2024 January PIA New Hampshire by PIA Northeast

January 2024 • New Hampshire

PAGE 16

You got this Be mindful of these trends for 2024

IN THIS ISSUE 9

Carrier do’s and don’ts

Exit archetypes

Give proper advice

Now more than ever. Our commitment to support our member agencies in achieving success is critical in today’s market. We realize that things (and markets) change, so we help our members adapt. Our approach enables results using technology and data. SIAA member agents are smart and entrepreneurial. It’s our role to help them thrive. Now more than ever. Are you starting from scratch, an existing agency looking to grow, or an exclusive agent seeking to make the move to independence? Then you owe it to yourself to check us out, because we are here to champion your success. Now more than ever. siaa.com info@siaa.com

DEPARTMENTS January 2024 • New Hampshire

COVER STORY 16 You got this

In brief

Legal

Sales

E&O

Ask PIA

Readers’ service and advertising index

Officers and directors directory

Be mindful of these trends for 2024

FEATURE 23 Find your way Exit archetypes every agency must know

You got this

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 and Matthew McDonough. 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. 1 January 2024

IN BRIEF

Industry trends to watch out for in 2024 The future of insurance is ever-changing. In the last five years— between a pandemic, geopolitical turmoil, advancements in cybercrime and more—the world has been through a lot. People are looking to keep what is closest to them secure—from their homes to their finances. Here are just a handful of areas that will need extra attention from insurance professionals in 2024.

Climate change is changing coverage across the United States Climate change—the long-term changes in the Earth’s environment and temperature— threatens to upend the lives of millions. One insurance market that climate change already has affected is homeowners insurance. Some major insurers have stopped writing insurance policies in some states (California, Florida and Louisiana) due to frequent natural disasters, such as fires, floods and hurricanes. This has left homeowners scrambling for coverage.

What to look out for:

In Louisiana, 17% of policyholders had their policies canceled by their carriers; in Florida policyholders are paying premiums that are four times more expensive than the national average. Meanwhile, California is frequented by longer and larger fires and the state has seen major carriers discontinue writing new policies.

Pay attention to where your insureds are located. Are they in areas that are prone to flooding, storms or other adverse weather conditions?

Moving forward into 2024 and beyond, agents should be conscious of these changes, and they should think about how best to adapt to them to help advise their clients about the coverage that best suits their needs.

Consider the role insurance should play as a safety net.

Follow the trends of major insurance companies: it may help you predict what they will do next.

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Cybercrime evolves hand-in-hand with technology As technology marches on, so too do the tactics of criminals. This has led to an increase in cybercrime, which is any criminal activity over a computer or network. In the United States in 2022, there were 1,612 victims of cybercrime per one million internet users. The tactics of cybercriminals are varied— they range from phishing, ransomware, fraud and more. All of this is done to extort money or sensitive information from vulnerable users. Some of the best ways for you and your insureds to stay safe is using multifactor authentication, keeping your software up-to-date, being careful of what you click and using strong passwords that are securely stored. Of course, in case all else fails, cyber insurance is there to make your insureds whole again. The five countries with the most cybercrime victims per 1,000,000 from highest to lowest are; United Kingdom (4,371) United States (1,612) Canada (156) Australia (106) South Africa (56)

Big elections across the globe could ripple out to your insureds and you At the time of this writing, around the world there have been several volatile geopolitical situations. This includes, but is not limited to, Russia’s invasion of Ukraine, tensions between the United States, China and Taiwan, and the 2023 Israel-Hamas War. Within the next 12 months, nations such as the United States, the United Kingdom, India, South Korea and more are set to hold elections. With potential leadership and legislative changes, these elections can carry enormous weight—especially if the economies of these countries have strong international connections. All this uncertainty could lead to more businesses being interested in politicalrisk insurance, which is designed to protect them should political actions cause economic changes. Professional insurance agents can’t change the course of a country, but you can protect the investments of your clients at home.

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INDUSTRY TRENDS

PIA Market Trends Survey: Hard market = shift to E&S placement By Danielle Caswell, Esq., associate counsel, PIA Northeast

The findings of the latest PIA Market Trends Survey have indicated that the insurance industry is in a hard market. Let’s look at how the professional insurance agents who took the survey responded regarding changes in insurer and underwriting behavior, and the shift we are seeing in placement of excess-and-surplus lines of insurance. Professional insurance agents across PIA Northeast’s footprint (Connecticut, New Hampshire, New Jersey, New York and Vermont) participated in the survey. The survey’s findings indicate that the hard market is forcing insurance producers to think differently about how they protect their clients and place insurance lines. Remarketing business According to the survey results, insurance producers are finding that they must remarket their business. In fact, approximately 22% of survey respondents answered that they are having to remarket 11-15% of their business; with approximately 21% of respondents stating that they must remarket 16-25% of their business. And, astonishingly, approximately 30% of respondents stated that they must remarket 26% or more of their business. This is an almost 80% increase over the last time the survey was conducted, which was in 2018. Tighter underwriting guidelines Survey respondents indicated that underwriting guidelines have become 33-45% moderately stricter across personal auto, personal homeowners, commercial property, and commercial liability lines of insurance, which may be what is causing the need to remarket business. They also indicated that underwriting guidelines are approximately 23-34% significantly stricter across those same lines. Nonrenewals, cancellations Another indication of the hard market is the increase in nonrenewals and cancellations of policies. Those responding to the PIA Market Trends Survey indicated that there has been a moderate uptick in nonrenewals and/or cancellations of approximately 21-31% across personal auto, personal homeowners, commercial property, and commercial liability lines of insurance. According to the survey findings, almost 53% of respondents stated that they have seen an increase in the percentage of their book of business that is placed through a wholesaler. 6

What does this mean? With the hard market forcing insurance producers to look elsewhere to place business, there are some important things to consider—especially if the business is placed in the E&S market. What to look for in an E&S carrier Although insurance producers may not have excess- or surplus-lines authority and they may have to place E&S business through a wholesaler, they still owe a duty to their clients as the originating producer. Therefore, when working with a wholesaler and seeking an E&S carrier for a client there are several things to consider—such as whether the E&S carrier is adequately capitalized, and whether it has a strong reputation and rating. The carrier’s leadership, history, and management of the classes of business being written also are important to consider. It would be helpful to consider how the E&S carrier manages and handles claims, as well as any litigation in which it has been involved. Disclosures to the insured Remember, most states require disclosure to the insured about the following disadvantages of the E&S market: • The policies are not filed or approved by a state regulator. • There may be different terms and conditions than would otherwise be allowed for an admitted carrier. • Generally, they will not be afforded guaranty fund coverage if an E&S insurer becomes insolvent. Although one may be just the originating producer, when dealing with the E&S market, it may be helpful to adopt an elevated standard of record keeping for E&S business, as well as keep up on state regulations regarding commission sharing and fees due to the nature of working with wholesalers. PIA Market Trends Survey results indicate that now may be the time to explore the E&S market. Despite it having an entirely different set of considerations than that of the admitted market, during a hard market, it may be a valuable tool to help not only maintain, but to expand your book of business. This article is adapted from “PIA Market Trends Survey: Indications the hard market is causing a shift to E&S placement,” which can be read in its entirety on PIA Northeast News & Media (blog.pia.org).

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Insurance carrier do's and don'ts: Commission cuts To anyone who works in the insurance industry, it is clear that the marketplace is going through a period of transition. The increasing occurrence of severe weather, growing interest rates, and increasing replacement cost are a few of the drivers that are creating this transition—which is leading many carriers to change their underwriting appetites. Unfortunately, this means disruption for both insurance agents and their clients. For clients, this may mean increased premiums or policy cancellations. For agents, this may mean a reduction of commission levels. When it comes to carrier actions, one of the most frequently asked questions I get is: Is an insurance carrier permitted to reduce agency commissions? Unfortunately, the answer is almost always yes. But, why can carriers do this? And, what rights do agents have?

Making the cut There are pages upon pages of insurance law and regulation related to some carrier actions (e.g., policy cancellations). However, there is little law or regulation related to the payment of commission to an insurance agent. Commissions levels—as well as the rules that a carrier must follow when it comes to adjusting those levels—are controlled almost exclusively by the agency agree-

LEGAL

BRADFORD J. LACHUT, ESQ. Director of government & industry affairs, PIA Northeast

Thank You! Agents

We appreciate your continued support and wish you all the very best for the new year.

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ment that is executed between the insurance carrier and an individual agent or agency. Since commission protection emanates from a private contract instead of a law or regulation, there is a little more variance in what agents may experience. It’s helpful to discuss some of that variance to better understand an agent’s rights. Since attorneys like me need to stay employed, there is no standard commission clause. Instead, a commission clause generally will have some combination of two elements: 1. commission level, and 2. notification requirements. The more elements a commission clause has the more complete it is. For an agency, a complete commission clause isn’t better or worse than an incomplete one. However, the more complete the commission clause is, the clearer the picture of an agency’s rights.

Commission levels will vary depending on the line of business and whether the policy is new or a renewal. Since there are different elements to commission levels, it The commission is uncommon to see mission a commission level If an agent pays attention to any part of a commission clause, it is probably the stated clearly in the part that describes the level of commiscommission clause. sion that a carrier is promising to pay There are some agreements that have both elements and others that have none. That’s right. I have seen multiple agency agreements that make no mention of agency commission, or they do so in an almost passing manner. In those situations, my advice is: Put some perimeters around what a carrier can and cannot do with your commissions. A contract that is silent on commissions is one that is much more difficult to know your rights and to prove a carrier violated them.

change terms easily. Even if you can’t alter commission levels, you never want to enter an agreement without knowing all the terms, especially as one as important as commissions.

Notification of change In my mind, the notification element of the commission clause is the most important element. Of course, I say that as a salaried PIA employee, so I lack proverbial skin in the game on the issue of commission levels. As with commission levels, there is a high degree of variance when it comes to the notification that is required before a change can take effect. Far too many agency agreements are missing this essential element. An agreement can be silent on how and when notice must be given. Equally common is the vague provision that allows a carrier to alter commission levels “with notice” or its second cousin “with advance notice.” While it is great that the carrier must notify the agency that commissions will be reduced, these terms give carriers a lot of latitude to alter commission levels unilaterally and quickly.

the agency. Just as there is no standard commission clause, there no standard commission level. Commission levels will vary depending on the line of business and whether the policy is new or a renewal. Since there are different elements to commission levels, it is uncommon to see a commission level stated clearly in the commission clause. Instead, most commission clauses will refer to a “commission schedule” that is attached with the agreement. These commissions schedules are not part of the four-corners of the agency agreement, but they are included as attachments and incorporated into the agency agreement by reference. The first thing producers should do when they see that commission levels are included in a separate schedule is look for the schedule.

With notice does not mean advance notice or even written notice. It just means with notice, which means an insurance carrier will satisfy this element by just providing notice of the commission reduction—even if the reduction occurs simultaneously with the notice. Or in the case of with advance notice one minute before the commission reduction is distributed. Obviously, this is less than ideal.

This may seem obvious, but I have reviewed several agency agreements that have referenced a commission schedule attachment, yet they did not contain it. So, make sure the commission schedule is included with the agreement. If it’s not, contact the carrier to get a copy of it—prior to signing the agreement. Once you sign the agreement, you will be tied to it, and you will be unable to

Better are the notification elements that include advance notice of a certain amount of days. I say better realizing there is no best way to reduce commission levels. No

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matter how much notice is given, reducing commission is a disruptive act. However, given the reality that commission reductions do, and will continue to happen—advance notice is better than nothing. Here again is the similar theme of a lack of uniformity in terms of notification. PIA recommends that agencies be given at least 90 days advance notice of any reduction in commission. Of course, I am not sure I have ever seen a carrier provide that amount of notice. Those commission clauses that contain an advance-notice provision often will require notification 30 days prior to the change. While 30 days is not as long as 90 days (obviously statement alert!), something is better than nothing. Regardless of the length of the notification requirement, virtually all commission clauses allow a carrier to

make changes to commission levels unilaterally, without the consent of the agency. However, there is a Garden State-sized exception to that general rule. Under New Jersey law, mutual consent is required to change the contractual rate of commission. When a carrier presents an agency with a proposed commission change, the agency does have the choice between agreeing to the reduction or not. If the agency and the company fail to agree on a commission change, the agency contract can be terminated.

Next steps? What should insurance agents do with the information in this article, and how does it protect them? The truth of the matter is that when an insurance carrier decides to reduce an agency’s commission levels there is little the agency can do in the moment. The best time to protect your agency is before the commission cut happens. Review agency agreements before you sign them to ensure your agency has a clear idea of what the commissions levels are—and more importantly how and when those levels can change. This is vital to protecting your future interest. Do you have questions about your agency agreement? Send them to PIA via the Industry Resource Center at resourcecenter@pia.org. As part of your PIA membership, our legal team can review your agency agreements and point out any areas of concern to you. Lachut is PIA Northeast’s director of government & industry affairs.

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Should you create a sales system for your agency? At its most fundamental level, business is about three things: Money, people and systems. There is a huge body of content revolving around money in business. Lots of books have been written and consultants’ careers advanced in the pursuit of a wiser use of money. A whole population of professionals—bookkeepers, accountants and CPAs—have come into practice to deal effectively with money. When it comes to people as an element in business, there is an equally impressive body of knowledge and infrastructure. Books have been written, YouTube videos created, seminars developed, and consultants’ careers enhanced by our constant quest to hire, manage and develop good people. The field of human resources is devoted primarily to that pursuit. However, when it comes to systems, there is not nearly the quantity and quality of conversation. And yet effective systems, particularly sales systems are—at the very least—just as necessary to the growth and health of a business as good people and adequate funds. Good systems are where the agency’s financial assets intertwine with the people to produce results. Often an agency’s financial or people woes are a symptom of poor systems. We’ve all heard the analogy of the business necessity of getting the right people in the right seats on the bus. Before you get the right people in the right seats, you must have the bus, and the bus needs to have identified seats for people. Systems are like the bus. Without effective systems, there is no place for any people. If your business is going to be effective, you must create systems that have the right places for the right people. There is a fundamental principle at play here: Systems define the behavior of the people who operate within those systems. Effective systems make good people better. Poor systems encourage the worst in people. Let’s look at a macro example: For years, the USA and USSR were in competition with one another. Their populations were roughly equal, and, because of the massive size (300 million), it is fair to assume that the distribution of talents and abilities were roughly equal. Their access to natural resources was roughly equal, too. Yet, one nation far exceeded the other in economic activity, personal freedom, human expression, and quality of life. What was the difference? The systems that governed the life of the citizens. One system encouraged individual initiative and excellent performance, the other did not. People responded in kind to the pressure of the system in place. Systems dictate the

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behavior of the people who operate within those systems.

SALES

DAVE KAHLE President, Kahle Way Sales Systems

Here’s an example on a micro-scale: For years, my wife and I were foster parents, and we have fostered 19 children. Almost all came from traumatic home situations, and they were emotionally upset and out of control. However, my wife would impose our system. On the first day in our home, she would lay down the rules: • Here’s your bedroom. You will sleep in the bed, and not in the closet or on the floor. • Here’s the bathroom. You will wash your face and brush your teeth before you greet the family. • Here’s the kitchen table. You will eat with silverware, sitting in a chair, when the family eats. The behavior change was predictable. Within a few days, the new child would catch on, and begin to modify his or her behavior to fit within the system. That began the child’s healing. As a consultant, I’ve personally and contractually worked with over 600 companies. Out of that experience, I’ve formulated a principle for making positive changes within an organization: Change the system, and you change the behavior of the people who operate within that system.

Change the system, change the behavior Often without even meeting most of the people, I was able to make significant changes in a business’s growth and profitability by analyzing and refining the sales system. To extend the analogy, before you get the right people on the bus, the engine on the bus must be well-tuned; the bus must have good tires, be mechanically sound, have the right number of seats, and be heading in the right direction. I’ve concluded that creating, implementing, and forever improving powerful sales systems is the highest and best use of executive time and talent.

What it means to create a sales system It means that you have considered your sales efforts, and answer the following question: What is the best way to do this? Then, you need to document the answer—typically flow-chart the step-by-step progression of events in the process—create ways to measure the input, outputs and key steps in the process, create appropriate tools to facilitate the process, and hire and train the right people to operate the system. Then, you measure and manage the system regularly, and continually improve it forever.

How to begin Whenever I am working with a client, we always start with an understanding of the fundamental purpose of a sales system, which is: World  Suspect  Prospect  Customer  Client  Partner Once we have that, everything we do can be built on that infrastructure. Every sales system should be built on the idea that the system is designed to move the right quantity and quality of people into an ever-growing financial relationship with your agency. It begins with the World—a representation of the “world of apathy and ignorance” where your suspects live. Suspects are people and businesses who you suspect may do business with you one day. They live in the land of apathy and ignorance because they don’t know you exist, and they don’t care. The first step of the system is to identify an ever-growing number of suspects. Then, we must move some of them to become prospects. Typically, we research them and drop some out of the process. A prospect is someone who has a need for your product or service, can make the decision and can pay for it. The next step of the process is the most difficult, as we engage with the prospects and entice them to buy something from us for the first time. When money changes hands, the relationship changes dramatically, and now they are customers. Then, our process indicates that we engage with the customers in such ways to encourage them to buy repeatedly—at which time they become clients. And then, we work with a select group of clients to turn some of them into partners.

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When we do that well, in sufficient quantity and quality, money spins off because of our efforts and our sales continually grow. You can see that there are three separate and distinct processes involved: 1. Creating a customer 2. Enticing a customer to buy repeatedly and thus become a client. 3. Encouraging some clients to become partners, and then nurture them.

Where to now? Begin to think about the idea of growing your agency by creating and implementing an effective sales system. Effective sales systems are one of the foundational pieces that enable an agency to rise to the level of sustainability and growth. Kahle is one of the world’s leading sales authorities. He’s written 12 books, presented in 47 states and 11 countries, and he has helped enrich tens of thousands of salespeople and transform hundreds of sales organizations. Sign up for his free weekly Ezine (www. davekahle.com/ezine-subscribe). His book, How to Sell Anything to Anyone Anytime, has been recognized by three international entities as “one of the five best English language business books.” Check out his latest book, The Good Book on Business.

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SHAILESH KUMAR AND TRACEY ANT The Hartford

You Yougot gotthis this Be mindful of these trends for 2024

constant variable in the insurance industry is change. Some variables (e.g., hard and soft markets) can be cyclical, while others (e.g., pandemics) need to be handled as they occur with little preparation and concrete planning. The best way to be prepared for what’s to come is to review the global current trends and try to predict how they might affect the industry going forward. Let’s examine some of the trends to be mindful of in 2024.

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Slowing U.S. economic growth and flattening interest rates

Preparing business for geopolitical risks

Growth in the first half of 2023 averaged approximately 2%, driven mainly by private sector investments outside of the residential housing sector, government spending, and strong consumer demand. In 2024, we are expecting investments and government spending to continue and may support growth in the year. However, consumer health may start to weaken due to elevated leverage, higher interest rates, and sticky inflation.

The changing world order is prompting companies to rethink their risk exposure in an interconnected global economy. Companies should be proactive at taking steps to prepare for potential risks and understand how best to mitigate the disruption to their operations.

Since the Federal Reserve began to increase interest rates, consumer activity and household finances have not been tremendously affected. However, as revolving interest rates (credit card loans) continue to reset that may change, especially since household savings rates fell below pre-pandemic levels and may affect consumer demand. Headline inflation fell from 9.1% to below 4% in 2023, which is a sharp improvement. While inflation needs to fall below 2% per the Federal Reserve’s target, the Federal Reserve could remain on hold for much of 2024, and potentially cut rates later in the year. The increased visibility with respect to the path of interest rates in 2024 also could support leverage-based industries, including mergers and acquisitions and initial public offering deals.

Mixed construction environment Residential construction activity likely will continue to experience challenges in 2024. Despite relatively high mortgage rates, demand for new construction persisted through the second half of 2023. This will likely carry forward into 2024. However, inventory could remain an issue, as evidenced by weak building permits and new starts data in 2023. This could mean modest residential construction activity and limited existing home sales in 2024, coupled with steady to higher new and existing home prices. In the nonresidential space, we anticipate that there will be robust demand for the construction of manufacturing centers, which has been affected by geopolitics and an interest to shift high-tech manufacturing back to the U.S. and partner nations. Demand in infrastructure also will rise due to various fiscal stimulus programs.

Weaker China growth and a shift in trading relations Per the International Monetary Fund, China’s economic growth already is forecasted to decline to 4.5% from above 6% in 2023 and more than 10% a decade ago. We believe a slowing Chinese economy could create implications for Europe given the region’s trade surplus with China. U.S. import growth also may fall in 2024 due to weaker consumer demand. Before the pandemic, China accounted for approximately 24% of imports into the U.S., which fell to 14% in 2023. Mexico’s share rose from 13% to 16%. Politics affecting trade and investment may cause this shift to continue and could further new opportunities for manufacturing high-end goods in the U.S. New markets such as Mexico, India and Vietnam also could grow their manufacturing potential due to these shifts.

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It is important to understand current production flows by mapping the supply chain1 and analyzing the impact on the balance sheet of every location you operate. A deep understanding of critical flows and choke points enables companies to assess their suppliers, identify backup sources, and create contingency plans in the event they lose a critical supplier. It is essential to pay attention to a country’s regulatory environment, labor costs, and supporting infrastructure. The regulatory environment is critical to understanding the financial and regulatory issues of the country you’re operating in, including the insurance laws. Another consideration is the availability and cost of labor. Europe, for example, has an aging population and high labor costs. On the other hand, India, the world’s most populous country, has low labor costs. While population and costs must be factored in, working conditions also are important. To avoid an inadvertent controversy, evaluate whether there are known or suspected cases of human rights violations in that region or country. To successfully operate in multiple countries, businesses need to stay on top of geopolitical developments that could disrupt their operations, such as potential riots, labor strikes,

military conflicts, or economic issues. Staying informed can help businesses create contingency plans before a country reaches crisis.

New opportunities for trade flow The pandemic-era shutdowns focused attention on the need for supply-chain resilience. Since then, demand imbalances have eased, and shipping costs have dropped to prepandemic levels. That creates new opportunities for companies as they look to mitigate risk and increase resilience. Around the globe, businesses are methodically shifting their operations in ways that will reshape commerce for decades to come. In addition to supply considerations, such as labor costs and infrastruc-

ture, businesses can align their production with new market opportunities. India, for example, is not just the most populous country, it also is the fastestgrowing economy with a rising middle class and a booming manufacturing industry. There also have been emerging opportunities to onshore production, renew domestic manufacturing, and locate plants closer to end customers. New plants for chips, batteries and electric vehicles are opening at a rapid pace across the southern and midwestern U.S. Additionally, the 30-year-old North American Free Trade Agreement is reemerging as U.S. companies shift manufacturing to Mexico and Canada, amid a broader “friend-shoring” trend. As countries compete for influence on the global stage over the coming decades, companies will be more exposed to risks and threats to their business operations. However, with strategic planning and vigilance, businesses can spot new opportunities and mitigate potential fallout amid the rapidly evolving world order.

Complex risks create gaps in coverage Now that we examined the current trends, let’s look at how some complex risks can create gaps in insurance. From slips, trips, and falls to extreme weather and cyberattacks, businesses are regularly confronted with risks to operations and profitability. In 2023, elevated building costs, increased flooding, and growing ransomware attacks

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made it compelling for business owners to make sure they had adequate insurance to stay ahead of property and liability exposures. However, if left unchecked, these trends can lead to gaps in coverage. Now is the time for agents and brokers to assess their clients’ risks and collaborate with carriers to fill any potential voids in insurance. Economic inflation, for example, has changed property valuations, which can result in coverage gaps if policyholders have not examined their replacement costs recently. One of the major changes in property underwriting is the need for all parties—the policyholder, broker and insurer—to have better data on the specific risks.

Understanding insurance to value The best way to make sure a business is adequately insured is to know the property value. According to Statista, commercial property prices have been trending upward since 2014, and in the third quarter of 2022, the commercial property price index value in the United States reached 212.4—up from 100 in 2010.2 It is important for business owners to perform regular property valuation assessments, known as insurance-to-value, which can help give business and property owners peace of mind after a loss. If there is a major loss, the coverage amounts in a business’s policy might not be enough to cover replacement costs at today’s prices. Having an accurate assessment of the complete cost to replace the insured property can be the difference between recovering quickly or incurring additional loss from delays in repairs.

Helping with asset valuation Getting the valuation right is helpful for property owners to avoid coverage gaps when they experience a claim and maintain access to adequate protection. Due to inflation and supply-chain challenges, construction materials, such as lumber and drywall are more expensive than they were 24 months ago. An additional cost driver is skilled labor, which is in high demand but short supply. Added together, it costs more to repair or replace components following property damage. However, having an insurance agent or broker work with an experienced insurance company can help alleviate any complicated situations. At The Hartford, risk engineering professionals track replacement costs

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on a quarterly basis, and during times of more rapid cost fluctuations, they access several industry data sources that track material and component pricing. By using that data to assist in property replacement cost valuation, we can help make business owners aware of adequate insurance to property value, and therefore help better protect their facilities.

Help protect business property from flooding While most business owners buy flood coverage as part of a large business insurance plan, they also should have a flood emergency response plan to prepare for, respond to and recover from a flood. This plan should include details about an evacuation plan with employee responsibilities, sheltering-in-place procedures, medical emergency information, emergency response teams, and public emergency services and contractors’ contact information. It also is a good idea to have a water damage prevention plan, which includes routine site inspections to identify uncontrolled water damage exposures and basic maintenance to make sure drains are clean of debris and diverting them to a catch basin or low point away from the building. An effective WDP plan also incorporates technology as an invaluable component and includes backflow preventers on sewer connections and water sensing technology to monitor the most vulnerable exposures. In addition, a trained team of water damage responders should be recruited to map and label all zonal shut off control valves, as well

as maintain an updated list of contractor’s contact numbers for emergency purposes.

Navigating cyberliability Cyber insurance also should be an important part of any company’s incident response plan to avoid gaps in liability, especially as 2024 could be another active year of cyber crime activity. A holistic approach should be considered to provide insurance coverages that encompass data breach, ransomware, and business interruption. Threats to cybersecurity always should be taken seriously for the safety, security and stability of business operations.

Evaluating multinational exposures It also is important to pay close attention to cues from business owners to uncover gaps in insurance and identify corresponding coverage needs. For example, is the company doing business internationally or does it have employees traveling overseas for work? Additionally, if it is not doing business internationally today, could that change in the future? According to our research, nearly 80% of mid-size businesses in the United States have some level of multinational exposure, yet nearly 40% of mid- to large-size businesses have never spoken with their agent or broker about their multinational risks. In addition, 68% of business owners surveyed are worried that they don’t have adequate coverage for their international operations. These concerns may be well founded. Domestic policies may not provide protection for multinational exposures, possibly leaving many mid- to large-size businesses in the United States uninsured, underinsured or improperly insured. By knowing what to listen for, agents and brokers can provide strategic coverages. No matter how well-versed a business is in its policy, specific definitions and exclusions can be tricky to navigate. Insureds may not fully understand how much they can expect when they need to take advantage of the coverage. Customer feedback plays an important role in what they do. This article is an excerpt from The Hartford Risk Monitor, November 2023 (tinyurl.com/ykjr859v). Kumar is head of The Hartford’s Global Specialty Insights Center. Ant is head of The Hartford’s middle & large commercial business units. The Hartford, Insights, 2022 (https://www.thehartford.com/insights/homeworkplace-safety/supply-chain-shipping-logistics)

Statista, 2023 (tinyurl.com/2xfzx8af)

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Find your way

Exit archetypes every agency owner must know

Business transitions are important for several reasons. They enable independent insurance agents, who founded their own agencies, to navigate the opportunities and challenges that come with change—often fostering continued innovation and success in an everevolving marketplace.

Complying with stringent regulatory requirements, including capital adequacy and solvency standards, is essential for a smooth exit. Additionally, the long-tail nature of insurance policies means that founders must manage legacy liabilities and claims carefully, which can extend for many years beyond their exit.

In the daunting, yet exhilarating, journey of entrepreneurship, founders in the insurance sector traverse various roles that evolve with their venture. An economy that is marked by accelerated growth provides a favorable environment for founders to evolve to the next phase of their professional life.

Valuation and pricing of insurance portfolios also can be intricate, as factors like underwriting performance and risk exposure play a significant role. Moreover, identifying suitable acquirers or investors who understand the nuances of the insurance business and who are willing to assume these responsibilities is a formidable challenge. Balancing these factors while securing an exit that maximizes returns for founders and investors requires careful planning and expert guidance in the insurance sector.

That said, for those who are negotiating the entrepreneurial world in particular, these transitions mark a time of great change—and the unknown that lies ahead can spur tremendous stress. The key is to understand how an exit will operate so that you elegantly navigate what can be a complex situation. Indeed, agency owners face a unique set of challenges when contemplating an exit strategy. First and foremost is the complex regulatory environment that governs the insurance industry.

To get his take on this, I interviewed business exit strategist and coach Jerome Myers, PE, MBA, PMP. He said: “Whether you are leaving an insurance corporation to start on your own enterprise or leaving a company you’ve built from scratch to focus on the next part of your impact journey, many face the same challenges. While the circumstances of each person’s exit differs, most if not PIA.ORG

all can be summed up in a few specific exit scenarios that every founder in today’s economy faces.” While they might look, feel and function differently, understanding the quintessential exit archetypes can prove critical in helping the agency owner perform at his or her best. Here is Myers’ breakdown of the primary eight exit archetypes: No. 1: Exiting the traditional career path The first phase of this transformative transition is leaving a traditional corporate role or life path. This step involves wrestling with questions of purpose and ambition, and it requires introspection and careful planning. The robust U.S. economic growth, represented by a 2.4% annualized rate GDP growth in the first half of 2023,1 provides a favorable tailwind for individuals making this transition. This stage probably will feel like the biggest transition for those doing it. It’s where all that you once knew is gone and everything feels foreign and new. This should not be something that you run away from rather embrace. No. 2: CEO 1.0 (chief everything officer) In the next phase, founders embody the role of CEO 1.0 or the chief everything officer. They are at the helm of their venture, crafting business plans, securing initial funding, and birthing their entrepreneurial dream. The thriving economic conditions, marked by increased consumer and government spending, and a rise in business inventory investment, further fuel the growth potential at this stage. This is the beginning of your next journey. The start of what you hope to accomplish. It is here when you visualize your dreams and begin to make them a reality. It’s time to embrace the unknown and make it seen. No. 3: Product manager/thought leader Then, agency founders transition into a dual role of product manager/thought leader, intertwining strategic product management and thought leadership. They refine their business’s value proposition and engage with customers while sharing unique insights and ideas publicly. This role, critical in a growthoriented economy, helps shape public opinion and add credibility to their venture. This is when your agency begins being in the public eye, which leads to scale and widened adoption of the agency’s solution. No. 4: CEO 2.0 (chief executive officer) Upon establishing their business, founders assume the CEO 2.0 role, overseeing the bigger picture, managing the team, and setting strategic directions. The presence of a solid jobs market, as evidenced by the addition of 209,000 jobs in June 2023, aids in attracting talent and scaling operations during this phase. No. 5: Board chair As board chair, founders step back from daily operations to guide the agency’s strategic direction, ensure its financial health, and focus on stakeholder relationships. The rise in personal savings recorded in the second quarter of 2023 provides financial flexibility for strategic growth and succession planning. No. 6: Exit The exit phase is when founders sell their agencies or step down from their operational role. In an economic environment in which recession fears diminish— 24

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due to falling inflation and a robust jobs market—this phase can offer potentially significant financial returns. No. 7: Building your post exit portfolio Post-exit, founders can diversify their wealth by building an investment portfolio. The recent interest rate hike by the Federal Reserve, aiming to curb inflation, provides a favorable environment for investment in real estate, stocks, bonds or other startups. No. 8: Philanthropy and legacy The final phase—philanthropy and legacy—provides founders with the opportunity to leave a lasting impact by contributing to causes they care about deeply. Despite the ongoing economic recovery, the role of philanthropy remains crucial, offering founders the chance to leverage their wealth for societal betterment. “During each of these eight exits, it’s imperative to note that founders will experience a phenomenon that will test their mental resilience, which is known as the ‘Founder’s Exit Paradox,’” said Myers. The Founder’s Exit Paradox refers to the comprehensive psychological disengagement experienced by founders, which encompasses behavioral, emotional and cognitive aspects. “This involves understanding how these processes occur before and after physical exits, and how the experience impacts the way individuals move forward. The Exit Paradox often produces similar feelings as an existential crisis where Newly Exited Operators— or NEOs—begin questioning the meaning and purpose of their life, although the trigger in this instance is due to a major accomplishment.” According to Myers, when founders or NEOs experience the Exit Paradox

they will wrestle with what he calls the six Centers of Doubt, which are:

• Am I going to use all the wealth I built to earn back the health I lost?

No. 1: Self image. Clarify your guiding principles and determine what’s holding you back. Now is the time to adopt a new outlook on life that empowers. Founders who are in this stage of the paradox will ask questions such as:

No. 5. Prosperity. Improve your financial position to increase your time and location freedom. Founders who are in this stage of the paradox will ask questions, such as:

• Can I adjust to live with fewer health risks?

• I can afford it. Why should I even give it a second thought? • Why shouldn’t I enjoy all the money I earned? • Who are you to give me advice about money?

• Who am I now that I’ve “won the game”?

No. 6: Significance. Make meaningful and positive contributions outside of your home. Related questions include the following:

• What do I do without the hyper-focused routine I’ve had for years?

• If I died today, who would carry my casket?

• Do I even deserve this? No. 2: Relationships. Identify relationships that are not mutually beneficial, and rebalance or eliminate them. Increase access to resources and reposition yourself as a person of tremendous value. Related questions may include: • What are the people in my life really after? • Why don’t my family and friends understand I need time to figure this all out? • Does my marriage make sense anymore? No. 3: Work. Cultivate inspired work by finding the connection between income, influence, impact and interest. Founders who are in this stage of the paradox will ask questions, such as: • What does work mean now that I have exited? • Were all the sacrifices I made to get here worth it? • What’s next? No 4: Health. Create more energy, reduce mind fog and increase your quality of life. Related questions may include: • Did I give away too many years to my business?

• Who do I trust to honor my memory after I’m gone? • What’s the best way for me to use my wealth to help others and do good? “I’ve found that most people undergoing an exit transition are seeking a deeper and more meaningful state of fulfillment,” said Myers. “They are also in a new place where they are struggling with the six Centers of Doubt. But, it’s not their fault. The ‘American dream’ is all about creating financial freedom and we have been collectively programmed to chase it. All too often, when we ultimately find that financial success, we realize it probably isn’t what we should have been chasing as the ultimate end-game. Many in transition desire the kind of gratification that comes with self-actualization.” The eight exit strategies detailed in this article represent the cyclical journey of insurance agency founders from their initial foray into entrepreneurship, through their venture’s growth and eventual exit, to their legacy-building activities. An economic landscape that is characterized by its promising growth, a robust jobs market and increasing control over inflationary conditions, creates a conducive environment for founders to flourish amid these transition strategies, highlighting their relevance and maximizing profitability in today’s dynamic economic scenario. Kern is an internationally regarded brand strategist and analyst who reports on noteworthy industry change makers, movers, shakers and innovators across all B2B and B2C categories. This includes field experts and thought leaders, brands, products, services, destinations and events. She is founder, executive editor and producer of “The Luxe List” as well as host of the “Savvy Ventures” business TV show that airs nationally on FOX Business TV and Bloomberg TV and the “Savvy Living” lifestyle TV show that airs in New York, Los Angeles, San Francisco, Miami, Atlanta and other major markets on CBS, FOX and other top networks. Kern also hosts the Savvy Ventures Podcast & Radio show available globally on W4CY Radio— the #1 ranked live streaming radio station—among others as well as all major podcast platforms, including Pandora, Audible, Spotify, Amazon Music, Apple Podcasts, Streamyard, iHeart Radio and dozens more. Connect with her at www. TheLuxeList.com and www.SavvyLiving.tv. Or on Instagram www.Instagram. com/MerileeKern, Twitter www.Twitter.com/MerileeKern, Facebook www.Facebook.com/MerileeKernOfficial or LinkedIn www.LinkedIn.com/in/MerileeKern. 1

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Brooks Insurance Agency is proud to support Professional Insurance Agents (PIA) Since its founding in 1991, Brooks Insurance Agency has successfully serviced the standard markets and brokered distressed and complex lines of business. We are here to help agents find the coverage their clients need. We represent 80+ quality carriers, including several new and exciting markets, across the country. Plus, a broad array of products and services in admitted and non-admitted markets. MARKET STRENGTHS AND EXPERTISE • Broad market reach • High-touch broker specialists • Easy, online quoting process • Collective approach to complex insurance needs Visit our website at www.brooks-ins.com. Brooks Group Insurance Agency, LLC NJ License 1575143

Failure to give proper advice: commercial lines Here are some real-life commercial-lines insurance claims, and some advice on what you can to avoid similar errors-and-omissions claims in your agency. The commercial auto claim: In this claim, the agency’s client was a new customer of the agency for commercial auto coverage. The policy was written with $1 million limits for business interruption insurance and underinsured motorist coverage. The client company was owned by two partners, one being Mr. X. When the policy was written, neither of the owners were listed as additional insureds on the policy. Following the policy inception, Mr. X was killed while jogging. His estate made a claim against the UIM portion of the commercial auto policy. The carrier disclaimed based on the fact he did not qualify as an insured, as he was not in the course of his employment, and he was not operating nor was he in a covered auto. A lawsuit was filed against both the carrier and the agent. The estate produced a witness, the deceased’s daughter, who said she overheard her father discuss the need to be added to the policy. This was denied by the agent. Although counsel filed for a dismissal based on the fact the agent owed no duty to advise the partners of the need to be added as additional insureds, the court denied the motion, stating there was a question of fact as to the duty owed. The case was venued in a rural county, and counsel advised there were dangers associated with trying a case in that venue, based mainly on the sympathy factor. The case was settled for $150,000. Lesson: When offering commercial auto coverage to an entity that is owned by one or more individuals, offer the option to have those individuals listed as additional insureds on the policy. The commercial auto claim: This E&O claims involves an agency who wrote a commercial general liability and a commercial auto for a client. The CGL had a $1 million limit, and the commercial auto had a $300,000 limit. One of the client’s vehicles struck and killed a motorcyclist, who died 30 days after the loss. The value of the underlying death claim was in the $1.5 million to $2.5 million range. After the client was sued by the estate, the client alleged the agent told him that the CGL would respond in excess of the $300,000 auto limit, and further alleged the agent should have recommended higher auto limits. The agent denied ever telling the client that the CGL would be excess for an auto loss, and further stated that the client had been informed numerous times to increase the auto limits. Unfortunately, there was no paper back-up of those discussions, and due to the long-term relationship with this

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E&O

TABITHA L. DE GIROLANO, RPLU+, CPLP Executive commercial lines underwriter, E&O risk management specialist, Utica National

client, the claim against the agent settled for $500,000. Lesson: Document in writing any time coverage limits are discussed with a client. This documentation will play a major role in the defense of the agency. The commercial liability claim: This claim deals with the issue of the agent failing to report a loss to a CGL carrier following an auto loss. The client ran a jewelry business and there was non-owned auto coverage on the client’s CGL policy, but the agent only reported the loss to the personal-lines carrier. The CGL carrier disclaimed when the loss was reported much later. The claim stems from an accident in which one passenger was killed and another passenger was rendered a paraplegic while riding in a van owned by the client’s principal. It was alleged the van was being used for business purposes, as the parties in the van were on their way back from a trade show. The injured parties already had collected $3.5 million from other sources, and they took an assignment of the rights from the client company to sue the agent. They alleged that the agent’s failure to report the loss to the CGL carrier resulted in a disclaimer. There were some defenses to the claim, but it was clear the agent did not report the loss to the CGL carrier, which was

successful in maintaining its disclaimer. The claim against the agency was settled for $290,000. Lesson: Be aware of the coverage granted under a CGL for non-owned autos. And, if the agency also writes personal-lines coverage for a commercial client’s principal, ask questions concerning the use of the vehicle when a loss is reported under a personal-lines policy. The commercial liability claim: In this E&O claim, the agency’s client alleged a special relationship with the agent. The agent had secured coverage for several operations for the client, but he did not obtain coverage for the operation of a small airport owned by the client. The agent informed the client on numerous occasions that there was a gap in coverage regarding liability

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coverage for the airport. The agency file was well documented to that effect. When an underlying loss occurred (injury to a plane passenger who is now a quadriplegic because of injuries sustained in a plane crash at the airport), the client claimed that because of a longstanding special relationship the agent had a duty to secure the coverage. While the agent had advised the client of the need to secure coverage, the client claimed confusion. The client and the injured party agreed to a $10 million consent judgment, and the client filed a lawsuit against the agent. Other insurance already had paid the injured party $2 million on behalf of the plane owner. The case against the agent was settled for $200,000. Lesson: When a long-time insured repeatedly ignores advice concerning coverage, have the client sign a rejection of coverage letter. A much greater duty is owed to a client when there is a special relationship between agent and client. Utica National Insurance Group and Utica National are trade names for Utica Mutual Insurance Company, its affiliates and subsidiaries. Home Office: New Hartford, NY 13413. This information is provided solely as an insurance risk management tool. Utica Mutual Insurance Company and the other member insurance companies of the Utica National Insurance Group (“Utica National”) are not providing legal advice, or any other professional services. Utica National shall have no liability to any person or entity with respect to any loss or damages alleged to have been caused, directly or indirectly, by the use of the information provided. You are encouraged to consult an attorney or other professional for advice on these issues. © 2024 Utica Mutual Insurance Company

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Cancellation notices, NFIP mold policies and more Disability benefit law for employees working out-of-state Q. We have a client based in this state. The company has six employees who work out of their homes in different states. Since the company is headquartered in this state and that is where the payroll comes from, do we have to apply for benefits in each state where there is an employee? A. The employer will need to consider the laws of the states where employees are working from their homes to be certain the employer is compliant. Only five states have disability benefit laws—New Jersey, Rhode Island, California, Hawaii and New York. For example, New York state does require statutory disability benefits insurance when the employer has any employees working in New York for 30 days (not necessarily consecutive) during the calendar year.—Dan Corbin, CPCU, CIC, LUTC

ACORD 35 policy release

Q. When completing the ACORD 35 CANCELLATION REQUEST/ POLICY RELEASE, which box do I check: “cancellation request” or “policy release”? A. In the past, when someone wanted to cancel a policy, the policy would have to be returned. If the insured did not return the policy, a release would need to be signed. However, modern policy terms require only advance written notice so that a release is not required, only a request to cancel.—Dan Corbin, CPCU, CIC, LUTC

Risk retention groups’ exemptions from state laws, regulations Q. Are risk retention groups subject to states’ insurance laws and regulations regarding cancellation, nonrenewal, and other policyholder protections or are they exempt? A. No. When Congress enacted the 1986 Risk Retention Act, which authorizes today’s risk retention groups, it exempted the groups from most state insurance laws and regulations. Only specified types of laws can be applied to risk retention group operations—notably unfair claims practice, the payment PIA.ORG

of taxes, limited financial reporting and registration requirements. State laws can specify that financial responsibility be demonstrated by coverage provided by a liability insurance policy and that coverage be provided by an authorized insurer, which would preclude a risk retention group from satisfying the statutory financial responsibility requirements.—Dan Corbin, CPCU, CIC, LUTC

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Following up on cancellation notices Q. Our agency always has sent out a letter to insureds when we get a copy of a cancellation notice from a carrier reminding the insured that the premium must be paid to avoid cancellation. We are becoming concerned about this practice and we would like to send out a letter to all our clients saying they will no longer receive a follow-up letter from this agency. Will this protect us legally, or have we established a practice that is difficult to change? A. Agents do not have a legal duty to alert their insureds to the fact that their policies will be canceled. However, an agent who has voluntarily assumed this additional duty may be held liable for failing to provide the notice based on this special procedure (see Boyer v. Wells,

No. B205345 (Cal. App. Dist. 2 Aug. 29, 2008) and Garrett v. Holiday Inns, 58 N.Y.2d 253,261(1983)).

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If an insurance producer has been following up on notices of cancellation for nonpayment with all insureds, an abrupt unannounced failure to do so on future notices of cancellations could create an errors-and-omissions exposure. What to do on the question of follow-up is a business decision that must be made by each insurance agent or broker after careful consideration. In your situation, given your current procedure, every insured of the agency should be provided with clear and unequivocal notice that as of a certain date the agency will no longer follow up with the insured on notices of cancellation for nonpayment of direct-billed policies.

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Understandably, you may be reluctant to use registered or certified mail for this purpose due to the cost. However, failure to use such methods (providing you with proof of mailing and proof of receipt by the policyholder) may expose you to the argument that the insured never received this notification. —Bradford J. Lachut, Esq.

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Mold and the NFIP policy

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Q. Is mold covered by the National Flood Insurance Program policy?

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A. After a flood, mold growth can cause additional damage to an insured’s house. Active mold growth is slimy or fuzzy and it is usually green, black, orange or purple. Inactive mold is dry and powdery and may be white. Mold spores spread easily; they are carried by air currents, pets and people. Water, moisture, mildew or mold damage to property insured under your flood insurance policy is covered, unless there was no effort made to clean the items and prevent the damage. Each mold claim will be evaluated on its own merits.

employees.

To prevent mold your insureds should: • Wash surface areas in the house, including the walls, staircases, and items that came in contact with floodwater. • Disinfect and wipe surfaces dry with paper towels to minimize bacterial contamination. • Throw away any items that do not dry completely because they can harbor germs and produce mold, which can irritate allergies, as well as lead to respiratory or other illnesses.

116225 919

• Keep the humidity and temperature as low as possible. Isolate any moldy objects.

To access, visit

• Seal moldy trash in plastic bags and remove them immediately. Objects you can save should be dried or frozen as soon as possible, as freezing inactivates mold. The following Federal Emergency Management Agency link provides more detailed information about mold: tinyurl.com/5c2y2p2d.—Dan Corbin, CPCU, CIC, LUTC

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