Pennsylvania Primary Agent - May 2017 by Insurance Agents & Brokers Service Group Inc

5R RE ES D U OU CE RC Pa E& E S T ge O R O 22 IS K

MAY 2017 | PENNSYLVANIA

K E YS TO

AGENCY RISK MANAGEMENT

GET TO KNOW “MY AGENCY” RESIDENCE PREMISES, DEFINED TRENDS IN CLOUD COMPUTING

THERE’S more FOR YOU AT MILLERS.

Insuring apartment buildings and rental properties is what we do. Our approach is to provide multi-family housing owners and managers creative solutions with more tailored coverage and flexible pricing, and to give our agents more attentive service, more specialized expertise and more overall value. That’s why we say, “There’s more for you at Millers.”

• BUSINESS OWNERS POLICY • APARTMENT PROPERTY DAMAGE LIABILITY

• PROPERTY MANAGERS PROFESSIONAL LIABILITY • VACANT PROPERTY COVERAGE • EMPLOYMENT PRACTICES LIABILITY INSURANCE • UMBRELLA • WORKERS COMPENSATION

We’d love to talk with you and show you more ways we can work with your independent insurance agent to protect your investment and improve your bottom line. Give us a call at 800.745.4555 or visit millersinsurance.com.

IN THIS

E&O CLAIMS: WHAT’S TRIPPING UP — AND PROTECTING — AGENCIES? Take a look at where agencies are most vulnerable to E&O claims and how they can reduce their exposures.

GET TO KNOW “MY AGENCY” When it comes to protecting the agency you worked so hard to build, there’s no better partner for your insurance needs than My Agency at IA&B.

5 WAYS TO MITIGATE YOUR E&O RISK Review risk management and loss prevention tips and resources.

THREE TRENDS IN CLOUD COMPUTING AFFECTING INSURANCE AGENCIES The shift from premise-based to cloud-based technology is underway. Review three trends that are affecting independent agencies and considerations for your agency.

IN EVERY ISSUE 2 3 4 6 9 28 28 28

Chairman of the Board’s Message Ask Our Experts 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 # 2017-5, is published monthly by IA&B Service Group Inc., a subsidiary of IA&B.

Copyright 2017. 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.

CHAIRMAN OF THE BOARD’S MESSAGE

THE FUTURE LOOKS BRIGHT

INSURANCE AGENTS & BROKERS 5050 Ritter Road | Mechanicsburg, PA 17055 800-998-9644 | IABforME.com

OFFICERS

Chair of the Board

elcome to May! There’s something about the long, warm days of spring (even when they follow abnormally warm days of winter) that’s energizing. Speaking of energizing, do you have plans to attend a college graduation this month? Or how about a high school commencement ceremony in the weeks ahead? The energy at these events is palpable. There’s such a sense of optimism and possibility. I felt a similar vibe when I stopped by a recent meeting of the IA&B Futures Task Force. The young agents there were bright and ambitious and dedicated to the independent agency system. It was exciting! (And it was a refreshing alternative to the constant barrage of doom-and-gloom articles and surveys that forecast our industry’s demise.)

Michael F. McGroarty Sr Vice Chair of the Board

John B. Hollister

Immediate Past Chair of the Board

Robert S. Klinger, LUTCF, CPIA

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

Richard F. Corroon, CPCU Wilmington, Del.

Michael P. Ertel Sr.+ Columbia, Md.

G. Greg Gunn, CIC* Lemoyne, Pa.

Bryan C. Hanes, JD Hagerstown, Md.

David C. King Lancaster, Pa.

So how can we cultivate the energy of these young agents? And how can we capitalize on it to encourage other recent graduates and young professionals to consider the opportunities that independent agencies offer? You better believe that the IA&B Boards of Directors recognize the importance of industry perpetuation and young agent recruitment, and that we’re discussing the best ways to encourage and support this budding talent and where to find more of it. Stay tuned because it’s more than the spring sunshine that looks bright these days. There are some really exciting things in store for the future of IA&B and our industry. n

Lisa A. Leach Goth, CIC New Bethlehem , Pa.

Douglas A. Loesel, CPCU Erie, Pa.

Crag S. Mader Crofton, Md.

Elizabeth H. Martin, CIC Millersville, 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.

Until next time,

Scott C. Rogers, CPIA York, Pa.

Glenn R. Strachan

Ft. Washington, Md.

Bryan S. Willey

Michael “Mike” F. McGroarty Sr. Chairman of the Board

Dover, Del.

Lawrence A. Wilson, CIC, CPIA, CPCU, ARM** Newark, Del.

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

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

MAY 2017

Ask Our Experts Claire Pantaloni, our advocacy senior director, provided this month’s answer.

Question: My carrier is telling me the company is not providing any coverage A for the condo unit owner because they don’t need any. Is that right?

Answer:

robably not. It is highly unlikely that your unit owner would not have to insure any amount of Coverage A. To properly insure the condo, coordinate the unit owner’s coverage with coverage provided under the condo association’s master policy and identify who is responsible for what. Here’s what you will need (be ready to get in touch with the association’s insurance agent, the property manager and even your own carrier in order to avoid gaps): Documents: Request a copy of the condo association’s “declarations” and bylaws to help determine who is responsible for what. Pay attention to the responsibilities for upkeep (to “maintain and repair”) and the responsibilities for insurance: These are not necessarily synonymous. Type: Based on the declarations, ascertain whether the association is structured as: “Bare walls” Association responsible to insure common elements and limited common elements; unit owner responsible for building items and fixtures that constitute the unit [check definition of “unit”] “Single entity,” a.k.a “Broad form” or “original specifications” Association responsible to insure common elements and limited common elements as well as units; unit owner responsible for unit’s improvements and betterments made by unit owners over time “All in” Association responsible to insure common elements and limited common elements as well as units, including improvements and betterments made by unit owners over time

Limit: Depending on which option (bare walls, single entity, or all in) is applicable, work with your customer to estimate an appropriate limit for the unit’s building items (Cov. A). Age of condo: With a single-entity program, remember: The older the condo, the more likely improvements and betterments have been made over time. Therefore, the amount of Cov. A may need to be increased. For example, a kitchen remodeled by a unit owner would not be covered by the master policy, and its cost would need to added to the Cov. A limit of the unit owner’s policy. Loss assessments: Discuss with unit owners the possibility of assessments from the association to reimburse the association for uncovered claims, claims above the master policy limits, or simply to recoup the association’s master policy deductible. This is becoming more common as associations choose higher property deductibles to contain premium increases. Knowing the association’s deductible would be helpful. The HO-6 generally provides a limited amount of coverage for loss assessments. When increasing coverage by endorsement, check if the added coverage applies to association deductibles, which varies depending on the ISO (or proprietary) form used. Broadened perils: Contrary to the HO-3, these are not automatically included and must be added by endorsement. Other optional coverages to discuss include water-sewer backup, rental unit coverage, and sufficient liability limits to meet any umbrella’s requirement for the underlying policy. Offering an umbrella is obviously always a good idea. If the condo unit is in Maryland, note the differences, including the association’s ability to recoup a claim from the unit owner where the cause of damage originated, regardless of fault (up to $5,000). To help you talk condo coverage, access our consumer flyers on the topic. Visit IABforME.com/marketing, and use the brochure for the state where the unit owner (not the agency) is located. Keep in mind: This is only a discussion of residential condos. Commercial condos have their own sets of traps, particularly with a tenant’s improvements and betterments. That’s for another day. n

Have a question? Ask our experts! Visit the Ask Our Experts section of IABforME.com

COVERAGE CORNER

WHERE DO YOU RESIDE? By Jerry M. Milton, CIC

tupid question! Easy answer for most of us! Or at least we think so. However, the answer may surprise you and some of your clients. The Homeowners policy has the following definitions: “Residence premises” means: 1. The one-family dwelling where you reside; 2. The two-, three- or four –family dwelling where you reside in at least one of the family units; or 3. That part of any other building where you reside;

and is shown as the “residence premises” in the Declarations. “You” means the named insured shown in the Declarations and the spouse if a resident of the same household.

1. An elderly couple moves into an assisted living facility. Their home is currently unoccupied. 2. A couple down-sized, bought a condominium and listed their old home for sale.

Therefore, the “residence premises” is where you reside. Simple enough! Not so fast….

3. A couple moved to another city, bought a new home and rented their old home to another family.

The following scenarios could possibly affect some of your clients who have a Homeowners policy on their home.

4. A couple bought another home and, being good parents, they allowed their daughter and son-in-law to move into their old home.

MAY 2017

You no longer live in your old home. You now reside in an assisted living facility, a condominium, in another city, or a new home you purchased. Your old home is either unoccupied or occupied by someone other than “you.” Therefore, those homes are not “residence premises.”

resided in the “residence premises” shown in the Declarations on the inception date of the policy. You will continue to have coverage for the remainder of the policy year. After that, no coverage. This endorsement is a temporary patch, at best.

they’re not residing in the dwelling shown in the Declarations, their Homeowners policy is worthless. In other words, they ain’t covered!”

Now, for the bad news. Coverage A – Dwelling of the Homeowners policy covers the dwelling on the “residence premises” shown in the Declarations. We have already determined that the homes in the above scenarios are not your “residence premises.” Therefore, there is no coverage on the dwelling.

ISO has also introduced another endorsement, Broadened Residence Premises Definition Endorsement (HO 06 49). This endorsement deletes the “where you reside” wording from the definition of “residence premises” for the period shown in the endorsement. Good, if you can get it.

The news doesn’t get any better. How about the liability coverage for that dwelling that is no longer a “residence premises”? The Homeowners policy definition of “insured location” includes a “residence premises.” Here we go again. Those dwellings in the above scenarios are not “residence premises.” Section II – Personal Liability and Medical Payments To Others of the Homeowners policy excludes coverage to a “residence premises” that is not an “insured location.” If it does not satisfy the definition of “residence premises” (where you reside), it’s not an “insured location.”

My advice, for what it’s worth. Cross your fingers and say a little prayer. Hope your clients will notify you of the changes in occupancy of their home as we have discussed. The ISO mandatory endorsement will give you some time, not much. But, my best advice is this, “If they are the named insured in a Homeowners policy and

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.

Your name is on the deed, you’re the named insured in the Declarations of a Homeowners policy, but you have no coverage whatsoever if you do not reside in the dwelling shown in the Declarations of the Homeowners policy. The Insurance Services Office (ISO) has offered some relief – very little. They introduced a mandatory endorsement, Residence Premises Definition Endorsement ((HO 06 48). This endorsement provides you property and liability coverage on the dwelling if you

Y’all take care! n

OVERCOMING COVERAGE CONUNDRUMS DID YOU know that our website houses dozens of articles, resources, tips and webinars on Homeowners policies? From the “where you reside” issue to the anti-concurrent causation clause, ordinance or law exposure to condo coverage coordination, our resource center is bursting with members-only tips and tools. Read up to stay knowledgeable and compliant and to reduce your E&O exposure. IABforME.com/resource_center/coverage_issues

STATE NEWS

AUTO ACCIDENT SURCHARGE THRESHOLD TO JUMP Instituting an accident-triggered surcharge or rate increase will require a higher claim cost as of July 1. The Pennsylvania Insurance Department will increase the accident surcharge dollar threshold from $1,550 to $1,700 for personal auto policies – an adjustment required by law every three years, which is calculated by changes in the Consumer Price Index.

HOW TO STOP STICKY STACKING ISSUES There is no shortage of UM/UIM and stacking questions … and no shortage of court cases either. Ironically, court cases sometimes contradict each other, generating more questions. With all that, what do you do when:

An insurer cannot “cancel or refuse to renew a policy or apply any surcharge, rate penalty or driver record point assignment” unless the policyholder’s claim cost over a three-year period exceeds the threshold. The cap applies to any person injured or property damaged and is measured in excess of any deductible or self-insured retention.

• A customer blames you for not selling him stacking on a single-vehicle policy or • Another customer blames you for selling him stacked coverage even though he only had one vehicle, and is asking what he paid for? To help you navigate this difficult subject – and attempt to have some consistency in the message your agency parcels out – we added a consumer flyer to our library. The bottom line: There are too many moving parts to be able to assert with any certainty whether coverage will be granted in a hypothetical UM/UIM situation involving a stacked single-vehicle policy. Do both policies have the same carrier? The same named insured? Do they both carry UM/UIM? Do they both have stacking? Do they have a household resident exclusion (or another applicable exclusion), and is that exclusion recognized by the courts? While the brochure won’t give all of the answers to all of the scenarios, it will hopefully help frame the message to your customer in a way that remains somewhat digestible, helps you stay away from representations that could backfire, and gently reminds the customer that it is his or her decision to make, not yours.

IABforME.com/marketing (select “consumer education”)

MAY 2017

WHEN FRACKING TRIGGERS QUAKES Since officials recently confirmed the state’s first fracking-related earthquakes (in Lawrence County last spring), it’s worth revisiting the Pennsylvania Insurance Department’s position on earthquakes caused by “human activity” (as opposed to those that are “naturally occurring”). Pennsylvania Insurance Commissioner Teresa Miller in spring 2015 released a notice on the subject, which cited the difficulty of determining the cause of an earthquake. The bulletin prohibited insurers from enforcing already-in-place earthquake endorsement exclusions for earthquakes that result from human activity. It also required them to file revised endorsements by July 1, 2015.

WHERE YOU PLACE SURPLUS LINES BUSINESS MATTERS Stay in good graces with the Pennsylvania Insurance Department by making sure the surplus lines carrier you’re using is on the state’s eligible list. The Department recently published a revised list of companies, which are approved to transact the business of insurance in Pennsylvania but are not licensed and are subject to limited regulation. As a reminder, the Department’s Bureau of Compliance has indicated an increase in deficient surplus lines submissions and has intensified enforcement actions. Whether you dabble in surplus lines or are experienced, our online Q&A resource is a must read, as it highlights the legal and regulatory requirements and how to comply with them. IABforME.com/surplus_lines (includes a link to the state’s eligible list)

N.Y. NON-RESIDENT LICENSEES SUBJECT TO NEW CYBER REQUIREMENTS The New York Department of Financial Services (NYDFS) recently published the final version of its Cybersecurity Requirements for Financial Services Companies. The regulations are applicable to all agencies licensed to conduct business in New York. These regulations, which are the first of their kind to be established independently by a state’s insurance department, are designed to promote protection of customer information. They require each affected agency to assess its specific cybersecurity risk profile and to design and adopt a cybersecurity program which proactively addresses its risks. Good news: The regulations include “limited exemptions,” which will excuse many licensed agencies from the more costly and burdensome requirements. However, even “exempted” agencies still will be required to comply with a number of the regulations’ provisions. Bad news: For agencies which don’t qualify for a “limited exemption,” complying with the entirety of the new regulations will be more onerous, costly and burdensome. While the effective date of the regulations is March 1, 2017, actual compliance deadlines vary by section and are staggered over the next two years. Watch for additional information and compliance tips in Agent Headlines Week in Review emails – and search “New York cybersecurity” at IABforME.com.

We recently made agency visits in Columbia County, where we met with Cinda, Nancy and Mark, of Hartman & Lally Insurers, and John Collins, of Collins Insurance.

#IABVISITS COMING YOUR WAY We’re continuing our campaign to connect with member agents. If we haven’t visited your agency yet, watch in the months ahead for an IA&B staffer or two to knock on your door. Our goals are simply to thank you for your membership and to ask if there’s anything else that IA&B can do for you. To the approximately 600 member agencies we already visited throughout Pennsylvania, Maryland and Delaware: Thank you for welcoming us into your offices and spending time with our team. As always, we welcome you to follow along in Agent Headlines and on Twitter (#IABvisits) as we document our trek through the region.

Are there certain accounts in your area you want to write? The more we know about your goals, the better we can provide the right expertise, online resources and other marketing programs and materials to grow your business. It’s just one of the many reasons you can Count on EMC ®. ANGELA CRITZ Commercial Lines Underwriter III EMC Charlotte Branch

HERE TO HELP YOU

REACH YOUR GOALS. 8

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Listed below are those companies that strongly support the independent agency system and Insurance Agents & Brokers. Thank you for your continued sponsorship.

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The IA&B Partners program gives company and allied businesses the opportunity to demonstrate their commitment of support to independent agents and receive maximum market exposure. As an IA&B Partner, you will also realize the benefits of IA&B membership to help you succeed in the insurance industry.

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DO YOU SEE YOUR NAME? To become an IA&B Partner, choose the sponsorship package that matches your commitment of support. Contact the Member Sales Center at 800-998-9644, 717-795-9100 or visit us online at IABforME.com to get started.

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E & O CLAI MS

WHAT’S TRIPPING

— AND PROTECTING — AGENCIES? By Andrea Wells

Physician, heal thyself! It’s all too common for insurance agencies to disregard their own risks. On the following pages, we look at where agencies are most vulnerable to E&O claims and how they can reduce their exposures.

ndependent agency owners spend their entire careers worrying about the risks and exposures of others. Managing the risks of their own agencies can take a backseat to helping their clients.

Sally, head agents U.S., senior vice president, Westport Insurance Corp., which serves as an underwriting carrier for the Big “I’s” Professional Liability Program.

When it comes to managing risk in an independent agency, the agency’s errors and omissions (E&O) exposures are top on the list of concerns. While agents appreciate the importance of agency E&O coverage and the need for a strong risk management approach they are at times “a little like the childhood fable of the cobbler’s children having no shoes,” says Mark Angelucci, resident senior vice president and E&O segment leader, Utica National Insurance Group.

“In the same way agencies recommend their customers periodically assess their risks, agencies too should review their E&O coverage versus their exposure,” Sally said.

“They are so focused on their clients’ insurance needs that they can neglect their own,” Angelucci said.

Agents should be alert to many of the same issues they weigh when they are recommending coverages for their clients. “Coverage terms and limits relevant to the exposures of the agency’s operations, the experience of the carrier in the agent’s E&O space, the reputation of the carrier’s claims team, the longevity and stability of the association program through which the coverage is being purchased – all of these are important considerations when purchasing agency E&O,” Sally said.

In other words, they treat their clients better than they do themselves. Agents E&O is an important coverage. It’s “vital to protecting the agency’s hard earned assets and reputation,” notes Sabrena

The first step for agents is to buy the right insurance protection. According to Insurance Journal’s 2016 Agency E&O Survey, the majority (83.5 percent) of agency owners purchase E&O coverage to protect their agency’s assets.

MAY 2017

According to Sally, there are certain questions agency owners should be asking at the time of purchasing insurance: “Has their agency experienced growth? Has their customer base changed to include insuring higher values and limits or customers with higher exposures? Has the ownership structure of the agency changed to one which might prefer higher limits?” Also, has the agency moved from a sole proprietor to a partnership or incorporated with multiple owners? Angelucci believes that a good relationship with their E&O underwriter can provide agents with additional coverage and limits options that might have been overlooked. Aside from buying the right agency E&O coverage, just as they tell their clients to implement workplace safety measures and adopt best practices for their industry, agents themselves must stay focused on risk management within their agency. Certain areas can always use improving, the experts say. KNOWLEDGE AND TIME Coverage knowledge is one area where agencies can always strengthen themselves and their employees, says Chris Burand, founder and owner of Burand & Associates LLC based in Pueblo, Colo., which provides agency management consulting services including agency E&O exposure reviews.

A LEGISLATIVE LOOK AT E&O PREVENTION IA&B WORKS to reduce your agency’s E&O risk in ways – and in places – you may never consider. Take the state Capitol. Your IA&B government affairs team constantly monitors legislation, including for language that would create or increase a professional liability exposure for agents. The bill that would change a portion of mandatory auto insurance coverage? We advocate for adequate agent protections for when a customer opts in or out of coverage. The legislation that would change notification requirements for an insurance policy? We work to prevent it from going too far and essentially reinstating the policy. The issue of minimum auto liability limits? We work to raise them so customers are less likely to find themselves lacking proper coverage – and looking for someone to sue – after an auto accident. IABforME.com/MyAdvocate

Agencies continue to be sued for failure to provide the right coverage to insureds, and often this occurs with less experienced agency staff, he said. Some agents just don’t know their coverages well enough. “It’s not only that they don’t understand their coverages, they also don’t understand what coverages their clients often need,” Burand adds. “I see that a lot.” Burand says that while continuing education is important, so is putting in the time and effort needed to properly address the needs of every client and eliminate this E&O exposure. Burand cites an E&O incident he came across in consulting recently that could have been avoided. In an email chain about the incident, the producer was questioned: “Why didn’t you read the policy so that you would know that there was no coverage? You could have either found a different policy, or you could have at least addressed it with the client?” Burand said the producer’s response was that he didn’t have time. “That’s just lazy,” Burand said. “That’s your job.” Unfortunately, Burand says it’s not uncommon. “Agents struggle with this and they do deserve credit; there’s a lot on their plates, and time is precious. But that is their job.”

The best agents are good at thoroughly understanding what their clients’ needs are, he says, and they take the time – make the time – to find out what those needs are. “They really do a good job of searching the marketplace for the policies that fit those needs closest,” Burand says. Westport’s Sally believes agencies are becoming more knowledgeable about the coverages available for their customers and are using technology to increase efficiency in providing that coverage. But in her view, where agencies struggle the most is in finding a consistent balance in their workload. “The struggle remains in balancing the need to perform all transactions the same way every time, and to document each transaction, balancing that against being customer friendly, and managing the daily work flow,” she said. “For example, the

GET UP TO SPEED ON EMERGING COVERAGES COVERAGE KNOWLEDGE is one of an agency’s best defenses against E&O claims, according to the experts interviewed for this article. Join IA&B this summer to learn the latest on the insurance-related considerations for the hottest topics: medical marijuana, autonomous vehicles, drones, ride sharing and more. We’ll offer our 8-credit, special topic seminar, “Emerging Coverage Issues,” throughout the tristate region: • Baltimore, Md. – July 11 • Mechanicsburg, Pa. – July 12 • Philadelphia, Pa. – July 13 • Pittsburgh, Pa. – July 25 • Allentown, Pa. – Aug. 1 • Wilmington, Del. – Aug. 2 IABforME.com/emerging

‘best’ documentation would consist of a detailed analysis of a commercial customer’s exposures, insurance options to address each one, with the customer signing off on declined coverages.” In theory that approach is best, but Sally understands the realworld environment and demands placed on today’s independent agents make that practice difficult. “In a business that is still relationship based, this is not always achievable,” she said. “In addition, we are human beings. The best processes and procedures are still prone to human error.” BEST DEFENSES Proper documentation, consistent policies and procedures and coverage knowledge are an agent’s best defenses when it comes to E&O, the experts agree. For years, perhaps even decades, the leading cause of claims against agents has been lack of coverage or inadequate coverage. “Failure to procure coverage, obtain coverage in adequate limits – it’s the knowledge-based errors that make up half of all the errors in an agency,” said Mark Wolf, vice president for Big I Advantage. “You’ve got the general errors that people make. They just make mistakes. They don’t place the coverage. They don’t check to make sure an excess policy is follow form,” Wolf said. Mistakes happen and that’s why agency E&O coverage is there to respond. Then, there are the knowledge-based errors, Wolf said, which can be avoided. The best way to combat these is to specialize, Wolf said. “You really need to be a specialist in today’s world,” Wolf said. Specialists know the market, know the coverages available, and can potentially avoid knowledge-based errors, he adds. “Specialists, especially in certain coverage areas, are definitely a much better risk,” he said. “People that dabble are going to have claims and if you’re dabbling in something that has high-severity risks, you’re going to be looking at very large claims.” Mark D. Harris is president and CEO of Quadrant Insurance Managers, a national program administrator, managing general agency and wholesaler based in Westerville, Ohio, that has been writing agency E&O programs since 1989. Harris agrees that failure to provide the proper coverage is a leader in claims in the agency E&O space. He says larger agencies may face different E&O problems than their smaller counterparts. continued on page 16

MAY 2017

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“Small agents may struggle with obtaining and properly documenting coverage rejections from a client – for example, rejections of flood and excess flood insurance,” Harris said. “So there needs to be a procedure that demands client acceptance or rejection of the terms offered, as well as certain disclaimers and warranties on every proposal to protect themselves. It’s a tall order and for small agencies it will be really hard,” Harris admits. But those kinds of policies and procedures protect agencies from E&O claims, he said. Harris practices what he preaches and utilizes these same risk management procedures when selling agency E&O coverage to independent agents. “We have to put everything in writing in our proposal and there has to be a way for us to ensure that they read it and comment,” he said.

TECHNOLOGY HELPS Technology makes E&O risk management easier today. If used properly technology can also be an agency’s best defense in an E&O situation, Harris said. Agency management systems allow agencies to more readily verify that policies and procedures are adhered to and provide a higher level of client satisfaction, according to Harris. But technology can also be a double-edged sword. “It offers you a great place to store documentation but when you say you are going to do something and you don’t, or you say you will document and you do but you have problems with how you do it,” then problems can happen. Technology, when used correctly, helps if a claim ends up in E&O litigation, says Bob McCabe, partner at Houston-based law firm Thompson Coe, which specializes in agency E&O coverage litigation. “Technology certainly makes it easier to track things when people are utilizing agency management systems,” McCabe said. Files are better managed than they were in years past, he said.

GET TO KNOW MY AGENCY

Agencies could improve their storing of emails to and from clients, making sure that these emails make it into the agency management systems, McCabe advised.

TURN TO page 20 to learn about My Agency at IA&B and how our team can help to protect your agency against E&O claims.

“I find a lot of times there may be a function where if you send me an email then I’ve got to get that email into the file once I receive it and a lot of people don’t and instead leave it in their inbox or delete it. Then we have to drag it out later,” he said.

Harris says agencies that excel in E&O risk management always have good policies and procedures in writing and can verify that those policies and procedures are being followed by agency staff through the use of controls. The best agencies also have staff stability and management that insists on excellence in product delivery and is always involved in the process, he says. “The agencies that struggle with this may not have written policies and procedures or training programs. Many cannot audit (procedures) and don’t know how to measure performance in different areas of their operations. We have seen E&O losses follow staff turnover or when they experience difficulty replacing staff. Oftentimes, management focus is on something other than quality or client satisfaction, like driving revenue,” Harris said.

The best E&O defense is about being able to document conversations and being able to show that documentation later, McCabe said. “By and large most agents are doing a good job and are doing what they should do. But when someone has a claim that doesn’t get paid because of a policy exclusion or policy that expired or a piece of property wasn’t scheduled, or something else, the insured will oftentimes say they didn’t discuss that with their agent, or was told something else. Proper documentation and saving those email conversations will get agents away from the ‘he said, she said’ problem. “The more things I have in my favor to back up what the client (agent) said, the better chance I have to convince a jury,” McCabe added.

Of course, all agencies must drive revenue but not at the expense of agency E&O, he added.

MAY 2017

SIGNED APPLICATIONS Westport’s Sally warns about an increasing number of claims stemming from carriers’ use of online application processes that do not require an affirmative signature of the applicant prior to binding coverage. “Unless the agency takes steps to document their file regarding the application information represented by the customer, the agency may face a classic ‘he said, she said’ situation should an E&O claim arise and there is no signed application in the file,” Sally said.

HOW TO EASE CYBER CONCERNS

Angelucci has seen some court cases involving agent’s or insured’s material misrepresentations (from the carrier’s perspective) with the carrier bringing an action against the agent for the value of the claim.

Learn about the stand-alone data breach policies offered by My Agency at IA&B. In addition to protecting against losses from cybercrime, the policies can be customized to cover indiscretions and negligent disclosures by anyone. Better yet? The policies include independent contractors, are written on admitted paper, and provide worldwide coverage.

“Obtaining signed applications, use of exposure checklists and being thorough in understanding a client’s operation are the best way to avoid these types of claims,” Angelucci said.

AGENTS REPORT feeling the most vulnerable to an E&O claim due to a privacy or cyber-related exposure, according to Insurance Journal’s latest Agency E&O Survey. Proper cyber liability protection can ease that worry.

IABforME.com/databreach

TECHNOLOGY HURTS Technology can also contribute to E&O concerns. The 2016 Agency E&O survey respondents listed privacy and cyber-related exposure as areas where they feel most vulnerable to an E&O claim. One agency owner wrote: “The interplay between the E&O policy, technology E&O, and cyber/privacy coverage will be important as more agencies diversify the method in which they interact with clients/carriers.” “We feel it’s a major area of concern,” Harris said. “There is always the possibility that absent an exclusion and, sometimes with an exclusion, a court could find coverage for cyber in the E&O policy.” Typically most agency E&O policies have exclusions for cyber or will have “throw-in” coverage. “Many carriers have gone to a ‘baby cyber policy,’” Harris said, “and add breach coverage but it’s not robust coverage.” Others put sublimits on cyber coverage. “The real issue is dilution of the limits. If someone is going to put cyber (on an E&O policy) as a throw-in, make sure they are not diluting limits,” he said. Most agree that just as agents tell their clients that cyber exposures are becoming so important that coverage should be on a separate policy, so are they important enough for an agency to have a separate policy.

Angelucci advises agents to look for policies that include breach notification services, not just reimbursement for expenses incurred for notification.

“Social media creates the potential for any statement to be communicated to a much larger audience than a statement made in person,” he noted.

SOCIAL MEDIA New E&O exposures are emerging. One is business defamation as it relates to social media, where negative comments made about a competitor are looked at as libelous, according to Utica’s Angelucci.

Thus agencies need to be cautious about making any statements, especially unflattering ones, about others on social media. “This is where a well written social media policy for agency employees is important,” Angelucci said. In cases against agents for E&O claims, agency websites and marketing materials (which could include social media posts or blogs) are used as evidence to argue the merit of a claim.

“The use of social media is becoming an increasing part of how agents interact with their clients,” he said. Agencies need to communicate with clients about the proper way to make requests. “If an action occurs via social media it should be documented in their agency management system.”

Angelucci offered the following tips for a good staff social media policy: • Lay out which social media tools are acceptable or not acceptable for business use.

Angelucci says an agency must strike a balance when making claims about its agency’s capabilities versus a competitor. “Factual statements must be used and you must be cautious about any reference to a third party or competitor,” he said. The most common type of defamation claim in an E&O context concern statements made to clients or prospects.

• Detail the need to be careful about disclosing confidential customer information on any social media sites. • Be sure that everyone who may use social media sites for the company understands the behavioral expectations

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MAY 2017

WHAT’S AHEAD FOR PRIMARY AGENT THE JUNE Primary Agent magazine will focus on agency branding and marketing. Look for a feature article on baseline steps to grow your agency’s image and sales – and how IA&B can help.

when communicating in this forum (respectful, honest, accurate, etc.). • Determine what correspondence or requests the agency will accept from customers or prospective customers with these tools and how to properly document and handle them. “For example, will you take an endorsement request via a Facebook posting? If so, do you expect a screen shot of the request to be copied to the customer’s file in your agency management system? Or will your agency not accept any requests except via phone call or written correspondence? Expectations need to be specifically laid out in either situation,” Angelucci said. n

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a mutual company, we’ve always put our policyholders first, working with our independent agents to grow responsibly and cautiously. Now a large regional carrier serving seven states and Washington, DC, we are celebrating 175 years of always being Committed to Mutual Success. HarfordMutual.com | 800.638.3669

G ET TO K N OW

MY AG E N CY When it comes to protecting the agency you worked so hard to build, there’s no better partner for your insurance needs than My Agency at IA&B.

y Agency is staffed by independent agents just like you. And our team has the industry’s leading carriers, offers hands-on service to tailor coverage to your needs, and advocates for you to improve coverage and options. We don’t just sell insurance. We provide risk management. From industry-leading loss prevention to active involvement in E&O litigation that might erode your rights, nobody else has our track record. Meet the My Agency team.

KEVIN HORD, agency manager Kevin manages My Agency, including new and renewal business and membership recruitment. He also works hands-on with our largest agency customers. Kevin has been with IA&B for nearly five years. Before joining My Agency, he handled personal auto claims and later underwriting for State Farm, and then moved to Selective Insurance, where he began in commercial underwriting as part of the Agency Management Specialist apprentice program and later worked in the field. Q. What’s your favorite part of your job? A. The interaction with the members and our policyholders…. I especially enjoy those opportunities to travel to meet with my renewals…. During these meetings, we sometimes uncover a need or concern that the agency wasn’t aware of, which brings even greater value to the relationship.

MAY 2017

KIM POWELL, customer service representative Kim handles small accounts and My Markets (market-access programs; learn more at IABforME.com/MyMarkets). She has worked in insurance sales and membership at IA&B for 13 years. Q. What’s your favorite part of your job? A. I like learning more about the agencies – and the industry!

MY AGENCY IS THE AGENTS’ AGENCY LET OUR team get to know your agency and deliver the kind of personalized service that you give your own customers. Contact us at 800-998-9644 or IAB@IABforME.com. Or learn more about our offerings and download a questionnaire at IABforME.com/MyAgency.

CHERYL SHIFFER, professional lines account manager

MICHAEL THOMPSON, business development specialist

SUE ZVORSKY, customer service representative

Cheryl handles medium and large accounts for My Agency. She joined IA&B two years ago, following four decades at various insurance agencies around Central Pennsylvania, most recently with a medical malpractice agency.

Mike handles new business and new memberships. He came to My Agency in August 2016 with over 20 years of industry experience, including as a sales executive for Bradley & Parker Inc. and a senior sales executive for Liberty Mutual Insurance Group.

Q. What’s your favorite part of your job?

Sue handles mid-size accounts and prides herself on educating agents on the benefits of IA&B membership. A familiar face, she has worked at IA&B – and its predecessor organization, Professional Insurance Agents of Pennsylvania – for 30 years in professional education, membership and member services, conventions, and insurance sales.

A. That’s easy – talking to agents!

A. Meeting and helping agents and showing them all that membership in IA&B has to offer.

Q. What’s your favorite part of your job? A. I love speaking with agents and learning more about their agencies during our customer-care calls. A great day for me is when I’m able to connect a policyholder or member to one of our products or resources that will help them. n

E&O mitigation Five ways to reduce your risk 1. COVER YOUR (COVERAGE) BASES. Recognizing prospects’ and customers’ exposures can prove challenging. After all, unless you’re an expert in their field – or cater to a niche market exclusively – you likely have a thing or two to learn about how their business operates.

Failure to provide proper coverage is the No. 1 cause of agency E&O claims. – Kevin Hord, manager of IA&B’s My Agency

Here’s where industry-specific coverage checklists come into play. In addition to helping you recognize potential exposures, these checklists and questionnaires serve as documentation for client files. Check out the Virtual Risk Consultant, an online sales and service tool that shares common exposures for over 650 industries and includes comprehensive questionnaires. Your IA&B membership entitles you to discount pricing. IABforME.com/discounted_services/VRC

2. DON’T LET HISTORY REPEAT ITSELF. Knowledge is power. And learning from other’s mistakes is just plan smart. Loss-control seminars provide insight into common E&O triggers, as well as what works – and what doesn’t – to limit an agency’s exposure. What’s more, some agency E&O carriers offer loss-control credit for taking these courses. (Plus, underwriters typically can consider the impact of loss-control seminars at their discretion.)

opportunities, and reduced risk of E&O claims, to name a few. Teaching opportunities can take myriad forms … a webpage or mailer, an envelope stuffer or social media post, even a glossary or explanation included with a policy proposal. Rely on vetted consumer-education content, available as customizable flyers and raw content in IA&B’s online library and incorporated into ActiveAgency – a complete website solution now offered to members through Independent Agency Solutions. IABforMe.com/marketing, IABforME.com/IAS

Register for a risk management seminar to learn about your duties and responsibilities and your requirements to avoid a claim. IA&B offers classroom, on-site and on-demand courses – at a discount for members. IABforME.com/MyTraining

MY AGENCY IN ACTION

3. TEACH INSURANCE CONSUMERS A LESSON. Insurance is complicated. And chances are that your prospects and customers (individual and business consumers alike) are uninformed – or possibly misinformed – about their risks, industry terms, policy exclusions and more.

AT IA&B’S My Agency, we don’t just sell insurance to independent agencies. We provide risk management – such as the loss prevention tips and resources showcased here. IABforME.com/MyAgency

The benefits of consumer education are multifold: a solidified agency-customer relationship, possible cross-selling

MAY 2017

4. GAIN SOME PERSPECTIVE. Forming an objective analysis of your agency can be next to impossible. After all, most agency principals are too involved in day-to-day operations to step back and evaluate their business’s opportunities and risks. Hiring an outside expert to audit your agency may seem extravagant, costly or intimidating. But the auditor’s insight and customized E&O mitigation tips, as well as your agency E&O carrier’s potential loss-control credit (or underwriter’s consideration), can make the investment well worth your while. Contact IA&B’s My Agency to learn about potential agency audit offerings from your E&O carrier and for leads to other reputable auditors. IABforME.com/MyAgency

5. GET YOUR DUCKS IN A ROW. Running an agency typically takes priority over formally documenting how to run the agency. But a procedures manual can help to improve operations, compliance and consistency – all of which can mitigate E&O risks. While you likely don’t have time to document all of your agency operations, there’s no need to. Rather than reinventing the wheel, consider customizing a template manual to incorporate your specific policies and procedures. Explore template agency procedure manuals, such as the one IA&B offers. It contains over 120 forms, worksheets and checklists; links to IA&B resources; and is available at a member discount. IABforME.com/procedures

IAS HALFPAGE VERTICAL_FINAL.indd 1

3/27/17 4:44 PM

TECHNOLOGY UPDATE

TRENDS IN CLOUD COMPUTING AFFECTING INSURANCE AGENCIES By Greg DiDio

he shift from premise-based to cloud-based technology is well underway. In fact, it’s likely that your agency already has adopted cloud solutions in one form or another. Here are three trends in cloud computing that are affecting agencies and some thoughts on how your agency should respond to each. 1) AGENCY MANAGEMENT Many agencies already have their agency management system in the cloud, since the three systems with the greatest market share (Vertafore’s AMS360, Applied’s EPIC and TAM) all have had hosted versions for several years. Hosted agency management permits providers to streamline product support and simplify the enhancement and patch processes. For those of you considering a move from a premise-based agency management system to a hosted agency management system, there are a few factors to weigh. • If you are considering AMS360, your options are simplified as Vertafore only offers AMS360 as a hosted application. • For those considering EPIC, you have a choice between premise based or Applied’s hosted environment. We usually recommend having Applied host EPIC. Exceptions to this rule exist for some very large agencies or agencies that already have a significant investment in recent server hardware and software capable of running EPIC.

• For agencies running TAM in a local environment, we generally recommend staying local until and unless you migrate to a different agency management system. There is one caution when evaluating a move of your agency management system to the cloud: Make sure you understand the full cost of the move. We frequently see agencies overestimate the savings. No doubt, less investment will be necessary for server hardware and support when moving your agency management to the cloud. But agencies often falsely assume that their Microsoft Office costs and local user support needs will go away, only to find out differently after committing to the migration.

One caution when evaluating a move of your agency management system to the cloud: Make sure you understand the full cost of the move.

TECHNOLOGY UPDATE

2) OFFICE 365 Of the approximately 90 insurance agencies that we serve, 25 percent currently use Office 365. This trend is expected to expand rapidly due to the economic and functional advantages of Office 365 subscriptions. Our estimates indicate that over half of our agency clients will have Office 365 by the end of 2018.

Unless all your critical data already resides in the cloud or, God forbid, you still have that old tape drive, you should have a strategy that backs up data offsite.

Office 365 provides significant benefits, such as version upgrades at no additional charge and accessibility to your Microsoft Office apps including Word, Excel and Outlook from any device wherever you have a web connection. Some versions of Office 365 integrate features that greatly enhance collaboration such as Skype for video conferencing, Sharepoint for document management, and the new Microsoft Teams application, a chat-based workspace for businesses. Before you replace an Exchange Server with new hardware or make a big investment in a new version of Microsoft Office, check out the benefits of Office 365. It’s likely the best choice for your ongoing email and Office needs. 3) DATA BACKUP If you still have agency management, email or other important files stored locally, then cloud-based data backup should be very important to you. Many of you will remember the days when backing up data offsite meant popping a tape out of a drive and taking it home. Nowadays that process is automated by systems that encrypt and securely send your backup data to a cloudbased repository through your Internet connection. As insurance professionals, you, of all people, know that disasters can and do happen. So, unless all your critical data already resides in the cloud or, God forbid, you still have that old tape drive, you should have a strategy that backs up data offsite. Even if your data is already offsite, you need to make sure it is being backed up to a different location. The cloud has actually complicated backup requirements because it is common now for agency data to be dispersed to different sites for your agency management system, email and critical files. Make sure you thoroughly quiz your IT service provider to ensure the security of all your critical data regardless of where it resides.

Dilbert cartoon: Pointy-haired boss tells Dilbert he has good news – they just won a huge bid to build a wireless network. Dilbert explains that they don’t know how to build a wireless network. Not to be dissuaded, pointy-haired boss asks rhetorically, “How hard could it be to not install wires?” Similarly, some agencies assume that the absence of back office infrastructure they can see and feel greatly simplifies their needs. You may not be able to touch your servers when your stuff is in the ether, but it still exists and needs support. n

Greg DiDio is CEO of Kite Technology Group, a Maryland-based IT services and consulting company serving the needs of 90 insurance agencies across the United States. He has 25 years of leadership experience, with the last 18 focused on information technology management. Greg has a passion for developing leaders and creating corporate cultures that facilitate high performance and employee growth. When he is not working, Greg enjoys reading, traveling and spending time with his wife and seven children.

Agencies who have moved agency management and email to the cloud are well on the way to being “fully in the cloud.” But there are still other “local” considerations. File storage, user access/ security and management of printers/scanners still need to be addressed. Cloud solutions are in varying degrees of maturity to address these needs, as well. Now, more than ever, it is important to lean on expert advice. The situation reminds me of a funny

MAY 2017

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My Events

CLASSIFIED

DATE TOPIC

LOCATION

MAY 2017 2-4 P&C Licensing Study Course 3 CISR Life & Health Essentials 3 CISR Personal Auto 4 Webinar: Contracts, Hold Harmless, Additional Insureds & Other Stuff 3-5 National Legislative Conference 4 E&O Risk Management: Meeting the Challenge of Change 9 CISR Commercial Property 9 Webinar: Leases & Contracts 9-10 James K. Ruble Graduate Seminar 10 CISR Commercial Property 10 Webinar: Certificates & Additional Insureds: Navigating the Maze 11 E&O Risk Management: Meeting the Challenge of Change 11 Insuring Contractors 15-18 CIC Commercial Multilines 16-18 P&C Licensing Study Course 22 Webinar: Time Element for Commercial Risks 23 CISR Personal Residential 23 CISR Agency Operations 23 Webinar: Commercial Property Claims That Cause Problems 24 William T. Hold: Protect Your Client, Protect Yourself CISR Miscellaneous Personal Lines 24 25 CISR Miscellaneous Personal Lines 31 William T. Hold: Commercial Lines 31-6/1 DAIAB Convention

Philadelphia, Pa. Mechanicsburg, Pa. Salisbury, Md. 1 – 4 p.m. Washington, D.C. Dover, Del. Lancaster, Pa. 9 a.m. – Noon King of Prussia, Pa. Frederick, Md. 1 – 4 p.m. Pittsburgh, Pa. Newark, Del. Hunt Valley, Md. Pittsburgh, Pa. 1 – 4 p.m. Erie, Pa. Indiana, Pa. 1 – 4 p.m. Pittsburgh, Pa. State College, Pa. Pittsburgh, Pa. Mechanicsburg, Pa. Rehoboth Beach, Del.

JUNE 2017 1 William T. Hold: Commercial Lines 1-2 James K. Ruble Graduate Seminar 6 Webinar: Workers’ Compensation Issues 6 CISR Personal Residential 6 *Insuring Success Seminar: Position for Success (CPIA 1) 6-8 Property & Casualty Licensing Study Course 7 William T. Hold: Protect Your Client, Protect Yourself 7 *Insuring Success Seminar: Implement for Success (CPIA 2) 8 *Insuring Success Seminar: Sustain Success (CPIA 3) 8 Webinar: “Sharing” and the Homeowner and Auto Marketplace 12-15 CIC Commercial Casualty 13 CISR Elements of Risk Management 14 CISR Miscellaneous Personal Lines 14 Webinar: Executive Management Liability 15 Insuring Contractors 15 Webinar: Additional Insureds—The Quandary 20 CISR Commercial Casualty II 20-22 Property & Casualty Licensing Study Course 21 CISR Elements of Risk Management 21 Webinar: Top Twelve Coverage Countdown 22 Webinar: Commercial Liability Endorsements for Watch Out For 27 CISR Elements of Risk Management 27 Webinar: Man vs. Machine—Cyber Exposures & Insurance Solutions 28 CISR Commercial Casualty I 28 CISR Personal Residential 28 Webinar: Closing Coverage Gaps in Home, Work and Auto 29 PA Auto Coverages *Attend all 3 seminars to earn the CPIA designation

Ellicott City, Md. Annapolis, Md. 1 – 4 p.m. Reading, Pa. Mechanicsburg, Pa. Allentown, Pa. Philadelphia, Pa. Mechanicsburg, Pa. Mechanicsburg, Pa. 1 – 4 p.m. Lancaster, Pa. Altoona, Pa. Hagerstown, Md. 1 – 4 p.m. Mechanicsburg, Pa. 2 – 5 p.m. Pittsburgh, Pa. Mechanicsburg, Pa. Pittsburgh, Pa. 1 – 4 p.m. 1 – 4 p.m. Wilkes-Barre, Pa. 2 – 5 p.m. Mechanicsburg, Pa. Philadelphia, Pa. 9 a.m. – Noon Allentown, Pa.

MAY 2017

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In today’s world of online shopping for insurance, Donegal still uses the independent agency system exclusively to sell our products. We believe in your ability to truly know your clients and to help find the best overall insurance solutions for each individual or business. And Donegal continues to deliver incredible value to agents through ✓ Competitively priced insurance products ✓ Timely underwriting ✓ Outstanding claims service ✓ On-going development of state-of-the-art technology ✓ Total compensation package that’s one of the best in the industry.

Providing insurance through only one distribution channel, another way Donegal is “There When It Matters Most” for independent insurance agencies.

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