2021 January PIA Vermont by PIA Northeast

January 2021• Vermont

PAGE 18

BEYOND THE PANDEMIC Insurers look to accelerate recovery and thrive in 2021

INDUSTRY EVOLUTION 9

Recent BI lawsuits

Trends for agents

In-person to digital sales

Protect your client’s small business from the growing risk of cyber attacks.

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DEPARTMENTS 4 January 2021 • Vermont

In brief

9 Legal 15 Sales 33 E&O 35

Ask PIA

Readers’ service and advertising index

COVER STORY 18 Beyond the pandemic Insurers look to accelerate and thrive in 2021

FEATURES 25 Independent agent channel’s future Top 10 trends to follow in the new year

29 Your sales process in 2021 Convert from in-person to digital

Statements of fact and opinion in PIA magazine are the responsibility of the authors alone and do not imply an opinion on the part of the officers or the members of the Professional Insurance Agents. Participation in PIA events, activities, and/or publications is available on a nondiscriminatory basis and does not reflect PIA endorsement of the products and/or services. President and CEO Jeff Parmenter, CPCU, ARM; Executive Director Kelly K. Norris, CAE; Communications Director Katherine Morra; Senior Magazine Designer Sue Jacobsen; Editor-In-Chief Jaye Czupryna; Advertising Sales Executive Susan Heath; Communications Department contributors: Athena Cancio, Alexandra Chouinard, Patricia Corlett, Darel Cramer, Roberta Lawrence, Zack Littrell, Alysia Plaza and Crystal Ringler. Postmaster: Send address changes to: Professional Insurance Agents magazine, 25 Chamberlain St., Glenmont, NY 12077-0997. “Professional Insurance Agents” (USPS 913-400) is published monthly by PIA Management Services Inc., except for a combined July/August issue. Subscription rate for members is $13 per year, which is included in the dues; subscription rate for nonmembers is $25 per year. Professional Insurance Agents, 25 Chamberlain St., P.O. Box 997, Glenmont, NY 12077-0997; (518) 434-3111 or toll-free (800) 424-4244; email pia@pia.org; World Wide Web address: pia.org. Periodical postage paid at Glenmont, N.Y., and additional mailing offices. ©2021 Professional Insurance Agents. All rights reserved. No material within this publication may be reproduced—in whole or in part—without the express written consent of the publisher.

COVER DESIGN Roberta Lawrence

IN BRIEF

ASSOCIATION NEWS

Get the most out of your PIA membership in 2021 This year, resolve to get the most out of your PIA membership! PIA Northeast members have access to myriad benefits—you may have even forgotten some of them. When was the last time you called the PIA Industry Resource Center to ask a technical, legal or regulatory question? Or, the last time you had PIA review one of your agency agreements with a carrier? Did you know that PIA will do this as part of your PIA membership? Did you know that you can purchase your agency’s errors and omissions, cyber liability coverage and employee benefits coverages through PIA? Our Member Services Department is waiting for your call at (800) 424-4244, or email the department at memberservices@pia.org. Your association also answers thousands of calls each year. We have the resources to help you run your agency and educate your clients. Here are just some of the benefits available to you as a member. You can find more information about most of these—and other PIA Northeast member benefits—on the PIA website (pia.org). Term life/AD&D and LTD employee benefits. PIA offers members term life/accidental death and dismemberment and a long-term disability employee benefits program. The program features comprehensive packages and competitive rates; flexible plan benefit options; life benefits up to $250,000 without medical underwriting; and there isn’t a participation requirement or an employer premium-contribution requirement. The flexible plans are an excellent way to offer valuable income protection to your employees at an affordable cost. Contact PIA’s Member Services Department at (800) 424-4244 or memberservices@pia.org to take advantage of this member benefit. Workers’ compensation markets. PIA has been helping members place their monoline workers’ compensation business for nearly two decades. The association offers a broad range of workers’ compensation markets for your clients from top-rated carriers, with flexible billing and payment plans. PIA’s programs have a simple five-step submission process to get you started. Our dedicated staff helps our members provide outstanding alternative markets for their clients. For more information, click “Workers’ Comp Markets” under the “Products and Services” tab.

Agency promotion. From logos and letterhead to complete strategic campaigns, PIA Design & Print writes, designs and produces original and on-target promotion, building on a fundamental understanding of the insurance business—for a fraction of what you’d pay an outside firm. If you’ve ever worked with an ad agency, you know the frustration of explaining your business, only to have the final product prove something was lost in the translation. PIA Design & Print can create well-crafted marketing materials to reach your future clients. Have a niche market to which you want to promote directly? PIA Design & Print also develops and sells trade-show booths, brochures and materials. PIA Design & Print also offers two newsletters, that can be sent to your clients—Insights and Updates (for personal-lines clients) and Your Business (for commercial-lines clients). Both newsletters are available in an e-version, which can be sent to your clients’ email or a traditional hard-copy version, which can be sent to your clients’ mailbox. PIA Design & Print makes it easy. We can customize, print and even mail the newsletters to your clients. PIA will keep your mailing list confidential. PIA Design & Print knows creativity and we know your business. Turn to PIA Design & Print to get your message out to your clients. For more information about what PIA Design & Print can do for you and your agency, call (800) 424-4244 or see “Design + Print” under the “Products, Services” tab (under “Promote your business”). Agency Staffing Assistance Program. PIA’s Agency Staffing Assistance Program provides members with the tools to recognize, recruit and train new employees. ASAP has links to online job sites and recruitment agencies throughout the state; listings of high schools and colleges; sample promotional brochures; sample job descriptions and classified advertisements. PIA’s ASAP also offers advice on how to develop an in-house internship program, interview tips and questions and more. For more information, access “Agency Staffing Assistance Program” under “Tools and Resources.” AVYST. AVYST™ eForms Wizard by AVYST enables professional insurance agents to interview clients and prospects on-site; allowing agency personnel to input data directly into forms that are saved and shareable. Once information is collected, it can be conveyed to the

PROFESSIONAL INSURANCE AGENTS MAGAZINE

(continued on page 6.)

BY THE NUMBERS

Possible trends:

The P/C industry after COVID-19 The COVID-19 pandemic has altered the insurance industry dramatically. Social distancing, masking up and staying home are everyday habits. But, what will the property/casualty industry look like after the pandemic ebbs and we can remove our masks?

Technology

Underwriting & Claims

Many companies are moving their technology to the cloud—migrated systems

Interest rates are low. If they remain low, some commercial lines could become uneconomical to write.

could remain in the cloud forever.

Borders and walls are eliminated: data collaboration

Technological advancement and increased remote work will lead to increased

will continue to be easier and faster, right at our fingertips.

cyber security claims.

62%

Unemployment is going up:

Demand for workers’ compensation coverage is going down.

of p/c insurance companies plan to expand their use

of technology.

40%

of insurance industry employees

learned new technology to help clients and grow their businesses.

Small businesses are disappearing: Demand for

commercial property insurance is going down.

We can’t predict the future, but based on how the pandemic is affecting the world, we can make inferences and educated guesses as 2021 continues. PIA Northeast will keep you updated on the latest market trends news. Watch your PIA publications. PIA.ORG

ASSOCIATION NEWS

(continued from page 4.)

business’s carriers, wholesalers and other sources within the agency. This innovative system eliminates redundant entry on forms, and empowers the ability to complete multiple ACORD applications; and helps agents get to market faster.

From our online database to our phone-in and email options, PIA MarketBase is your source for market leads. Access PIA’s online MarketBase service (under the “Resources” tab) or send a market request to the PIA Industry Resource Center (resourcecenter@pia.org).

Your PIA membership offers you access to AVYST’s Bronze Level for free. PIA members can access the Gold Level at a 50% discount. For more information, see: avyst.com/partnerships/pianortheast.

Perpetuation. For owners of family run agencies, internal perpetuation is a realistic option for exiting the business. In most cases, internal perpetuation is favored over selling or merging due to the desire to keep control of the business in the family.

BusinessLink™. PIA’s BusinessLinkTM service provides two programs to help member agents build lasting relationships with carriers, managing general agents and general agents: • PIA’s Agency-Company Appointment Program, which attempts to bring professional, independent insurance agents together with companies looking for quality agents; and • PIA’s Appointment Access Program, which offers an opportunity for agents to be linked with managing general agents and general agents looking to appoint. For more details, call PIA’s Industry Resource Center at (800) 424-4244 or see “BusinessLink” under the “Products, Services” tab (under “Promote your business”). Elite Education. This prepayment incentive program makes it easier for PIA-member agencies to stay on top of continuing-education requirements for the entire staff. A PIA Elite Education concierge, who is assigned to your agency, will handle all your enrollments for PIA education sponsored programs (e.g., webinars), and your birthday CE reminders. At the end of each month, your assigned concierge will send you an email with your current education enrollment activity as well as your account balance. If your agency has a balance in your prepaid account at the end of the year, you may choose to cash out your balance or roll it over toward next year’s prepay commitment. For more information, click “Elite Education” under the “Education” tab. Designation program. Have you thought about earning your Certified Professional Insurance Agent designation? PIA has partnered with the American Insurance Marketing and Sales Society to offer this designation program to insurance professionals. For more information, see the “Education” tab on the PIA website (pia.org). MarketBaseTM. PIA’s MarketBase™ Program, with more than 2,100 risk categories offers association members the information needed to place those hard-to-place risks. 6

Many of the steps taken to prepare an agency for internal perpetuation also might assist in a third-party sale, if that is the eventual outcome. PIA National’s perpetuation central can give you tips and tools to make this planning process easier. For more information, access “Agency Journey Mapping” under the “Resources” tab. Prelicensing courses. A.D. Banker & Co. can help insurance producers master the concepts required by the state with integrated videos, streamlined content, and comprehensive exams. A.D. Banker’s online course is designed to ensure you pass your state exam on your first attempt. PIA Northeast members qualify for a 5% discount. For more information, “Prelicensing courses” under the “Education” tab. PIA’s QuickSource library. PIA’s QuickSource library offers information on numerous topics (e.g., sales, technology, agency-management issues and company updates to legislative/regulatory, coverage and workers’ compensation). To access the most recent index, access “QuickSource library” on the PIA home page. Tech Info Central. Through the PIA Technology Info Central, members are provided with a one-stop shop for technology news, real-time initiatives, vendors and consumer information for their websites and more. They also can access real-time implementation options; keep current with the latest technology news; obtain materials to assist in creating and updating their agency websites. Technology Hotline. This hot line puts members in touch with technology experts. PIA members get up to 30 minutes of free consultant time when requested through PIA’s Industry Resource Center, by calling (800) 424-4244 or emailing resourcecenter@pia.org. To access this resource, select “Technology Info Central” under “Tools and Resources.” PIA offers you the tools and resources you need to help your agency grow. Even in these unprecedented times, we’ve got your back.

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Business interruption and recent lawsuits Tennis fans know that the end of June and early July means The Championship, also referred to as Wimbledon. It’s a fortnight of lawn tennis with strawberries and cream, Pimm’s, and all-white uniforms (still a requirement of the tennis club that hosts the tournament). For many tennis fans, the cancellation of the tournament in 2020—the first time during peacetime—came as a shock. Insurance professionals and enterprising lawyers noticed the cancellation of the tournament with an extra detail. Unlike the similarly canceled French Open, Wimbledon organizers had spent nearly 20 years paying what may have seemed a hefty premium for infectious disease insurance coverage. With the COVID-19 pandemic forcing the cancellation of the event, the All England Lawn Tennis Club was able to file an insurance claim reportedly

LEGAL

CLARE IRVINE, ESQ. Government affairs counsel, PIA Northeast

worth £114 million.1 Most smaller businesses may not have specifically purchased a pandemic coverage, but they had an “all-costs” business interruption policy.

Terms of the contract Insurance policies are, quite simply, a contract between the insured and insurer. The insurer agrees to indem-

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nify the insured against a loss in exchange for an agreed upon consideration from the insured. The legal system largely upholds contracts between two parties so long as they adhere to certain legal requirements. Due to their complexity and importance to consumers, states heavily regulate most insurance contracts. Once approved, the policies presumably meet the legality standard and a court will likely consider the policy terms binding even if the policyholder did not read every single word of the lengthy agreement. Holders of a business interruption policy likely assumed that their all-costs coverage would cover the loss of income due to pandemic closures. They did not choose to close their businesses, but did so due to government orders. Effectively, the law kept them from operating their business, so they filed claims

these addresses handy Email> Keep to reach PIA electronically General pia@pia.org Conference conferences@pia.org Design + Print design.print@pia.org Education education@pia.org Government & Industry Affairs govaffairs@pia.org Industry Resource Center resourcecenter@pia.org Member Services memberservices@pia.org Publications publications@pia.org Young Insurance Professionals yip@pia.org

116889

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with the companies that issued the business interruption coverage. When it comes to managing commercial risks, some companies learned the same lesson the AELTC did when the SARS outbreak shut down parts of Hong Kong in 2003, it demonstrated the potential economic devastation of an airborne contagion. After the SARS outbreak, most insurers updated their policy language accordingly to exclude pandemics. A few businesses bought infectious disease insurance policies to fill the hole left by these exclusions but at a great cost (AELTC paid an average of £1.5 million a year for the Wimbledon policy2). The vast majority of policyholders did not notice the new exclusion and assumed that when COVID-19 caused widespread shut downs that their all-costs business interruption policy would make up for the lost income. Across the country, policyholders were denied claims for the losses due to pandemic-related closures. The claims denials have been followed by a wave of lawsuits challenging the terms of the insurance contracts and validity of such exclusions. The exact wording of the policies has shaped the early decisions in these lawsuits, which have so far addressed motions to dismiss by insurance companies.

Clear exclusions dismissals Unfortunately for most policyholders, the terms used in their policies related to business interruption use clear language to limit coverage to physical damage causing the business closure, while also including a clear exclusion for pandemics. Many of the businesses that have filed claims had these exclusions in their

policies. As a result, the companies have responded with motions to dismiss, which have been granted. This occurred in the New Jersey case of Mac Prop. Grp. LLC v. Selective Fire & Cas. Ins. Co., in which the policy language specified that coverage was limited to: physical damage to the building, order of civil authority related to physical damage to the area, and excluded damages caused by viruses. While the business owner asserted the property could not be used, the insurance company argued that no physical damage occurred and, additionally, the virus exclusion further barred coverage. The court found the policy language and exclusion “to be clear and unambiguous,” making “any expectation of coverage by the insureds” unreasonable.3 The policyholder may not have been aware of these terms when signing the policy, the clear and undisputed language leaves no room for interpretation in the policyholder’s favor, and has led courts to dismiss these cases.

However, the lack of definitions and exact choice of words left the court to define the policy. With the assistance of Merriam-Webster Dictionary, the court determined that “direct physical loss” included “scenario[s] in which their employees, customers, vendors, suppliers, and others lose the full range of rights and advantages of using and accessing business property.”4 The physical business location may be unharmed by the pandemic, but the mandatory closure meant no one could access the property, enough for the court to consider it a direct physical loss. Similarly, a court in New Jersey ruled against an insurance company’s motion to dismiss a lawsuit due to necessary interruption.5 Initially, the company denied the business’s claim after closures caused by civil authorities, asserting

IS IT POLLUTION OR FERTILIZER? Did you know that a Great American AgriBusiness® Division policy doesn’t exclude animal waste as pollution? Farmers and ranchers appreciate comprehensive coverage in a single policy!

Ambiguity opens doors Not all policies have such clear language, leaving space for policyholders to argue against the interpretation of the insurance carriers. An early example of such situation led to a North Carolina court deciding in favor of the policyholder due to the wording “physical loss.” The all-costs policy did not define the terms “direct,” “physical,” and “loss,” leaving the court to apply the ordinary meaning of the words. Experienced insurance professionals may interpret such a clause to apply to the physical structure of the business, which would be analogous to the examples of cases dismissed on summary judgement.

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Coverage is summarized. Please refer to actual policy for details. Policies are underwritten by Great American Insurance Company, Great American Insurance Company of New York, Great American Alliance Insurance Company, and Great American Assurance Company, authorized insurers in 50 states and the DC. Products not available in all states. ©2020 Great American Insurance Company, 301 E. Fourth St., Cincinnati, OH 45202. 5607-AGB (07/20)

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no physical loss or damage occurred. The policy had a virus and bacteria exclusion, but the wording of the contract left room for the court to interpret if the exclusion applied to the clause on necessary interruption. As the closure had been a result of an order of civil authority, the court held that the losses were the result of a necessary interruption to the business. Rather than hand the business a clear win, the ruling was on a motion to dismiss, and the case will continue to a jury trial in a state court in Bergen County. The policies in these cases lacked a clear, explicit virus exclusion in the language of the policy. Other cases in which motions to dismiss by companies have been denied lack similar language. These decisions do not lead to the policyholder winning the lawsuit automatically; they usually allow the case to proceed to the next steps to interpret what the policy language means. Nor does the absence of a virus exclusion determine if the motion to dismiss will be denied. Each case depends on the exact language of the policies, and the interpretation of the court.

sation to businesses affected by the pandemic will continue to be a policy issue for legislators. All the while even the rare pandemic-specific policies have become unavailable for any business. Wimbledon may return as planned in 2021, but it will no longer have an insurance policy to cover possible cancellation due to a pandemic. 1

SBNation, 2020 (bit.ly/38Q5oAQ )

PropertyCasualty360, 2020 (bit. ly/3nC80Xj)

Mac Prop. Grp. LLC v. Selective Fire & Cas. Ins. Co., Civil Action DOCKET No. L-2629-20 (N.J. Super. Nov. 5, 2020)

What comes next? Comparatively few of the business interruption cases that have been filed have had any further decisions yet. Thus far, the decisions have focused on whether there is a question of fact and most are dismissed on face. Across the country, lawyers watch along with those in the insurance industry as courts continue to issue rulings on motions with the prospect of trials looming. Many of these decisions will likely be appealed, including the successful motions to dismiss. Outside the courthouse, this issue continues to grow as a public policy and a public relations concern, as much as a legal one. Going into 2021, compen-

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North State Deli v. Cincinnati Insurance, State of North Carolina, Case No. 20-CVS-02569 (Oct. 2020)

Optical Services v. Franklin Mutual Insurance Co., Superior Court of New Jersey Law Division (June 2020) 5

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Adjust your value proposition to fit new risks This past year, new risks are emerging that are affecting insurance agencies. According to a recent report, “... while insurance as an industry may be slow to change, its risk environment is not.”1 Amid the developing risks in the digital realm, the physical environment and the mid-pandemic world, your agency is figuring out how to adapt its value proposition to meet customers’ needs. This article will discuss some areas to consider when re-evaluating your agency’s offerings.

What is value proposition? Your agency’s value proposition is arguably the most vital element of your overall marketing messaging. A value proposition explains how your product solves customers’ problems or improves their situations. Let’s face it, it’s not

always easy for agencies to differentiate from one another. From our work helping insurance agencies get sales appointments with their prospects, differentiating (on paper) has proven to be the most challenging piece of the sales process—but it is the most important first step toward an effective sales strategy. In order to consistently provide value and remain competitive in the market, adapt your value proposition based on the world around you.

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The digital world An important facet of the insurance industry is digitalization, and the potential risks of new technology. A few of the latest market drivers include an increase in use of cloud-based technology, stricter government regulations and heightening threats to personal property. These drivers encourage plenty of opportunities, ranging from rapid economic development to globalization, making it imperative that your business proposition reflects these growth expectations. However, consider the challenges that digitization will bring, such as potential crime incidents and deceiving terms and conditions. Cyber liability insurance can protect data and protect from cyberattacks and hacking. With all of these factors in mind, there is no denying that the demand for cyber liability insurance won’t be going away any time soon. If cyber liability insurance is one of your agency’s main competencies, be sure to advertise your successes within this line of coverage, and come up with a clear value proposition to that end. While businesses are aware of the risk, if they haven’t lived through a problem, they need clear understanding of the true risks posed and what they stand to lose.

The physical world Not only does the digital world require adjustments, but the physical world does, too. One of the more critical elements to consider is changes in the environment. According to Partner Engineering and Science, there are three main environmental issues: vapor intrusion, radon gas exposure and emerging contaminants.2 These hazards can be expensive to the commercial real-estate industry, which affects insurance. Similarly, climate change is affecting profits negatively. As Forbes stated, with impacts such as sea-level changes and increasing water intrusion after storms, climate poses a “significant threat to both residential and commercial buildings and can negatively impact a real estate investment.”3 These rising environmental issues result in higher costs for business owners, so insurance policies are adjusted to compensate for the additional costs. Commercial insurance is more vulnerable to a changing economy than other lines. The prominent changes in the environment will affect employee benefits and costs to the employer for commercial spaces. It is evident that these environmental problems won’t go away any time soon, so you may want to consider adjusting your offerings accordingly to capitalize on this trend.

The mid-pandemic world As with most of the world, COVID-19 has an undoubtedly large impact on the insurance industry. According to McKinsey & Co., pandemics tend to affect so many people and businesses at the same time, they “are typically considered uninsurable by the market alone.” As a result, there is “the possibility for insurers and governments to collaborate further on improved pandemic risk assessment, risk communication, and financial protection.” 4 While each line of insurance may be impacted by the pandemic differently, there will likely be a decline in premiums as a whole. According to The Washington Post, the unemployment rate hit 14.7% in April 2020 during the nationwide lockdown. Some construction companies turned 16

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to independent contractors for tasks such as painting. However, these companies found that the people they hired were not insured, and it created a major risk to them. With so many new risks, it is imperative for insurance agencies to adapt their value proposition to fit these new conditions. As the agent writing the business, ask yourself how you can best fit the needs of prospects and adjust during this time. In conclusion, there are a variety of changes in the world and, as a result, plenty of new risks are emerging that will affect insurance agencies. Adjusting your agency’s value proposition to meet prospects’ needs is important with the current risks in the pandemic world, the physical environment, and the digital realm. How will your agency adapt to these three risks, and then update your value proposition so prospects and clients know you’ve made the change? Overall, you will benefit the most by tailoring your value proposition to these trends. Puppo is the owner of 20-year-old New Jersey-based MarketReach Inc., which specializes in setting qualified sales meetings for insurance agencies and allied suppliers. In addition, MarketReach offers integrated marketing services to support a full sales pipeline such as LinkedIn Connection & Awareness program, monthly email newsletters, and sales collateral. For more information, log on to MarketReachResults.com. McKinsey & Co., 2020 (mck.co/36ExigB)

Partner Engineering and Science, 2019 (bit.ly/3nnowdA)

Forbes, 2019 (bit.ly/3kEw7md)

McKinsey & Co., 2020 (mck.co/36ExigB)

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GARY SHAW AND SAM FRIEDMAN Deloitte LLP

BEYOND THE PANDEMIC

Insurers look to accelerate recovery and thrive in 2021

nsurers, agents, and brokers saw their operating models severely disrupted by the COVID-19 outbreak in 2020, prompting an overnight shift to remote work and virtual customer engagement, while at the same time exposing gaps in digital capabilities and raising new cyber security concerns. However, as we enter 2021, many insurers have made budget adjustments and have reconsidered their investments to hasten the industry’s recovery and enable growth in what is likely to remain a challenging economy.

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When the pandemic hit the United States last March, insurers responded by taking immediate steps to ensure business continuity, while helping their customers, intermediaries, and broader stakeholder communities cope. Since then, insurers have been implementing a mix of proactive and reactive strategies to adapt and position themselves to thrive in the months and years ahead. To explore both the tactics industry leaders have been following to ensure their foundation remains strong for however long the effects of the pandemic last—as well as the investments they plan to make to position themselves for long-term success— the Deloitte Center for Financial Services fielded a global outlook survey of 200 insurance company leaders in three regions (North America, Europe and Asia-Pacific). Among the major themes emerging from the survey results: • Many insurers worldwide are showing greater interest in developing direct-to-consumer sales capabilities, with face-to-face contact by intermediaries more problematic due to concerns about spreading the virus. But, at the same time many carriers are increasing their support for agents and brokers in a variety of ways. • Expense management was a top priority even before the pandemic, but it is being even more strongly emphasized now among many insurers to offset COVID-19’s ongoing economic fallout in terms of high unemployment, small-business closures, investment volatility, and near zero interest rates. • However, rather than cutting budgets across the board, most insurers are likely delaying or 20

scaling back pre-pandemic investments in part to free up capital for higher priority projects and talent that can help them adapt sooner rather than later. • The need to accelerate digitization and enhance virtual operations turned headwinds into tailwinds at many insurers, driving faster action to deliver within the coming year what might originally have been three-to-five year transformation plans. • Necessity might have been the mother of reinvention for many insurers during the pandemic, but the speed of change and much greater reliance on connectivity and remote access also may generate a host of new exposures for carriers and their policyholders, particularly in terms of cyberrisk and business interruption. When asked about their plans for each major function in the wake of the pandemic—from product development to underwriting, as well as distribution to claims—respondent priorities often differed substantially by global region (Figure 1) and type of technology (detailed later in this article).

Figure 1: Insurer investment priorities for operations North America/Europe: Offer parametric policies Asia-Pacific: Launch/expand usage-based insurance via real-time monitoring

North America: Increase automation Europe: Tighten underwriting standards Asia-Pacific: Add alternative data sources

Distribution

Product development

Claims

Underwriting

North America: New/enhanced online capablilties; bolster agent/broker cybersecurity Europe: New/enhanced mobile app; direct financial aid to agents/brokers Asia-Pacific: Join multi-carrier sales platforms

North America/Asia-Pacific: Use more advanced data analytics Europe: Increase use of artificial intelligence

Source: Deloitte Center for Financial Service’ Global Outlook Survey 2020

Insurers hedge their bets Forty percent of insurers surveyed by Deloitte expect to increase investment in direct online sales, at least partially because many customers may be less able or unwilling to meet face-to-face with insurance salespeople until the pandemic is completely resolved—or perhaps longer term if consumer preferences shift in a more fundamental way. However, most respondents indicated they are hedging their bets by supporting traditional agents and brokers in a variety of ways, including prospecting and sales management. European respondents went so far as to cite direct financial aid for struggling distributors as their top priority (although that option ranked eighth in North America). Such help would likely be welcome, as most independent agents lost personal- and commercial-lines clients due to the pandemic, while many agencies may have had to apply for federal Payroll

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Protection Program loans or some other grant or financial assistance to sustain themselves. In addition, since many independent agents had to work from home when the pandemic hit—and a significant number may continue doing so, at least part of the time— bolstering cybersecurity for a largely remote sales force was cited as the No. 1 distribution consideration by North American respondents, while coming in second for Asia-Pacific insurers and third for Europe.

Shaking up the status quo The pandemic may spur new types of coverage, such as the launch of more parametric policies, which pay upon the occurrence of a triggering event rather than having to claim a specific insured property loss. Respondents in North America and Europe cited this as the top product development priority, and it was No. 3 in Asia-Pacific. The concept, which has been rising in prominence in property-catastrophe coverage, might have applications for future viral outbreaks. Insurers also may have opportunities to innovate more in personal lines with the pandemic-induced change in driving habits and work environments. Many of those responding to a Deloitte auto and homeowners insurance consumer survey1 taken during the early part of the pandemic indicated a preference for greater customization. In particular, younger buyers showed interest in wider ranging policies, including one covering all types of transportation rather than being tied to one vehicle.

Claims go virtual Trends prompted by the pandemic likely have required insurers to

contend with much more remote claims handling, formerly executed on-theground. Thus, it was surprising that “increasing virtual claims interactions” finished as a fourth claims priority among respondents in all three regions. Similarly, “upgrading detection capabilities for claims fraud” finished sixth, despite the fact that fraud frequency often increases during times of economic distress. These results may reflect the need for insurers to make hard budgetary choices across multiple priorities. For claims to become a more reliable retention driver and even a difference maker in sales, carriers will likely need to not only adopt new technologies and alternative data sources, but also establish a connected partner ecosystem and talent model that values both technical claims handling and data science skills. Long term, such a course will likely help reduce pressures to replace an aging workforce as no-touch insurance claims processing increases.

Data privacy is a priority Privacy already was becoming a more prominent concern well before the pandemic hit—not only because of increasing regulatory scrutiny, but also given how rapidly data volume is growing through sensors, third-party aggregators, and other alternative sources. Our outlook survey found privacy to be a growing board-level priority for insurers, with 52% (including nine of 10 CEO/president respondents) expecting to boost spending to improve capabilities in this area. However, 27% of respondents expect no change while 22% may cut spending on privacy this year, which could prove problematic given emerging vulnerabilities with what may remain largely a remote, more vulnerable workforce for many insurers and their distributors. Insurers also may need to consider increased spending if they decide to move beyond the traditional focus on regulatory compliance and engage more proactively and transparently with consumers. This may be accomplished in part by offering consumers greater value for new types of data, and thereby making privacy management both mutually beneficial and a competitive differentiator.

A hybrid workforce Most insurers surveyed are looking to get the bulk of their people back to the office eventually. However, with the periodic surges in COVID-19 infections and uncertainty around large-scale vaccine availability, many returning workers may remain concerned about potential health and safety risks well into 2021. Indeed, 74% of respondents feel their organization’s success post-COVID-19 may be hampered by employee fear of returning to the office. Compounding this, those who’ve acclimated to remote work may question the need to return to an office, regardless of COVID-19’s status. Therefore, many insurers will likely have to consider moving beyond traditional office structures and build a roadmap to thrive virtually. Some may decide to shut selected offices for good, while others should consider a hybrid remote/office system, or at least a more flexible template. Insurers and independent agencies should keep in mind that employees working remotely may lack an appropriate ergonomic space and need company support PIA.ORG

to adapt. Many also are contending with additional personal responsibilities, such as child or elder care, requiring flexible or reduced schedules. Overall, insurers will likely need to rethink “return to normal” talent strategies to enable ongoing productivity, collaboration, and innovation no matter where their people work. Beyond pandemic-related talent concerns, addressing employment inequality is emerging as a top priority for insurers. Nearly 67% of respondents report their company is focused on increasing the level of diversity in hiring, development and leadership. Europe leads the charge for change (75%), followed by respondents from Asia-Pacific (65%) and North America (61%). Insurers and independent agencies also should not take their eyes off longstanding, longer-term objectives, such as attracting more millennials and Generation Z workers to backfill positions left open by what is likely to be a growing number of retirees in an aging workforce. They also need to bolster recruitment of those with the advanced data analytics and technology skills to fuel faster, more effective digital transformation.

Tech transformation? Technology was vital in helping insurers, agents and brokers shift to remote work environments, and in ensuring employees had the tools to conduct business while remaining connected with clients. Even so, Deloitte’s survey found 79% of respondents believe the pandemic uncovered shortcomings in their insurance company’s digital capabilities and transformation plans. That

rose to 87% among respondents with operations responsibilities, who were probably the most directly impacted. In response, 95% of those surveyed already are accelerating or looking to speed up digital transformation to maintain resilience. Respondents in Europe (59%) and North America (55%) are further along in implementing such plans, compared to 41% in Asia-Pacific. Spending on cloud computing and storage is a major priority among our survey respondents, along with data analytics and digital channels (see Figure 2).

Figure 2: Insurers reassess technology investment priorities Cybersecurity

Cloud computing and storage

Data privacy

Digital channels

Artificial Intelligence (AI)

Robotic Process Automation (RPA)

20%

40%

Data analytics

Blockchain and distributed ledger technologies

25 36

60%

Expect a large increase in spend

Expect a slight increase in spend

Expect a slight decrease in spend

Expect a large decrease in spend

2 1 7

80%

100%

Expect no change

*Percentages may not add up to 100% due to rounding.

Source: Deloitte Center for Financial Service’ Global Outlook Survey 2020

Innovate to thrive There are many additional challenges facing insurers in the year ahead, such as the impact of worsening climate change on insurer bottom lines, with 80% of respondents expecting to increase investment in initiatives promoting climate sustainability. However, perhaps the biggest challenge overall may be coping with “the unknown of unknowns.” Generally, while recovery efforts have been robust in substituting digitization and virtual encounters for manual processing and face-to-face sales and service, what do these foundational changes mean for insurers, distributors, and policyholders in the short- and long-term? It’s doubtful we’ll go back to what was considered normal whenever the outbreak is resolved, and world economies recover their footing. But, more rapid digitization also likely means even greater dependence on connectivity, third-party data, and cloud functionality. While such monumental operational changes may have been made out of necessity during the pandemic, they may result in new risk-management challenges for insurers and their policyholders.

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With so many commercial customers undergoing similar digital transformations, there is likely a big opportunity for insurers to help mitigate and cover any resulting exposures. This may play out much like cyberrisk— a rapidly evolving exposure both threatening data rich insurers as well as opening up a growing market for the industry to cover. In the meantime, with a new type of economy to underwrite—more flexible, with increasing dependence on connected ecosystems, real-time data, and advanced technology— insurers will likely be called upon to revise siloed thinking as lines continue to blur among personal and commercial auto, homeowners and workers’ compensation coverage. How insurers respond by generating innovation in their insurance policies, sales strategies, operations and customer experience could turn out to be their biggest differentiator in 2021 and beyond.

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Shaw (gashaw@deloitte.com) is vice chairman and U.S. insurance leader for Deloitte LLP. Friedman (samfriedman@deloitte.com) is insurance research leader at Deloitte’s Center for Financial Services. Deloitte’s full “2021 Insurance Outlook” (bit.ly/2WfaEXl) also was co-authored by Friedman’s Center research colleagues Michelle Canaan, Nikhil Gokhale, and Prachi Ashani. Follow Sam on Twitter at @SamOnInsurance, as well as on LinkedIn. This piece is published with permission from Deloitte. To learn more about Deloitte’s network of member firms see www.deloitte.com/about. 1

Deloitte, 2020 (bit.ly/3lBGmJr)

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Independent agent channel’s future

Top 10 trends to follow in the new year

We’ve seen independent agents rise to the occasion during a difficult year. Now more than ever, we believe in the enduring value of the independent agent channel. However, for agents to continue to win in the marketplace, things can no longer be businessas-usual. Consumer behaviors evolved, risk profiles changed and trends that were once emerging are now ingrained. The challenges of 2020 accelerated the pace of change in the insurance industry, and many of these changes are here to stay. As the insurance industry evolves, agents must evolve, too. Transformation is never easy, but future-minded agents are adapting strategically to meet the challenges of the new normal. How are agencies adapting? Over the last year, we’ve seen 10 key trends emerge that will shape the future of the insurance industry and the independent agent channel. These trends are informed by the societal shifts around us. They carry through the best of what once was and drop the practices that no longer serve us. No. 1: Digital is a necessity. Customer expectations of digital accessibility have been building for the last decade,

as more customers got used to researching and buying products online. As the pandemic forced customers to spend more time online, they adjusted their behaviors, which increased their expectations. In the 2020 Salesforce State of the Connected Customer report, 88% of respondents said they expected companies to accelerate digital initiatives due to COVID-19, and 68% said COVID-19 elevated their expectations of companies’ digital capabilities. Digital is no longer just a nice-to-have option—it’s now table stakes for doing business. No. 2: Customization is key. According to the same Salesforce report, more than half of customers expect offers to always be personalized, and 66% expect companies to understand their unique needs and expectations. Personalized service is one of the key value propositions of independent insurance agents. However, in the digital realm, personalization looks different. For example, it may mean providing options for customers to connect with your agency via their preferred channel— or multiple channels, depending on the context. It may mean connecting your agency’s technology tools to

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improve data and update customer records with relevant information from every interaction. No. 3: Digital marketing is a growth driver. Businesses are moving away from spray-and-pray methods of marketing, and instead they are turning toward digital marketing. According to eMarketer, U.S. businesses will have spent more on digital advertising than on TV and print ads combined in 2020. Digital marketing can drive growth by allowing agents to target ads to specific audiences, and test different tactics to determine what drives results. It lets agents reach customers where they are: online. No. 4: Data drives decision-making. Today’s digital tools give agents more data compared to years past. Forward-thinking agents harness that data and use it to make wise decisions about how to improve their agencies. By looking at agency data over time, agents can see their agency’s strengths and opportunities for growth. They can make strategic decisions about how to cut costs, drive leads that convert and much more. No. 5: Agency growth is about more than revenue. The economic impact of COVID-19 has left even the most resilient of businesses in a place of uncertainty. However, uncertainty can bring greater clarity, especially in the ways we think about and measure success. Traditionally, many agents have measured growth in terms of revenue. While revenue always will be a critical measure of agency health, the disruptive nature of the last year pushed agents to look at points of measurement beyond the bottom line. For example, agents may measure growth based on progress and improvements such as healthy retention rates. It always will cost more to acquire a new customer than it will to retain a current one, and even more so during economic downturn. Focusing on improving retention is a solid growth priority—especially during times when new business may be lower than usual due to economic hardships. No. 6: Remote work is here to stay. With stay-home orders taking effect in many states during COVID-19, many businesses were forced to transition their workforces to remote work. According to a PwC survey, 77% of executives said most of their employees were working from home at least one day a week.1 For many businesses, this change will affect how their business operates moving forward. As employees prove they can remain productive while working from home, a more hybrid approach that allows both in-office and remote work is gaining in popularity. In the PwC survey, more than half of executives anticipated that most of their employees would work from home at least one day a week after COVID19. This more flexible approach to work may help agencies attract younger employees, and could make it possible for agencies to hire outside of their geographic area. No. 7: Employee engagement is more difficult, but still essential. Especially following a year of such tremendous crisis and unexpected change, employee engagement is foundational for continued success.

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The Forbes Insights Experience Equation report evaluated the complex relationship between employee experience and customer experience, and the findings were clear: Happy employees and happy customers go together. Findings from Gallup also support the idea that employee engagement drives real business results. According to the State of the American Workplace report, highly engaged business units achieve a 10% increase in customer ratings and 20% increase in sales. Additional research from Gallup indicates, “employee engagement is an even stronger predictor of performance during tough periods such as economic recessions.” With more employees working remotely, agency leaders have to find creative ways to build a thriving workplace culture, and make sure every employee feels supported and included. No. 8: Diversity is vital. Diversity and inclusion have become hot topics in the business world over the last few years. However, in the past year, renewed movements for racial justice shined an even brighter light on how businesses navigate inclusive leadership. The business case for diversity is clear. With the U.S. population growing more diverse, more people want to work for or buy from companies with employees who reflect that diversity. In a Glassdoor survey conducted in August 2020, 76% of job seekers said a diverse workforce was an important factor in choosing where to work. And, according to the McKinsey Diversity Wins report released this past May, “the most diverse companies are now more likely than ever to outperform less diverse peers on profitability.”

Insurance companies and agencies should invest in intentional efforts to recruit and retain talent of greater gender and ethnic diversity. This will help agencies better serve their customers, bring in more innovation, and be positioned for long-term success. No. 9: Purpose-driven businesses will win. The events of 2020 also prompted customers to re-evaluate the societal role of businesses. According to the Salesforce State of the Connected Customer report, 71% of customers say a company’s ethics matter more than they did a year ago, and 75% say a vendor’s ethics increasingly factor into their purchasing decisions. The bar for corporate responsibility is even higher for younger customers, who want to work with companies that hire diverse workforces, use tech ethically, advocate for human rights, and reduce carbon emissions.

Beyond customer expectations, organizations that are driven by a purpose bigger than profit outperform competitors in terms of customer loyalty and employee engagement—both of which positively affect long-term revenue. The trend highlights a need for agents to find alignment between growth efforts and their agency’s bigger purpose. Agents should articulate corporate values and intentionally build a workplace culture around the agency’s purpose and values. No. 10: Forward-thinking independent agents will continue to thrive. This past year pushed all of us out of our comfort zones and brought about more changes than anyone could have anticipated. We firmly believe that independent insurance agents can, and will continue to win in the changing marketplace. All of these trends provide opportunities for agents to continue growing and adapting to serve their customers better, build thriving workplaces, and find more efficient ways of working. Forward-thinking agents will continue to innovate and adapt, continuing to offer expert advice and excellent service. No matter where your agency is in its transformation journey, a growth mindset should be at the center. Canales is regional general manager of the Northeast region for Liberty Mutual Business Lines and Safeco Insurance. He has been in the insurance industry since 2004, most recently as Safeco’s northeast region general manager. Canales served prior executive roles in Liberty Mutual commercial lines distribution, agency and broker strategy and marketing. 1

PwC, 2020 (pwc.to/3pyylHx)

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Your sales process in 2021

Converting from in-person to digital

I’m just going to say what we all think and feel. I really hate COVID-19. It seems to have stolen momentum, and made us all take a step back. With every setback there are lessons, and COVID-19 has taught many insurance agents that it’s time to adapt to a new set of rules. Under no circumstances can we use COVID-19 as a reason we can’t still hit our sales goals. If insurance sales were easy, there would be a lineup of people trying to get into this industry. We need to take this time to strategize our once in-person sales approach. First, we need to get over COVID-19. You can’t progress without accepting that there are new rules we need to embrace. Too many agents are stuck in the mindset of “I hate Zoom meetings” and “No businesses are buying insurance due to the economic downturn.” You know you are stuck when you’re describing the problem rather than focusing on a plan. If you are stuck, it’s time to retire your feelings, embrace the facts and get your plan together. In fact, many businesses have used this as an opportunity, and you can, too. Here are some best-practice strategies to convert your in-person process to a pipeline-filling, socially distanced plan.

Coffee, cocktails and lunches still possible Part of being in sales is the eating, right? You get to build socially and mutually beneficial friendships with not only clients, but centers of influence. Who doesn’t like a lunch, coffee date or networking event? However, those activities are no longer as mainstream, so what do you do? You can host a teleconference coffee, cocktail or lunch. If this sounds silly or awkward, you know it will get attention. You want to be clear in the invite that this is not a sales meeting, but rather an opportunity to connect. To do this, send an invite that reads something like this: I hope you and your family are well during this crazy year! Since many of the traditional networking events have been put on hold, I wanted to make sure that I am still intentionally connecting with great people in this industry! I know I personally miss seeing everyone and meeting new people. That’s why I’m emailing today ... would you have a virtual coffee, lunch or drink with me—our treat?

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Don’t worry, this isn’t a sales meeting, just a casual hello to see what you are up to and make a connection. Make sure to use a calendar invite, and include a link that will allow the person to pick a gift card (e.g., Rybbon.net). And, use the call to work on helping each other. It’s just one way to keep the process going.

Blocking & tackling When we get going and things are popping, we forget the blocking and tackling. When our pipeline is rich, we don’t ask for referrals as frequently, we leave off a cross sell and maybe we miss a follow-up or two. With COVID-19, we don’t want to miss any opportunities. It’s our turn to polish every step of the sales process to maximize our opportunity. Taking a step back, we can slow down to speed up, and really turn every lead into the next one. Here are some common areas that agents start getting sloppy on when times are good: • Asking for referrals • Getting every policy available on each account • Follow up • Follow through This is a great time to stop, and flush out and build a sales process that covers all the best practices. When you have something written out, it’s easy to follow. You may have been in insurance for 20 years and think you know everything, but remember: 20-year veteran airline pilots still take their checklist out to fly the plane. They check every detail and check it off on the list. This is designed to ensure your safety and maximize efficiency. Why would our sales process be any different? Take this time to map out the best practices.

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you didn’t have time for prospecting, now is the time to start. You probably didn’t go to school for marketing, but good and authentic content creation will get eyeballs on you. How do you build more roads to your agency? Create content. Agents fight the content idea because it’s overwhelming, and no one really knows how to begin. However, the theory on content is this—when you have a problem, what do you do? Most people run an internet search. When you sneezed during COVID19, did you Google the symptoms? If you know your dream clients, you can then create content about what matters to them. One word of wisdom: You do not want to write about insurance policies. You want to discuss the questions people have. Think about a topic that someone would type into an internet search bar such as: “If my car gets broken into will there be coverage?” Rather than writing about personal property, you can change the narrative to solve someone’s problem and get your content ranking. The more eyeballs, the more people can click around on your site. [EDITOR’S NOTE: PIA Design & Print can help you create your agency’s marketing content.] Your next consideration is platform. Do you like to write, speak or be on video? You have to pick at least one. Find the one that you enjoy the most, and commit to doing it weekly. Ideally, you want to increase that to even more than weekly, but let’s get the pattern down. Marketing only works when it is done consistently, so your major goal is to make that commitment. If you routinely and religiously create content and post it on social-media channels, you will gain a following of your target clients within a few short months. So, the big question is—what are you waiting for?

Get on the phone Since networking events and dropbys are no longer a consistent way to generate opportunity, we have to get back on the phone. Calling people still is a great way to make introductions, but before you get out your client list, you should embrace these keys to success: First, you need to set your expectations. If you call 10 people, you won’t necessarily get 10 opportunities. In fact, if you speak to two people, you’re on track. If this is your first call, your expectation should be an introduction. At an in-person networking event, you don’t walk up to someone and ask for his or her DEC page. Why would you do it on a call? Think of calling like a football game—a good job is getting a first down.

Next, you need to practice. Many agents fear the phone since we were always taught it’s rude to interrupt someone. However, the people we are contacting have the choice to pick up the phone. When they do, it’s an opportunity. Calling on people helps to drive home the idea that you are the best answer for their insurance needs and questions. If you believe that, you want to share that. Before you start your calls, first practice as a team to get all the giggles out, and ideally your rhythm down while you role play. Next, test your own receptionist. Set it up so your gatekeeper is ready to take on the sales team, and see if they can get by your internal team to get to the end decision maker. Finally, try 10 bad leads. No harm just practicing on 10 people who aren’t ideal to get you ready for your dream clients.

Conclusion COVID-19 has changed a lot in our lives. However, if you look at these practices outlined in this article, they are not new techniques. It’s really driving back and getting to basics that will lead us to success in this difficult time. As the founder of Agency Performance Partners, Donahue-Piro has helped hundreds of insurance agencies boost revenues, profits and efficiency. If you would like to see sample brand guides, visit agencyappeal.com/brand-guide-examples/. Reach her at (401) 415-6205 or kelly@agencyperformancepartners. Or, connect with her on social platforms.

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Can statistics give the wrong impression?

E&O

CURTIS M. PEARSALL, CPCU, CPIA

It is possible that when your customers are determining what or how much coverage to buy, they want to get a better understanding of how often that coverage is needed. Let’s consider flood coverage. For example, the customer could ask you how likely it is that his or her house will get flooded over the next few years.

the coverage was that inexpensive, I would have bought it.”

As the agent, you advise the customer that the house is located in a “1-in-a100-year” flood zone, which means that over the course of the next 100 years, the house will be flooded once. One flood every 100 years sounds like good odds, and it makes a strong case for the customer not to buy flood coverage. As a result, the customer decides that flood coverage is not something he or she needs.

Have you ever had a customer ask for your advice about whether to buy certain coverage? This will often sound like, “What would you do?” or “What do you recommend?” Agents need to know how to answer these types of questions. Imagine if the agent in the above scenario commented that, “If I were you, I wouldn’t buy it.” How is the customer going to feel after he or she has a claim that isn’t covered? It’s quite possible that the customer could bring an E&O claim against your agency alleging that he or she relied upon your “poor” advice. It is probably best to say something such as, “What I would do is immaterial. This is your home, and you need to decide what coverage you purchase.”

This exact situation occurred in Minot, N.D., in 2010. A customer discussed personal-lines coverage with the insurance agent and, during the discussion of flood coverage, the customer was advised that the house was in a “1-in-a-100year” flood area. The agent was being truthful as the last time the Souris River in North Dakota reached the highest level was in 1881, over 125 years earlier. Unfortunately, the next 1-in-a-100 years occurred in 2011. The levees were topped, and over 4,000 homes were destroyed or damaged. So, it was actually a 1-in-a-129 years flood. Following the flood, the customer filed an errors-andomissions claim against the agency. This situation is not unique. Another rare event took place in Charleston, S.C. It involved something that had a statistical chance of occurring of 0.1%—or 1-in-a-1,000 years. While most people would conclude that an event with this type of statistical probability is highly unlikely, it did happen. A once-in-a-1,000-years rainfall occurred in October 2015—resulting in widespread amounts of 15-20 inches, and localized amounts of over 25 inches, mainly in the Charleston tri-county area. This led to significant property damage. A key takeaway from these two events is that when discussing coverage with customers, whether an event is a 1-in-a-100 years or 1-in-a-1,000 years, there may be a tendency for the agent or producer not to address the coverage since the chance of the coverage applying is so remote. This should not happen. Even if the chance of the event—such as a flood, earthquake—occurring is remote, agents and producers still should inform the customer of the availability of the coverage. Providing customers with proposals is the best approach, as it forces customers to make a decision about whether they want the coverage. If the agent does not mention the coverage, could it be viewed that he or she is essentially making the decision for the customer? The last thing you want is for the customer to come back after an uninsured loss and argue, “If I knew PIA.ORG

A key E&O loss prevention issue involves customer accountability. This should be a goal of every agent.

Bottom line: Interjecting statistics into the conversation with the customer should be undertaken with extreme caution. While statistics provide historical perspective, there is no way to know whether those statistics will continue the same pattern moving forward. Maybe in the first example in this article, it would have been best for the agent to tell the customer, “That area has not flooded in over 100 years, but next year could be that year.” 33

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Collapses, military service, DWIs and more Collapse exclusion Q. My homeowners client had a five-inch thick and two-by-three-foot cement slab in front of his fireplace. The whole thing suddenly fell into the basement. Is the damage covered as collapse under his HO-3 homeowners policy? A. On one hand, in the ISO 1991 HO-3 policy, collapse is an excluded cause of loss unless it is covered under Additional Coverage No. 8. This additional coverage applies only to collapse caused by the specific perils listed, which precludes coverage for collapse caused by excluded perils such as a flood, earthquake or latent defect in the home’s construction. The burden of proof is on the insured to show that the cause was one of these specified perils. In the case of the cement slab, if the collapse occurred because of hidden decay, hidden damage from insects or vermin, the weight of people or contents in the house or one of the “broad-form” perils, there should be coverage. On the other hand, the ISO 2000/2011 HO-3 policy provides collapse coverage under Additional Coverage No. 8, but the wording has been revised to preclude its application under the circumstances you presented. As stated in this provision, “Collapse means an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its current intended purpose.” The hole in front of the fireplace in your scenario does not likely make the dwelling uninhabitable, which is necessary to trigger collapse coverage in the 2000/2011 HO-3 policy editions.—Dan Corbin, CPCU, CIC, LUTC

Military service, youthful operators Q. We insure a family with a young son who is away serving in the military. Do we need to rate him as a youthful operator on his family’s auto policy? A. The definition of a “resident” in the ISO personal auto rules manual states: A person in active military service with the armed forces of the United States of America is not considered a resident in the household unless this person customarily operates the auto.

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as a youthful operator for rating purposes. However, since any person operating “your covered auto” with permission is an insured under the personal auto policy, the son will be afforded insurance if he operates covered autos while he is home on leave—regardless of the rate being charged.—Dan Corbin, CPCU, CIC, LUTC

Pollution exclusion– welding Q. We have an insured with an ISO commercial general liability occurrence policy. The insured is a steel fabricator and erector who does some welding that produces smoke at job sites. Is smoke from welding rods considered a pollutant? Will there be coverage under the policy if someone becomes ill from the smoke? A. The ISO commercial general liability policy defines “pollutants” to include gaseous irritants such as smoke, vapor or fumes. Nevertheless, there may be coverage for welding smoke resulting from operations carried on within a building. The CGL has a pollution exclusion that applies at any premises where the insured is performing operations

So, if the son is in the military, and he is away from home—and he doesn’t customarily operate an insured vehicle—he would not need to be included

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and when “pollutants” are brought to those premises in connection with the insured’s operations there. However, the exclusion does not apply to the following: “‘Bodily injury’ or ‘property damage’ sustained within a building and caused by the release of gases, fumes or vapors from materials brought into that building in connection with operations being performed by you.” Once the exposure goes outside the building, this exception to the exclusion no longer applies.—Dan Corbin, CPCU, CIC, LUTC

DWI–collision coverage Q. I have a personal auto insured who was involved in an accident and who was cited for driving while intoxicated. The carrier is disclaiming collision coverage citing that DWI. Can carriers exclude this coverage under these circumstances? A. Mandatory coverages include liability, personal injury protection and uninsured motorists, but they do not include comprehensive or collision coverages. Coverages that are not mandatory are given more underwriting freedom. As a result, insurers can file forms to exclude coverage for operators having DWI convictions. PIA has seen exclusions that only are applicable when the named insured and spouse are convicted of a DWI—not when permissive operators, such as relatives or friends, are convicted. If you are moving a client from a policy

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without this exclusion to one that has this exclusion, it is advisable that you disclose this change in coverage. —Dan Corbin, CPCU, CIC, LUTC

Commercial auto–care, custody and control Q. Our insured has a fleet of vehicles, one of which is the owner’s truck. In the evening it is driven home, and parked in the insured’s driveway. Our insured’s spouse backed a car, which has a personal auto policy, out of the garage and into the side of our insured’s truck. The car incurred $1,500 in damages and the truck incurred $3,500 in damages. The claims adjuster for the car is denying coverage for the property damage to the corporate-owned truck, claiming that the truck parked in the driveway falls under the exclusion for damage to property in the care, custody and control of the insured at the time of a loss. We believe this is a straight property damage liability claim, as the truck was parked at the time of the claim; and is, in fact, owned by a corporation. Who is right? A. Since the spouse was the insured who caused the damage, the exclusion may not apply since it could be argued that she did not have custody of the truck (unless she had the keys to it and access to it). The ISO personal auto policy only excludes “that insured” who has custody of the property.—Dan Corbin, CPCU, CIC, LUTC

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