2024 February PIA Connecticut by PIA Northeast

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February 2024 • Connecticut

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tech at your fingertips has its challenges Solutions exist for agents and small-business owners

IN THIS ISSUE 9

E&O implications of AI

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COVER STORY 16 The tech at your fingertips has its challenges

In brief

Legal

Risks

Connect

Ask PIA

Readers’ service and advertising index

Officers and directors directory

Solutions exist for agents and small-business owners

FEATURE 23 Everyone is texting for everything Meet your clients' communication expectations

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; Editor-In-Chief Jaye Czupryna; Advertising Sales Representative Kordelia Hutans; Senior Magazine Designer Sue Jacobsen; Communications Department contributors: Athena Cancio, David Cayole, Jeana Coleman, Patricia Corlett, Darel Cramer, Matthew McDonough and Damon Whimple. 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. 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. ©2024 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 David Cayole Vol. 68, No. 2 February 2024

IN BRIEF

Insurance tech trends for 2024 2024 is here, and it’s set to continue several tech trends that we’re familiar with from last year. From strides in artificial intelligence, to new incorporations of the blockchain, this year will continue to push the envelope in terms of technology. Here are a few trends to watch: Machine learning & artificial intelligence Machine learning (i.e., technology and algorithms used to identify patterns and make decisions) and artificial intelligence (i.e., the ability of computers to emulate human thought process) took off in 2023 with the release of GPT-4, which even prompted an executive order from the Biden administration about the emerging technology. As machine learning and AI continues to be refined and incorporated into workspaces, agents may wonder how it will affect them. A few examples include: the facilitation of underwriting, claims management and customer service. These technologies likely will be coming to an office near you—if they haven’t already arrived—so keep an eye out for them.

Generative AI A subset of artificial intelligence is Generative AI. Generative AI can produce a wide variety of content, ranging from photos, to text, to even videos. There already is plenty of generative AI services available to consumers, including ChatGPT and DALL·E 2. Generative AI has plenty of applications in the insurance field, ranging from chatbots for customers to assistance in drafting documents. However, in a broader context, generative AI is not a panacea and can be misused, like creating deep fakes that can mislead people, or it doesn’t account for biases when generating content.

Data analytics Data analytics is a field in which sets of raw data are computed and analyzed to make decisions about information. There are plenty of approaches to analytics that fit whatever scenario they’re required for, including making predictions or examining the root cause of an event. By using real-time data analysis and improvement in data collection, insurers can increase the quality of coverage that they provide. From evershifting weather patterns to changing demographics, data analytics can better assess risks and optimize pricing.

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Cyberattacks and coverage

Blockchain technology

By the end of 2025, cyberattacks may cost the global economy up to $10.5 trillion. Independent agents may want to consider how heavily their insureds rely on technology and consider offering them cyber liability insurance and IT insurance.

The term blockchain is commonly associated with cryptocurrency, but what is it? The blockchain is made from sets of data grouped into blocks. Each block connects to all other blocks, and any transactions within the blocks are validated and agreed upon by a consensus mechanism.

In a scenario in which an insured owns a business or is self-employed, he or she may heavily rely on technology to offer service to his or her customers. A cyberattack may affect your insureds infrastructure and clientele, and they could use coverage.

Your agency could use the coverage, too. PIA members and every one of their small-business clients must understand and then tackle their cyber security weaknesses before they are crippled by them. To protect their sensitive data—and their insureds’ sensitive data— insurance agents should have cyber liability coverage, which is offered through PIA Northeast (www.pia.org/quote/cyber.php).

So, how can blockchain technology help insurance agents? For one, the blockchain can be incorporated into smart contracts, which is a program that executes an agreement between parties based on rules written into a blockchain. Insurance policies can be written as these contracts, and the agreement between the insurer and insured will create immutable data from where claims can be accepted or refuted. The blockchain offers a way for direct, secure connections between two parties in an insurance agreement, and can be dissolved in cases of fraud.

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INDUSTRY TRENDS

Embracing AI in insurance: A tool, not a threat By Bradford J. Lachut, Esq., director of government & industry affairs, PIA Northeast

In today’s rapidly evolving digital landscape, artificial intelligence is transforming industries, including insurance. For insurance agents, AI presents an opportunity to enhance efficiency, accuracy and customer service. Yet, amidst these advancements, some agents view AI with trepidation, fearing it may replace their roles. Hopefully, this article can dispel these fears, illustrating how AI is a tool to be leveraged, not a threat to be feared. Understanding AI in insurance The first step in embracing AI is understanding what it is. AI in insurance isn’t about humanoid robots that resemble Robert Patrick that handle claims. It’s about smart technology aiding human agents. AI encompasses a range of technologies—including machine learning, natural language processing and predictive analytics. These tools process vast amounts of data faster and more accurately than humans ever could, providing insights and automating routine tasks. AI: Assistant, not a replacement The primary role of AI in insurance is to assist agents, not replace them. It’s about complementing human skills with machine efficiency. AI can handle data-heavy tasks like sifting through policy documents, assessing risks or analyzing claim histories, which frees agents to focus on areas requiring human intuition and empathy (i.e., client interactions and complex case assessments). Enhancing customer experience AI excels in personalizing customer interactions. Chatbots, powered by AI, can handle basic customer queries 24/7, ensuring prompt responses. The interactions provide data that AI can analyze to tailor services and recommendations, leading to personalized customer experiences. Human agents can then step in for more nuanced conversations, guided by insights AI has gathered. Streamlining claims processing One of the most tangible benefits of AI is in claims processing. AI can analyze and categorize claims quickly based on their complexity. Simple claims can be processed automatically, while complex ones are flagged for human attention. This efficiency reduces processing times, increases customer satisfaction, and allows agents to focus on claims requiring their expertise. Upgrade your book AI’s predictive analytics can revolutionize risk assessment and policy placement. By analyzing vast datasets, AI can 6

identify patterns and predict risks more accurately. Agents can use these insights to advise clients on risk mitigation strategies, tailor policies to individual needs, and price policies more competitively. With great power, comes great responsibility To use AI effectively, agents must learn and adapt. This involves understanding the basics of AI and how it applies to their work. Training sessions and workshops can be beneficial. Agents who embrace AI will be better equipped to offer advanced services and solutions. Effective use of AI also means addressing the issue of the ethical use of the technology. Discrimination of clients based on certain protective characteristics—whether by an agent or an AI—is illegal. Agents must ensure that AI systems are fair, unbiased and transparent. Clients should be informed about how AI is used in processing their data and making decisions that affect them. Agents must adopt a robust AI code of conduct. This code should outline ethical guidelines for AI usage, ensuring fairness, accountability and transparency. Set clear boundaries on using customer data, maintaining privacy, and avoiding biases in AI algorithms. By adhering to a code of conduct, agents not only safeguard their clients’ interests, but enhance trust in AI technologies. The human element: Irreplaceable Despite AI’s advancements, the human element in insurance remains irreplaceable. Insurance is about trust, empathy and understanding—qualities that AI cannot replicate—at least not yet. AI can provide tools and insights, but the human agent is the one who builds relationships, negotiates complex cases, and offers peace of mind to clients. AI in the insurance office is a transformative tool that, when used effectively, can enhance the efficiency and quality of services provided significantly. It is not a harbinger of job obsolescence but a technological aid that, when combined with the irreplaceable human touch, can create a more dynamic, responsive and customer-centric agency. By embracing AI, agents are not ceding ground to machines; they are equipping themselves with powerful tools to excel in a digital-first era, ensuring they remain indispensable to the insurance purchasing consumer. Lachut is PIA Northeast’s director of government & industry affairs.

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The E&O implications of AI Artificial intelligence, commonly referred to as AI is a technology that is reshaping industries and sectors worldwide, and the insurance industry is no exception. For most, AI is a normal element of our daily lives, assisting us with everyday tasks like getting driving directions, food suggestions, asking Alexa or Google for the weather or receiving the “Time to stand up” notification on your Apple Watch. All these simple and helpful elements of our day are powered by artificial intelligence. Consequently, with the advent of technologies like ChatGPT, Grammarly, and the like, repetitive tasks and responsibilities have been outsourced, optimizing time and enhancing efficiency in educational and professional spaces.

While ChatGPT has arguably produced more benefit than harm— since its inception—there have been several concerns associated with AI, including lack of legal regulation, algorithmic bias, and copyright infringement.

LEGAL

THEOPHILUS ALEXANDER Government & industry affairs specialist, PIA Northeast

This prompts a critical question: What happens when AI is misused? Currently, legislators, regulators, software developers, judges and

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insurers are addressing this complex issue by examining risks and ensuring responsible AI use. Insurance is all about protecting yourself from risk. So, when thinking about artificial intelligence, the natural question is: What are the risks to your agency? More specifically, what are the errors-and-omissions implications of using AI? Largely, the E&O implications of utilizing AI in insurance is uncharted territory from a legal standpoint. Thankfully, there have been several recent court cases and regulatory proceedings involving other industries’ use of artificial intelligence that can help to illustrate what sort of impact the use of AI might have in the insurance industry.

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As you know, E&O insurance is a specialized insurance product tailored to help protect your agency against losses not covered by traditional liability insurance. E&O protects your agency from lawsuits arising from alleged negligent acts, misrepresentation, inaccurate advice, or errors and omissions made during business activities that result in financial loss. More specifically, E&O insurance policies will cover judgements, settlements, court costs or attorney fees—up to the limits of one’s insurance policy.

Lawsuit No. 1: Research This past summer, attorneys Steven A. Schwartz and Peter LoDuca were sanctioned by a New York federal judge for utilizing ChatGPT improperly to submit a fabricated legal brief in a court filing. The attorneys cited references to purported past court cases to support their client’s case against the Colombian airline Avianca for a personal injury during a flight back in 2019.

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Unbeknownst to them, the cases they referenced were generated by the AI-powered chatbot and were not actual legal precedents. As a result, the court ordered Schwartz, LoDuca and their law firm Levidow, Levidow & Oberman to pay a $5,000 fine. Using AI to assist in research—as the attorneys in this case did—is not an inherently bad idea. In fact, it might be a good idea, because automating certain tasks and responsibilities enhances efficiency. However, be aware that the use of AI does not eliminate the need to verify your research. Since artificial intelligence pulls data from a multitude of different sources, deploying AI should be expected to be wielded reasonably.

Lawsuit No. 2: Hiring practices

States Southern District Court by the Authors Guild on behalf of 17 plaintiffs, including Douglas Preston, George R.R. Martin, Jodi Picoult, Michael Connelly and Jonathan Franzen.

Using generative AI to answer questions, write emails or interact with customers is not without risk, AI models may generate erroneous output that can lead to serious adverse consequences. As evidence, the case of EEOC v. ITutorGroup Inc., et al., [Civil Action No. 1:22cv-02565], the United States Equal Employment Opportunity Commission settled its first ever AI-discrimination-in-hiring lawsuit, reaching an agreement with tutoring company ITutorGroup, which programmed its recruitment software using AI to reject applicants over the age of 40 automatically.

The Authors Guild contends that OpenAI-trained ChatGPT to generate content by illegally pirating data, including their fictional works, from the internet. Conversely, OpenAI argues that its use of training data taken from the internet qualifies as fair use under U.S. Copyright Law. Consequently, the Authors Guild is calling for the creation of a licensing system that would allow AI companies: • to obtain consent from authors, • to give credit to authors, • to compensate authors fairly, and importantly, • to offer authors the option to choose not to have their work utilized by AI.2 Moving forward, this court case could be monumental because of the broader implications for the AI industry, as well as the insurance industry.

As AI continues to branch out

This EEOC infringement was a direct violation of Title VII of the 1964 Civil Rights Act and as a result, the settlement ordered ITutorGroup to pay $365,000 to the group of rejected applicants, implement antidiscrimination policies, conduct antidiscrimination trainings, and invite all the rejected applicants to re-apply for positions with the company.1 The use of AI—especially in sensitive areas like hiring—requires careful consideration and oversight to ensure that the technology does not inadvertently lead to discriminatory practices, violating federal and state laws. This case emphasizes the importance of responsible AI development, training, testing and implementation to avoid ethical and legal implications.

The widespread integration of AI is transforming industries—including the insurance industry—by streamlining processes and enhancing efficiency. However, as evidenced by recent legal cases involving AI misuse that are highlighted in this article, concerns surrounding legal regulation, algorithmic bias and copyright infringement persist.

U.S. Equal Employment Opportunity Commission, 2023 (tinyurl.com/4vr96mt7)

Lawsuit No. 3: Pirating material

The Authors Guild, 2023 (tinyurl.com/42hp5eta)

The insurance industry—particularly in the context of E&O insurance—faces uncharted territory as AI becomes a critical, everyday tool. These recent court cases serve as cautionary tales, highlighting the importance of responsible AI use to mitigate risks associated with erroneous data outputs or unintended consequences. The ongoing Authors Guild class-action lawsuit against OpenAI further emphasizes the need for federal and state regulatory frameworks, including potential licensing systems, to address copyright concerns in the AI landscape. As the AI industry continues to evolve, insurance producers must adapt, remain informed about legal developments to best navigate the complexities, and ensure responsible and ethical AI implementation within their insurance agencies. Alexander is PIA Northeast’s government & industry affairs specialist.

Relatedly, around the same time as the EEOC AI discrimination settlement, a major class-action lawsuit was filed in the United

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Case study in AI: Develop practical applications Artificial intelligence has sparked widespread discussions with opinions divided on its potential to either address challenges and offer solutions, or to jeopardize jobs and kill off humanity. Quikfuzion swiftly embraced AI, aiming to harness AI’s capabilities to assist insurance agents—not replace them.

agency requirements. AI models have been developed by OpenAI and Amazon.

The case study

• GPT 3.5 Turbo

Amazon was impressed after witnessing how Quikfuzion implemented AI into its production environment. After seeing the demonstration and having access to a sandbox firsthand, Amazon offered substantial server support to continue testing and analyzing Amazon’s AI models. Amazon stated while many vendors from various verticals talk about using AI in a generative fashion, only a handful are capable. Amazon intends to showcase Quikfuzion’s AI advancements to other potential Amazon AI customers.

OpenAI models include: • Codex • GPT 3.5 Turbo 16K • GPT Turbo Fine Tuned • GPT 4 32K • ADA 2 Amazon AI models include: • Anthropic Claude v2

For insurance agents unacquainted with the nuances of AI, it is essential to dissect the concept and explore its potential benefits for enhancing daily operations in the insurance sector. At its essence, AI involves the creation of computer systems capable of executing tasks traditionally requiring human intelligence, learning, reasoning, problem-solving, natural language comprehension and visual perception. The objective is to develop machines capable of emulating human-like thinking processes that will adapt to dynamic scenarios. Two major AI companies are OpenAI and Amazon.

• Anthropic Claude 1 Instant

There are two types of AI:

Grounding AI with real data is an important part of designing a practical solution. What is grounding? Imagine you have a computer program that understands and processes information. Grounding is like giving AI a connection to the real world so it can understand things in a context that makes sense to humans.

1. Discriminative AI is tailored for a specific task, such as classifying image content or words in voice as in virtual assistants (e.g., Siri and Alexa). 2. Generative AI is an advanced form of AI with the ability to understand, learn and apply knowledge across a broad spectrum of tasks. Though largely theoretical, advancements are underway. The challenge for Quikfuzion was two-fold: First, Quikfuzion needed to determine how to use AI in a practical manner to assist agents and brokers in their day-to-day operations. Second, Quikfuzion had to select an AI model to maximize its platform development and performance objectives. Quikfuzion was one of the first agency management companies to use Generative AI in a production environment. Therefore, Quikfuzion had to train, test, analyze and compare the various AI models to determine which best suited

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DAVID COOKSLEY CEO, Quikfuzion

After extensive training, testing and analyzing the results, Quikfuzion chose to use both Amazon Anthropic models—depending on the type of application.

The implementation

In other words, it’s about linking the AI’s knowledge and actions to realworld experiences and situations that humans encounter. The connection

helps AI make better sense of the information it receives and allows AI to respond in a way that aligns with our understanding. Other vendors may use a chatbox or virtual assistant, which barely scratches the surface of AI’s capabilities. Quikfuzion had to train and teach AI about the insurance business. The AI was trained to understand the ACORD standard and the property/casualty business. AI had to learn the various lines of business and insurance lingo. After many iterations of training, testing and analyzing the results, Quikfuzion chose the Amazon Anthropic AI models and built the following implementations.

Existing AI implementations Voice recognition. Quikfuzion developed SmartVoice, a fusion of Google Voice and AI with which users can use a built-in microphone to populate user interface data fields effortlessly and ACORD forms through spoken commands. This innovation allows users to navigate and populate the user interface and ACORD forms solely using their voice. ACORD forms. Quikfuzion has trained AI to learn and understand the ACORD standard. Agents can select one ACORD form, or they can select a group of ACORD forms that exist for a line of business. AI will retrieve the data from the agency management platform automatically. Both manually entered data and carrier downloaded data are supported. After retrieving the data, AI will populate the selected ACORD form(s) automatically. Two-way ACORD forms. Quikfuzion’s AI allows agents to start a new customer in an ACORD form, and the data will populate the user interface for the agent automatically. Agents can scan existing data filled ACORD forms and the AI will move the data from the ACORD form into the user interface automatically. Custom reporting. In addition to having over 150 ready-made reports, AI empowers agents to create custom reports. AI is extremely powerful at analyzing data. AI generates reports on small- to very-large datasets in about a second. Agents create reports by using their voice or by typing a question into a chatbox. Data conversions. Historically, data conversions for legacy systems took weeks to months to complete and were not accurate. Quikfuzion’s AI tool converts 100% of the AL3 data, notes and attachments with extreme speed and accuracy. A typical agency conversion (10 users) takes about a day. The AI conversion tool also is capable of handling mega-sized databases. Automatic list imports. Agency customers can submit spreadsheets through the customer portal. Quikfuzion’s AI will scrub the data and update the information in the agency management platform automatically. Lists can be anything from customer data, property schedules, driver schedules, vehicle schedules, etc. It is important to note, some of these enhancements mentioned in this article would not be possible—or they would take years to develop—without the power of AI.

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AI is not futuristic AI is a technology that makes a significant impact on the insurance industry. As time progresses, further advancements will emerge to aid agents in their tasks. AI will enable insurance agents to leverage potent tools, streamline processes, gain valuable insights—and ultimately enhance the services agents provide to clients. Agents need to play a vital role in future product enhancements, which will continue to streamline their businesses. The utilization of Generative AI has streamlined our development processes, enabling us to introduce product enhancements to the market at an unprecedented pace. What’s more exciting is that—having become immersed in the realm of Generative AI and seamlessly integrating it into our platform—we have only touched the surface. There is a vast expanse of possibilities waiting to be explored to help agents and brokers. So fasten your seatbelts. We’ve transcended beyond the days of harnessing the horse and buggy. Generative AI is set to take us on a rocket ride. Quikfuzion is an insurance agency management platform development company that has developed a robust, web-based agency management platform designed to replace older and more expensive agency management systems. Prior to Quikfuzion, Cooksley was CEO of Xcipio, which created the industry’s first real-time comparative rater that was sold to Fiserv. He spent 20 years in the insurance agency side, specializing on mid- to large-sized commercial accounts. He also served as past president of CTYIP and past vice president of PIACT.

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tech at your fingertips has its challenges Solutions exist for agents and small-business owners mall businesses are the backbone of many local economies, but they also can face a unique set of challenges. One of the most important is managing technology. As technology evolves and becomes more critical to everyday operations, small businesses must be able to stay up-to-date on the latest trends and advancements to remain competitive.

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This can be a struggle—due to limited resources and budgets. Small businesses face various IT challenges that can hinder their operations and compromise security. What are these challenges, and how can small businesses overcome them? Let’s look at the top IT challenges for small businesses and offer solutions to address them.

The challenges Running a small business isn’t for the faint-hearted. Business owners face numerous obstacles in their day-to-day operations. Some of the most common technology challenges include: Data security. Data security is an essential component for any small business’s survival. With cyber security threats constantly evolving and becoming more sophisticated, the need for effective risk management measures has never been higher. Hackers always find new ways to exploit vulnerabilities in a business’s technology infrastructure, potentially causing severe financial and reputational damage. Common vulnerabilities include unauthorized access, server crashes, power outages and human error. The challenge for businesses is to stay one step ahead of these threats by preparing to prevent attacks and seeking outside help if necessary. Outsourcing cybersecurity is an option for small businesses with limited financial resources and tech capabilities. Digital transformation. In today’s fast-paced business landscape, small businesses must embrace digital transformation to stay competitive. It’s no longer a luxury but a necessity for survival. Digital transformation offers myriad benefits, from increased employee productivity and customer satisfaction, to streamlined business operations and growth.

Remaining current on the latest regulations is not merely a best practice, but it is essential to business survival. As regulations constantly evolve, partnering with vetted professionals certified in the insurance industry will guarantee that compliance requirements are met. Failure to comply can lead to significant legal, financial and reputational damage. Therefore, small businesses must invest in the tools and resources needed to meet these demands, keep up with the times, and stay abreast of regulations while preserving their business.

Cloud solutions. Cloud solutions have revolutionized the way small businesses approach their operations. The flexibility and scalability of cloud-based technologies provide numerous benefits, including easy access to data, collaborative tools and reduced costs. However, integrating cloud solutions into business operations can be challenging.

Integrations and upgrades. Integrating and upgrading technology can be a major challenge for small businesses—especially for those with limited IT resources. As technology advances, small businesses must upgrade their systems, applications and processes continually to remain competitive. This requires a strategic approach to software integrations that meet the current needs of the business while also being flexible enough to evolve with changing demands.

Data security and protection against cyberattacks are significant concerns— especially when dealing with legacy systems incompatible with cloud-based technologies. It is crucial to have dedicated cloud partners that understand and are equipped to address these challenges. Integrating cloud solutions into business models requires strategies like business-data encryption and twofactor authentication, which ensures that confidential information remains confidential, and access is granted only to authorized individuals. In today’s digital world, cloud solutions are here to stay, and businesses must embrace them while ensuring data security and protection.

Businesses also must address the compatibility issue, as different systems and applications may be unable to communicate. This can lead to problems in data transfer, communication between departments and access to shared resources. Consulting an IT expert can help identify areas that need improve-

However, it also comes with its fair share of challenges—like security risks, outdated systems and limited financial resources. To attain their full potential, small businesses must use a mindful approach to transform various operations, from mobile apps to data-collection tools. A well-thought-out strategy involves integrating each piece of technology seamlessly into the business operations. Seeking the help of an IT advisory service can ensure a smoother and more successful transition, setting the foundation for a digitally transformed business that’s ready to thrive in today’s dynamic market.

Compliance. Compliance within small businesses is a paramount issue that often is overlooked. With everchanging regulations, it can be difficult for small businesses to keep up with the latest compliance standards. Organizations must uphold complex compliance systems, reporting processes, training and technology to avoid regulatory scrutiny.

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ment and potential solutions for integration and upgrades. A wellthought-out strategy for integrating new technology while upgrading core systems can ensure a seamless transition while keeping the business competitive. Automation. Small-business owners constantly pursue innovative solutions that can help them drive business growth while remaining competitive. One such solution that small businesses can leverage is automation. Automation can enhance productivity, reduce costs and mitigate risks associated with business operations. However, introducing new automation tools into the existing workflow entails preparing for potential hurdles and crafting a comprehensive test strategy. To address integration challenges encountered in adopting automation, small businesses can

consider low-code and no-code tools that require minimal skill and labor. An effective IT management plan can ensure successful automation adoption, enabling small businesses to reap the benefits of streamlined operations and increased performance. Machine learning. Artificial intelligence and machine learning stand tall as game-changers in the ever-changing landscape of small businesses. These new technologies bring unparalleled automation to businesses of every size, utilizing a unique algorithm to perform specific tasks. Despite their revolutionary potential, challenges arise when small businesses attempt to implement and utilize these technologies. Some challenges businesses face include: budget constraints, security risks and a lack of tech capabilities. However, the benefits of AI and machine learning in small businesses are numerous and transformative. They streamline operations, improve accuracy, and enhance customer experience, all while saving time and money. Picture an AI-powered customer service chatbot responding instantaneously to customer queries, or a machine-learning model optimizing a supply chain for maximum efficiency. The possibilities are endless, and the advantages of these technology solutions are immense. It’s no wonder that AI and machine learning are becoming a requirement for small businesses looking to keep up with the pace of the marketplace. Remote workforce support. In today’s ever-evolving business landscape, remote workforce support has become an essential technology for small businesses. As more companies transition toward work-from-home policies,

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businesses must empower their employees with the right tools, software and technical support. Organizations that have embraced remote work have seen a reduction in costs and an increase in employee satisfaction. Professional insurance agencies must invest in cloud-based solutions, mobile apps, and other technologies to fully reap the benefits of supporting remoteand hybrid-work environments. Providing technical support for employees who face computer problems while working remotely is paramount to achieving optimal productivity. Agencies can ensure a smooth transition toward a more flexible work model by implementing remote-workforce support strategies. Mobility focus. The mobility of today’s workforce presents unique challenges for small businesses. As more employees access work from multiple locations,

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Investing in cloud-based solutions, mobile applications, and mobiledevice management software can help maintain safety and security while enabling employees to work from anywhere. Small businesses must design their IT infrastructure for mobile support and create policies that manage sensitive data-backup distribution across devices. Limited talent. Small businesses often find themselves in a tight spot when it comes to IT professionals. Not having enough talent can pose a significant challenge—especially in artificial intelligence and machine learning. It is possible to overcome this hurdle by effectively identifying talented employees and training them to handle digital assets, applications and automation tools. Investing in IT training for current employees can lead to a significant return on investment for businesses. A shortage of IT professionals can affect productivity, customer service, and security negatively, which can hinder the enterprise’s success. By bridging the skills gap and aligning IT with business objectives, businesses can overcome the challenge of limited talent.

• Exceptional service is an EverGuard priority • Uncompromised program loyalty • Great coverages at competitive pricing with available A&B, Enhancement Endorsement & more • No limit on alcohol sales • Package Policy: Property, GL & Liquor Liability • Entertainment considered • Experienced & Professional Staff

EverGuard Insurance Services 1900 W. Nickerson St., Seattle, WA 98119

the need for mobile-friendly IT solutions and platforms has become increasingly apparent. To meet this challenge, small businesses must be proactive in their approach to mobility, leveraging technologies that facilitate remote collaboration and communication.

Michael Maher EverGuard Insurance Services VP, Business Development Michael@everguardins.com 206.957.6576 EverGuardins.com

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Project management. Project management is more than just a buzzword; it is a vital cog in the wheel of any successful organization—especially for small businesses that face IT challenges. Without proper project management, businesses risk experiencing scope creep and budget overruns that can sabo-

tage even the most well-intentioned initiatives. But effective project management services can help businesses keep track of project expenditures, optimize future initiatives and improve their return on investment. By employing best practices like tracking project ROI and managing IT projects, small businesses can ensure that their projects stay on track, their scope is contained, and budgets are controlled. In today’s competitive business environment, there is no room for poor project execution, making project management an indispensable piece of technology for any small business seeking sustained growth. Social media. Social media has become a powerful tool for small businesses looking to connect with customers and grow their presence online. As more consumers turn to social-media platforms, small businesses must leverage these channels to promote their products and services effectively. By managing a presence across multiple platforms, agents can connect with potential customers, build trust in their brand and increase engagement. Effective social-media campaigns require a strategic approach considering current trends, customer preferences and the competitive landscape. To ensure success, small businesses also must be willing to invest in social-media analytics software to measure the impact of their campaigns and adjust accordingly.

The impact of technology on small businesses Technology advancements have impacted modern businesses significantly, enabling small businesses to compete with larger corporations.

The emergence of digital tools and cloud-computing technologies has allowed small businesses to access solutions for managing their operations that were only available previously to larger enterprises. The benefits of incorporating technology into business operations are many, which include some of the following: Cost reduction. Technology has allowed businesses to save costs through automation, streamlining operations and eliminating manual processes. Small businesses can use cloud-based solutions, such as Software as a Service and Infrastructure as a Service to access enterprise-level technology without investing in expensive hardware or personnel. Agents can use big-data analytics to understand customer behavior and trends, helping them make informed decisions that lead to cost savings. Improved productivity and efficiency. Thanks to technology, small businesses now can reach new heights of productivity and efficiency. Automation, streamlined communication and eliminating manual processes are possible with the help of cloud-based solutions like SaaS and IaaS. These super-powered tools allow businesses to manage projects, track customer data and develop stronger customer relationships easily. And if that’s not enough, artificial intelligence is here to help! With AI, businesses can automate complex tasks and gain valuable insights into customer behavior. By focusing on their core competencies, small businesses can skyrocket their productivity and efficiency to new heights! Increased customer reach. With the power of technology readily available, businesses can conquer the world. Digital wizards like social media, search engine optimization, email marketing and mobile marketing have opened a whole new universe of customers waiting to be won over. And for small businesses with big dreams, technology is the ultimate secret weapon that lets them expand and explore new markets without breaking the bank or losing their minds. Improved customer service. Technology has enabled businesses to provide more personalized experiences and better customer service by leveraging automation tools like chatbots and AI-powered virtual assistants. These tools allow professional insurance agents to provide faster customer service, address customer queries more quickly, and deliver personalized experiences for each customer. Businesses can leverage big-data analytics to gain insights into customer behavior, which enables them to provide more tailored services that meet their customers’ needs. Enhanced security. Small businesses, beware! Cyber criminal activity is on the rise, targeting confidential data and systems. But fear not—with the power of technology, businesses can arm themselves with advanced cyber security solutions like firewalls, antivirus software, encryption and two-factor authentication. Plus, cloud-based solutions offer the bonus of off-site data storage in super secure servers. Keep your data safe and sound, no matter what the world throws your way. Improved collaboration. Technology has enabled businesses to increase collaboration between team members by leveraging communication and collaboration tools, such as video conferencing, instant messaging and filesharing platforms. These tools make it easier for team members to collaborate PIA.ORG

in real-time, regardless of their location. This improves productivity and efficiency and helps improve team morale by allowing your employees to work together more easily.

We have the solutions YOU NEED

Select the right technology When selecting technology for your agency, you will want to consider several factors, including the following:

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Budget. When budgeting for technology, you will want to consider the cost of related services (i.e., software licenses and cloud-based solutions) and the cost of new hardware and software. You also will want to factor in the cost of supporting and maintaining the technology.

it a wealth of benefits for the professional, independent insurance agent or broker—

Ease of use. When selecting technology, you should consider how user-friendly it is for your team members. This will ensure they can quickly and easily adopt and use the solutions with minimal training or guidance.

but the personal assistance of PIA’s Industry Resource

Security. Security should be a priority when selecting technology, as cyberattacks are becoming more frequent and sophisticated. You should select robust security solutions and ensure all data is encrypted and stored securely.

Center alone is worth the investment.

Scalability. As your agency grows, you will want to ensure the selected technology can scale. This will prevent you from investing in additional hardware or software as your needs grow.

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Small businesses use technology to enhance operations, boost customer satisfaction, and maintain a competitive edge. Technology implementation has facilitated personalized experiences, superior customer service and heightened security. Nevertheless, identifying the appropriate technology for your agency can be difficult, as multiple factors like budget, ease of use, security and scalability must be considered.

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When selecting technology solutions, it’s important to consider these factors to optimize success. With the right technology, your agency can benefit from improved operations, enhanced customer satisfaction and increased collaboration among team members.

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“I am so proud of being a PIA member!” —Robert Charles Robert Charles Brokerage Inc.

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“There is no way I could get by without PIA.” —Richard A. Mayo, CPCU Romay Insurance Services

Yager has been helping organizations build successful roadmaps for their business goals for over 15 years. His experience spans a multitude of industries, but his effectiveness comes from understanding each organization individually and their specific challenges. He is a virtual chief information officer with TAG Solutions, an information technology managed services agency that helps organizations develop and enhance their information security programs, reduce risk and achieve compliance with state and federal information security regulations. Tag Solutions has partnered with PIA Northeast to offer association members agency-specific security plans. For more information, log on to www.pia.org/quote/tagny.php.

Industry Resource Center

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VIJAY RENGARAJAN, CPCU Director of product management, EZLynx

Everyone is texting for everything

Meet your clients' communication expectations

For some people, texting can recall stereotypes of moody teenagers glued to their phones. As accurate as that stereotype may be, texting has become a desired form of communication for people of all ages. In fact, 41% of consumers prefer to receive messages from a brand on their mobile device via text, already rivaling email (46%), and followed by social media (8%) and phone calls (6%).1 As agencies consider their strategies in 2024, they should consider every tool available to connect with clients, and texting has come to be just as necessary as traditional methods. Integrating texting technology into your agency management system provides quick-and-easy communication between clients and agents, leading to benefits for all involved—including staff members. To make 2024 the best year yet for your agency, consider these five reasons why you should invest in texting as another form of communication with your clients.

No. 1: Everybody texts While this seems like an obvious statement, it shouldn’t be overlooked. Eighty-six percent of the world’s popula-

tion owns a smartphone and 91% of people own mobile phones.2 And, texting is a favored mode of communication worldwide due to its convenience and the minimal effort it requires. Regardless of technological advancements introducing new applications, native messaging remains the dominant feature used on smartphones. People spend more time texting than they do on other activities, including using social-media platforms. In fact, 78% of consumers say that checking, sending, and answering text messages is the activity that they’re most engaged with on their phones throughout the day, followed by checking social media (66%), consuming news or entertainment (51%) and listening to music or podcasts (50%).3 Some people think that texting is only reserved for millennials and Gen Z, but people in every age range show interest in engaging with businesses through messaging. Across every generation, Gen Z, millennials, Gen X and baby boomers—text messaging ranks No. 1 as the most important communication platform on cell phones.4 In fact, baby boomers spend about 30 minutes a day sending text messages—which is more than they spend making

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calls, using the internet or checking news apps on their phones.5 Regardless of age, texting is a big part of everyone’s daily life, and therefore it should be a communication tool considered for your digital strategy.

No. 2: The demand for texting is up There is a high demand for businesses to engage directly with consumers using text messaging, especially in insurance. Ninety percent of consumers prefer text messages over direct phone calls.6 It’s easy to understand why, as texting removes the necessity for long phone calls that could potentially include extended waiting times. Also, most of your clients already have received messages from businesses, and many of them prefer to keep in touch with brands through text. The shift toward digitization in all industries— including the insurance industry, has led to an increase in the demand for texting services. Customers now prefer digital platforms for interactions. In 2021, 62% of consumers had subscribed to receive texts from businesses. In 2022, 70% of consumers subscribe to SMS marketing—indicating a 12% year-over-year growth in opt-in rates.7 In 2023, 71% of consumers opted-in to receive texts from at least one business—and 75% of those people were Gen Xers.8 These numbers show that texting is extremely effective and provides endless opportunities to engage with new and existing clients.

No. 3: Helps improve communication Texting is one of the most accessible ways for businesses to contact customers. The average open rate for email is 17%, with a click-through rate of 10%9 — but 98% of text messages are opened by those who receive them.10 That means text messages are more likely to be seen and customers are more likely to respond faster and more often. As mentioned in this article, people spend more time on their phones texting compared to other activities, which indicates that including texting as a channel of communication in your agency provides a higher chance for clients to contact your agency, allowing them to engage anywhere they want, when they want and how they want. It can boost customer engagement by being able to send relevant tips and advice related to their insurance needs and easily send clients reminders on policy renewals. Texting allows agents to answer client’s questions and provides information faster and more conveniently than any other communication channel. By having texting as a channel of communication implemented into your agency management system, agents can collect information from clients easily— change of address or information on claims and claim-status updates can be sent through messages and updated into your database easily. This will improve the overall flow of communication between you and your clients.

No. 4: Decreases response time Texting is a high-demand channel of communication that can improve your interactions with clients and make response time quick and efficient. Text messages have a 209% higher response rate than phone, email or a Facebook post.11 To add to this statistic, the average person takes just 90 seconds to reply to an SMS.12 This shows that people are more attentive to their text messages 24

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than traditional email or even social media. Investing in texting technology can help decrease your and your client’s response time. By using agency technology that utilizes texting as a channel of communication, your agency can incorporate a unique phone number to send and to receive text messages to notify clients about who is helping them. In the same instance, certain systems include text message alerts that show up in your account as notifications so you can respond from within the system instantly. This can increase productivity for your agency by allowing your team to handle multiple conversations at the same time, and send automated messages for common queries— which can save you time and effort while providing easy accessibility to your clients.

No. 5: Keeps agents competitive Having the most up-to-date features, such as offering texting as a communication channel, makes your agency desirable to new clients and gives confidence to your existing clients because they know their agency is working to improve its customer experience constantly. Texting can create more leads due to the easy accessibility and convenience that entices new prospects and helps them get the information they want quickly. Quick responses to client inquiries and prompt resolution of their issues can enhance an agency’s reputation for good customer service, which helps you stand out in a highly competitive market. In the same instance, texting helps with retention by staying connected and engaging with your clients when they reach milestones or need immediate service.

Other businesses are seeing the success of texting technology. In 2021, 42% of business owners and digital marketers texted their customers using a text messaging service. In 2022, 55% of businesses use text message marketing with their customers—indicating a 27% year-over-growth in SMS adoption.13 As other businesses invest in texting technology, agents who fail to adopt a channel for clients to engage with them directly risk losing to competitors who do.

in strategic management and he holds his Chartered Property Casualty Underwriter designation. He is an innovative strategist and effective product leader with over 16 years of experience in product management in the IT industry and property/casualty insurance domain.

Texting has become a universal mode of communication in today’s digital age. Texting is not merely a trend but a necessity for agencies. Text messaging provides significant benefits to insurance agents in streamlining client communication and improving customer service.

By offering speed and convenience, facilitating real-time documentation, and maximizing productivity, text messaging has revolutionized the way insurance agents conduct business. This medium of communication serves as a valuable tool in enhancing efficiency in communication, increasing lead generation and nurturing customer relationships. Its increasing demand, its ability to improve communication, and its reduced response times are just a few among many reasons why texting should be incorporated into your agency’s communication strategy. Investing in text messaging can allow you to take your communication with your clients to the next level in 2024. Rengarajan is the director of product management at EZLynx. His passion is delighting customers with intuitive products that drive efficiency and growth for agencies. Rengarajan holds an MBA from Texas A&M International University, with a specialization

yotpo., 2020 (tinyurl.com/5e4fpjes)

BankMyCell, 2023 (tinyurl.com/vj36m2ad)

SimpleTexting, 2023 (simpletexting.com/blog/2023-texting-and-sms-marketing-statistics)

klaviyo, 2021 (tinyurl.com/55u9ycu6)

Attentive, 2021 (tinyurl.com/5fuwfss3)

SMS Comparison, 2023 (tinyurl.com/2tbnmszz)

Simple Texting, 2022 (simpletexting.com/blog/text-sms-marketing-statistics-2022) SimpleTexting, 2023 (simpletexting.com/blog/2023-texting-and-sms-marketing-statistics)

Smart Insights, 2023 (tinyurl.com/5h5sb55b)

yotpo., 2020 (tinyurl.com/5e4fpjes)

SMSBump, 2021 (tinyurl.com/bdfvxfah)

Ibid.

Simple Texting, 2022 (simpletexting.com/blog/text-sms-marketing-statistics-2022)

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March 27-28, 2024 | Foxwoods Resort Casino, Mashantucket, Conn.

At the convention, you will be able to … Experience the trade show, featuring the latest products and services in the insurance industry.

Education

Network with your colleagues, from new faces to old friends. There will be a networking lunch buffet and a networking reception on the first day. Educate yourself. This event will feature three education sessions to bolster your knowledge of the industry.

For more information, or to register: www.pia.org/conn

Cyber Insurance in the AI Age: Judgement Day! Approved for 2 CT CE credits. (GEN-6000160753)

What You Don’t Know Will Hurt You: Cybersecurity Compliance in the Northeast Approved for 1 CT CE credit. (GEN-6000160751)

Emerging E&O Issues and Recent Court Cases Approved for 3 CT CE credits. (GEN-6000160752)

Technology can help your agency make more money The truth about agency technology tools is that many principals think of them as a necessary evil, at best—and something they’d rather not deal with, at worst. That thinking needs to change. When asked, “How important do you believe it is to your competitive success that your agency is able to digitally deliver insurance products?” roughly half of the agency respondents to the 2023 Insurance Agent Survey by PIA and National Underwriter Property & Casualty magazine replied with an answer of “moderately important” or “not at all important.” It’s hard to blame agency principals for being hesitant to invest money in new tools when they’re unsure if they’ll really help, or if they are concerned that the solution they buy might quickly become obsolete. Another point heard from agents is that they aren’t willing to introduce that kind of risk into their business. Common responses include: • “I’m doing just fine with this 20-year-old system.” • “I’m making plenty of money.” • “My team seems content.” • “Why should I risk my data getting screwed up and my systems being offline for a week while I migrate?” • “It’s not worth it!” However, the biggest reason why agency principals don’t embrace technology more often is because the value of agency tech hasn’t been framed properly for them. So, to put it another way: Investing in the technology tools that are most appropriate for your agency will make your business both more efficient and more profitable than it is right now.

A new way of thinking Agency technology is not a one-size-fits-all solution. The right tools for your agency are the ones that solve issues specific to your business, and in doing so, help you make more money. The best way for agency owners to consider the possibility of using new technology tools at their agency would be to ask: What are my goals for my agency? What exactly do I want to achieve, and what would my agency look like, once I’ve accomplished that?

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The second thing to ponder is, what are the processes that consume the most time, energy and money at my business, and how much more efficient would my agency be if I were able to fix them? That’s where the conversation should begin around agency technology and how it can help your business. Technology should align with your agency’s goals and help you to achieve them; those tools should always work for you—not the other way around.

CONNECT

SHAWN MOYNIHAN Senior director of marketing, Renaissance Alliance

The right technology solutions will help you sell better, make your agency more productive, and increase its overall value.

How technology tools help increase your revenue There are many ways in which agency technology solutions can help your agency. Let’s consider four core ways in which it helps your agency make money. No. 1: Identification of your most valuable clients. Experienced agency principals are familiar with the Pareto Principle, which states that 80% of your revenue often comes from 20% of your clients. But how many agency principals—and their staff members—already know

which of their clients are their most valuable, and mindfully direct their energies toward retaining those customers? That knowledge comes from having a firm grasp on your agency’s data. Agency principals would do well to seek out a partner equipped with the technology to help them comb through the agency’s client data and provide valuable intel on which of your accounts are the ones most vital to your agency’s revenue, which accounts have been won or lost, which of those policies are coming up for renewal, and whether they’re worth the extra effort in retaining. Without that intel, agency staffers often can knock themselves out trying to give the same amount of care to a single-policy, low-premium customer than a valued, longtime client. No. 2: Targeting new business from your current customer base. When you’ve been provided new, informed insights on your book of business, it unlocks new possibilities for selling. When sorted properly, your agency’s data clearly shows you: • which policies your clients are carrying (and which ones they aren’t); • the carriers with which they currently have policies; • the percentage of your book of business among multiple carriers; and • your compensation from those carriers for the business you have placed with them. Knowing which policies are held by each of your clients reveals new opportunities for cross-selling. Once an insurance agent has a clearer picture of the types of coverage being purchased by a specific client, it also becomes instantly clearer what types of coverage aren’t being carried by that customer. For example, you can discover that a client might be carrying an auto policy, but not a homeowners or renters policy. A local business with a BOP might lack a workers’ compensation policy, or even cyber coverage. High-net-worth clients may be buying a homeowners or auto policy, but not umbrella coverage. For instance, their policy limits on valuables might be insufficient in the time since their original policy was written and needs to be updated. Experienced agents also know that having multiple policies with the same client not only equals more premium, but also better retention. No. 3: Optimizing your carrier revenue. Being able to view the full spectrum of where your premium is placed helps informs your process when it comes to marketing risks. Through your own data analysis, you may discover that one of your agency’s go-to markets has been paying you a lower amount of commission than another insurer of equal quality. Naturally, there are a variety of important factors that determine whether remarketing clients is in their best interest (and yours), including the carrier’s level of service, the quality of its claims management, and competitive pricing. While the needs of the customer come first, knowing which carrier will give you the best return on that client’s premium will come into play when you look to place that business. It’s always best to have a complete view of your service options.

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Your data also can show you the full landscape of your carrier relationships. How concentrated is your book of business? Where is the biggest opportunity to boost your revenue? How are you performing against your growth goals with specific carriers? These are questions that agents should be able to answer —and the right technology can help them do it. No. 4: Improved agency efficiency. Technology is meant to empower you so that your agency can provide the best possible service to your clients. In my conversations with agency owners, they often say that prospecting isn’t their biggest challenge; rather, it’s keeping up with the needs of the clients they’re already trying their best to serve. Consider your agency’s current processes. Which tasks require the most time and effort for you, your customer service representatives or office staff members? Is it … • responding to basic inquiries about insurance products or options? • processing payments or billing? • filing paperwork for new clients? • monitoring accounts to flag policy renewals? • tracking claims for the fiscal year? • marketing-related tasks, such as manually sending out emails to clients or posting on social media? Once you determine where you are spending too much time and expending too much effort on certain tasks, you can compile a list of where improvements can be made. Then, you’ll begin to develop your vision

for what the most efficient version of what your agency will be. After the appropriate technology solutions are deployed, all the time and energy that’s being spent inefficiently can be redirected toward providing service to your most valued clients.

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It’s time to adopt a new mindset when it comes to agency technology. All the technology solutions in the world will never replace the value you deliver as a trusted adviser. Rather, agency technology supports your endeavors, and empowers you to deliver your customers better, more informed insights.

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Simply stated, the right insurance agency software tools can help streamline and improve processes, cut down costs and drive sales. Your agency will benefit from better accessibility, better customer relationships and stronger retention.

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In the end, it’s up to you to decide whether to invest in the technology tools that will help ensure your insurance agency’s future. Moynihan is senior director of marketing at agency network Renaissance Alliance. Previously, he served as editor-in-chief of both National Underwriter Property & Casualty and Reactions.

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Guaranty associations, 'loan receipts' and more Liability to uninsured contractors Q. Suppose a subcontractor’s employee is injured on the job and it is discovered that the subcontractor’s policy is not in force. The general contractor’s policy pays the subcontractor’s employee the workers’ compensation benefits. Can the employee of the subcontractor sue the general contractor for negligence and collect, or is the employee barred by statute because the general contractor now becomes the employer? A. Per Connecticut General Statutes Section 31-291, the general contractor would be granted immunity because the general contractor has paid workers’ compensation benefits to the subcontractor’s employee. The provisions of this section shall not extend immunity to any principal employer from a civil action brought by an injured employee or his or her dependent under the provisions of Section 31-293 to recover damages resulting from personal injury or wrongful death occurring on or after May 28, 1988, unless such principal employer has paid compensation benefits under this chapter to such injured employee or his or her dependent for the injury or death which is the subject of the action.—Dan Corbin, CPCU, CIC, LUTC

Life guaranty associations Q. What limits of protection will be available from the state guaranty association on a $1 million life insurance policy? A. As revised by Public Act 04-17, death benefits are protected up to $500,000, and net-cash surrender or withdrawal benefits are protected up to $500,000 [Section 38a-860(g)(2A)(i)].—Dan Corbin, CPCU, CIC, LUTC

Liberalization clause Q. If a carrier adopts a change to a commercial property policy that broadens coverage, when does the change affect in-force policies? A. Under the standard ISO commercial property conditions form CP 00 90, it would take effect immediately—unless there is an extra premium for the enhancement. The ISO’s liberalization clause states, “if we adopt any revision that would broaden the coverage under this coverage part without additional premium within 45 days prior to, or during the policy period, the broadened coverage

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will immediately apply to this coverage part.”—Helen K. Horn, CIC, CPIA, CISR

Subrogation receipts, ‘loan receipts’

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Q. Could you give me a brief refresher course on subrogation receipts and what it means when an insured signs one of them? A. The subrogation receipt confirms the status of the insurer as the party of interest. Although the subrogation receipt is not strictly necessary to entitle an insurer to become a lawful subrogee, the subrogation receipt does provide a clear acknowledgment by the subrogor (the insured) of the subrogee’s rights to pursue a subrogation action. Typically, the subrogation receipt acknowledges receipt of a certain dollar amount in full or partial settlement of all claims relating to the occurrence. The subrogor (insured) receipt will state clearly that it subrogates the insurance company to its rights, claims and interest that the insured may have against any party liable for the loss. The subrogation receipt further authorizes the company to sue, compromise or settle, to execute and sign releases and to endorse checks or drafts given

in settlement of the claim, with the same force and effect as if the insured had done so. Usually, subrogation receipts also contain a warranty from the insured that it has not settled or released any party responsible for the loss and that no such settlement will be given by the insured without written consent by the insurer. Further, the insured often agrees to cooperate fully with the company in prosecuting the subrogation action. A somewhat different document is used in some states. Called a “loan receipt,” this characterizes the payment by the insurer to be a loan, with no obligation by the insured to repay unless a recovery is made against a third party.—Dan Corbin, CPCU, CIC, LUTC

Functional valuation Q. At an E&O seminar, the instructor mentioned the “functional replacement cost” endorsement. Could you explain this endorsement? A. You would use the Functional Building Valuation (CP 04 38) endorsement to endorse an ISO commercial-property policy. There also is a functional Personal Property Valuation Other Than Stock (CP 04 39) endorsement. In these forms, a functional replacement valuation replaces the actual-cash-value basis of valuation in the event of damage to the property. This endorsement should be viewed merely as a way to save your client premium. The policyholder’s needs may not require construction with the same quality, size or costly features now present in the property to be insured. When a building or personal property can be replaced at lower cost—while

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still providing the functional needs of the insured—it is worth proposing this endorsement to achieve lower premium, so long as the insured understands its limitations. Assuming the limit purchased is adequate, the endorsement will pay “the cost to replace the damaged building on the same site ... with a less costly building that is functionally equivalent to the damaged building.” The policy’s coinsurance condition is not applicable to this endorsement. In the event of a partial loss, repairs will be made to the damaged portion of the property using less costly materials (if available), but in the architectural style that existed prior to the loss. Ordinance or law coverage is included in the coverage of this endorsement automatically, but these costs must be anticipated in the selection of the limit of insurance purchased.—Dan Corbin, CPCU, CIC, LUTC

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