NOVEMBER 2015 | DELAWARE
GOING OUT ON A LIMB
HOW TO HANDLE CLAIMS WITH CAUTION
CONS OF E&O COVERAGE FROM AN APPOINTED CARRIER NFIP REFORMS SUMMARY
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IN THIS
ON THE COVER 10
AVOID E&O WHEN HANDLING PROBLEM CLAIMS Agents tend to consider themselves advocates for their customers during the claims process. But if they’re not careful, they could end up on the wrong end of a lawsuit.
ALSO 18
E&O COVERAGE FROM AN APPOINTED CARRIER Carefully weigh the long-term implications of purchasing E&O coverage from the same carrier with which you place retail business.
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STAYING AFLOAT IN A SEA OF NFIP CHANGES Rapid-fire reforms have left even the most well-informed agents struggling to keep their heads above water.
IN EVERY ISSUE 2
Chairman of the Board’s Message
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Ask Our Experts
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Coverage Corner
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State News
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IA&B Partners
IBC My Events IBC Advertiser’s Index IBC Classified Ads
Periodical postage paid at Mechanicsburg, Pa. and at additional mailing offices. Ride-along enclosed. Postmaster: Send address changes to Insurance Agents & Brokers, 5050 Ritter Road, Mechanicsburg, PA 17055. Primary Agent (ISSN 1543-3110), Permit # 638-620, Issue # 2015-11, is published monthly by IA&B Service Group Inc., a subsidiary of IA&B.
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Copyright 2015. 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
FROM ONE INDEPENDENT AGENCY TO ANOTHER
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INSURANCE AGENTS & BROKERS 5050 Ritter Road | Mechanicsburg, PA 17055 800-998-9644 | IABforME.com
OFFICERS
ake no mistake about it – errors and omissions happen. In fact, the industry estimate is that one in seven of us will face some sort of E&O claim during our careers. That’s why many of us – myself included – look to our agents’ association for protection. If you aren’t working with IA&B to secure your agency’s insurance coverage, I suggest that you to learn more about the “agents’ agency.” Staffed with independent agents who are experienced covering agencies like ours, the IA&B Sales Center also boasts the backing of the entire association – an association that provides everything from loss prevention strategies to active involvement in E&O litigation. And if you aren’t taking advantage of those offerings (in-house legal staff, relevant classes, online resources and more), you are, quite frankly, squandering your membership dollars. I’m not alone here. Take it from another member agent, Shannon Lipniskis: “I depend on [IA&B] for quality advice on E&O issues and best practices for legal compliance.” What’s more, there is great value in getting involved with your association – whether it’s joining a Member Agent Panel, attending a conference or volunteering on the government relations committee or board of directors. The benefit of engaging with fellow agents is priceless. The same goes for young agents. I’ve been there, busy selling and growing my book of business and unwilling to step away long enough to get involved with the agents’ association. But trust me: You’ll save so much time and energy by learning from other agents. There’s no need to reinvent the wheel! Finally, if you haven’t contributed to AgentPAC, your state political action committee, this year, there’s still time. Know that your support helps our government affairs team build key relationships with legislators. And those relationships are invaluable when it’s time to make our case for or against legislation – legislation that can impact our livelihood in myriad ways. n
Chair of the Board
Robert S. Klinger, LUTCF, CPIA Vice Chair of the Board
Michael F. McGroarty Sr. Immediate Past Chair of the Board
Diana M. Hornung Hanby, ACSR
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* York, Pa.
Glenn R. Strachan
Ft. Washington, Md.
Best,
Lawrence A. Wilson, CIC, CPIA, CPCU, ARM** New Castle, Del.
J. Marshall Wolff, CIC, CPCU Easton, Pa.
Robert S. Klinger, LUTCF, CPIA Chairman of the Board
* Pa. IIABA National Director ** Del. IIABA National Director + Md. PIA National Director
Editor’s notes: Learn more about how the IA&B Sales Center can meet your agency’s needs by visiting IABforME.com/MyAgency. To contribute to AgentPAC, visit IABforME.com/AgentPAC.
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NOVEMBER 2015
Ask Our Experts Question: If we receive positive online customer reviews, can we use those to advertise our agency? What if we send a gift card to those who provide online reviews?
Answer:
T
his question may be best answered with a “proceed with caution.”
There is nothing fundamentally wrong with touting customer satisfaction that has been properly measured. When the reviews have been obtained with the use of incentives, however, the impartiality of the answer can be called into question. Therefore, publication of the results would require some disclosure of the incentive or “material connection” between the person providing the review and your agency. When it comes down to it, it stands to reason that someone expecting a gift card is more likely to feel compelled to give you positive feedback. Case in point, in April 2015, the Federal Trade Commission (FTC) issued a decision that has a direct bearing on the use of “incentivized reviews.” The case alleged that Amerifreight Inc. represented to consumers that its products were highly rated or top ranked based on its customers’ unbiased reviews, while the company failed to disclose that it paid
consumers to post reviews. The FTC’s decision and order barred Amerifreight from “deceptively touting online consumer reviews and failing to disclose incentives it provided to reviewers.” Bottom line: If you intend to use your customers’ online reviews to make certain advertising claims, it is better to use reviews that are provided without incentive. In addition, any material connection between the agency and the reviewer that could influence the review must be clearly and prominently disclosed. A material connection is something that affects the weight or credibility of the endorsement and that would not reasonably be expected by consumers, such as a free gift or other advantage, or the fact that the reviewer is employed with the agency. n
This month’s answer was provided by Claire Pantaloni, CIC, CISR, our industry affairs director.
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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COVERAGE CORNER
THE NLRB AND “JOINT EMPLOYERS” Jerry M. Milton, CIC
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National Labor Relations Board (NLRB) ruling that modified the definition of an employer could hurt small businesses including franchises and subcontractors, according to industry groups that advocate for those companies.. In August 2015, in a 3-2 decision involving waste management company Browning-Ferris Industries of California (BFI) and a staffing company, Leadpoint Business Services, the NLRB modified its standard for determining joint employer status. According to the NLRB, the revised standard is designed “to better effectuate the purposes of the Act in the
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current economic landscape. In its decision, the NLRB found that BFI was a joint employer with Leadpoint, the company that supplied employees to BFI to perform various work functions for BFI, including the cleaning and sorting of recycled products. It is estimated that currently there are more than 2.9 million workers employed through temporary and staffing agencies. Before this ruling, companies had to exercise “direct operational and supervisory control” over the employees to be considered joint employers. In their ruling the NLRB said it will consider
NOVEMBER 2015
factors such as whether a company exercised control over employees “indirectly through an intermediary, or whether it has reserved authority to do so” in determining whether companies are joint employers. Now franchisors could be responsible for alleged discrimination, harassment, wage, labor practices and other allegations that previously were directed at the franchisees only. In addition, franchisees could see a reduction in their control of the business. The franchise industry is concerned because individually owned franchises, which are often owned by small
companies, now could be drawn into national labor disputes, said the International Franchise Association (IFA). According to the IFA, this new standard would increase the likelihood of union campaigns against national businesses while forcing the small franchisees to become engaged in protracted, unnecessary and costly legal battles. The National Restaurant Association said the ruling would have a negative impact on franchisees’ decisions to expand and hire more workers.
Other small businesses can be affected according to the National Federation of Independent Business (NFIB). It contends a company that hires a subcontractor to do work could possibly be considered a joint employer with the subcontractor.
Franchises are also concerned because the NLRB’s Office of General Counsel contended earlier this year that McDonald’s has enough control over its franchisees’ operations to be considered a joint employer with the owners of the individual restaurants.
The ruling was also criticized by the National Retail Federation, which said it unnecessarily blurred the distinction between companies that are independent of one another.
“Subcontractors will come under pressure to change their employment policies or they’ll be cut out of the picture altogether,” said Beth Milito, an attorney for NFIB.
How will this ruling affect our Workers’ Compensation, CGL, Business Auto and Employment Practices policies? Too early to tell. 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.
Will we now have employees that we didn’t have in the past? Sounds like it.
Training where, when and how you want it.
My E-Training Center is IA&B’s new online portal for on-demand CE and webinars.
IABforME.com/e-Training
New Programs Added This Fall Checkout “Essentials of Homeowners’” and other CE topics specifically for CSRs.
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STATE NEWS
PROPOSED WORKERS’ COMP RATES, TAKE I The annual juggle (and dare we say struggle?) to determine workers’ compensation rates began in late August when the Delaware Compensation Rating Bureau (DCRB) submitted voluntary market loss costs and related rating values with a proposed effective date of Dec. 1, 2015. Per Circular No. 909, the filing suggests overall average increases of: • 14.92 percent for the residual market rates • 15.03 percent for the voluntary market loss costs
MAKE-A-WISH FUNDRAISER EXCEEDS EXPECTATIONS
The DCRB shared that the rates and loss costs are impacted by House Bill 373 of 2014, which – among other procedures and requirements – mandates that the fee schedule result in: • 20 percent reduction in aggregate workers’ compensation medical expenses by Jan. 31, 2015 • Additional 5 percent reduction of 2014 expenses by Jan. 31, 2016 • Additional 8 percent reduction of 2014 expenses by Jan. 31, 2017
Area children with life-threatening illnesses will experience the hope, strength and joy associated with having their wish granted thanks to the late summer Wishes on Tap. The fundraiser – sponsored in part by Trusted Choice – raised over $33,000 in support of Make-A-Wish Mid-Atlantic. Held at Nassau Valley Vineyards in Lewes, Wishes on Tap brought together the winery, two local breweries and 14 nearby restaurants for tastings. Our support of the event corresponds with the efforts of independent agents across the country to benefit their regional Make-A-Wish chapters. Collectively, we can provide a greater benefit on the charity and enjoy the secondary benefit of advancing the brand and image of Trusted Choice independent agents.
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Bryan Willey, of member agency Harrington Insurance, attended the event.
According to the DCRB, the first-year reductions in medical fee schedules likely will produce less than 20 percent savings in medical expenditures. However, since the data is not yet available to determine that and because there will be opportunities for changes over the next two years to compensate for any shortfall, the DCRB chose to recognize the full extent (20 percent) of the savings specified in HB 373. As this issue of Primary Agent went to print, the filing was with the Department of Insurance for review, potential revision and eventual approval – a process that has extended well beyond Dec. 1 in recent years. The DCRB “strongly” recommends that all policies issued with effective dates on and after Dec. 1, 2015 include the Pending Rate Change Endorsement.
NOVEMBER 2015
NEIGHBORING NEWS REGULATORS ADDRESS CONTROVERSIAL USE OF BIG DATA State regulators continue to put their foot down on price optimization – which entails efforts by carriers to tie policy rates to an insured’s odds of “shopping around.” As this issue of Primary Agent went to print, the latest to officially address the practice were: • Pennsylvania Department of Insurance • Maine Bureau of Insurance • District of Columbia’s Department of Insurance In an August interview, Pennsylvania Insurance Commissioner Teresa Miller described price optimization to IA&B staff as “essentially penaliz[ing] consumers for their loyalty.” These latest statements issued by regulators follow similar ones in California, Florida, Indiana, Maryland and Ohio. In addition, the National Association of Insurance Commissioners, the Federal Advisory Committee of Insurance, and national media outlets all have raised red flags about price optimization in recent months.
PROGRESSIVE IMPLEMENTS PAP CHANGES By late October agents with Maryland customers insured through Progressive should have received notification regarding changes to the carrier’s Personal Auto Policy (PAP). Policy changes include: • The addition of “rated resident” to the contract (a non-relative roommate or domestic partner, when appropriately listed on the policy and who drives the insured vehicle, will be afforded broader coverages); • Aligning the rights of lienholders and insureds (if Progressive denies applicable coverage to an insured, it will also deny coverage to the lienholder); • Capping roadside assistance usage (Progressive will pay for three roadside assistance claims per six month policy period, per covered vehicle – the number of claims was previously unlimited); • The Payment of Premium section has been modified whereby coverage will be void from inception if an applicant’s initial premium payment is not honored by the financial institution;
Note that these changes differ from those unveiled elsewhere (including in Delaware) earlier this year. Thanks to agent feedback, the Maryland contract Duty to Report section maintains its original wording, that material changes to a policy should be reported “promptly.” The Delaware contract’s Duty to Report section – which was revised to read “within 30 days” – will be reverted to “promptly” at a yet-to-be determined time. The policy changes for Maryland insureds will affect both new and renewal business, as follows: • New business customers, with policies effective on or after Oct. 22, 2015, will receive the new policy contact; and • Starting on Oct. 22, 2015, renewal customers will be provided with a “notice” outlining the policy changes, as well as their renewal documents and new policy contract. Changes will not go into effect until the renewal effective date.
• The Automatic Termination section has been modified to provide for automatic termination of coverage for an insured vehicle if it is sold or transferred; and • The additions of definitions and exclusions which clearly outline that no aspects of ride-sharing or vehicle-sharing are covered under the insured’s PAP.
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PLATINUM PROFILE
Insurance Agents & Brokers proudly recognizes Millers Mutual Group as one of its Platinum Partners. IA&B Platinum Partners dedicate the highest level of sponsorship to our organization.
EXPECT EVEN MORE FROM MILLERS MUTUAL
I
t’s not every day you hear a company asking its customers and agency partners to expect more. At Millers Mutual we take it a step farther and ask you to expect EVEN more. More focus. More tailored coverage. More flexible pricing. More attentiveness.
For Millers Mutual, an important part of becoming better for you is refining our underwriting appetite to focus on our market expertise – providing the highest value possible to agents and their customers. Our commercial property underwriting appetite is set on habitational and residential real estate. For habitational we seek well-managed apartments and 1-4 family rental dwellings. For commercial real estate we’re focused on lessor’s risks and mixed-use occupancies, shopping centers, strip malls, office buildings, warehouses and industrial parks. Our hospitality focus is on bed and breakfasts, motel & hotels, social clubs and fraternal organizations.
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This is what we know and do best, and is our forward focus. We’re committed to being a valuable resource for – and maintaining meaningful relationships with – our independent agent partners by providing exceptional property-driven insurance for building owners in Pennsylvania, Delaware, Maryland, DC, Virginia and Ohio. That commitment began with our founding in 1890 and holds just as true today. Our expert and seasoned underwriters – not a computer model – evaluate every opportunity. We give you personalized attention and a quick decision. Our approach is to work with you to find a creative underwriting solution to be able to tell the customer “yes.” All this is what we mean by “There’s More for you at Millers.” n
NOVEMBER 2015
FOCUSED ON RESULTS FEATURED PARTNER Millers Mutual Group CHIEF EXECUTIVE OFFICER Scott Orndorff President and CEO CORPORATE HEADQUARTERS Harrisburg, PA A.M. BEST RATING A- (Excellent)
PARTNERS PROGRAM
Listed below are those companies that strongly support the independent agency system and Insurance Agents & Brokers. Thank you for your continued sponsorship.
WHAT IS IA&B PARTNERS? 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.
PLATINUM LEVEL
BRONZE LEVEL
ACUITY
Aegis Security Insurance Co
Berkley Mid-Atlantic Group
Agency Insurance Company
Donegal Insurance Group
AmWINS Program Underwriters Inc
Erie Insurance Group
ARI Insurance Companies
Harleysville Insurance
Auto-Owners Insurance Company
Insurance Agents & Brokers Service Group Inc
Bailey Special Risks Inc
Liberty Mutual Insurance
Briar Creek Mutual Insurance Company
MMG Insurance Company
Conemaugh Valley Mutual Insurance Co
Millers Mutual Group
Countryway Insurance Company
Mutual Benefit Group
Encompass Insurance
Penn National Insurance
Foremost Insurance Group
Swiss Re
GMI Insurance
The Main Street America Group
Goodville Mutual Casualty Company
United Fire Group
Guard Insurance Group
Utica National Insurance Group
HM Workers’ Compensation
Brethren Mutual Insurance Company
Insurance Alliance of Central PA Inc
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.
GOLD LEVEL
Amerisafe Progressive Westfield Insurance
Insurance House Insurance Placement Facility of PA Keystone Insurers Group Inc Lackawanna Insurance Group Lebanon Valley Insurance Company Merchants Insurance Group
SILVER LEVEL
Mercury Casualty
Access Insurance Company
Millville Mutual Insurance Co
American Mining Insurance Co
PennPRIME Municipal Insurance
Cumberland Insurance Group
Reamstown Mutual Insurance Company
Farmers Mutual Insurance Company of Western Pennsylvania
Rockwood Casualty Insurance
Frederick Mutual Insurance Co Juniata Mutual Insurance Co
State Auto Mutual Insurance Company TAPCO Underwriters Inc The Motorists Insurance Group
MAPFRE Insurance
The Mutual Service Office Inc
PSBA Insurance Trust
Travelers
Selective
Tuscarora Wayne Group of Companies
The Philadelphia Contributionship
Zenith Insurance
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NOVEMBER 2015
AVOID AGENT E&O WHEN HANDLING PROBLEM CLAIMS By Brent Winans
Agents tend to consider themselves advocates for their customers during the claims process. But if they’re not careful, these agents could end up on the wrong end of a lawsuit themselves.
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M
ost agents tell their insureds that one of the prime benefits they provide for their clients is that they will advocate for them with the insurance company when there is a claim. So, I was surprised recently to hear advice from one of the nation’s leading providers of insurance agents’ errors and omissions (E&O) coverage that agents should be very careful about advocating for a client when there is a claim denial. Their bottom line was that agents need to take due precautions about when and how they advocate for their clients so they do not end up on the wrong end of a lawsuit themselves. As a result of that shift, I believe insureds may need to take more responsibility to advocate for themselves. THE DANGERS OF AGENTS TRYING TO BE COVERAGE ATTORNEYS Recently, a group of highly experienced agent E&O defense attorneys were asked what practices were most likely to result in an E&O claim against the agent. One of their top picks was, “Advocating in writing on behalf of the customer once a claim has been submitted and denied by the carrier.”
Once a final denial has been issued, agents need to be careful about turning up the heat on the insurance company because the goose they cook may be their own.
Why is that such a problem? Isn’t that just what good agents do for their clients? One defense attorney explained to me that if an agent writes a letter insisting that a claim should be paid and then the insurer successfully upholds its denial in court, the
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agent may have just demonstrated that he did not understand the policy he sold. The attorney for the insured can then use the agent’s letter as “Exhibit A” to prove that the agent misled the insured about the coverage he was buying. Here is an example that shows how that scenario might play out in real life. A friend of Ben’s had recently opened one of the increasingly popular indoor trampoline parks. After an extensive marketing effort, Ben was able to place the coverage with a leading excess and surplus lines insurer. Among several other exclusions, the policy contained one that deleted coverage for participants in organized teams. Not long after the policy was written, a 17-year-old boy suffered a paralyzing neck injury while playing trampoline dodge ball. It came to light that several churches in the area had organized a trampoline dodge ball league, and the boy was playing on one of them when he was injured. The insurer denied coverage based on the exclusion. Ben wrote a strongly worded letter to the insurer insisting that the claim should be covered since the “league” was not incorporated and was really just a bunch of church kids having a good time. The court found for the insurance company, reasoning that the policy unambiguously excluded participants in organized teams, whether their organizations were incorporated or not. The insured then sued Ben’s agency, alleging that Ben had misled him about the coverage provided, using Ben’s letter as evidence. As with many E&O cases, whether a client would be likely to win such a suit would be highly dependent on the state law that applied and the facts of the case, but a letter like Ben’s would rarely be helpful to an agent’s defense. A highly respected defense attorney told me, “I have been litigating coverage cases for decades, and I still cannot tell what a particular court will rule in a particular case. How can agents be so sure? During a claim, agents should provide information, facilitation, and communication, not try to make a coverage determination. And, if agents insist on doing so, they certainly should not do it in writing.” IF YOU CAN’T STAND THE HEAT, STAY OUT OF THE KITCHEN Agents should understand that anything they do that encourages an insured to sue its insurance company may increase the chances that the agent will be sued, too. A policyholder attorney explained it to me this way: Let’s say that the insurance company is based in New York, but my policyholder client is in Georgia. That situation is referred to as diversity of citizenship, since the two parties
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are based in two different states. If the amount of the claim is also over $75,000, those two factors usually make the case eligible to be heard in federal court. Attorneys know that federal judges are generally less likely to send a case to a jury than state judges. So the insurance company would usually try to have the case tried in federal court, since they often don’t want to face a jury, which is commonly propolicyholder. But because I do want to try the case in front of a jury, I want to keep the case in state court. If the agency is also located in Georgia, and I have a legitimate basis to bring the agency into the suit along with the insurance company, I have a better chance of keeping it in a Georgia state court. So, if I can reasonably bring the agent into the suit in that situation, I am going to. There is another danger to agents in raising their client’s dissatisfaction with an insurance company’s claim denial. In the course of the litigation against the insurance company, agent errors that were not discovered previously may come to light. For example, an agent believed that the insurance company was allocating too great a portion of the homeowners’ damages to flood and not enough to wind in a hurricane claim. That resulted in the insureds hitting their maximum flood limit of $250,000 on the dwelling. The agent made her case loudly, and the client sued the wind insurer. During the litigation, the clients learned that it would have been possible for them to have purchased excess flood insurance, a possibility they were unaware of and that the agent had never mentioned. As a result, the insureds brought a suit against the disbelieving agent for not advising them of the existence of excess flood coverage. As is discussed below, there are scenarios in which it is both generally safe and helpful for agents to advocate for their clients. However, once a final denial has been issued, agents need to be careful about turning up the heat on the insurance company because the goose they cook may be their own. FIGHTING THE GOOD FIGHT The above exceptions do not negate the rule that agents can provide their clients with much needed service and advocacy at claim time. REPORTING THE CLAIM In the 2013 Property Claims Satisfaction Study published by J.D. Power and Associates, they reported that satisfaction among home insurance claimants who filed through agents was 50 points higher than it was for those who filed claims directly with the insurance company. Jeremy Bowler, senior director of the insurance practice at J.D. Power and Associates, commented, “Especially during times of hardship when someone’s house has been destroyed or their valuable possessions have been lost, it’s
NOVEMBER 2015
ost there when it matters most there when it matters
Technology
At Donegal we understand that “ease of doing business” is vital in determining the value of a carrier to any independent agency. That’s why Donegal focuses on providing superior technology including fully automated web-based systems for Personal, Commercial and Farm Lines to give our agents optimal efficiency in quoting and issuing policies. And while we’re pleased to offer advanced technology equal to any of the national carriers, Donegal constantly strives to improve and enhance that technology. Donegal’s commitment to delivering superior technology to make your job easier… another way Donegal is “There When It Matters Most.”
To learn more visit www.donegalgroup.com or call Rick Kelley at 800-877-0600.
ASK OUR EXPERTS WHEN AN insurance company just plain gets it wrong, the author suggests that one remedy is to cite authoritative reference works and resources, including state agents’ associations “ask the expert” services. If you haven’t yet, be sure to check out our Ask Our Experts offering, available at IABforME. com. Our library of answers covers topics such as legal compliance and agency management, and coverage issues and technology. Plus, member agents are encouraged to submit their questions at any time. IABforME.com/about_us/ contact_us/ask_our_experts
difficult for a call center representative to replicate the personal relationship customers get with an agent.” Insureds that start the claim process with a clear understanding of what lies ahead and a sense that their agent will help them through are less likely to end up in litigation about their claim. Even if an agent talks the client through the process and then directs the client to a call center, the agent’s contribution may be pivotal. CORRECTING THE FACTS If the insurer’s claim denial is based on its mistaken understanding of the facts of the case, the agency can correct the record. KEEPING THE COMPANY FOCUSED At all stages of the claim process, agents can work to ensure that their clients are getting the attention they deserve. One agency manager commented, “Advocating for claims can be very good and very healthy. It normally takes the form of a call to the insurer saying, ‘Hey, you already said this is covered. Now hurry up and pay the people.’ I think insureds appreciate this, and it is very much inside our role as a good agent.” I agree. CITING THE EXPERTS Sometimes, the insurance company just gets it wrong. If the insurer is clearly misinterpreting the policy, citing authoritative reference works, such as those published by IRMI, can sometimes help them see the light. Different state and national agents’ associations also offer “ask the expert” services, which may help an agent convince a mistaken claims adjuster. But timing is key. The director of one such agents’ expert service says, “We have had a very successful experience in helping agents get claims paid that should be covered. The key is to get the insurer to reverse its initial denial before the attorneys get involved.” So, it is generally low risk for agents to advocate for clients on a claim before the attorneys get involved, humbly
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citing objective experts. (Something like, “I am not an attorney, but the IRMI Risk Report on this subject states....”) It is much more perilous for agents to advocate for their clients after the attorneys get involved, whether citing outside experts or not. If the advice about how and when agents can safely advocate for clients does not seem clear-cut, that is because it isn’t. These are litigious situations, in which the rules are seldom black and white. But the following may clarify the recommendations of defense counsel: Lower risk to agent – advocating: • Before a final claim denial – attorneys not involved • Quoting the opinions of industry experts • Verbally Higher risk to agent – advocating: • After a final claim denial – attorneys involved • Relying on the agent’s own opinions • In writing OBSERVATIONS FROM THE AGENT’S POINT OF VIEW The recommendation that agents should be careful about advocating for clients in a claim may run counter to what many agents believe is their responsibility. We know that those we depend to protect us—police, firefighters, soldiers—often put themselves in harm’s way for our sake. At times, agents advocating for their policyholders may see themselves in a similar role. Personally, that is the kind of attitude I want my agent to have. But just as firefighters should not rush into a burning building without adequate preparation and an understanding of the risks they face, agents should not rush into a problem claim without understanding the possible consequences to themselves. What nobody wants is a disillusioned Don Quixote who lies bleeding on the floor and says, “If I would have known what this was going to cost me, I would never have joined the fight.”
OBSERVATIONS FROM THE INSURED’S POINT OF VIEW Insureds who read this article may be surprised to see how their interests and their agents’ interests may sometimes differ at claim time. What does that mean to insureds? I believe it means that the insureds may want to have a conversation with an experienced policyholder attorney earlier than they otherwise would. If the claim may touch the agent as well, then that attorney should also be familiar with agent E&O claims. In my experience, policyholders are frequently represented by attorneys with little or no insurance coverage or agent E&O expertise. The attorneys are often chosen just because the insured happened to have a relationship with them at the time of the claim. They are not likely to represent the insured well and may bring unwarranted and alienating actions against both the insurance company and the agent. Even if the attorney is charging on a contingency basis, the enormous waste of time, energy and opportunity makes it well worth it for the insured to find counsel who knows the ropes. n
Brent Winans, vice president for Clear Advantage Risk Management, authored this article. He provides fee-based (no insurance sales) risk management consulting services to larger clients, provides technical support and training for insurance agents, and serves as an expert witness on both sides of agent errors and omissions cases across the country. He can be reached at bwinans@cleararm.com or 561-276-9158. Reproduced with permission of the publisher, International Risk Management Institute Inc., Dallas, Texas, from the Expert Commentary section of IRMI.com, copyright International Risk Management Institute Inc. Further reproduction prohibited. For more information or to schedule a free demo of IRMI products, visit www.IRMI.com.
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NOVEMBER 2015
AGENCY E&O COVERAGE FROM YOUR APPOINTED CARRIER
GOOD IDEA OR
RISKY BUSINESS? By David Hulcher
Carefully weigh the long-term implications of purchasing critical E&O coverage from the same carrier with which you place retail business.
W
here to place your E&O coverage is one of the most important decisions an agency makes. The protection offered by an E&O policy can be the difference between longterm prosperity or financial ruin.
Serving your customers and defending your agency from E&O claims are two very separate and distinct things.
In today’s marketplace, agents have many options of where to purchase their E&O coverage. For some agencies, one of those options may include purchasing E&O coverage directly from one of their appointed carriers. These carriers constantly solicit their appointed agents, enticing them with exclusive perks for placing their E&O coverage, such as points towards carrierincentive plans, reductions in deductibles for E&O claims involving placements with the appointed carrier, and E&O premiums credited towards overall production.
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THE AGENTS’ AGENCY FOR E&O COVERAGE PROTECT YOUR agency with a serious E&O program – not just a policy. When considering E&O protection, you can choose to work with an agency that fully understands your business – the Sales Center at Insurance Agents & Brokers. Our Sales Center is an independent agency just like yours. It’s staffed by licensed E&O experts who can customize coverage to meet your needs. But beyond that, the Sales Center is a full-service agency, helping to strengthen your business with award-winning loss-control seminars, manuals for compliance, and legal expertise for tough questions. In fact, you get the benefit of having an entire association of experts – dedicated to independent agents – on your side. IABforME.com/MyAgency
At face value it seems like a good deal since you’ve had a great, long-term relationship and have placed hundreds of customers with the appointed carrier. You trust them for your customers, they are highly rated, and they a have a great reputation for paying claims. But serving your customers and defending your agency from E&O claims are two very separate and distinct things. The line of what is best for the agency and best for the customer becomes blurred, and the two aren’t always the same. And what is best for the carrier and best for you may not be the same either. It’s seldom spoken of when this happens, but it’s always lurking in the background: conflict of interest. Here are some things to consider when evaluating placing your E&O coverage with a carrier which you are directly appointed with and place retail business with: AGENT VS. DIRECT On a daily basis the Big “I” promotes the value that insurance agents bring to their customers and helps position agents to compete against the direct writers of the world. You know the value you bring to customers, so don’t you want the benefit of an agent working on your behalf?
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Professional liability can be tricky, and just because you know the coverage needs of your customers doesn’t necessarily translate to knowing the marketplace for agents’ E&O. Big “I” state associations work closely with you to service your E&O needs. DAMAGING CARRIER RELATIONSHIPS The intrinsic value of agencies is their book of business and carrier appointments. You would hate for a disagreement on the handling of an E&O claim to strain the relationship with an important carrier and hamper the long-term accessibility of the market to serve customers. SHARING APPLICATION DATA E&O applications contain a large amount of sensitive information used to underwrite agencies, including premiums written by line of business, revenue, staff count, appointed carriers, and descriptions of office procedures. Some may even ask for a business plan. Will the E&O department of your appointed carrier keep this confidential, or is it shared with other retail lines of business? I would hope that the information in the E&O application is guaranteed confidential and not shared with other units of the carrier. Do you really want to chance it? Can you image the carrier’s field marketing representative hounding you for more business because of inside information? A “separation of church and state” is important in this case. RISING CARRIER CLAIMS AGAINST AGENTS E&O claims data revealing where claims are coming from and who is causing them generally doesn’t change a whole lot from year to year. There are micro-trends that are identified from time to time that help in developing targeted risk management materials. But the one very clear trend revealed in claims data over the past 10 years is an increase in carriers suing agents for mistakes that result in damages to the carrier. CONFLICT OF INTEREST The claims by carriers against agents also reveals something else: Once the carrier believes the agent is responsible for the E&O claim, all those years of a pleasant and profitable business relationship are quickly forgotten. The carrier only has one purpose in mind: making the agent pay the claim. So, if your E&O is with that same carrier, there is an immediate conflict of interest because under the E&O contract their sole duty is to defend the agency. But if they are also trying to lay blame on you, how can they in good conscience also
NOVEMBER 2015
defend you? It’s kind of mind-bending to think about, but what kind of defense are you going to get if the carrier is defending you from itself? PROTECTING YOUR AGENCY’S E&O CLAIMS HISTORY So many potential E&O incidents involve “he said, she said” accounts of the event involving an uncovered customer claim. What happens when the potential E&O incident occurs on a customer written with the appointed carrier? You know that you didn’t make a mistake, and the customer may be misrepresenting facts seeking to secure payment from your E&O policy. The appointed E&O carrier must make the decision to defend the agent or pay the retail customer’s underlying claim to appease them. Maybe they just decide to pay the loss as an E&O claim under your account because it is less expensive than defending it, taking advantage of your deductible and justifying potential future increases in your premiums. This will show up on the agent’s loss history and have a negative impact on your ability to shop your E&O coverage in the future.
You have a choice on where you place your E&O coverage, and these are just a few things to consider when making this very important decision. It seems safe and convenient to place coverage with an appointed carrier that you place retail business with, but at the end of the day is the potential risk really worth it? There are long-term, stable programs focusing strictly on the agents’ E&O class of business with an agency force specializing in serving agents, so why not minimize potential conflicts of interest before they may develop? n
David Hulcher, AVP of Agency Professional Liability Risk Management, Big “I” Advantage Inc., authored this article. opyright © 2013, Big “I” Advantage Inc. and C Westport Insurance Corporation. All rights reserved. Reprinted with permission from Big “I” Advantage.
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STAYING AFLOAT IN A SEA OF NFIP CHANGES
By M. Rita Hollada, CPCU, CIC, CPIA
Rapid-fire reforms to the NFIP have left even the most well-informed agents struggling to keep their heads above water. On the following pages, Rita Hollada shares a highlevel look at what’s new – and previews her revisions to our on-demand “Understanding the National Flood Insurance Program” training, set to launch in the new year.
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NOVEMBER 2015
C
hange seems to be the byword these days when it comes to the National Flood Insurance Program (NFIP.) After years of a predictable program with moderate rate increases and reasonably stable rules, recent legislation has flooded the program with changes. LEGISLATION TO REFORM … AND RE-REFORM The Biggert-Waters Flood Insurance Reform Act of 2012 (BW12) started the NFIP on the road of change. Everyone appreciated what Congress was trying to do: make the program actuarially sound and reduce the need to borrow from the Federal Treasury when catastrophe strikes. Unfortunately, the legislation was poorly structured, and the results were catastrophic to policyholders, property owners and agents alike. When that realization became evident, Congress quickly passed the Homeowners Flood Insurance Affordability Act of 2014 (HFIAA) to moderate BW12 and postpone some of its mandates. However, by reversing some of the rating changes, the program was left with a problem of how to fund some of the other measures of the legislation. That started us down the path of rate increases, fees, surcharges and assessments that are being felt by every policyholder. SUBSIDIZED RATES HFIAA brought with it some good changes. It reestablished subsidized rates for Pre-FIRM properties. This affects properties that were built prior to the flood program – most of them before 1974. These properties often have basements or lowest levels significantly lower than current published Base Flood Elevations. When rated using current mapping data, also referred to as full risk-based rates, many of these properties saw tenfold or larger premium increases. By continuing to subsidize these rates, which are still quite high, Congress acknowledges that these 40-year-old-plus structures need some financial consideration. These rates will continue to rise until the property reaches its full risk-based premium. Obviously, this is a situation that producers need to monitor continuously for the benefit of the insured. GRANDFATHERED RATES Grandfathering was also reinstated by HFIAA. This NFIP initiative allows structures to continue to be rated per the FEMA map in effect at the time of the original construction, as long as the structure was built in compliance with the flood zone and elevation of that map and not structurally altered since that time. However, if the new Base Flood Elevation and/or zone is advantageous to the insured, agents definitely want to use the new map information as the basis for rating.
But – and it is a big but – every Pre-FIRM and grandfathered structure does not receive the same pricing consideration under the legislation. Primary residences (where the insured or spouse reside 50 percent or more of the year) get lower rates than second homes, rentals, investment properties, non-residential buildings and businesses. The rate tables are now separated, with higher rates applying to buildings that are non-primary residences or non-residential business. SURCHARGES During early 2015, every residential property owner was required to document if the home was primary. New applications for flood insurance on a residential property must also be accompanied by this documentation. Without the documentation, the policy will be surcharged the $250 applicable to all structures instead of the $25 surcharge reserved for primary residences. These surcharges are known as the HFIAA surcharges. There are other surcharges as well that are applied to every policy, including the Preferred Risk Policy (PRP). The reserving surcharge is calculated as a percentage of the base premium. Currently the rate is 15 percent, with a reduced charge of 10 percent for PRP policies. The legislation authorizes this surcharge to increase to 30 percent. Preliminary notification from NFIP proposes that, effective April 1, 2016, the surcharge on the PRP policy be increased to 15 percent while other standard policies continue at 15 percent. These funds are used to establish a reserve fund against future losses. The third additional charge is applicable to all policies. This is the expense constant of $45 which is proposed to increase to $50 as of April 1, 2016. By the way, agents do not receive commission on any of these three additional charges. The surcharges are also non-refundable if a policy is cancelled. Surcharges are all in addition to the risk-based rates which will continue to rise annually at an average of 18 percent for residential and 25 percent for business risks. NEW REQUIREMENTS Beginning with the November 2015 renewal policies, the declaration page of the flood policy will also designate if a nonresidential building is business or other. Agents are being asked to make that distinction based on some examples. Mercantile, industrial, nursing homes, motels and agricultural buildings should be classified as business. Any non-profit building such as a church, community center, museum, school or government building is considered non-residential other. This information is being compiled in anticipation of future changes in the flood program. Be sure to classify your risks accurately and advise the flood servicing carrier if the use of the building changes.
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November will also introduce the revised NFIP flood insurance application and change request. The new application has many additional questions with regard to items and equipment in a basement and a crawl space as well as a garage. The application also requires that you note the current map information as well as the map information used for rating (grandfathering). Coming soon is a new Elevation Certificate with additional property information and photo requirements requested and additional illustrations of buildings. The Manual for agents will be updated with instructions to complete these forms.
3281 Summit Ad There are other changes affecting lenders and the write your own 7.25X4.625 companies as well. The bottom line is that everyone needs to PropMan stay aware and be mindful of the ever changing National Flood Insurance Program. n
Rita Hollada, CPCU, CIC, CPIA, has worked closely with the NFIP for over twenty years as a member of the Flood Insurance Producers National Committee. She is the author of our On-Demand “Understanding the National Flood Insurance Program” training, which she is in the process of updating to include recent changes. Rita often presents programs on the flood insurance topic.
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NOVEMBER 2015
CLASSIFIED A DV E R TI S E M E N TS
My Events
SOUTHEAST PA PRODUCERS & AGENCIES
November & December 2015 DATE TOPIC
LOCATION
NOVEMBER 3
CISR Elements of Risk Management
Philadelphia, PA
3
E&O Risk Mgmt.: Meeting the Challenge of Change
Bethlehem, PA
4
CISR Commercial Casualty II
Pittsburgh, PA
5
CISR Elements of Risk Management
Pittsburgh, PA
10
Business vs. Personal Auto
Newark, DE
10
William T. Hold: Writing Commercial Accounts
Baltimore, MD
10-12
Life & Health Licensing Study Course
Philadelphia, PA
11-14
CIC Commercial Casualty Institute
Hunt Valley, MD
16-17
James K. Ruble Graduate Seminar
Lancaster, PA
17
Business vs. Personal Auto
Baltimore, MD
17
CPIA Position for Success
Pittsburgh, PA
17
CISR Personal Residential
Waldorf, MD
17
CISR Commercial Property
Altoona, PA
18
Business vs. Personal Auto
Philadelphia, PA
18
CPIA Implement for Success
Pittsburgh, PA
18
CISR Personal Lines Miscellaneous
Reading, PA
19
CPIA Sustain Success
Pittsburgh, PA
19
CISR Personal Residential
Mechanicsburg, PA
Professional agency since 1926 located in Feasterville, Bucks County, Pa. Call for confidential information and a review of our services. Contact Ray Reinard at 215-357-8600, Ext. 119. If you would like to place a classified advertisement, please contact Laura Gaenzle at Laura.gaenzle@theygsgroup. com or (717) 430-2351.
DECEMBER 1
William T. Hold: Policy Language Surprises
Lancaster, PA
1-3
PA P&C Licensing Study Course
Mechanicsburg, PA
1-3
PA P&C Licensing Study Course
Pittsburgh, PA
2
E&O Risk Management: Meeting the Challenge of Change
Newark, DE
2-5
CIC Personal Lines Institute
Philadelphia, PA
8
CISR Commercial Casualty II
Philadelphia, PA
8
Business vs. Personal Auto
Pittsburgh, PA
9
CISR Commercial Property
Mechanicsburg, PA
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