Maryland Primary Agent - January 2016

JANUARY JANUARY 20162016 | PENNSYLVANIA | MARYLAND

RISK SCORING 2.0 UNDERWRITING WITH SOCIAL MEDIA

7 STEPS TO BUILDING A SOCIAL PRESENCE INDEPENDENT CONTRACTOR, REDEFINED

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IN THIS

ON THE COVER 10

SOCIAL MEDIA RISK-SCORING TOOL DEBUT PROMISES OPPORTUNITY, RAISES QUESTIONS The launch of Social Intelligence’s new tool – designed to be used on an opt-in basis, like telematics – opens a new frontier in risk evaluation. And, like any innovation, it raises practical and regulatory questions that will need to be settled.

ALSO 16

7 STEPS TO BUILDING A SOCIAL PRESENCE Sir Richard Branson has a famous quote: “If you’re an entrepreneur and you don’t have a social media presence, your company is at a competitive disadvantage.” While Sir Richard is speaking the absolute truth, many insurance agents and agency owners feel intimidated by social media. In this article, a fellow independent agent offers seven steps to success.

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INDEPENDENT CONTRACTOR, REDEFINED Last year the U.S. Department of Labor drastically limited its interpretation of the independent contractor definition, suggesting that nearly all workers should be classified – and treated – as employees. Here, our HR consultant discusses how the classification process has changed and what it means for employers.

IN EVERY ISSUE 2 3 4 6 8 19 IBC IBC IBC

Chairman of the Board’s Message Ask Our Experts Preventing Errors & Omissions Coverage Corner State News IA&B Partners Advertiser’s Index My Events Classified Ads

Periodical postage paid at Mechanicsburg, Pa. and at additional mailing offices. Postmaster: Send address changes to Insurance Agents & Brokers, 5050 Ritter Road, Mechanicsburg, PA 17055.

Primary Agent (ISSN 1543-3110), Permit # 638-620, Issue # 2016-1, is published monthly by IA&B Service Group Inc., a subsidiary of IA&B.

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Copyright 2016. All rights reserved. No material may be reproduced in whole or in part without written consent of the publisher. The information in this publication is general in nature and not intended to serve as legal, accounting, financial, insurance, investment advisory or other professional advice as to any reader’s particular situation. Users are encouraged to consult with competent legal, financial, insurance, investment advisory and/or other professional advisors concerning specific matters before making any decisions. We disclaim any responsibility for any decisions or actions by readers. Statements of fact and opinion in Primary Agent are the responsibility of the authors alone and do not imply an opinion on the part of the officers or the members of IA&B. Participation in IA&B events, activities and/or publications is available on a non-discriminatory basis and does not reflect IA&B endorsement of the products and/or services.

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CHAIRMAN OF THE BOARD’S MESSAGE

INSURANCE AGENTS & BROKERS

EMBRACING CHANGE

5050 Ritter Road | Mechanicsburg, PA 17055 800-998-9644 | IABforME.com

OFFICERS

“Skate to where the puck is going, not where it is.”

– Wayne Gretzky

Chair of the Board

Robert S. Klinger, LUTCF, CPIA Vice Chair of the Board

Michael F. McGroarty Sr. Immediate Past Chair of the Board

I

Diana M. Hornung Hanby, ACSR

t’s no secret that independent agents, as a whole, aren’t known as early adopters of technology, particularly for marketing purposes. We weren’t first out of the gates with the World Wide Web. And now a decade after the advent of YouTube, Facebook and LinkedIn, many of us are still hesitant to get in the social networking game.

But let’s face it: Our customers expect more of us. And with Google and other competitors waiting in the wings, we need to think about tomorrow today.

I’m not only talking about social networking (although if you’re looking for advice on how to get started, check out the article on page 16, written by my good friend and fellow independent agent, Chris Paradiso). I’m talking about enhancing our websites, implementing electronic-signature technology, developing a mobile app and, in general, creating a better (not to mention more memorable) experience for our customers.

We need to invest in technology and reinvest in our businesses to compete in the 21st Century. Instead of focusing on what the direct writers are doing, we need to focus on what we can do to build our image, our brand.

If this sounds intimidating, don’t let it. You have an entire association and its resources at your disposal. Remember: You’re paying membership dues, so take advantage of them! You need to leverage technology, but you don’t need to reinvent how to do it. n

MEMBERS E. Stephen Burnett, CIC, ARM Wilmington, Del.

Richard F. Corroon, CPCU Wilmington, Del.

N. Lee Dotson, CIC, AAI Wilmington, Del.

Michael P. Ertel+ Columbia, Md.

Bryan C. Hanes, JD Hagerstown, Md.

John B. Hollister Milford, Pa.

Jocelyn R. Howard-Sinopoli, CIC, CISR Butler, Pa.

David C. King Lancaster, Pa.

Douglas A. Loesel, CPCU Erie, Pa.

Crag S. Mader

Gambrills, Md.

Ann Gallen Moll, CIC Reading, Pa.

Mark J. Monroe

West Chester, Pa.

Joseph R. Pastor, CPCU, AAI Oil City, Pa.

Richard M. Rankin, CIC Lancaster, Pa.

April E. Ressler, CIC Altoona, Pa.

Scott C. Rogers, CPIA*

Best,

York, Pa.

Glenn R. Strachan

Ft. Washington, Md.

Lawrence A. Wilson, CIC, CPIA, CPCU, ARM** New Castle, Del.

Robert S. Klinger, LUTCF, CPIA Chairman of the Board

J. Marshall Wolff, CIC, CPCU Easton, Pa.

* Pa. IIABA National Director ** Del. IIABA National Director + Md. PIA National Director

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JANUARY 2016

Ask Our Experts This month’s answer was provided by Claire Pantaloni, CIC, CISR, our industry affairs director.

Question: One of my insureds sold his home two months ago.

Now he wants me to cancel the policy back to the day he sold it. The carrier won’t agree to it.

Can the carrier refuse to cancel retroactively?

Answer:

N

ot all carriers handle this scenario the same way. And it is one of those situations where even when the insurance carrier is right, it will not look that way to the policyholder … particularly since generally no claim occurred. To the insured, the home was no longer his, and there was no risk to the insurer. He simply forgot to notify the company.

Let’s look at this more closely, taking ISO’s HO-3 as an example.

1) What does the policy say?

ISO’s HO-3 (05 11) cancellation provision states “You may cancel this policy at any time by returning it to us or by letting us know in writing of the date cancellation is to take effect.”

This wording does not contemplate retroactive enactment: “Is to take effect” refers to a future date. It would be difficult to argue that the carrier also meant “took effect.”

2) What about insurable interest?

True, coverages A and B cease with the loss of the insurable interest, but several coverages continue until the policy is cancelled. Specifically, coverages C, E and F (personal property, liability and medical

payments) remain in effect on a worldwide basis until cancellation.

3) How much coverage continues?

How likely is it to be triggered?

The personal property is covered in full for 30 days. After 30 days, 10 percent of the old policy’s coverage C limit continues to be available. This could cover the individual if he failed to secure a renter’s policy (if he is now renting) or if he secured an HO policy but his limits were too low. The personal liability coverage could also be triggered if he negligently injures someone or his dog bites a neighbor at the new location.

What do you do as an agent for the company?

• C heck the policy: We’ve covered that above. Check the carrier’s policy language to see how cancellation can be effected when initiated by the insured.

• Check your authority/ procedures: First, do you have the authority to accept a retroactive cancellation? The agency agreement

or other guidelines provided by the carrier may provide some guidance in that area and/or any criteria for acceptability. If these types of cancellations occur with some degree of frequency, you may want to confirm with your different carriers how they expect you to handle them when the insured can prove that a new policy was in place. If these cancellations are rare, you may inquire on a case-by-case basis whether the affected carrier is agreeable to the retroactive cancellation whenever it happens. n

Have a question?

Ask our experts!

Rely on our experts to answer your most perplexing questions.

Visit the Ask Our Experts section of IABforME.com (find the link in the website footer) to submit your question and review answers to other frequently asked questions. Or email your question to us at IAB@IABforME.com.

We look forward to hearing from you.

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PREVENTING ERRORS & OMISSIONS

PROMPT POLICY CHECKING AND DELIVERY ARE MUSTS

By Utica National E&O Program

A

sk most agencies where policy checking and delivery rank among daily duties, and it is likely not high on the list. It’s not that agents think these are unimportant.

• Some agents believe policies are correct, and if they are not, it’s the carrier’s problem.

• Other agencies report the “quality ratio” is 95 percent or higher.

This sounds impressive, but it means one out of 20 policies contains a mistake.

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• Many agencies believe the quality of the policy issuance has improved, but these same agencies will state that errors happen and some are significant (e.g. missing locations or vehicles, incorrect named insureds, etc.).

Whether the policies are provided in paper or electronic form, it is vital to promptly check for accuracy to ensure the coverage provided meets what the agency requested.

JANUARY 2016

IDENTIFYING POLICY ERRORS Just giving policies a quick “once over” will not be detailed or comprehensive enough to identify errors in the policy.

A best practice is to use a checklist that is completed and saved in the system.

Break down the checklist by overall issues (named insured, address, effective and expiration dates, policy number, etc.) and by type of coverage. For: • P roperty coverage: Verify correct coverage/forms, locations insured, limits for each location, correct list

of mortgagees/loss payees, additional coverages or changes requested from the prior policy, etc.

• Liability insurance: Review additional insureds, limits, requested coverage changes, etc.

• Auto policies: Check symbols, list of scheduled vehicles, limits, and any unique exclusions or coverage limitations that need to be brought to the customers attention, etc.

• Umbrella: Double-check that underlying insurance limits meet the minimum underlying limits required by the umbrella.

Insufficient underlying limits is a major cause of E&O claims.

The reviewer should complete, date and “sign” the checklist, which should then become part of the file. Other policy checking documentation methods include: • A “policy checked” stamp indicating who checked it, when and what was noted • Requiring notes in the system with an activity code showing the policy was checked Check policies within 30 days of receipt. When some agencies get backed up in policy checking, they have mailed the policies with a message like, “Here is your policy. Please understand that we have not checked it.” This approach is not suggested.

DELIVERY DETAILS After the policies have been checked, it is equally important that they are promptly delivered to the customer, either electronically, in person, mailed, etc. In most states, the customer has a duty to read his or her policy. However, it will be difficult to hold them to that duty if the policies are still sitting on the producer’s desk. When the policies are mailed, include a cover letter encouraging the customer to read the policy and to advise the agency of any areas needing correction, if there are questions, etc.

The file should note when and how the policies were delivered.

The promptness of policy issuance varies.

If the agency receives the majority of the policies but is awaiting a “straggler,” it is best to deliver the policies on hand.

Tell the customer what policies are still pending and that these will be delivered shortly after the agency receives them.

While many other tasks vie for priority, make the time for prompt policy review and delivery now to help prevent an errors-and-omissions problem later. n

BE IN THE KNOW ABOUT E&O LEARN HOW to head-off mistakes that can result in E&O claims. Each transaction – including those taken when securing insurance for customers and communicating with customers over the phone, in person and by email or fax – carries the potential for error. Our six-credit “Mistakes That Lead to E&O” seminar highlights common mistakes and the importance of documentation and standard practices.

The course, which is approved for losscontrol credit for Utica policyholders, will be in Baltimore on April 26 and again on Sept. 27.

IABforME.com/MyTraining

The Utica National E&O Program supplied this article. Our IA&B Sales Center is the exclusive agent for the Utica E&O program in Delaware, Maryland and Pennsylvania.

For questions regarding this article or your E&O coverage, contact IA&B at 800-9989644 or IAB@IABforME.com.

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COVERAGE CORNER

PENNSYLVANIA EXTRA-TERRITORIAL WORKERS’ COMPENSATION BENEFITS

By Jerry M. Milton, CIC

A

recent decision by the Pennsylvania Commonwealth Court addresses the issue of workers’ compensation extra-territorial benefits when the employment is not principally located in Pennsylvania. The case is William Watt v. Workers Compensation Appeal Board (WCAB) (Boyd Brothers Transportation) and was decided by the Pennsylvania Commonwealth Court on Sept. 15, 2015.

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The facts of this case are as follows: • Mr. Watt is a resident of Pennsylvania.

• Mr. Watt was hired as a truck driver by Boyd Brothers Transportation on Nov. 24, 2010.

At that time he signed a Workers’ Compensation Agreement which stipulated that all workers’ compensation claims would be administered from Boyd Brothers’ DECEMBER 2015

administrative offices in Clayton, Ala., and that all workers’ compensation claims would be subject to the laws of the State of Alabama.

• After completing his orientation and training in Ohio, Mr. Watt returned to Pennsylvania and began working as a long-haul truck driver for Boyd Brothers.

• On April 12, 2011 Mr. Watt sustained injuries to his right shoulder, right arm and right hand while untarping a cargo load in New Jersey.

• Mr. Watt began receiving Alabama workers’ compensation benefits for his injuries.

• Between Nov. 29, 2010 and April 9, 2011, Mr. Watt drove 34,581 miles for Boyd Brothers, primarily in Virginia, Ohio, Pennsylvania, Tennessee and Maryland, plus lesser amounts in 21 other states and the District of Columbia.

Wanting higher workers’ compensation benefits, Mr. Watt filed for Pennsylvania benefits.

His argument included the following: • He was a resident of Pennsylvania.

• He completed an online application for employment with Boyd Brothers while using his personal computer in Pennsylvania. Therefore, he was hired in Pennsylvania.

• He spent a substantial part of his working time in Pennsylvania.

• His employment contract, which stated that his employment was principally located in Alabama, was unenforceable and against public policy.

• Section 305 2(d)(5) of the Workers’ Compensation Act, which deals with extra-territorial jurisdiction for workers’ compensation claims, was unconstitutional.

You be the judge: Is Mr. Watt eligible for Pennsylvania workers’ compensation benefits?

The Workers’ Compensation Judge dismissed Mr. Watt’s claim for Pennsylvania benefits, stipulating that all workers’ compensation benefits should be governed by the workers’ compensation laws of the State of Alabama and that Mr. Watt’s employment was principally located within the State of Alabama, since the company’s principal place of business was in Alabama. The WCAB agreed with the Workers’ Compensation Judge.

On appeal, the Pennsylvania Commonwealth Court upheld the decisions of the judge and the WCAB. The Court stated: Seeking benefits under this Section of the Act, a Claimant must show that he worked from Pennsylvania as a rule, not as an exception, in order to establish that employment is principally localized in Pennsylvania.

Contrary to Mr. Watt’s arguments, the court held that his evidence did not support findings that he spent a substantial part of his working time in Pennsylvania. The court drew a

pie chart based on Mr. Watt’s statespecific mileage which indicated that his time in Pennsylvania represented only 17 percent of his total time driving for Boyd Brothers.

I don’t know about you, but I think the judge, the WCAB and the Commonwealth Court got it right.

A footnote: Had Mr. Watt been injured in Pennsylvania, then Pennsylvania would have jurisdiction over the workers’ compensation claim and this story would be different.

Y’all take care! n

Jerry M. Milton, CIC, teaches and consults on industry issues. The legal profession recognizes him as an expert on insurance coverages. He also serves as our education consultant, working with our CISR, CIC and continuing education programs. Catch him at one of our upcoming seminars: IABforME.com/MyTraining.

WORKERS’ COMP EXTRATERRITORIAL PROVISIONS CONFUSED ABOUT which states should go in item 3.A of the policy and which should go in 3.C (Other States coverage)? A recording of Jerry Milton’s “WC Extra-territorial Provisions” Power Hour webinar is available on-demand (and free of charge to members).

Visit the Power Hour Resource Library at IABforME.com/PowerHour.

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STATE NEWS

MARYLAND LIMITS DEFINITION OF SMALL EMPLOYER President Barack Obama in October signed H.R. 1624, the Protecting Affordable Coverage for Employees (PACE) Act, into law. The legislation redefines “small employer” under the Affordable Care Act (ACA) as one with 50 or fewer employees and gives states the option to expand the definition to include employers with up to 100 employees.

FEDS LOOSEN GRIP OVER INSURANCE REGULATION Concerns about the Federal Insurance Office (FIO)’s reach continue to be quelled. The office recently appointed new representatives to its Federal Advisory Committee on Insurance (FACI), including Maryland Insurance Commissioner Al Redmer Jr. FACI is tasked with providing advice and recommendations to assist the FIO in carrying out its statutory authority. As a reminder, the Dodd-Frank Act triggered the creation of the FIO … and subsequent concerns about infringements on state-based regulation of insurance. However, the appointment of Redmer – who is a proponent of statebased regulation, as evidenced by our interview with him that ran in the October 2015 Primary Agent magazine – is a reassuring move.

In December 2013 the FIO presented to Congress its long-anticipated (and nearly two-years-overdue) report on modernization and improvement of insurance regulation.

It also calmed the nerves of many by calling for the continued state-based regulation of insurance and, when necessary, federal involvement. Specifically, the report recommended support of the National Association of Registered Agents and Brokers Reform Act (NARAB II), which passed Congress in January 2015 and was considered a victory for independent agents.

WHERE’S WALDORF? WHERE YOU‘LL FIND OUR CISR SEMINARS To provide a convenient option to agents in southern Maryland, we’re now scheduling CISR courses in Waldorf!

CISR Commercial Casualty II – April 20

CISR Personal Auto – Nov. 15

IABforME.com/CISR

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JANUARY 2016

With the ink barely dry on the new law, the Maryland Insurance Administration (MIA) released a bulletin clarifying that, since Maryland law has been drafted to follow federal law, the state will not expand its definition of small employer.

This means that for plan years that begin on or after Jan. 1, 2016, small employers will be those that during the preceding calendar year employed an average of not more than 50 employees.

Starting in 2016, the ACA was scheduled to expand the definition of the small group market to include all employers with 1-100 employees – adding employers in the 51-100 employee category. The likely effect of such an expansion would have been further disruption to the health insurance market, including increased premiums for an estimated two-thirds of workers in small to mid-size firms as a result of new rating restrictions.

The new law, championed by the business community and passed with strong bipartisan support, protects small to midsized employers and employees at those firms from significant premium increases by enabling states to keep the current definition of a small group market in health insurance at 50 or fewer employees.

MIA CLARIFIES UNDERWRITING REQUIREMENTS FOR DOG-BREED EXCLUSIONS

INSIGHTS ON MED MAL, WORKERS’ COMP MARKETS

While Maryland’s dog-related liability exclusions have not changed, the data insurers may use to justify their underwriting standard have. The Maryland Insurance Administration (MIA) issued Bulletin 15-25 last fall to clarify that insurers may use national experience statistics (rather than only Marylandspecific experience) to support their filings.

MEDICAL MALPRACTICE REPORT HIGHLIGHTS Market share

WORKERS’ COMPENSATION REPORT HIGHLIGHTS Market share

• Seventy insurer groups wrote medical malpractice in Maryland in 2014. This number has remained relatively stable.

• The top eight WC insurance groups – including the Chesapeake Employers’ Insurance Company (CEIC) – wrote nearly 65 percent of the market in 2014.

In Maryland, insurers may not refuse to issue, cancel or non-renew a policy simply because the homeowner owns a particular breed of dog. However, insurers that file and receive MIA approval may: • Issue policies that exclude coverage for claims or losses resulting from particular breeds of dogs • Deny, cancel or non-renew a policy after a dog bite claim has been submitted As of 2014, homeowners’ and renters’ insurance policies with dog-breed exclusions are now subject to a mandatory annual notification requirement. This change followed a lengthy chain of legal and legislative action in the state.

In April 2012, the Court of Appeals of Maryland Tracey v. Solesky decision imposed a new liability standard for pit bull owners and landlords. Later that year, the Court of Appeals modified its decision to apply only to purebred pit bulls. Then in April 2014, following issuance of a 2013 Maryland Department of Legislative Services report, the Maryland General Assembly passed legislation segregating liability between dog owners and non-owners and removing the inherently dangerous label on pit bulls.

Review the status of the state’s medical malpractice and workers’ compensation (WC) markets courtesy of Commissioner Al Redmer’s recently released annual reports.

• Two companies – Medical Mutual and MCIC – wrote over 60 percent of medical malpractice premiums in 2014.

Claim frequency • Changes in data collection methodology contributed to the significant increases in claims between 2005 and 2014.

• Claims did increase sharply between 2010 and 2013 (when data was collected uniformly), an uptick driven primarily by cardiology claims. However, in 2014, overall claim data decreased to a number close to 2010.

The General Assembly intervened in the medical malpractice market following drastic premium increases in 2003 and 2004. Since 2005, the insurance commissioner has been required to collect data and report on the market each year.

• CEIC was the largest writer, accounting for almost 24 percent of the market in 2014.

• Hartford Fire and Casualty Group had the second largest share of the market at 11.6 percent.

Loss costs • The National Council on Compensation Insurance Inc. (NCCI) filed a 5.3 percent decrease to premium loss costs for 2016.

• The impending change stems primarily from improved claims experience, flat loss ratio trends and an increase in indemnity and medical benefits.

The statutorily mandated report, which also includes a synopsis of relevant 2015 legislative changes, is delivered each year by the commissioner to the Joint Committee on Workers’ Compensation Benefit and Insurance Oversight.

www.mdinsurance.state.md.us

IABforME.com/dog_breed_exclusion

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SOCIAL MEDIA RISK-SCORING TOOL DEBUT

PROMISES OPPORTUNITY, RAISES QUESTIONS

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JANUARY 2016

By Anthony O’Donnell

The launch of Social Intelligence’s new tool — designed to be used on an opt-in basis, like telematics — opens a new frontier in risk evaluation. And, like any innovation, it raises practical and regulatory questions that will need to be settled.

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T

oday millions of people routinely document their lives through sites such as Facebook, LinkedIn and Twitter.

On the theory that this vast and growing body of data can yield reliable insights into individual risk, Social Intelligence, a Santa Barbara, Calif.-based start-up that provides a variety of social media analysis tools to various industries, has launched Social Media Risk Scoring for P&C insurers. The tool – which is designed to be used on an opt-in basis, like telematics – opens a new frontier in risk evaluation. And, like any pioneering departure, it raises practical and regulatory questions that will need to be settled.

Social Media Risk Scoring provides carriers with realtime predictive risk scores based on the online presence of policyholders who allow their insurer to analyze that presence, according to the vendor. As with telematics, the product is designed for insurers to use information to offer discounts and to fast-track claims processing to qualifying customers. Social Intelligence offers both an underwriting and a claims product, both of which automate the analysis of social media data.

Used in concert with existing risk-scoring methods, the new tool can help to create a more comprehensive customer profile, according to Max Drucker, CEO, Social Intelligence. Whereas traditional data sources, such as credit scores, can provide an

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accurate snapshot of an individual’s financial history, Drucker says, a customer’s online presence can provide a deeper, more nuanced portrait of behavior.

“For example, our historical data shows us that a person with more than 200 LinkedIn connections, an email address active for more than five years and a private Facebook profile is statistically a better risk than someone who doesn’t meet those criteria,” Drucker comments. “These types of insights offer a more layered approach to individual risk analysis.”

Online presence can also be the basis of statistically meaningful insights about individuals who can’t be effectively evaluated by traditional methods, Drucker insists.

“According to Experian, there are 64 million ‘unscoreable’ consumers out there,” he says. “That includes recent college grads, retirees and immigrants who have little or no credit history.”

About a third of those “unscoreables” are very low-risk individuals, but without the insights that online presence enables, insurers are not able to price their policies appropriately, Drucker suggests.

JANUARY 2016

PROVEN UTILITY IN CLAIMS Social media has already proven valuable in fraud investigations, but its utility for underwriting is less clear, notes Kimberly Harris-Ferrante, VP and Distinguished Analyst in Gartner’s (Stamford, Conn.) insurance industry practice. Creating an accurate risk profile based on publicly available online information represents a process improvement, she affirms.

While Social Intelligence’s tool is meant to be used on an opt-in basis, there is a question as to whether consumers understand what information is being used and how, according to Harris-Ferrante.

“Right now in the U.S. we do not have a strong regulatory environment for consumer protection against the use of this type of information in insurance, but it is likely that will change,” she comments.

Social Intelligence’s Drucker emphasizes an analogy to telematics in that participating customers may not only be sufficiently aware of what they’re sharing but are likely to be more conscious of risky behavior – and thus be more vigilant in avoiding it.

CHALLENGES AHEAD Industry researcher Celent (Boston) anticipated the emergence of social media risk analysis in its 2011 report, Using Social Data in Claims and Underwriting.

“This is an example of social data being used as an additional data source in core insurance processes and indicates a maturing of the technology,” says Michael Fitzgerald, Celent senior analyst and report co-author, in reaction to Social Intelligence’s announcement. “Insurers who learn how to best employ social data will price and select more accurately.”

The opportunity to explore the predictive quality of social media data has only just begun with the introduction of new vendor offerings, cautions Craig Beattie, Celent senior analyst who coauthored the report with Fitzgerald. “Such an innovation is only made possible by partners such as Social Intelligence entering the market with these sorts of tools,” he comments. “There are challenges ahead – not least with regulators – but these can only be addressed when there are solutions and approaches available.”

“Celent welcomes the move to a more proactive insurance industry that is listening and responding to its clients who want to engage in this way by using these tools,” Beattie adds.

“Logic would suggest that applicants who are comfortable opting-in to our risk scoring analysis would have nothing to hide – similar to how users of telematics consider themselves safe drivers,” he says. “Only the accumulation of time and data will reveal to what extent participation in such programs actually reduces risk.”

UNDERWRITING WITH LESS UP-FRONT INFORMATION The use of social media for risk scoring fits in with a broader trend of insurers finding new ways of underwriting that require less information gathered in the application process, suggests Rob McIsaac, senior VP of research, Novarica (Boston).

However, every alternative data source must be proven against adverse risk selection, and it’s unlikely that insurers will abandon traditional approaches any time soon, he says.

“It’s early in the evolution of this data source to claim reliability,” McIsaac opines. “For one thing, results from this data source are likely to vary significantly by demographic cohort, and carriers will need to understand the implications of as they associate it with more traditional underwriting sources such as credit reports and MVRs.”

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Insurers will also need to demonstrate the efficacy of social media data to regulators for its use in the product and pricing approval processes, McIsaac says.

“Gaining approval will likely require demonstration of the predictive capabilities and accuracy of the information,” he elaborates. “The likely starting point would be in lines of business where there is a quick line of sight between the underwriting process and claim experience. In the longer term, once the predictive capabilities of the data are really understood, it is likely that it could be used to complement the underwriting process for lines of business with longer ‘tails.’”

Results from social media will certainly vary according to which customers either do or do not consent to share their information.

Within the subset of consumers who do, the data can be especially valuable for evaluating individuals who don’t otherwise have a paper trail, Drucker suggests.

“One of the biggest trends confronting the financial services industry today is the steady movement away from traditional banking and payment models taking root among younger generations,” Drucker observes. “With consumers able to bypass the traditional financial infrastructure with payment

apps such as Venmo, Apple Pay and even peer-to-peer payments through Facebook, the need to forge new risk-evaluation methods beyond the traditional credit score is front-and-center for insurance carriers.”

Regarding regulatory issues, Drucker says that Social Intelligence has continually refined the algorithms of its product in consultation with the Federal Trade Commission since it began developing its first product – a social media background check and monitoring solution for employers, which launched in 2010.

“We will continue to work proactively with regulators and our customers to ensure that our analytics and processes are held to the highest possible standard,” he comments. n

Anthony O’Donnell is executive editor of Insurance Innovation Reporter. For over a decade he has been an observer and commentator on the use of information technology in the insurance industry, following industry trends and writing about the use of IT across all sectors of the insurance industry. He can be reached at AnthODonnell@ IIReporter.com or (503) 936-2803.

Training where, when and how you want it.

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JANUARY 2016

Expect big things in workers’ compensation. Expect to save a third of your clients 30% or more. Most classes approved, nationwide.

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JANUARY 2016

7

STEPS TO BUILDING

A SOCIAL PRESENCE

By Chris Paradiso

Sir Richard Branson has a famous quote: “If you’re an entrepreneur and you don’t have a social media presence, your company is at a competitive disadvantage.” While Sir Richard is speaking the absolute truth, many insurance agents and agency owners feel intimidated by social media.

So let’s take it in steps: Here are several tips I would highly recommend.

1. MAKE SURE YOUR AGENCY HAS A BRAND Your brand is everything! Prior to joining the social world, you first need to understand your agency’s brand, and make sure it’s in order. If you don’t have a brand established, you should hire someone to help you with a brand guide (I’d be happy to recommend several people/companies to you).

The reason why this is so important is that it will allow you to reach the right audience and earn their following. If you’re interested in seeing an example, visit momentology.com/6249social-media-strategy-taco-bell and read about Taco Bell’s social media marketing. Taco Bell is a fast food chain with a younger fan base that is active on social media platforms like Snapchat and Twitter, so that’s where Taco Bell hangs out because they want to reach their audience. The Taco Bell brand wouldn’t fit in the LinkedIn community, so that is why you don’t find them hanging out there. Alternatively, an insurance agency, law firm and/or marketing agency would definitely fit in within the LinkedIn world. Remember, just because your business is entering the social media world doesn’t mean you have to lose your personal feel or look. Yes, it is B2B, but your personal touch is the main ingredient to your social media success.

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BRANDING, DEFINED STILL NOT sure what this abstruse “branding” term means? Take a page from Entrepreneur.com: Simply put, your brand is your promise to your customer. It tells them what they can expect from your products and services, and it differentiates your offering from your competitors’. Your brand is derived from who you are, who you want to be and who people perceive you to be.

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Your insurance agency’s brand should have a website and a complete LinkedIn profile (I can’t stress “complete profile” enough – be an All Star). If you’re in the professional world, you want social media visitors (prospects/clients) to head there to learn more about your brand and to verify your authenticity.

One major piece of advice is to make sure your brand (agency or personal) is in proper alignment across all social channels, as well as with your traditional marketing materials. If your brand uses red as its predominant color and has a corresponding logo, then that color and logo should be the same on your website, LinkedIn page, Twitter, Instagram and Facebook pages. Keeping your branding consistent is very important to your social success.

2. BE CURIOUS You have to listen. Listen to what others are saying in the social world about you or your insurance agency’s brand. This is one of the most important components of being active on social media.

By monitoring and listening to what’s being said about you and/ or your agency, and even your competitors, you’ll be able to make more informed decisions and understand what’s going on in the social world. (Use Google Alerts for your personal name and your agency name.)

Curiosity isn’t just about listening to your audience; it’s also about exploring social media channels and techniques and tools you may not be familiar with. I’m not recommending you just jump in blind folded, but it wouldn’t hurt to do a little investigating to see if a particular platform, technique or tool could work for you and your agency.

3. DON’T FEAR MAKING A MISTAKE Yes, pinch yourself. You’re not dreaming. You’re human, and you are going to make a mistake or two. You can’t run from your mistakes; you need to face them head on.

A great example of a mistake and how to handle it is Amy’s Baking Company. Amy’s Baking Company was a featured episode of “Kitchen Nightmares,” a show where world-renowned chef Gordon Ramsay takes the time to help out smaller local restaurants. During this episode, the owner’s thoughts and opinions conflicted with Ramsay’s, and the restaurant didn’t improve. The social media responses that followed were awful.

But, after a year or so, Ramsay revisited the restaurant after they owned up to their mistakes, and the whole situation brought them more visibility, traction and overall sales.

Continued on page 20

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19

If you want success, then you will have to throw away the sales pitch and build your audience through a relationship.

So when you make a mistake, own it, and handle it professionally by admitting your mistake and apologizing.

The key takeaway from mistakes is that they are learning opportunities, so take advantage and grow.

4. BE AUTHENTIC, BE YOU Prospects and customers in today’s world can see right through the promotional messages or sales pitches. If you want success, then you will have to throw away the sales pitch and build your audience through a relationship. It’s no different than building a relationship in person; it all comes down to trust. Remember, your audience wants to deal with an actual person who cares about them (social media is all about them), not just a faceless insurance agency looking to grab their money. Be real.

5. INTERACTION Social media is a communication tool that you need to be practicing in today’s business world, but the key is to look at social media as the new form of communication. Your agency shouldn’t be using it as a blow horn for broadcasting your sales pitch. Your audience is looking for content that they’ll find useful, interesting and/or entertaining. You and your agency should not just sit back and wait for your audience to come to you, because the social world just doesn’t work that way. You need to get aggressive and be active. Strike up conversations with them when they leave a comment or ask you a question.

Engaging and interacting with your audience is a simple, yet powerful way to build relationships, which leads to you earning their trust.

6. USE THE RIGHT SOCIAL TOOLS When you find an awesome social media tool, you have the power to do everything from discovering influencers, automating and scheduling content, managing all of your agency’s accounts from one location, and creating calls-to-action. Without a callto-action, you and your agency will never have a positive ROI.

20

Tools like Hootsuite (hootsuite.com) and Sprout Social (sproutsocial.com) are great places to start for managing your social media platforms, but there are an endless amount of tools you can use to give your networks a little something extra. Our agency just changed from Buffer to Hootsuite because Hootsuite released some new options for scheduling posts that have been proven to help build more interaction.

Automation is great, but let’s not forget that you need to post live and in real time too. If you only use automation, you will show your audience that you are lazy and it’s all about you and your time, not about being real.

7. HAVE A SOCIAL CALENDAR What do you want to get out of social media marketing efforts?

Do you want more followers on Instagram or Facebook? Do you want more visitors to go your agency’s landing page? Do you want to increase your brand’s awareness, or is it simply to get more sales opportunities?

Having a social game plan will keep your efforts focused. Being focused will help you create and share consistent written and visual content with your audience. And please don’t forget to measure your efforts by establishing agency metrics by using analytics tools. If your agency can’t measure it, then you may want to think about why you’re doing it in the first place.

Now it’s time to take these tips and get to learning. Please don’t just read this and do nothing. Get started because independent insurance agents can’t afford not to start now!

Happy marketing! n Chris Paradiso is one of the most passionate and dynamic agency owners in the insurance industry today.

His passion for digital marketing, a strong drive to improve efficiency, and his unwavering dedication to exemplary customer service has led him to build and grow his own agency. His clear vision has helped direct other insurance agencies to push the envelope and find their own success as well.

In 2011 Chris was excited to introduce “Paradiso Presents” (paradisopresents.com), a social media marketing program aimed at teaching other agencies how to survive and thrive in today’s complex online marketing world. His innovative marketing solutions have been recognized and implemented into agencies nationwide.

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?

?

INDEPENDENT CONTRACTOR OR NOT AN

INDEPENDENT CONTRACTOR …THAT IS THE QUESTION!

By Karen H. DiGioia

Last year the U.S. Department of Labor drastically limited its interpretation of the independent contractor definition, suggesting that nearly all workers should be classified – and treated – as employees. On the following pages, our HR consultant discusses how the classification process has changed and what it means for employers.

22

JANUARY 2016

L

ast summer was a busy one for the U. S. Department of Labor (or DOL) – creating, at least for some, not a “Midsummer Night’s Dream” but something more like a nightmare. First, on July 6, 2015, the DOL released proposed changes to the Fair Labor Standards Act (FLSA). (As of this writing, we’re still awaiting word on the final regs). Then on July 15, 2015, the DOL released guidance regarding the definition of an “independent contractor.”

Unlike the FLSA, this DOL action wasn’t an actual change (or proposed change) in a law, definition or a regulation, but rather an “interpretation” or clarification of the existing definition.

It’s not a new law and, technically, not even legally binding in the courts. However, it is significant to employers and deserves serious attention because the courts, with great frequency, look to the related agencies (like the DOL) for their interpretations when making a decision related to a law.

So … did the clarification really make things clearer? Well, in some ways “yes.” But in other ways “no.” One thing we know for certain: The attention drawn by this clarification is far from “Much Ado about Nothing.” (OK, I’m done with my random Shakespeare references, at least for a while.) Let’s first look at the differences in the treatment of an employee vs. an independent contractor and then look at the new “interpretation” guiding employers in correctly classifying workers.

INDEPENDENT CONTRACTOR VS. EMPLOYEE From the employer’s perspective, there are many economic and tax advantages to classifying a worker as an independent contractor rather than an employee. While this list may not be exhaustive, they include: • No pension eligibility • No workers’ comp coverage • Not covered by wage and hour law (including minimum wage provisions and overtime eligibility) • No eligibility for unemployment benefits • Not included in benefits programs • Not covered by wage discrimination law • Employers do not pay employment taxes and do not withhold federal, state and local taxes from payments The bottom line: Classifying a worker as an independent contractor is very attractive to the employer (much less so, generally, to the worker), and as such, the temptation to overuse this classification has been significant. To combat perceived abuse of the independent contractor status (thereby increasing

collection of taxes and protection of employee rights), the DOL released guidance reflecting a very narrow definition of which workers truly qualify as an independent contractor.

WHO IS AN INDEPENDENT CONTRACTOR? The simplest answer is – almost no one.

Historically, various tests have been used for determining if a worker is an independent contractor or an employee – different tests for different laws. While I won’t bore you with too much detail (I’m trying to stick to a max word count here), the following list will give you some idea.

The IRS/common-law test was used for most tax-related matters (like FICA, FUTA, income tax withholding, ERISA, NLRA and IRCA). The Economic Realities Test was used for issues related to employment discrimination (Title VII of the Civils Rights Act, ADEA and ADA), as well as the FLSA and the Family and Medical Leave Act. There was also a hybrid test, the IRS Reasonable Basis Test, and … you get the idea.

Have we eliminated the confusion that sometimes resulted from these various tests? Time will tell. But the July 15, 2015 interpretation from the DOL currently seems to rule the day.

It focuses on the use of the Economic Realities Test but also de-emphasizes what was previously a primary driver in the determination of independent contractor status: the degree to which a business controls the work done.

YOUR HR SOLUTION AN EXCLUSIVE (and complimentary) benefit of IA&B membership, HR Solution is a comprehensive collection of human resources products and services designed for an independent agency’s development and maintenance of an HR program. The program includes: • HR audit • Employee handbook • Guide and samples to develop HR policies • Complimentary and discounted services with our dedicated HR consultant IABforME.com/emp_mgmt

23

THE ECONOMIC REALITIES TEST Six factors are involved in the Economic Realities Test. They are: 1. Is the work performed an integral part of the employer’s business?

2. Does the worker have opportunity for profit or loss depending on his/her managerial skill?

3. What is the relative investment of the employer vs. the worker?

4. Does the work performed require special skills or initiative?

5. Is there “permanency” in the work relationship?

6. What degree of control is exercised by the employer?

OK. So that’s (kind of) clear. Now, let’s look at how these factors are to be used. In the words of the DOL, “in undertaking this analysis, each factor is examined and analyzed in relation to one another and no single factor is determinative. The ‘control’ factor, for example, should not be given undue weight.” The DOL continues, “the factors should not be applied as a checklist, but rather the outcome must be determined by a qualitative rather than a quantitative analysis.”

It’s no longer “As You Like It” from an employer’s perspective, but if you are very cautious with your use of the independent contractor classification, “All’s Well That Ends Well.”

If you’d like to read the DOL Interpretation directly, you can find it at: www.dol.gov/whd/workers/Misclassification/ AI-2015_1.htm. Need some guidance? As always, as part of your IA&B member benefits, basic support is just a phone call or email away. I can be reached at 610-779-3870 or karen@mostellerhr.com. n

Karen H. DiGioia provided this article on behalf of Mosteller & Associates, IA&B’s contracted human resources consulting firm. Reach out to Karen for more information on conducting classifying workers or with other human resources questions.

IA&B’s HR Solution© is a compilation of products and services – available exclusively for our member agencies – that simplifies establishing or improving your human resources program. It includes base-level consultation and discounted professional services from Mosteller & Associates. Learn more at IABforME.com/emp_mgmt.

So… in “clarifying” the definition, the DOL, has, in effect, eliminated any objective criteria to apply and rely on. <sigh> What if we back up and look at the bigger picture? Before even addressing the Economic Realities Test, the DOL begins its clarification with the FLSA’s broad definition of employment reflected in what’s known as the “suffer or permit” to work standard which states that an “entity [the employer] ‘suffers or permits’ an individual to work if, as a matter of economic reality, the individual is dependent on the entity.”

Taking words directly from a blog posting made by the Administrator for the DOL on July 15, we see “ultimately, the goal of the economic realities test is to determine whether a worker is economically dependent on the employer [and is therefore an employee] or is really in business for him or herself [and is therefore an independent contractor].”

So again, in its simplest form, who is an independent contractor?

While we’re going to have to wait and look at case law over time to get the answer about what the courts say, my answer still is “almost no one” and that’s really what, from my perspective, the DOL was intending. In their own words again: “In sum, most workers are employees … under the FLSA’s broad definition and the [FLSA’s] intended expansive coverage for workers must be considered when applying the economic realities factors to determine whether a worker is an employee or an independent contractor.”

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NEED CE IN JANUARY? As you can see from the schedule above, our classroom seminars do not resume until February.

But if you need to fulfill a CE requirement for license renewal or any other reason before then, you have online options through IA&B’s My E-Training Center.

My E-Training Center currently has 14 on-demand courses (as of press time) that award between one and six CE credits upon successful completion (including passage of an exam). These courses can be taken anywhere and anytime it’s convenient. They must be completed within 30 days of registration.

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