums for everyone and, for producers selling the policies, potential legal liability. “Nine times out of 10, if law enforcement confronts a company over workers comp fraud, the first words out of their mouth are ‘This is what the agent told me to do,’” Pageler says. “Then there’s a knock at the door and you have a subpoena on a policy that went through you.” To avoid intentional or unintentional misclassifications, it’s imperative that producers actually visit clients on a regular basis to witness operations firsthand, document any changes and report them. The National Council on Compensation Insurance is also available to clear up any question on proper class codes.

A MULTI-LINE STRATEGY Controlling and reducing workers comp costs involves much more than tightening a few cogs in the actual workers comp policy. A multi-line strategy is key to reducing both claims and costs, particularly over the long-term, as evidenced by a report from Lieberman Research Worldwide. According to a study of 600 small, medium and large U.S. employers, 42% of all companies providing voluntary accident and disability insurance report declines in their workers comp cost claims—some up to 50%. Roughly 17% of employers offering voluntary accident insurance and 15% of those offering disability saw claims declines of 25 to 49%. The declines were most frequent for large employers: 55% noted a corresponding decline in workers compensation costs. Thirty-four per cent of small- and mediumsized companies reported the same results. These types of solutions are particularly helpful to

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producers working with sole proprietors. Offering a so-called “ghost policy”—a workers comp policy that excludes the sole proprietor—satisfies certificate requirements while reducing costs. For actual coverage, an accident policy suffices. “Based on payroll, a sole proprietor often can’t afford being included for workers comp coverage and doesn’t want to pay that,” says Miller, who works with such accounts through Mid Atlantic’s Sole Proprietor Solutions—a package including workers compensation and a 24-hour accident policy. “We’ve filed this in 29 states and it’s cheaper than what they would have to pay if they went through a state plan or state fund,” she says.

CONTINUED CLIENT CARE Keeping workers comp costs in check through strategies like these requires more diligence than the typical, once-a-year policy check required from

rs orke A W nsation pe n Com cy and a cy i l Po ent Poli e! g d Acci ne Packa in O

• • • •

most commercial lines. Instead, Johnston recommends producers check in at least three times a year—when the policy is sold, six months down the road, and about 60 days before the policy is up for renewal. During each visit, the producer should check in to see what has changed in the employer’s workforce or safety strategies, as both could impact final comp costs. “That’s key because that avoids surprises, which could be in the form of additional premium,” he says. In the end, Miller believes scoring favorable rates boils down to client care. “It’s a matter of really knowing the account,” she says. “Do more than call. Go visit the place of business. Talk to the owner. Look at past policies and past policy audits. Have good conversations with insureds so they understand the exposures and are classified correctly. That’s really the difference agents can make.”

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ON DESKS MONTHLY BEGINNING JANUARY 2015

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FEATURE / CONTRACTOR INSURANCE

BUILDING CONTRACTOR CONFIDENCE

Independent artisan contractors are building on an economic rebound, opening up new business for producers. Liz Brown highlights the potential as well as possible pitfalls

As the economy improves, the construction sector continues to slowly gather steam, meaning more independent contractors are taking up their tools and heading to work. According to the U.S. Census Bureau, housing starts saw a 7.5 percent increase over last yearâ&#x20AC;&#x2122;s pace in June and building permits were up 2.7 percent. With more of these contractors entering the market, brokers can seize this opportunity to grow their own businesses and educate their clients to ensure they are fully protected against liability threats, from general liability coverage to pollution and premises pollution coverage.

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FEATURE / CONTRACTOR INSURANCE

“Many independent contractors don’t purchase insurance until they have to due to a job requirement, but unfortunately many times the small contractor will go out of business because he is sued for something and doesn’t have adequate coverage,” says Ralph Blust, president of Insurance Noodle in Chicago. Blust says that many small contractors face a dilemma over liability coverage in that if they don’t obtain it and wait until a job forces them to, obtaining the coverage they need can be challenging. Insurance Noodle is trying to make it easier for contractors to obtain the insurance they need by relaunching a facility specifically for insurance agents dealing with artisan contractors. Through Insurance Noodle, agents can approach multiple carriers with a single application process to get a diversity of coverage and pricing. Blust says that in his experience, claims in general liability aggregate around workmanship. Michael Hill of Hill Program Managers in Denver agrees. “Construction defects are a big issue for the construction industry, and different states have different laws. For example, in Florida they’ve had very big problems with condominiums,” he says. According to Hill, professional liability coverage for construction contractors is fairly new. “It’s something they’ve been looking at seriously over the last four or five years,” he says. Hill adds that it’s an area where agents can grow their business while helping to control their risk and their clients’ risk. Another area where Hill says contractors face exposure is in action-over claims, where

“All sorts of construction trade contractors have had pollutionrelated losses” Bill Pritchard, president and CEO of Beacon Hill Associates

employees may file claims on a general liability policy of a contractor even though they are collecting workers’ compensation from their employer. “These can be some pretty significant claims, especially in the state of New York where you have scaffolding laws (New York’s Labor Law 240),” says Hill. Agents should explain such risks with contractors. Increased environmental awareness by the general public has also pushed pollution-related claims to the forefront, according to Bill Pritchard, president and CEO of Beacon Hill Associates, a nationwide provider of environmental liability insurance. “Certainly over time we have seen claims activity in the various industries. All sorts of construction trade contractors have had pollutionrelated losses,” he says. Because of this increased awareness of environmental risks and their detrimental effects to health, Pritchard says that it’s becoming more and more common for insurers to combine

FASTEST GROWING STATES FOR ARTISAN CONTRACTORS Wyoming: 12.8% gain Mississippi: 12% Colorado: 8.8% Hawaii: 8.8% Louisiana: 8.4% Missouri: 8.1% Connecticut: 7.3% Source: Bureau of Labor Statistics, May 2013

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TWO OF THE MOST COMMON LIABILITY RISKS FOR CONTRACTORS MOLD – “Mold claims have become more signiﬁcant than they were in the past,” says Pritchard. Indeed, there’s a saying that “mold is gold.” According to industry statistics, mold claims rose by more than 1,300 percent between 2000 and 2001; the Texas Department of Insurance reported losses from mold claims swelled to $1 billion during that time. Contractors that work jobs that could incur water damage have to be especially vigilant to mold risks. “There haven’t been thousands of people dying of toxic mold,” says Pritchard, referring to the public health panic in the early 2000s about the health risks of mold. “But there has been a slow and incremental growth in these sorts of claims, and it’s becoming more of an issue.” SILICA – Silica dust, which is a byproduct of sandblasting, can cause a lung disease called silicosis; it is sometimes called the “next asbestos.” There was a leap in claims in the early 2000s, but exposure can be minimized with proper protective steps. According to the U.S. Department of Labor, over 2 million workers are exposed to silica dust each year.

professional liability policies with pollution policies for construction contractors. “It just trickles down because of this increased awareness. You know the general contractors are more likely to require all the subs they hire to carry pollution coverage because they’re required to have evidence of it.” “With increased public awareness, there’s just a much higher likelihood that people will allege environmental problems are occurring, and this is drawing contractors into conversations they really didn’t have to have even a few years ago,” he adds.

EDUCATION IS KEY In a competitive environment, sometimes construction contractors will fail to obtain adequate coverage because they need to keep costs low. However, this is a short-sighted strategy, and Blust says that agents should point out what is really at stake for the contractor and what they can potentially stand to lose if something goes wrong. “Contractors have usually put everything they have both personally and financially into their business, and it’s important to protect that,” he says. While the increased public awareness of environmental pollution damages can be a problem for contractors, it’s also made pollution and environmental liability coverage more accessible and affordable, something that agents can point out to prospective clients. “The contractor pollution liability policies are much more competitive than they used to be. I think it’s much more cost effective, so more contractors are buying it routinely,” says Hill. However, in order to sell these types of policies, SEPTEMBER/OCTOBER 2014 | 33

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FEATURE / CONTRACTOR INSURANCE

ARTISAN CONTRACTORS: HIGHEST EMPLOYMENT SEGMENTS Plumbing, heating and air-conditioning:

848,110

Electrical and other wiring installation:

749,900 Electricians:

382,710

Drywall and insulation: Carpenters:

203,350

173,020

Roofing contractors:

169,350

agents need to familiarize themselves with the types of environmental and pollution risks that contractors face. “The biggest issue for most agents is being able to sit down with an insured and explain to them what their industry-specific exposures are and let them decide if they want to transfer that risk or not,” says Pritchard. When agents become comfortable with the exposures and the policies and how they work, they can deliver them effectively to their clients. “It can become a really strong part of your business because it differentiates your agency from others,” says Pritchard. “If you can sit down and have a conversation with a client about these exposures they might not have coverage for, you are setting yourself up as the most professional person out there and will reap the benefits of that with client loyalty and referral business.”

Source: Bureau of Labor Statistics, May 2013

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Too much of any one substance can be considered a pollutant. Make sure your clients are protected in the event of a problem relating to their operations, facilities, or even from someone else’s carelessness.

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A WELLSPRING OF

OPPORTUNITY

Oil and gas is currently the fastest growing industry in the US, but the market remains remarkably untapped in terms of potential for independent agents The oil and gas industry has never been hotter. Thanks to advancements in new technology, the United States is currently poised to surpass Russia as the world’s leading producer of oil and gas. And the jobs are endless. According to a Bureau of Labor Statistics report, oil and gas experienced a 40% increase in jobs from 2007 to 2012, and a PricewaterhouseCoopers report reveals the industry employs 2.6 million people as of 2011. In fact, the boom is so big, its job growth far outpaces total private sector employment. There is a downside to that development, however. The sector is growing so rapidly, organizations in newly expanding regions may not have access to skilled agents who are able to connect them with specialized insurance markets or help them manage risk—leaving the operations and the people who run them one event away from potential financial disaster. It also leaves enterprising agents at the forefront of immense possibility.

TRACING THE ORIGINS OF THE OIL AND GAS BOOM The energy boom has dominated media headlines, but U.S. involvement in oil and gas production is not new—and neither is its leading technology. Hydraulic fracturing, known to most Americans as “fracking,” is the process of injecting fluid at high pressure to release natural gas after drilling down into deep layers of shale. What may be surprising is that fracking was first practiced nearly 70 years ago

in 1947 and patented just two years later. So why the sudden explosion in popularity? According to Richard Kern, manager of the energy and environmental divisions of Richmond, Va.-based James River Insurance Company, new technology has made it both easier and more economically viable to locate shale gas. “The technology and practice of fracking got to the point where it was easier to find and retrieve shale gas, and so we’ve seen this boom in the last 10 years or so,” says Kern, an oil and gas sector veteran of more than 40 years. “The price of oil has also stayed up at around $100 to $120 a barrel, which makes fracking more economical. When it was at $20 a barrel, it wasn’t quite so competitive.” Now, active fracking operations number 1.1 million, with wells in more than half of U.S. states.

DEMYSTIFYING OIL AND GAS Despite the significant growth, oil and gas represents a relatively untapped sector in terms of independent agent permeation—particularly in states where the industry is just beginning to make headway, like North Dakota, Wyoming and Utah. The convergence of that level of expansion with the value of local advisors means demand is coming agents’ way. “While most of the knowledgeable brokers in the past have been located in Texas, oil and gas companies in some of these newer regions will want to go to a neighbor or someone they see at soccer games,” says Kern. “Insurance buyers want to deal with someone they know.” Several myths relating to the oil and gas industry keep independents at bay, however. One of the most SEPTEMBER/OCTOBER 2014 | 35

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FEATURE / OIL & GAS

Oil and gas hotspots in the US As of February 2014, there were roughly 1.1 million active oil and gas wells in the United States.

Washington

Maine Montana

North Dakota

16,464

22,881

Oregon

168

Idaho

Vermont New Hampshire Massachusetts

Minnesota

Wisconsin

South Dakota Wyoming

508

Nebraska

Nevada

2,435

238

Utah

14,175

Michigan

Pennsylvania

Iowa

Ohio

Illinois

California

12,228

37,958 Indiana

48,540 7,607

Colorado

84,367

15,209

26,429

66,492

Kansas

122,912

Missouri

115,564

District of West Virginia Columbia

63,210 Virginia 8,292

Kentucky

1,897

New York

10,933

Connecticut Rhode Island

New Jersey

Delaware

Maryland

104

North Carolina

Tennessee

Oklahoma

Arizona

12,727

New Mexico

112

52,316

15,682

Arkansas

South Carolina

16,650

Mississippi

6,732

Texas

303,909

Alabama

628

Georgia

Louisiana

64,343 Florida

Alaska

Source: Fractracker.org Source: The Bureau of Labor Statistics

5,081

Hawaii

“Oil and gas companies in some of these newer regions will want to go to a neighbor or someone they see at soccer games” Richard Kern, James River

pervasive is that the energy boom will eventually go bust. Kern disputes this. “I’ve been doing oil and gas since before 1980 and I’ve been hearing that same story all these years,” he says. “The industry’s not going to go away because of the economics. The country will still continue to burn fossil fuels because no one wants nuclear and

we can’t move solar along fast enough. “Oil and gas is going to be there for the long haul.” The other, perhaps more prevalent, fear is that working in oil and gas insurance requires a high degree of industry-specific knowledge. That’s true— but only to a point.

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Working in a controversial niche

As senior underwriter for James River’s energy division, Nataliya Marshall works primarily with wholesalers whose retail agent partners can start off with limited industry know-how. It is the specialized knowledge of the wholesaler, she says, that allows many agents to successfully write oil and gas business. “We often run into situations where retail agents aren’t experienced [in oil and gas], but they have enough common sense to find someone on the wholesale side of the business to hold their hand. It works,” Marshall says. “If they start asking questions and have a desire to learn, they can be successful.” Cade Felker, vice president of Swett & Crawford’s energy practice group, says he understands the difficulty agents may have in “giving up control” of some aspects of the account, but maintains the agent-underwriter relationship is key in the oil and gas sector. “There’s no way for retail agents to be an expert on all things,” Felker says. “It’s important for them to listen, understand and concentrate—then we can help them take advantage of all the resources underwriters can provide to meet the needs of the account.”

CRACKING THE INDUSTRY Given the capacity in the market and the specialization of insurance wholesalers, it isn’t necessary for retail agents to be experts or even to aim for specialization in oil and gas. What is necessary is knowing which accounts to target first. All areas of the oil and gas industry have grown, but some operations are benefiting from the boom more than others. Extraction—the production work performed before the shipment of oil—employed an impressive 193,000 people in 2012, but support activities are where the industry is seeing real progress. These activities, which include excavation, well surveying, casing work and well construction, employed 286,000 people by the end of 2012—a 180% increase since 2007. Some of those operations are an ideal entry point for independent agents with a more general background, says Maureen Dunn, an underwriter with James River’s energy division. “I see installation, service and repairs being a good, transitional class for agents, especially those

Fracking is the source of some of the most divisive environmental and safety conversations in the U.S. And while science has been a bit hazy on the exact effects of fracking, public sentiment definitely has an influence on insurance professionals servicing these accounts. According to Richard Kern, manager of James River Insurance Company’s Energy and Environmental divisions, nuisance claims from population centers near well sites are one source of potential risk. “We’ve had some claims where someone buys land next door to a fracking site and complains about a nuisance,” Kern says. “They represent third-party exposures.” The risk is especially present during geologic or seismic studies near urban areas. Kern recalls one incident in which a subcontractor used a “thumper truck”—which creates sound waves deep in the earth to locate and measure oil and gas deposits—near a neighborhood in south Texas. “Because of a poorly worded contract, we ended up with 300 claims due to cracks in the walls and ceilings of homes,” he says. The theory that fracking operations may be responsible for increased seismic activity is also an area of interest to insurance professionals. While Kern stresses that there is no evidence that fracking causes earthquakes, there is some uncertainty surrounding the practice of shooting waste fluid down injection wells using extreme pressure—a practice some believe is responsible for minor earthquakes. Given that the general liability policy is silent on earthquakes, many turn to the CGL for financial risk management. However, insurers may limit coverage in the event of manmade seismic activity or even exclude it altogether.

with a background in construction or service classes,” Dunn says. “[Those agents] are used to dealing with contracting risks, so a class like pipeline contractors would be a great transition for someone who has written groups like plumbers in the past.” Other prospective classes include geoscientists, petroleum engineers, chemical engineers, service unit operators and those contracted to build oil derricks and rotary drills. Oil and gas consultancies typically employ many of these services, and continue to grow in number. Meanwhile, agents with more industry experience, or those who work in competitive states like Texas, would do well to chase higher risks like drilling consultancies or safety operations. “As a retail agent, I would look at some of the more forbidden classes,” says Felker. “These tougher and emerging businesses—drilling, gas monitoring, safety—those are the classes many standard retail agents just don’t want to go after. That’s where you can find an equalizer.” When it comes to prospecting for these clients, patience is paramount. Felker notes that it can take up to two or three years to build a respectable book of business, and sometimes agents just can’t beat the deal a company is currently getting. SEPTEMBER/OCTOBER 2014 | 37

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FEATURE / OIL & GAS

“As a retail agent, I would look at some of the more forbidden classes” Cade Felker, Swett & Crawford

Asking to analyze a company’s insurance portfolio never hurts, though. It’s a favorite technique of Ryan Smith, a leading producer with Houston-based Wortham Insurance, and one to which he attributes much of his success with oil and gas clients. “When I call on people, typically I know there’s an exposure that hasn’t been addressed or has never been brought up by the current broker,” he says. “I show them their current situation, how to resolve those problems and, nine times out of 10, they move their business to us.”

TACKLING THE POLLUTION FACTOR

James River Insurance Company is headquartered in Richmond, VA and underwrites a wide variety of specialty P&C and Professional risks on an E&S basis in all states. Founded in 2003, James River is rated A- (Excellent by A.M. Best Co. with a financial size rating of IX ($250 million $500 million). Website: www. jamesriverins.com.

Working in oil and gas insurance means juggling industry prejudice, a sometimes unhappy local populace, numerous site contractors, and multiphase operations that present major exposures at every turn. It’s no wonder that in such an industry, financial losses stretch to six and sometimes seven figures. Not only does that risk profile require that agents possess nerves of steel, it also necessitates carefully thought-out coverage and routine inspection for any gaps. Perhaps the most visible gap is the pollution exclusion in the commercial general liability policy. For an industry so mired in environmental controversy, pollution exposures can become problematic very quickly. Despite some insurance industry debate over what constitutes a pollutant, the definition generally accepted is anything “not naturally occurring.” Personally, Kern interprets that as “virtually everything when dealing with oil and gas.” Regarding fracking, some risks are especially

worrisome. Blowouts, or the uncontrolled release of oil or gas from a well, and the transportation of oil, salt water and other fluids are good examples. “I would say our heaviest pollution issues have been with pipelines,” says Kern. “When you drill, salt water comes up the well. Or, if you’re manufacturing pipes and the pipe fails, fluids can get everywhere.” Fortunately, there are numerous insurance solutions tailored to the industry. In addition to standard pollution liability policies, time-element pollution endorsements provide coverage for bodily injury or property damage arising from accidental, short-duration releases of pollutants if discovered and reported in a timely manner—ideal for blowout incidents. Contractors pollution liability—which protects contractors and their customers—is another option. Products pollution liability is considered essential for manufacturers of pipes and other equipment in the event of a malfunction and subsequent pollution release. Of course, it isn’t just those obvious incidents contractors have to worry about. So-called gradual pollution exposure can be just as financially disastrous. Particularly concerning for onshore operations, gradual pollution occurs when a leak or other incident introduces pollutants to the environment that are not immediately discovered and neutralized. Underground pipes or storage tanks may leak and contaminate groundwater, for example, and some policies may not cover such events. As such, agents need to read pollution policies carefully and ensure they obtain maximum pollution coverage protection available so that in the case of a pollution event, there are no major coverage gaps.

COVERING CONTRACTORS One oil and gas operation may include as many as five different contractors working onsite at a time. Add in the complicating factor of jurisdictional biases, and the industry is much like construction— in the event of a loss, liability hangs on how different contractors are treated in policies. One big mistake Kern sees many agents make is relying on ISO forms and endorsement titles like the Oil and Gas Industries Endorsement to resolve

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these issues, believing the forms broaden coverage. Instead, the forms restrict or exclude coverage, Kern says, while other forms leave “a lot of holes” where contractual liability is concerned. “The forms limit contractual liability to things like maintenance inside a building, but retail agents often don’t pay attention to what the terms in an endorsement actually mean,” Kern says. “They just check titles.” Such a haphazard approach to contractual liability can lead to sticky situations where a contract holder can shift a great amount of liability to subcontractors, even for things like sole negligence. Throw different jurisdictions into the mix, with their individual anti-indemnity laws, and both contractual liability and agents’ own E&O exposure goes through the roof. For that reason, some of the first language agents should look at relates to contractual requirements. “You really have to look at the indemnity section of the contract and the insurance requirements there,” says Smith. “A lot of times—whether from a wording or limits standpoint—there are aspects that need to be redlined or highlighted in contracts.” Kern recommends insureds and their contractors indemnify each other through what’s known as knock-for-knock indemnity. Under this form of indemnity, injuries and damages can occur only to the employees and property of both parties. For agents less well-versed in contractual liability, exposure can be mitigated by the right approach to placing business. “You can easily get into a real semantics game that requires a very specific understanding of contracts in all different regions,” Felker says, “which is why retail agents need wholesale partners with that specific set of expertise.

DON’T OVERLOOK PROFESSIONAL LIABILITY Contractors also run into issues regarding professional liability. While E&O concerns affect all players, the array of consultants now working on drill sites may be at special risk. Potentially unbeknownst to them, consultants take on liability for everything from updating safety manuals to providing oversight on the field. “Through contracts, consultants are picking up

professional liability exposures that need coverage,” Dunn says. “Even a safety advisor who tells workers to wear hard hats could become responsible for all lives onsite. If someone dies, it could potentially fall to his E&O insurance.” Depending on a professional’s risk profile, excess or umbrella coverage may be needed. However, limits dictated in contracts could also be too large for the exposure, in which case agents may be able to facilitate a discussion on more affordable limit requirements.

WHEN LOSSES OCCUR Even operations with the best safety procedures experience losses. Underwriters in the oil and gas industry understand this, but they still run into agents who mistakenly believe it’s best to exclude such events from insurance applications. Dunn and Marshall urge agents not to fall prey to this temptation. “We’re not looking at just one claim,” Dunn says. “If you can present us with a work comp mod under a 1 and a treatment of workers that’s favorable, one fluke incident that looks scary on a loss run to you is not scary to us.” Marshall adds that skilled underwriters know to ask questions illustrating how a client has addressed such losses and the safety measures they have taken to prevent future occurrences, which can help reduce potential rate increases.

MAKING IT IN OIL AND GAS INSURANCE The U.S. oil and gas industry is big and poised to grow even bigger. According to a Pricewaterhouse Coopers report, the industry contributed more than $1.1 trillion toward U.S. GDP in 2011 and another 1 million jobs are projected to be added by 2035. Despite the challenges and the risks inherent in working with the industry, it is clearly a major play for agents, whether they specialize or stick to writing local accounts. Those with the patience to stick it out and learn from experienced professionals have a lot to gain. Agents who have already capitalized on the opportunity, like Smith, don’t regret it. “It’s a great industry to be in,” Smith says. “It’s here for the long haul and it’s an exciting time.”

Top energy occupations

Geoscientists

11,140 Petroleum engineers

26,600 Derrick operators

22,400 Rotary drill operators

26,190 Service unit operators

57,390 Source: The Bureau of Labor Statistics, 2013

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PRODUCER PROFILE / JB WOODS

GROWING LIKE A

WEED

Legalization of recreational marijuana took JB Woods and niche agency Greenpoint Insurance to new levels in the aptly named Mile High City

When Colorado voters approved the use of medical marijuana in November 2000, newly minted insurance professional Julius Birch “JB” Woods knew widespread legalization was just around the corner. Thirteen years later, when legalization did come to the Centennial State, Woods was ideally positioned as the owner of one of the only cannabis-focused independent insurance agencies in the country. Today, he can barely keep up with demand and already boasts a premium volume of 140% over last year. The road to success didn’t come without its share of sweat, blood and tears, however – it would take a 1,000-mile move, a question from a reticent client and a tremendous leap of faith on the part of the Woods family before Parker, Colo.-based Greenpoint Insurance Advisors would become the major market player it is today.

Woods’ story provides a fascinating framework for how independent agencies in dire need of a unique selling point can find a niche and capitalize on it.

UNCERTAIN BEGINNINGS Woods was 10 years out of Rutgers University when he first caught the insurance bug. Living with his wife, Mary, in Los Angeles, Woods began to envy the independent lifestyle of his neighbor, an insurance salesman. Chasing a bit of that perceived glamour, Woods took a job with Northwestern Mutual and began selling life insurance. He left three years later for an exclusive agent position with Allstate, a role he would hold until 2009 when he and Mary opened Greenpoint.

CAREER TIMELINE: JB WOODS 1986

Graduates from Rutgers University in New Jersey

1996-99

Works selling individual life insurance policies with Northwestern Mutual in Los Angeles

1999–2009

Works as a personal lines agent with Allstate

2000

Colorado voters approve Amendment 20, approving the use of marijuana for medical reasons

2006

Moves from California to Colorado

2009

Opens Greenpoint Insurance Advisors with wife, Mary Woods

2010

Helps found the National Cannabis Industry Association

2010

Recognized by the Association of Cannabis Trades for Colorado for his contribution toward the cannabis industry

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It was during his time with Allstate that the Woods family decided to move to Colorado, seeking a change of pace and fresh opportunities. While appreciating the space and freedom of his new home state, Woods was beginning to feel restless with life as a captive agent. He wanted more – so he decided to open an independent agency in Parker, a mid-sized town just 30 minutes southeast of Denver. His first phone call was one that changed his professional life forever. “My very first client was a man who had been illegally growing weed out of his basement for years, and now wanted to lease space in a commercial warehouse,” says Woods. “He was very reluctant, very shy and discreet, but he saw his opportunity and wanted to take a chance with his business. So I started doing the research.” Woods came back days later with documentation and a backing carrier. The client paid in cash, and Woods bound a policy that earned him $100 that year. It was then that the germ of an idea began to take shape. “What I remember most is respecting this guy because he wanted to finally have the opportunity to get it right,” he says. “For him to take that leap of faith along with me was a big step. I think that was what really drove me – at a very deep level, it was about helping the underdog.” Despite never having used marijuana himself (a choice he still maintains), Woods began to research the viability of a specialized cannabis insurance agency. Along with Mary, he made countless phone calls to underwriting groups willing to insure medical marijuana operations. Major carriers were obviously uninterested, so Woods relied on boutique groups and E&S markets

2011

Writes for Kush Magazine, a print and online magazine for the medical marijuana industry

2012

Colorado voters approve Amendment 64, legalizing the recreational use of marijuana

2014

First marijuana shops open on Jan. 1

2014

Greenpoint Insurance enjoys 40% growth over last year by August

JB WOODS ON… Myths about cannabis industry workers: “They’re not a bunch of stoners and pot heads – frankly, that image annoys me. My clients are absolutely brilliant. They’ve got law degrees and business degrees, and come from a wide variety of backgrounds.” Reactions to his business: “There’s a certain mystique to working in the cannabis business. People are really kind of fascinated by it. After all, the vast majority of the US has never been inside a grow [marijuana production facility].” The value of client discomfort: “You have to be comfortable creating tension in relationships. It’s better to discuss some of the ‘what ifs’ now, even if it may not be what a client wants to hear, because when a client suffers a loss and that lawsuit is filed, all bets are off.” Loving your niche: “You can’t be a jack-of-all-trades anymore. It’s too difficult. So, if you do pick a niche, find something you love. I loved mine and I still do.”

that had formed in California, where medical marijuana had been legal since 1996 – companies he describes as “willing to step out on a ledge.” Despite the relative lack of appetite, however, Woods was careful not to settle for what he could get — he looked into the history and financial stability of each provider carefully. “In this industry, you want to partner with groups that have some experience doing this,” he says. “Otherwise what you’ll see is someone jumping in and as soon as they get a claim, they jump back out. We’ve seen it before.” Federal law was another headache. The mismatch between federal and state regulation makes for miles of tricky legal terrain, so it was necessary for Woods to immerse himself in corporate, constitutional, insurance and marijuana law to guard against potential litigation. Today, he keeps his attorney on speed dial. Selfdescribed as “conservative by nature,” he believes it’s better to have professional validation in legal matters, especially in an industry where litigation is frequent and ruinous. His own legal knowledge has also proven invaluable in creating trust in client relationships. Woods recalls a more recent incident in which he spotted a major potential liability in a contract between one of his smaller clients and a significant non-cannabis company. “The larger organization was potentially putting my client’s company at dramatic risk based on how everything was unfolding,” Woods says. “I stepped right into the middle of their SEPTEMBER/OCTOBER 2014 | 41

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PRODUCER PROFILE / JB WOODS

COVERAGE FOR CANNABIS Medical and recreational marijuana is an industry like no other, and its insurance needs are just as unique. While each operation is diﬀerent, Woods says a typical portfolio for one of his clients includes: »general liability »professional liability »workers compensation »D&O »EPLI »crop insurance »cannabis insurance »product liability »commercial auto

relationship and, in essence, mandated certain requirements be put in writing that really released my client of all potential liability, along with their insurance carriers.” It’s these types of risk management activities Woods is particularly proud of performing for clients, and he credits his success to studying and following developments in the currently limited case law surrounding cannabis. Still, there were moments in the beginning when he doubted. Woods recalls lying awake at night, spinning scenarios of federal investigations and damaging legal action. Coupled with the small amount of income Greenpoint was generating in the early years, the future was somewhat cloudy. “Mary and I had invested so much time and energy into our business, and our average commissions were still $100 to $150 a year,” he says. “So, there were clearly moments where I just wondered, ‘Is this thing ever going to play out?’ “But I think it’s like any business. You’re investing your time, money and energy with the hope that one day this thing is going to become a golden goose – green goose, I guess, in this case.”

LEGALIZATION: A NEW FRONTIER By the time Colorado voters approved Amendment 64, legalizing recreational marijuana in November 2012, Greenpoint Insurance had already become that green goose. Thanks to a series of smart marketing moves – helping to found the National Cannabis Industry Association and writing regularly for industry magazine Kush, for starters – Woods was a

recognizable face at cannabis industry conferences and a trusted source on both marijuana insurance and marijuana law. With referrals from clients, leading law firms, and other word-of-mouth, Woods found he no longer had to expend much effort to drum up business. By the time the first Colorado dispensaries opened for business in January of this year, he was overrun. “It’s just exploded,” he says. “We’re eight months into legalized pot and we are already at 40% more than what we did last year.” It’s a blessing financially, but the growth is not without its practical challenges. Hiring new employees, for example, is a complicated consideration. Currently, Greenpoint is a family-run agency. Along with Woods and his wife, three more family members work at the main office in Parker and several more relatives work as needed outside of Colorado. Active in every state with a significant legal medical or recreational marijuana presence, it’s a tall order for the family. However, given unique client stressors in the cannabis industry, Woods isn’t so sure he’s ready to bring in new blood. “We’re trying to figure out how to expand appropriately,” he explains. “Client confidentiality is highly charged – theft is among our most frequent claims – and employees know where all the grow locations are and how much product is there. They know everything.” The industry also faces challenges on the carrier front. Woods believes insurance in general is still trailing behind the needs of the cannabis industry: Only two carriers currently offer the much-needed cannabis product liability coverage, and appropriate D&O and umbrella coverage for marijuana operations is nearly impossible to find.

THE FUTURE OF CANNABIS Given the almost unbelievable financial success of legalization, it’s hard to envision a future where Woods isn’t continuing his current 70+-hour work week. “My prediction is, without a doubt, in five more years the cannabis industry will be – if not the dominant industry – one of the most dominant industries in Colorado,” he says. “It’s already happening.”

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FEATURE / E&S

that surplus lines, as a component of overall commercial lines business, is growing. It’s becoming a larger component of the property/casualty lines segment,” says Brady Kelley, president of the National Association of Professional Surplus Lines Offices (NAPSLO). “As the economy drives more purchasing of insurance coverage and the admitted market becomes less willing to provide some of the more unique and complex coverages, premium grows as a result.”

A GROWING RELIANCE ON E&S MARKETS

EXCESS & SURPLUS:

THE KEY PLAYERS

As the E&S sector continues to boom, Insurance Business America takes a look at the top 10 players to see what makes them tick and which markets and lines are headed for even greater growth The US excess and surplus lines market continues to grow. More than half of the top 30 writers of surplus lines posted double-digit increases in direct written premiums in the past year, according to data from SNL Financial, and more impressively, stable financial ratings and strong bottom lines mean the market continues to outperform standard lines carriers. “Over the past 20 years, what we have seen is

The residue of the 2008 financial crisis has indeed pushed more business toward surplus lines carriers, who—thanks to an unprecedented influx of new capital into the market—have more capacity and risk appetite than ever. And in a world increasingly plagued by natural disaster and catastrophe, those increasing limits are critical, says John Hartman, managing director of Catlin General Agency Solutions. “New capital providers have provided needed capacity, especially in catastrophe-exposed property,” Hartman says. “This new capacity has made such coverage generally more available and has had a dampening effect on prices.” What’s more, clients traditionally associated with the E&S market—large, high-risk business operations—are no longer the only groups in need of the growing capacity. Small businesses with exposures once accepted by the standard lines markets are finding themselves at the mercy of a gap in the market. “We do write a lot of small business today, specifically in construction,” says Tim McAuliffe, president of the growing Ironshore Specialty Casualty program. “We’re starting to look a little bit more into the emerging business area—specifically small and medium enterprises—and into developing more products around it as a platform.” Given the convergence of these new trends, Insurance Business America decided to take a look at some of the key players in the E&S industry to learn more about the current state of the market, what it takes to succeed in a growing space, and what’s on the horizon for surplus lines. The rankings were taken from a recent compilation by SNL Financial, which considered factors like market share, direct premiums written (DPW), and change in DPW from 2013’s first quarter to the first quarter of 2014.

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FAIRFAX FINANCIAL HOLDINGS

Market Share: 2.85% Direct Premiums Written (Q1’14): $186.1 million Change (since Q1’13): -4.74% Ongoing merger and acquisition (M&A) activity in the E&S space continues to drive the growth of some carriers, including Toronto-based Fairfax Financial Holdings. Significant transactions for the Canadian company include its acquisition of First Mercury Group in 2011, and a more recent completion of the acquisition of American Safety Insurance Holdings in October 2013. The $306 million deal helped Fairfax grow its E&S presence in the US. Through subsidiary CoverXSpecialty, the larger Fairfax empire is active in the construction, specialty, life sciences, security, oil and gas, and transportation markets. CoverXSpecialty’s small business unit has also been successful, targeting smaller operations with large exposures that cause them to fall out of brokerage markets.

BERKSHIRE SPECIALTY

Market Share: 2.92% DPW (Q1’14): $190.7 million Change (since Q1’13): +48.01% Launched in June 2013 with the talents of four former AIG executives, Berkshire Hathaway Specialty Insurance has grown from zero premium to cracking the top 10 in just a year. The specialty division is now working with a team of 125 permanent employees and thousands of customers. Of course, Berkshire Specialty was always going to be a force to be reckoned with—particularly thanks to the impressive capital behind Warren Buffett’s insurance empire. “I think you’ve got to give quite a bit of credit to the Berkshire brand and to the capital,” says David Bresnahan, executive vice president of Berkshire Specialty Insurance. “I think that if we had taken our current team and attached ourselves to an average A-rated carrier, we would have just been another entrant in another crowded marketplace. “That capital also allows us to control our own destiny and be our own player. We’re a bit insulated from the external environment and things that other carriers are influenced by, so we’re able to commit to being a long-term, stable provider.” Bresnahan, who had previously been with AIG’s specialty arm, Lexington, also credits Berkshire’s

48 percent growth over the last year to the simple business strategy of providing quality customer service. Instead of relying heavily on market research when making decisions on new plays, Berkshire leans on existing knowledge of the practice leaders it hires and requests from its own customers. As such, the group is currently expanding into areas of life sciences, residential construction, builders risk, environmental casualty and surety. Looking forward, Bresnahan says to expect “much of the same” from Berkshire, with a good chance of international expansion to Asia-Pacific, Europe, the UK and Canada within the next six months.

CNA FINANCIAL CORP.

Market Share: 2.99% DPW (Q1’14): $195.1 million Change (since Q1’13): -8.11% Despite recent financial difficulties and continued job cuts, CNA Financial continues to hold its position in the top 10 market players in the E&S space. With a diverse risk appetite covering the likes of casino operations, grocery stores and alarm manufacturers, CNA Select Risk covers most specialty lines in the property/casualty market, having announced in February it will sell off its group health and life practice to streamline productions and improve profitability. The acquisition of Hardy Underwriting Bermuda Ltd. in 2012 also helped further CNA’s specialty lines focus and gave it access to the Lloyd’s of London marketplace. “We are delighted to be moving ahead with the transaction,” CNA Chairman and CEO Tom Motamed said at the time. “Hardy is a specialized Lloyd’s underwriter with a respected brand and a long history of disciplined underwriting. The acquisition provides CNA with a key platform for expanding our global business and accessing the $35 billion Lloyd’s marketplace.”

IRONSHORE INC.

Market Share: 3.09% DPW (Q1’14): $201.7 million Change (since Q1’13): +36.05% Another relatively new and swiftly growing entrant into the E&S market, Ironshore Specialty boasts the second largest growth since the first SEPTEMBER/OCTOBER 2014 | 45

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FEATURE / E&S

Game-changers in the E&S space

Financial uncertainty in standard markets: “More business is shifting into the surplus lines segment because it’s a very strong and stable segment. The ratings of surplus lines companies are higher on average than the admitted market, and A.M. Best notes no financial impairments in the surplus lines market in the past nine years.” –Brady Kelley, NAPSLO New technology: “Technology is changing the face of the E&S business. This is especially true in the high transaction/smaller account area.… Especially in the E&S space, our producers increasingly look for faster responses and an ease of transacting business, which is facilitated by effective automation.” –John Hartman, Catlin General Agency Solutions The influx of new capital: “There are several carriers that are forming or re-forming themselves, and they’re a factor in the marketplace—they can take your share of an account or make that business unavailable to you through their willingness to deploy very large amounts of capacity.” –Jeff Saunders, Navigators Specialty

quarter of 2013, having climbed four spots from number 11 since the same period last year. Despite launching just prior to the economic downturn in fall 2008, Ironshore Specialty has quickly become a key market player in specialty casualty—a definite change since its original focus on writing commercial property insurance in underserved markets. According to its website, Ironshore Specialty’s premium growth has “quintupled to $1.7 billion” since its inception. Tim McAuliffe, president of Specialty Casualty for Ironshore, says the troubled economic climate during the launch actually helped boost the division’s prominence in the E&S space. “It was a very disruptive time in the insurance industry, both on the carrier side in terms of business movement as well as people movement,” says McAuliffe, another former AIG veteran who came to Ironshore in 2009. “A lot of larger insurance

companies were affected pretty dramatically and as a result, people started moving business from those carriers, looking for a more stable home. We offered them that option. “It was really an opportunistic time for us to start that division.” In addition to fortuitous timing, McAuliffe credits Ironshore’s continued success to its relationships with broker partners and employing an experienced team—who average 20 years in the business—to look out for new opportunities. McAuliffe says producers can expect more development and new products from Ironshore in the future, including a new team specializing in architect technicians and engineers.

ACE LTD.

Market Share: 3.52% DPW (Q1’14): $230.3 million Change (since Q1’13): +12.17% ACE Westchester, acquired by ACE Limited in 1998, continues to experience healthy growth from its six operating divisions under the excess and surplus heading: environmental, inland marine, product recall, professional risk, property and specialty casualty. The insurer, rated A+ by A.M. Best and AA- by Standard & Poors, is active in updating and expanding product lines, having recently offered new endorsements to its product recall package for the quickly growing technology sector. The increasingly prominent energy market has also been key for ACE, as its executives continue to participate in industry panel discussions and expand brand recognition. More recently, ACE Westchester partnered with PartnerOne Environmental to offer a new packaged product specifically for environmental energy contractors and consultants.

MARKEL CORP.

Market Share: 4.10% DPW (Q1’14): $267.9 million Change (since Q1’13): +4.35% Markel rose one position from the year-earlier period with a modest 4.35% increase in direct premiums written. In the broader context, Markel—like Fairfax— has been assisted by the increase in M&A activity in the surplus lines sector. In May 2013, the insurer completed its $3.1 billion acquisition of Alterra, another top-30 surplus lines group, in the hopes it

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The next big plays for E&S would help expand its book of large commercial account and reinsurance business. Markel has built its surplus lines business through a variety of markets, both commercial and personal, with particular attention to recreation and activity markets such as recreation centers and health clubs.

Construction: “After a very long lag, business in the construction industry has really improved and bounced back in the past couple of years.” –Jeff Saunders, Navigators Specialty Energy: “This industry is growing faster than the economy as a whole.” –Tim McAuliffe, Ironshore

ZURICH INSURANCE GROUP

Market Share: 4.24% DPW (Q1’14): $277.2 million Change (since Q1’13): -4.07% Dropping 4.07% after growth of 10.8% in 2012, Zurich Insurance Group nevertheless managed to jump up one spot on the top 10 list to number four in the year-period since 2013’s first quarter. The international insurer is primarily involved in property programs on the E&S side, both for CAT and non-CAT exposed business properties. As such, Zurich was rocked by the sheer extent of its Superstorm Sandy losses, with analyst Stefan Schuermann acknowledging that “the total Sandy loss burden is somewhat higher than we expected.” The insurer was responsible for $700 million in claims following the storm, though CEO Martin Senn reiterated that the company would continue to remain a force in the market. “This storm has shown us once again how powerful natural forces can be and what risks they pose,” Senn said at the time. “Zurich’s strong balance sheet, healthy cash flows and risk expertise enable us to be there for our customers when they need us and to deliver on our promise.” Zurich spokesperson Robyn Ziegler attributes the company’s success in the E&S space to its broad risk appetite and underwriting expertise— particularly in trade credit and political risk, security and privacy, environmental liability, professional liability and property.

Long-term care: “The market is stable [with] not many new entrants. In the healthcare continuum, it is the segment that will be the largest and fastest-growing.” –David Bresnahan, Berkshire Hathaway

W.R. BERKLEY CORP.

Market Share: 5.27% DPW (Q1’14): $344.6 million Change (since Q1’13): +15.93% Formed in 2005, Berkley Regional Specialty Insurance Company aims at capturing the small to medium enterprises market through “simplified” surplus lines. The model has worked well for the group, sustaining its number three position of the year-earlier period. Like Zurich, the Scottsdale, Ariz.-based Berkley experienced impressive growth in 2012 (14.2%) and

Cyber liability: “It is a relatively new line and with the recent events where hackers have broken into company systems and stolen information and customer data, demand for cyber coverage is growing.” –Mike Miller, Scottsdale Insurance Security and privacy: “This is a risk that is experiencing broad visibility from public policy arenas, to corporate boardrooms, to our own internal underwriting committees. Zurich is seeing double-digit growth in this area.” –Robyn Ziegler, Zurich

a broader 1% growth in overall market share, according to A.M. Best. Berkley limits its distribution to certain “specially selected independent retail agencies” and focuses on commercial property/casualty lines.

NATIONWIDE MUTUAL GROUP

Market Share: 6.25% Direct Premiums Written (Q1’14): $408.7 million Change (since Q1’13): +15.19% Nationwide’s E&S subsidiary, Arizona-based Scottsdale Insurance, was founded in 1983 and has enjoyed a top 10 status for some time, with measurable growth in the past four years, to the point it was able to overtake Zurich in fall 2013. Scottsdale President and COO Mike Miller attributes that performance to relationships with general agents, program managers and brokers as well as to Scottsdale’s underwriting team. “That is the skill that separates average companies from really good ones,” Miller says. “At the end of the day, it is our people that make a difference.” That dedication, and Scottsdale’s resources, was enough to see the insurer through challenges like the economic downturn and 2012’s Superstorm Sandy. Though growth has slowed for the market in the past six months, Miller says the E&S market has “rebounded with growth in all segments and lines,” beginning in 2012. For Scottsdale specifically, the general liability line continues to be its largest and most vital, though Miller emphasizes that the group has a

Brady Kelley, president of NAPSLO

“Surplus lines, as a component of overall commercial lines business, is growing”

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broad range of products added after consult with the company’s agents and insureds. In the future, Miller expects Scottsdale to continue expanding to new markets while priority number one is remaining a “steady” carrier in the sometimes uncertain E&S space.

Jeff Saunders, Navigators Specialty

“To be successful, you have to be agile in entertaining entrances and exits from market sectors at the right time”

AMERICAN INTERNATIONAL GROUP

Market Share: 15.00% DPW (Q1’14): $980.0 million Change (since Q1’13): -4.03% The long-time dominator of the E&S marketplace, AIG’s surplus lines subsidiary Lexington wrote more than twice the direct premiums as its nearest competitor since 2013’s first quarter. This is despite AIG’s status as one of the only top 10 market players to experience a decrease in surplus lines over the past year (-4.03%)—a trend that has continued since 2012. It also slipped somewhat in terms of direct premiums written in comparison to Nationwide; in 2012, it produced more than three times the level of DPW as Nationwide. AIG is of course still rebounding from its wellpublicized troubles in 2008, being one of the only US insurers to suffer dramatically from the financial crisis. The loss of four of its top executives last year may also have affected the insurer; as competitors like Berkshire Specialty grew thanks to the influx of new capital into the E&S space, AIG saw its total market share drop from the 19.8% it enjoyed just two years ago in 2012 as reported by A.M. Best. Less recently, AIG also suffered the loss of Kevin Kelley and Shaun Kelly, who left Lexington to form Ironshore.

E&S PLAYERS TO WATCH The companies in the top 10 are not the only key players in the E&S space making waves, however. Several new, and even long-time, companies continue to grow and may represent a new force in the market. Validus Holdings, for example, may provoke new discussion with the $690 million acquisition of Western World Insurance Group—a publicly traded Bermuda reinsurer that nearly broke the top 30 in 2014’s first quarter, with $58.2 million in E&S premium. Western World Insurance Group’s two US subsidiaries, Western World Insurance Co. and Tudor Insurance Co., have logged increases in

direct and net premiums since 2011. Navigators Group also logged a noteworthy 38.82% increase over the past year, which Navigators Specialty President Jeff Saunders attributes to the group’s increasing diversification in its target markets, attachment points and geographic influence. “We focus on developing market intelligence where there’s a mismatch in supply and demand,” says Saunders. “To be successful, you have to be agile in entertaining entrances and exits from market sectors at the right time.” Saunders says Navigators has been particularly successful in the diversification of its primary casualty book, previously heavily concentrated in West Coast construction. “We still like that business, but we’ve diversified over the past three-and-a-half years,” he says, adding that energy, allied healthcare and integrated transportation—all areas growing faster than the economy as a whole—are where Navigators is looking for its next source of opportunity and diversification. Other notable increases include the more than 222% jump in direct premiums written by State National Companies, which writes through United Specialty Insurance Co., a company that managed to triple its direct written premiums by ceding most of the program business to reinsurers—retaining just a small portion of that risk.

SURPLUS LINES GOING FORWARD Evolving technology, new capital and economic fluctuations in the standard market continue to influence the excess and surplus lines sector, but nearly all key players expect the increased reliance on E&S to continue. New liabilities and changing exposures, not to mention the growing value of catastrophe-exposed properties, mean the quickly responsive and stable surplus lines sector is here to stay. Kelley in particular sees the continued growth in premium and strong financial ratings of surplus lines carriers as evidence producers can continue to rely on surplus lines carriers. “More business is shifting into the surplus lines segment because it’s a very strong and stable segment,” he says. “That tells me there is more interest and reliance on surplus lines carriers than ever before, and we expect that trend to continue as surplus lines continue to outperform the standard market.”

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PEOPLE / FAVORITE THINGS

Favorite things Terrence Scali, CEO of NFP Property & Casualty Insurance Services Terrence Scali entered the insurance industry after leaving an account executive position with Coca-Cola, and he hasn’t looked back since. As CEO of National Financial Partners Property & Casualty Insurance Services, Scali is at the forefront of emerging trends like harnessing young talent and new underwriting technologies. He took the time to tell Insurance Business America what he enjoys outside of the oﬃce.

Book: I read at least one book a week for pleasure, and every day for business. When I think about my favorite book, though, I think of Lee Child’s “Persuader.” The hero, a retired military policeman, is really an American hero. Favorite thing about working in insurance: I think that in spite of a hopeful outcome of more consolidation in the industry, there are lots and lots of entrepreneurial opportunities in the industry.

Favorite sport: To watch, probably UFC ﬁghting or professional basketball. I’m a Phoenix Suns fanatic— I became an adult in Arizona. To play, tennis and golf.

Vacation spot: For me, it’s a Caribbean island beach. I’ve been all over them, and almost anywhere in the Caribbean is idyllic for me.

Favorite food: For me, it’s a great rib eye and a good cabernet—especially at Mastro’s Restaurants. Their Ocean Club location is my favorite.

Place to be: On a beach with my wife and kids.

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FEATURE / HEALTHCARE

THE ACA EFFECT:

WORKING IN HEALTHCARE P&C The Affordable Care Act has already changed the healthcare landscape significantly, but opportunities for property/casualty agents abound. Allison Landa investigates For insurance agents, the Affordable Care Act is more than just a game-changer. It is a major shift in the industry landscape, and the resulting tremors are offering chances as well as challenges – particularly for those agents with a property/casualty focus. “The property-casualty insurance industry is likely to become the target of significant additional cost-shifting by hospitals, physicians, and other medical providers responding to the costcontainment provision of the Patient Protection and Affordable Care Act (ACA),” asserts the Insurance Research Council in an introduction to its report, “The Affordable Care Act and PropertyCasualty Insurance.” “As a purchaser of healthcare services and as a participant in healthcare markets, the property-

casualty industry finds itself in a changed environment, where the medical providers with whom they engage and the claimants they serve are themselves confronted by major changes related to the ACA. Increased cost-shifting could have potentially significant and long-lasting consequences for property-casualty insurance.” This begs the question, however, of how to grab those opportunities and sidestep the pitfalls. According to experts in the field, a little savvy and sophistication go a long way when it comes to staying on top of these changing times.

THE TRICKLE-DOWN EFFECT As a result of the Affordable Care Act, groups ranging from hospitals to integrated health systems and physician groups, as well as solo practitioner

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doctor’s offices, will be impacted in terms of revenue. That, in turn, is causing a wave of consolidation. “The main problem is this: They are having trouble negotiating and maintaining high reimbursement levels for the services they’re offering these days,” says Brad Rosgen, the head of insurance wholesale broker and managing underwriter Burns & Wilcox’s healthcare center for excellence. “We’ve seen a significant amount of banding together, mergers and acquisitions of larger health systems, smaller systems, independent physicians—basically an integration of every type of healthcare service you can offer.” In order to gain better bargaining power, many smaller entities have sold their practices to larger health systems. In addition, more doctors themselves are moving to larger practices due to the challenges and regulatory landscape being created by the Affordable Care Act. So how is this affecting insurance agents?

“We’ve seen a significant amount of banding together— basically an integration of every type of healthcare service you can offer” Brad Rosgen, head of Burns & Wilcox’s Healthcare Center for Excellence

A wave of hospital mergers and acquisitions In 2012, the number of deals to merge two or more hospitals was more than twice what it was in 2009.

70 60 50 40 30 20 10 0

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2005

2006

2007

2010

2011

2012

2008

2009

SOURCE: Irving Levin Associates

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According to Rosgen, the fallout is both good and bad. While there may be less business out there, he says, the accounts and opportunities are larger than ever before – and when an agent wins a deal these days, it tends to be a big one. “[The new law] has created a lot of opportunities for different types of organizations to set up shop and flourish because of the way the Act is trying to foster … more [proactivity], so you’re seeing a lot more integrated-type services and a lot more emphasis on creating things before they become big problems,” he says. “Things change and you have to figure out how to adapt in order to take advantage of the possibilities that exist out there. Healthcare’s nothing if it’s not constantly changing.” Sam Friedman, who leads the research team at Deloitte’s Center for Financial Services, has found that many outstanding agencies produce a substantial part of their business from group health insurance sales, with many producing close to half of their revenue in this category. Given that health insurance is a category in which many people are novices, he says, agents may be able to position themselves as experts. “You’re going to have millions of people who are entering the health-insurance market for the first

“The opportunity for hacking has gone up enormously, and physicians and facilities alike face growing liabilities” Sam Friedman, head of Deloitte’s Center for Financial Services

time – and they may turn to independent agents to be their guides,” he says.

WHAT PRODUCTS ARE NEEDED? When discussing insurance products for the healthcare industry, the first phrase that pops up tends to be malpractice coverage. The American Academy of Actuaries outlines the types of malpractice coverage available: • Occurrence policies, which are considered the broadest type of coverage – as well as the riskiest for the insurer and the most expensive for the policyholder. These policies provide coverage for insured events that occur during the policy period. They are often not offered because of the risk that claims may be reported years after the policy expires. • Claims-made policies cover insured events that occur on or after the specified policy’s retroactive date – so long as those events are reported during the policy period. Such coverage can vary between carriers depending on how a particular claim is defined. • Modified occurrence policies are a hybrid of the two. This type of coverage is provided on a claims-made basis with an extended reporting period, which is usually in force for a limited time after the expiration of the previous policy. Rosgen notes that while some of the traditional malpractice agents may be seeing fewer opportunities, there are more in other areas, especially outpatient work: “Imaging centers, home health, hospice care providers, adult daycare, all the ancillary things that go with and around nursinghome health and health care…there is significant growth in this area.” He advises brokers and agents to take a total riskmanagement approach, which takes into consideration all of the various risk exposures that are applicable to today’s changing environment, both within and beyond the healthcare industry. “The short answer is that it depends because the

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coverage required varies based on the job. A doctor will obviously require a very different professional liability policy from the operator of an ambulance or the administrator of a health system,” he says. “The rise in data theft has forced doctors to consider a cyber-liability policy, even if they are the only physician in a small practice. Similarly, emerging industries within healthcare create new exposures simply because they are a new business segment.” Friedman agrees that cyber-insurance is a major emerging need in coverage. “With medical records increasingly going electronic, and more doctors and facilities allowing patients to access test results and other medical records online, the opportunity for hacking has gone up enormously, and physicians and facilities alike face growing liabilities for the protection of data and personally identifiable information,” he says. According to the National Association of Insurance Commissioners and The Center for Insurance Policy and Research, demand for cyberliability insurance jumped 21 percent between 2012 and 2013. The two wrote in a brief that increasingly frequent data breaches are putting additional pressure on businesses to protect the personal information that they possess. A typical cyber-liability policy may cover one or more of the following: • Liability for security or privacy breaches • The costs associated with restoring, updating or replacing electronic business assets • The costs associated with a privacy breach • Business interruption and extra expense related to a security or privacy breach • Expenses related to cyber-extortion or cyberterrorism • Liability associated with libel, slander, copyright infringement, product disparagement or reputational damage • Coverage for expenses related to regulatory compliance for billing errors, physical selfreferral proceedings, and Emergency Medical Treatment and Active Labor Act proceedings

DATA BREACHES IN THE HEALTHCARE INDUSTRY Total number of incidents reported:

199 2013

Total number of patient records impacted:

7.1 million Total number of incidents reported:

192 2012

Total number of patient records impacted:

2.98 million Total number of incidents reported:

149 2011

Total number of patient records impacted:

10.84 million Total number of incidents reported:

212 2010

Total number of patient records impacted:

5.43 million Source: Redspin, February 2014 report

Ultimately, Rosgen recommends that agents go in with a full suite of experience. It is that sophistication, he says, that will allow them to nail down a deal. “That’s how you work within the challenges,” he says. “Not everybody can be the specialist when it comes to risk management of an integrated healthcare delivery system because it’s a very complicated animal. Only a few of these agencies can really handle it.” SEPTEMBER/OCTOBER 2014 | 53

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FEATURE / WEB REDESIGN

Ways to Make Your

Web (re)Design Easier The numbers don’t lie and if they’re saying your website has failed to connect with buyers, it probably has, writes Maggie Crowley

Brokers often talk about being unhappy with their existing websites. While it’s not realistic to redesign your brokerage’s website annually, the gaining pace in the tech world makes every website a constant work-in-progress. Taking on a new website project may not sound like a walk in the park, but a site redesign can have a lasting positive impact on any brokerage. How do you know when it’s time for a complete uphaul of your site? Here are three tell-tale signs:

LOW TRAFFIC AND CONVERSIONS

Numbers don’t lie. The biggest reason to give your website a refresh is when no one is using it. Best practice is to track and measure numbers on a monthly basis using Google Analytics. If you notice a drop in traffic or stagnant numbers over the course of at least one quarter - looks like it’s time to try something new.

IT’S NOT A PROPER (OR REALISTIC OR POSITIVE) REPRESENTATION OF YOUR BROKERAGE

Prospects who have never met you can make an impression of the brokerage based on its website -

in less than three seconds. Your website is the only member of your team working 24/7 to promote and advocate your brokerage … does it send a positive message to your target audience? If you don’t even like the way it looks, chances are neither do consumers.

IT’S NOT RELEVANT IN 2014

While I’m not suggesting a complete website redesign is necessary every year, consider some of the major changes in technology in the past five years: More people access the internet from a mobile device than a desktop computer; Flash animations are no longer a “thing;” Google is the new Yellow Pages. If it is time for a website rehaul, the best way to get ready is to do a little prep work. Many brokers find web design quite daunting and complicated, and with good reason. It can be challenging to assemble the necessities to get started, but with the right people on the job it’s not nearly as difficult a challenge as it may seem. The biggest obstacle brokers run into when tackling website design or a redesign project is a general lack of

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focus and direction. As a result, they aren’t usually prepared to make decisions about the site, and generally that leads to a delay in the process. Start by taking a step back and looking at the big picture. What are you trying to achieve? A strong plan now will make for a smooth process along the way. If you’re considering a new website in the near future, begin by planning now. Consider these ideas in order to streamline your upcoming web design project.

DO SOME RESEARCH

Take a critical look at websites you love (and loathe) to help you figure out what you want your website to be like. Are there certain colors you find appealing online? Start by doing a Google search of other financial websites to analyze the landscape. Having a good idea of what you want the site to look like will help your web design team produce a site that matches your expectations. Find several different layouts you’re comfortable with. What types of navigation do you like best?These are all questions that the team building your website will ask. Make the design process easier by answering these questions on your own, first.

HIRE A PHOTOGRAPHER

High-quality photos of real people (opposed to stock images) are one of the best touches you can add to your website. Web visitors are more inclined to trust companies that provide a personal touch by showing who is operating behind the company. Highlighting pictures of your team (high networth individuals love working with teams) throughout the site is a powerful way to engage an audience of potential prospects. Doing this in advance ensures that the images will be ready to go when your web design process begins.

WRITE CONTENT

Ready-to-go content is often the number one element that delays the website creation process. Whether you’re writing your site’s content

in-house or working with a copy writer or marketing, definitely start in advance. Have some content prepared before you commence the process. This will ensure that the design team will be able to deliver your website quickly and efficiently. What are the essentials? An up-to-date biography (this should be updated every 3-5 years) and information about your company, team members, and your services are all useful to have readily available.

DETERMINE FUNCTIONALITY

What should your website achieve? Ideally, who will be visiting your website? What should they do when they get there? It is worth brainstorming and setting goals so you have a clear direction for your site. If you want your website to act as an online business card to validate your brokerage and provide contact information, that requires different kinds of information than a website where clients will be engaged and regularly logging in. Determining how you want to use your website should be part of the cornerstone of your brokerage’s marketing plan.

BE PREPARED TO SPEND A LITTLE TIME ON IT

There’s no way around it: Your web design project will require time. In order to get a website that is reflective of your brokerage, assign someone from your team to lead the project, but expect everyone to get involved at some point. The goal of any great web design team is to make the production process as seamless and easy for you as possible. However, in the end it is your website and it needs your input. A website redesign can be a daunting task, but partnering with a good web design firm can make the process a lot easier (and even fun!). Remember, a well-designed website is one of the most effective marketing tools you’ve got – make the most of it by keeping it fresh, up-to-date, and easy to use.

Maggie Crowley (@crowleymaggie) is the Marketing Coordinator for Advisor Websites, where she manages the company’s online presence and educates financial services professionals on how to maximize the potential of a strong web presence. Connect with her on Twitter: @ advisorwebsite or visit her online: www. advisorwebsites.com

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LAST WORD

What’s next for independents? Jim Masiello, chairman and CEO of the Strategic Insurance Agency Alliance, discusses the question on the minds of all independents: Will the distribution channel survive?

Jim Masiello is chairman and CEO of SIAA, Inc., a national insurance agency alliance with more than 5,000 member agencies and 49 master agencies across the country.

The future of the independent insurance agency is certainly subject to a lot of debate – and there has been plenty of it as of late. From my perspective, I believe the independent insurance agency form of distribution will survive, if we change the way business is conducted. Those agencies refusing to change from the way insurance was sold and serviced in the past will die the same death as Willy Loman in “Death of a Salesman.” Change is critical for survival. When I say change, here is what I mean: • An agency can no longer wait for customers to knock on its door. • Auto insurance has become a commodity, thanks in great part to Progressive and GEICO. Any sales organization can sell auto insurance. The commoditization of auto has resulted in making non-insurance–savvy buyers into selfprofessed agents, much more focused on the least expensive coverage than the best coverage to protect their assets. • The successful agent will write all the insurance on each client as determined via a needs analysis. Auto, home, umbrella, life, etc., should no longer be viewed as separate coverages; rather, they should be seen as components to an overall comprehensive approach. • The comprehensive approach improves retention significantly. It is a known and documented fact that the more policies in place, the greater the retention rate. • Touching your customers more often and in different ways is essential. Having CSRs contact existing customers as part of their job is critical and also a great cross-selling

opportunity. Using technology for these touches (newsletters, anniversary date recognition, etc.) makes agents more efficient. • Writing only personal lines or commercial lines will not cut it. The agency of the future needs to round accounts by selling and servicing both PL and CL, especially small CL. • A smaller agency will need to become part of a larger group, but not part of an aggregator group, as that is recognized as pure brokerage. Size breeds stability, and merging with larger agencies is one alternative. Small independent agents who do not have a good flow of new business with a respectable retention rate will not survive for the long haul. I want to tell you about a bit of history that agency principals should understand. In the travel agency business, those who mostly sold—or took orders for—airline tickets and did not work in leisure travel went out of business sometime after Y2K. Fifty percent of all travel agencies dissolved when the airlines started selling tickets directly via the internet. Sound familiar? Fifty percent of all airline tickets today are sold by the surviving travel agencies, but they are larger travel agencies that recognized the opportunity and became much more aggressive relative to cruises and vacation package business for their clients. They evolved into travel advisors for all the travel needs of their clientele, and yes, they do sell the airline tickets as well. This demise of fifty percent of travel agents should have been a big wake-up call. The commoditization of auto insurance is no different from the airlines taking to the Internet. I hope all readers can make this connection— they will have to in order to survive.

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