Tn summer2016 by PIA of Tennessee

wArd-winning A 

Summer 2016 • Tennessee edition

Page 16

InnovatIon economy, market condItIon Get the scoop here

InsIde thIs Issue 9

Home sharing, risk sharing

Insurance and estate plans And more …

Stepping Forward to Serve Clients MidSouth Mutual has provided quality Workersâ&#x20AC;&#x2122; Compensation insurance and services to agents and their clients since 1995. Every step of the way, the company has moved forward to provide exceptional service and expanded coverage areas across the Southeast.

MidSouth Mutual provides strength, reliability and value to agents and their clients through quality products, forward-leaning loss control and superior claims services.

Examples of clients we serve include: HVAC Contractors

Bricklayers

Carpenters

Masonry

Building Suppliers

Electricians

Framers

Insulation

Dozing Services

Plumbers

Dry Wallers

Cabinetry

Road Contractors

Painters

Landscapers

Flooring

MidSouth Mutual provides insurance to customers in Tennessee, Georgia, Arkansas, Mississippi, Alabama, Kentucky and North Carolina.

Contact Tom Perez at tom.perez@bwood.com or 615-379-8245 www.midsouthmutual.com midsouthmutual.

Departments Summer 2016 • Tennessee edition

04 In brief 09 Tech 13 Case law 25 E&O 28 Readers’ service and advertising index 29 Officers and directors directory

Cover story 16 The innovation economy and market consolidation Get the scoop here

Feature 21 Estate plans in today’s changing environment How insurance can enhance these plans

Statements of fact and opinion in PIA magazine are the responsibility of the authors alone and do not imply an opinion on the part of the officers or the members of the Professional Insurance Agents. Participation in PIA events, activities, and/or publications is available on a nondiscriminatory basis and does not reflect PIA endorsement of the products and/or services. President and CEO of PIA Management Services Inc. Mark LaLonde, CPIA, CIC, AAI; Executive Director Kelly K. Norris, CAE; Communication Director Mary E. Christiano; Senior Magazine Designer Sue Jacobsen; Member Information Manager Jaye Czupryna. Postmaster: Send address changes to: Professional Insurance Agents of Tennessee, 504 Autum Springs Court, Suite A-2, Franklin, TN 37067. “Professional Insurance Agents” is published quarterly by PIA Management Services Inc. PIA Management Services, 25 Chamberlain St., P.O. Box 997, Glenmont, NY 12077-0997; (518) 434-3111 or toll-free (800) 424-4244; email pia@pia.org. ©2016 Professional Insurance Agents. All rights reserved. No material within this publication may be reproduced—in whole or in part—without the express written consent of the publisher.

Cover design Roberta Lawrence

In brief

platinum partner profile

AMERISAFE DeRidder, Louisiana

Philosophy

www.amerisafe.com

AMERISAFE writes business in 27 states.

Senior executives Ed Ennis, VP of sales

Tennessee staff Hayley LeBlanc, Tennessee marketing associate Jarred Waters, territory sales manager

History AMERISAFE, which was established in DeRidder, La., in 1986, is a specialty provider of Workers’ Comp Insurance focused on small- to mid-sized employers in hazardous industries. AMERISAFE has grown to focus on a wide range of hazardous occupations in more than 27 states. The company has demonstrated expertise in underwriting the complex workers’ compensation exposures inherent in its targeted industries: construction, trucking, agriculture, logging and wood products, oil and gas, maritime, aggregates and manufacturing.

According to AMERISAFE: “We know that hazardous industry employers face unique challenges and tend to have less, but more severe, claims compared to employers in other industries. We employ a proactive, disciplined approach in underwriting our policies. Due to our specialization in hazardous industries, we understand the unique risks our clients face in the workplace. That understanding aids us in providing comprehensive services that lessen the overall incidence and cost of workplace injuries. “We provide safety services at employers’ workplaces as a vital component of our underwriting process. Our field safety professionals visit our client’s work sites to offer assistance in making the workplace safer. As specialists in hazardous occupations, these safety professionals can offer unique insight into workplace safety that helps to lessen the overall incidence and cost of workplace injuries. Accidents occur in even the best-managed hazardous industry operation, and AMERISAFE is prepared for those circumstances. We utilize intensive claims management practices that we believe permit us to reduce the overall cost of workers’ compensation claims. Our field case managers carry low claims workloads to allow them to provide our insured employers and their injured workers with highly personalized service that facilitates prompt resolution of claims.”

Professional Insurance Agents magazine

platinum partner profile

CMS Insurance Service Inc. Ripley, West Virginia

Insurance was born and a unique philosophy was created out of need within their own agency. The “CMS philosophy,” coupled with a strong desire to help other independent agents, has made CMS what it is today.

www.cmsinsurance.net

Philosophy

CMS Insurance Service Inc. writes business in Tennessee, Kentucky, West Virginia, Indiana and Montana.

According to CMS Insurance: “Our mission is to help support and perpetuate the independent agency system in a manner consistent with principles based on fairness and integrity. We are committed to the growth and retention of the family-owned independent agency. “We are a general agency; however, we are not a broker. We partner with agencies to provide markets whereby you are the agent and you own your book of business. It is important to distinguish that anyone can ‘provide markets,’ but it’s how we do business at CMS that makes us different— our unique philosophy and straight-forward approach to compensation is what truly sets us apart. In addition to providing markets, we offer the following specialized programs: commercial consulting; performance-based compensation (for agency owners); and agency perpetuation and other related programs targeting profitability/ growth/stability.

Senior executives Conn Johnson, CEO Mark Johnson, president/COO

Tennessee staff Tyler Siddens, regional marketing manager (270) 991-3994 tyler@cmsinsurance.net

History Conn and Joyce Johnson began an independent insurance agency—Johnson Insurance Agency—in a small town in West Virginia more than 40 years ago. Johnson Insurance is a family-owned agency that was created from the ground up. The knowledge and perspective gained from these “real-world-insurance” experiences provided the inspiration for CMS Insurance Service Inc. Conn and Joyce understood the real challenges and true needs surrounding the independent agency system; thus, CMS

“Whether you are competing with the agency down the street; looking for additional markets; searching for ways to compete in an ever-changing marketplace or just trying to become more profitable, we can help you with our unique system of programs designed specifically for the independent agent. We’ve been helping independent agents, just like you, for more than 30 years! We are proud to be family-owned and proud of what we strive to represent—give us the opportunity to help your agency and let us demonstrate what makes us different.”

“Our agency has enjoyed doing business with CMS for the past nine years. As an agent, it is comforting to do business with an honest, reliable and family-oriented company. CMS understands the needs of agents … We are thankful for our business partnership with CMS.”—Gina Tynes-Hocker, agent, Family Insurance

www.piaTN.COM

platinum partner profile

Cornerstone National Insurance Columbia, Missouri

Philosophy

(573) 817-2481

“The Cornerstone mission statement is, ‘Our foundation is you.’ As such, we pride ourselves on having a friendly and knowledgeable team that truly enjoys regularly finding increased efficiencies. When working with Cornerstone, expect a carrier that is continually becoming one of the strongest partners in your agency.

www.CornerstoneNational.com

Cornerstone National Insurance writes business in Missouri, Kansas, Oklahoma, Illinois, Indiana, Arkansas, Alabama, Tennessee, South Carolina and soon Virginia.

Senior executives William Wheeler, CEO Roger Walker, COO Sidney Neate, national sales director

“Cornerstone prides itself on offering wonderful incentive programs to agency partners, including profitabilitybased contingency bonuses; higher commission percentages; unparalleled claims service; a faster quoting and binding system with data prefill; and a supportive underwriting team. Agents interested in information or potential appointment should go to cornerstonenational.com. We look forward to your helping us drive insureds back to preferred today!”

Appetite

Tennessee staff Don Ellis, CPCU, CIC, West Tennessee VP agency relations DEllis@CornerstoneNational.com (501) 400-3570 Robert Ream, East Tennessee sales manager RReam@CornerstoneNational.com (864) 884-1277 Sidney Neate, national sales director (for central and northern Tennessee) Sidney.Neate@CornerstoneNational.com

History

Cornerstone National Insurance is a preferred auto insurance carrier for nonpreferred drivers. The Rate Recovery Plan drives insureds back to where they want to be. Cornerstone accepts drivers without prior insurance or those with slight motor-vehicle report issues by offering a monoline personal auto product that specializes in 25/50 or 50/100 limits. It guarantees a 6-8 percent discount upon every six-month renewal for three years to drivers who maintain favorable payment and claim activity. These discounts are accompanied by the opportunity for insureds to regain their coverage tier to the preferred status of 100/300 limits at their annual renewal. All Rate Recovery Plan policies include: roadside assistance, even for liability-only policies. With the Rate Recovery Plan, Cornerstone agents see 75-80 percent retention levels.

Cornerstone National Insurance, a Missouri-headquartered personal auto company is has been serving the independent agency network throughout the Midwest since 1997 and has an agency network of more than 800. Cornerstone expanded its Rate Recovery Plan to Tennessee during the fourth quarter of 2015.

Professional Insurance Agents magazine

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What is the PIA/Penn National Insurance agents’ umbrella program? Written by agents for agents. ■

Comprehensive excess insurance protection

■

Packaged in one easy-to-manage policy

■

Affordable rates

Coverage

Payment Plans & Fees

Coverage limits (higher limits may be available)

Flexible payment plans for any policy

■ Up to $10 million for commercial and professional liability

■ Full payment (no installments)

■ Up to $5 million for personal exposures of owners and officers

Core Coverage ■ Business operations — broadened coverage and excess limits protection for agent/agency’s business and employees for liability incurred as a result of normal business activities. Policy provides coverage over an agency’s commercial general liability or businessowners, employers liability and commercial auto.

Key Features

Coverage features

■ Excess over underlying E&O

■ Personal injury

■ Personal umbrella coverage for owners, partners and officers, including members of their families. Sub-limit does not affect total limit.

■ Libel, slander and advertising offense

■ Employment practices liability providing excess limits on a following-form basis. Sub-limit does not affect total limit. ■ Excess over business coverage ■ Defense coverage outside policy limits ■ Affordable minimum premiums for 9 employees or fewer ■ One source for all excess coverages ■ Blanket protection for most risks ■ Flexibility to meet the needs of any agent, including flexible pay plans

Rating ■ Staff rating for agencies with 9 or fewer employees ■ Excess rated for agencies with 10+ employees or special acceptance categories ■ Refer to state rate pages

■ First-dollar legal defense provided for claims not covered by underlying insurance ■ Professional liability — excess limits protection on a following-form basis for errors and omissions in the course of the agency’s business as an insurance professional. Coverage can be written over occurrence or claims-made forms of a variety of primary E&O carriers.

Coverage features on a following-form basis ■ Full prior-acts coverage ■ Covers any person acting in a capacity as a real estate agent or notary. ■ Options unique to this program: • Personal coverage — broadened and excess personal protection for owners, partners and officers, including members of their families. (Submit ACORD Personal Umbrella Application.) • Employment practices liability — excess limits protection for liability incurred by named insured or employees for wrongful employment practices. Coverage can be written on a claims-made basis over a number of approved EPL carriers. Maximum available as a sub-limit is $2 million. (Submit a copy of underlying EPL application.)

■ Two payments — 50% down, one installment of 50% due three months later ■ 40/30/30 — 40% down, two installments of 30% each due every other month ■ Quarterly — 25% down, three installments of 25% each due quarterly ■ Monthly — 20% down, five installments of 16% each due monthly

Available payment plans by premium level ■ Premium up to $1,000 — full payment or two payments ■ Premium of $1,001 to $5,000 — full payment, two payments, 40/30/30 or quarterly ■ Premium greater than $5,000 — any payment option

Applicable fees ■ Service fees: No service fee will be added to the initial payment. A $4 service fee will be added to each installment billing.

Home sharing means risk sharing Many types of innkeeper businesses have been in operation since the beginning of time. But, you don’t have to run a business to share your home with someone. It’s not uncommon for people from different parts of the country or world to trade homes with one another for their vacations. Saratoga Springs, N.Y. (in my vicinity) is home to the Saratoga Race Course, where the horse-racing season runs eight weeks in late summer. Many homeowners rent their homes to racing fans during this season while they go to Cape Cod on vacation. Cape Cod or Saratoga Springs, how can you lose? Home-sharing network companies (e.g., Airbnb and HomeAway) take the traditional bed-and-breakfast concept to a new level of opportunity for the more casual host. Accommodations can range from the host simply offering

a bed to a guest for the night, to renting the entire house for a week. Nevertheless, the exposures are very similar to B&B operations.

Tech

dan corbin, cpcu, cic, lutc PIA Management Services’ director of research

While the standard homeowners policy may provide limited coverage, typically the homeowner is going to want broader protection than a homeowners policy, depending on the financial risk involved. In fact, the Insurance Services Office Inc. recently filed an Advisory Notice

There can be no doubt that all our knowledge begins with experience. – Immanuel Kant Policies are underwritten by Bridgeﬁeld Casualty Insurance Company and Bridgeﬁeld Employers Insurance Company, authorized insurers in AL, AR, FL, KY, GA, MS, LA, NC, SC, and TN; BusinessFirst Insurance Company, authorized in FL, GA, KY, NC, SC and TN. ©2015 Summit Consulting LLC | 2310 Commerce Point Drive, Lakeland, FL 33801

www.piaTN.COM

To Policyholders Regarding Home-Sharing Services (HO P 063 10 15) that insurers can use to inform their policyholders about homeowners policy limitations and exclusions applicable to these services. The following discussion is strictly an ISO homeowners coverage analysis. However, it may get overshadowed by the insurer’s underwriting appetite. Some insurers will avoid providing policies to homeowners who host guests through HNCs, due to the extraordinary exposures involved with this activity. It may take some time for underwriters to get comfortable with insuring this hobby-style of risk, in which the customary business acumen may be lacking. Coverage A–Dwelling There is no business restriction applicable to the dwelling, provided this is where the named insured resides. This includes the rental of a room or apartment contained within the dwelling. Coverage B–Other Structures On the other hand, there is a business restriction for other structures. There is no coverage if they are held for the lodging of renters. 1. We cover other structures on the “residence premises” set apart from the dwelling by clear space. This includes structures connected to the dwelling by only a fence, utility line or similar connection. 2. We do not cover: b. Other structures rented or held for rental to any person not a tenant of the dwelling, unless used solely as a private garage Property coverage for a scheduled structure located on the “residence premises” that is rented to someone as a private residence can be added using the Structures Rented To Others (HO 04 40) endorsement. Coverage C–Personal Property There is no coverage for the property of guests. 4. Property Not Covered We do not cover: f. Property of roomers, boarders and other tenants, except property of roomers and boarders related to an “insured” However, the host’s furnishings in a room rented in the home remain covered as personal property, but there is no coverage for theft if they are insured under the Homeowners 3–Special Form. One of the many advantages of being insured under the Homeowners 5–Comprehensive Form is that theft of the host’s property is not excluded. Except for what is provided under the additional coverage of 10. Landlord’s Furnishings, there is no coverage for any personal property in an apartment, whether belonging to the insured host or the guest. Landlords Furnishings has a $2,500 sublimit (which can be increased), but there is no coverage for theft (due to its vulnerability). 4. Property Not Covered We do not cover: g. Property in an apartment regularly rented or held for rental to others by an “insured,” except as provided in E.10. Landlord’s Furnishings under Section I—Property Coverages 1

Professional Insurance Agents magazine

Coverage D–Loss Of Use There is coverage for rental income lost because of damage to the dwelling from a covered cause of loss. If another structure on the premises is scheduled under the Structures Rented To Others (HO 04 40) endorsement, its rental income also will be covered. 2. Fair Rental Value If a loss covered under Section I makes that part of the “residence premises” rented to others or held for rental by you not fit to live in, we cover the fair rental value of such premises less any expenses that do not continue while it is not fit to live in. As you can see, homeowners property coverage is dependent on the type of property loss, location of that property and the circumstances of the renter’s occupancy. Coverage E–Personal Liability And Coverage F– Medical Payments To Others Liability and medical payments coverages also are dependent on the circumstances of rental. Part of the insured’s dwelling can be rented all year as long as there are no more than two roomers or boarders. However, when renting the entire home or other structures, coverage is restricted to “occasional” rentals, which is not defined in the policy. Coverages E and F do not apply to the following: 2. “Business”

a. “Bodily injury” or “property damage” arising out of or in connection with a “business” conducted from an “insured location” or engaged in by an “insured,” whether or not the “business” is owned or operated by an “insured” or employs an “insured.”

This Exclusion E.2. applies but is not limited to an act or omission, regardless of its nature or circumstance, involving a service or duty rendered, promised, owed or implied to be provided because of the nature of the “business.”

b. This Exclusion E.2. does not apply to:

(1) The rental or holding for rental of an “insured location;”

(a) On an occasional basis if used only as a residence;

(b) In part for use only as a residence, unless a single-family unit is intended for use by the occupying family to lodge more than two roomers or boarders

Agency

E&O

Liability coverage for a scheduled structure located on the “residence premises” that is rented to someone as a private residence can be added using the Structures Rented To Others (HO 04 40) endorsement. Once again, homeowners liability coverage is contingent upon the specific circumstances of the rental. Given that HNC lodging arrangements can result in many different scenarios, it would be advantageous for the homeowners policy to encompass them all by some sort of endorsement to ensure protection for the homeowner. ISO has stated that it is developing a home-sharing exclusion endorsement and a home-sharing coverage option endorsement. Of course, there will be times when a homeowners policy is the wrong type of policy, when the circumstances may call for a dwelling policy or a businessowners policy. There may even be a need for workers’ compensation insurance to cover part-time or full-time employees.

has a market for your agency and specific risk

has a m agency a

HNC protection Finally, we can’t forget to factor in the insurance provided by the HNCs. For example, the Airbnb Host Protection Coverage (airbnb.com/host-protectioninsurance) provides the host primary liability insurance with limits up to $1 million per occurrence. The Airbnb Host Guarantee (airbnb.com/guarantee) will reimburse hosts up to $1 million for damage to their property caused by guests. The guarantee is not insurance and it is subject to many conditions and exclusions.

Conclusion Your clients need to know that home sharing is not just a financial opportunity, but financial risk will tag along with the guests when they step into the host’s home. This emerging trend in home sharing will need to be observed closely by the professional, independent insurance agent for underwriting and coverage developments. Includes copyrighted material of Insurance Services Office Inc. with its permission. Copyright, Insurance Services Office Inc. 2010 [emphasis added].

Contact Kristopher Fisher 800-875-7428

www.piATN.COM

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The duty to advise: Anything new? Now that the presidential election season is upon us, talking heads inundate cable news comparing voting patterns and voters’ concerns among the people in our 50 states. It brings to mind that when you cross a state line, you enter a different jurisdiction with different rules under the law that can impact whether one can be held liable to others for certain conduct and the extent of potential liability. In this column, consistent with the theme of our federal system, we thought that it might be helpful to do a quick summary of some recent case law in the various states of our readership, including Tennessee, on the issue of the advisory duty of an insurance producer and the so-called special relationship.

The Tennessee approach The first state on our survey is Tennessee. In a 2014 case,1 a couple was insured with the same agent for 20-25 years. According to the insureds’ allegations, they never determined their limits of liability on their homeowners or automobile insurance policies. The insureds contended that the agent selected the limits for them throughout the term of their relationship. Important to the instant case, the agent never advised them to procure an umbrella liability insurance policy. While driving their car, the couple’s son struck and killed a motorcyclist. Unfortunately, the couple only had liability limits of $100,000 per person and $300,000 per accident. The claim by the estate of the motorcyclist was settled for $200,000 leaving a coverage gap for the couple of $100,000. Originally, the trial court granted the agent and the insurer summary judgment dismissing the couple’s claims. On appeal, the appellate court held that there was a question of fact regarding the existence of a special relationship based upon the alleged assumption of duty by the agent (i.e., the selection of coverage limits for the insureds).

Running with the bulls In a recent New York case,2 an insured was engaged in the business of putting on rodeos. In connection with the rodeo business, the insured owned bulls and other animals, as well as trucks and trailers used to haul the animals. At the conclusion of a rodeo, four bulls escaped from a group that was being moved from a holding pen through a series of gates for loading onto the trailers. During their freedom, several rodeo bystanders were injured and they filed lawsuits against the insured. www.piATN.COM

Customarily, the insured contacted his insurance broker before each show and the broker obtained an event policy for the rodeo and issued a certificate of insurance for the event. The rodeo that is the subject of the claim was in Pennsylvania and the insurer that insured the previous rodeos did not insure events in that state. Therefore, the broker placed the coverage with a different insurer that the broker believed would afford coverage equivalent to the one provided by the prior insurer for previous rodeos. When the claim for injuries caused by the bulls was submitted, it was determined that the policy contained exclusions for bodily injury caused by animals and an exclusion for injuries arising from the loading and unloading of an automobile.

case law

robert m. sullivan, esq. Senior partner, Sullivan & Klein, LLP

In addition to the event coverage, the insured had commercial auto coverage, which would have covered loading and unloading of a vehicle, but the insured never listed the trailer on the policy. In addition, for this particular rodeo, the insured borrowed the truck used to haul the trailer rather than utilizing his own vehicle. The commercial auto insurer also denied liability because the trailer was not scheduled and the truck being loaded and unloaded was not the insured’s vehicle. The broker moved to dismiss the action in the trial court and the 1

motion was granted. The trial court held that any negligence on the part of the broker in obtaining an event policy with an animal exclusion, was not the cause of the insured’s lack of coverage, as coverage under the event policy would have been excluded in any event under the auto exclusion. However, the appellate court reversed the trial court’s decision based on allegations the broker failed to advise the insured of the potential gap in coverage covered by the auto exclusion in the event policy.

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Professional Insurance Agents magazine

In its decision, the appellate court detailed the testimony of the insured who testified that he relied upon the broker’s expertise in procuring coverage and he was never provided with copies of his policies, only the certificates of insurance. The appellate court also relied on testimony by the insured that he was never advised of the need to schedule the trailers on his covered auto policy, believing coverage on the truck itself was sufficient.

The Jersey view In a New Jersey case,3 the court needed to determine whether an insurance broker was obligated under New Jersey law to advise an insured to obtain specific limits of property insurance on a homeowners policy. According to the testimony considered by the court in its decision, the insured contacted the broker to obtain coverage on a small beach bungalow when she was advised that her incumbent policy would not be renewed. The broker obtained underwriting information regarding the square footage of the property; the date of construction; and some of the features of the home. The insured provided incorrect answers to most of the underwriting information and the broker obtained a policy based upon that information.

The home was damaged severely in a fire and the cost to repair the home exceeded the limit of property coverage under the policy. The trial court dismissed the complaint against the broker and the insured appealed. In its decision, the appellate court discussed at length New Jersey law concerning the common law duty of an insurance producer and the extent to which an insurance producer is obligated to advise an insured regarding limits of coverage. In rejecting the imposition of an enhanced duty upon the broker to undertake all inspection and provide a value for the property, the court held: “… the broker in Aden4 was requested to perform a specific task and failed to do so. The negligence triggered liability. Generally, an insurance broker has no duty to establish the replacement value of property and here, defendant was never tasked with doing so5 …” [emphasis added]

New England In our survey, we did not come upon any useful cases of recent vintage in either New Hampshire or Connecticut. However, based upon an overview of older cases, the general approach of the courts in both states, in our view, would be in line with the treatment by the courts of the fact patterns presented in Tennessee, New York and New Jersey.6

insurance coverage. What is clear is that the existence of a “special relationship” is a fact-specific inquiry, unique to each case. In the Tennessee case, the court found that there was evidence of an undertaking by the insurance agent to fix the limits of the insureds’ coverage and attendant reliance by the insured, thereby giving rise to a “special relationship” and enhanced duty of care. In contrast, in the New Jersey case, evidence of such an undertaking and reliance was absent. In the New York case, although the court discussed the concept of special relationship in the conduct of determining an advisory duty on the part of the broker, we wonder whether the court was more influenced by the fact that the insured’s request for event coverage (and its unique characteristics) was a specific request made by the insured for coverage; which the broker failed to obtain, thereby breaching the common law duty to obtain requested coverage.

Recommendations Here are a few considerations for avoiding errors-and-omissions claims based upon the principles set forth in our surveyed cases: First, avoid undertaking the task of valuing an insured’s property or fixing the limits of coverage. These are best left to the insured or, if done in consultation with the insured, confirm the insured’s election of coverage. If you undertake the task, for example, to provide a limit for proper coverage on property or business interruption, be sure you know what you are doing and be right. In this instance, if you “break it, you take it” (i.e., you just bought yourself an exposure). Second, if tasked with placing unique coverage such as the event coverage discussed in the New York case, ensure that you understand the insured’s unique request and confirm that the product placed is responsive to the insured’s requests. In conclusion, the recent case law surveyed indicates there is nothing new in the law regarding the legal duty of an agent or broker. Sullivan is senior partner of Sullivan & Klein, LLP. He can be reached at (212) 695-0910. See Barrick v. State Farm Mutual Automobile Insurance Co., (Ct. App.) 2014 WL 2970466 1

See Finch v. Steve Cardell Agency, 136 A.D.3d 1198, 25 N.Y.S.3d 441 (3rd Dept., 2016) 2

See Duffy v. Certain Underwriters at Lloyd’s Subscribing to Policy No. 09ASC185004 (App. Div.) 2014 WL 3557861

Analysis In comparing the decisions of the courts in our three featured cases, the common thread running through each is whether there exists a so-called “special relationship” giving rise to an enhanced duty to advise an insured regarding their

See Aden v. Fortsh, 169 N.J. 64, 776 A.2d 792 (2001) (Aden is New Jersey’s seminal case regarding the common law duty of an insurance broker) 4

See Duffy, supra, at 2014 WL 3557861 at p. 8

See Sintros v. Hamon, 148 N.H. 478, 810 A.2d 553 (2002) (New Hampshire); O&G Industries Inc. v. Litchfield Insurance Group Inc., 2013 WL 3871341 (Superior Ct., 2013)

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Professional Insurance Agents magazine

Dax Craig CEO and President, Valen Analytics

The innovation economy and market consolidation Get the scoop here

he insurance industry has faced market shifts in the past, but never to the scale we see today. At the same time insurance continues to deal with consolidation, the industry is facing disruption from outside forces that attempt to take what theyâ&#x20AC;&#x2122;ve learned about the consumer in other industries and apply it to ours. The conventional wisdom that has steered the market for over a hundred years is being challenged by a new reality: All companies are becoming tech companies.

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Many of the businesses that we see climbing our economy (e.g., Uber, Airbnb and Facebook), have one thing in common: They connect people instead of sell products. For insurance to stay competitive amidst this disruption, independent insurance agents need to become advocates for the data-driven approach and understand the market behavior that underscores tech companies.

Majority, Facebook and Google collectively own more than 68 percent of the global mobile-advertising market share as of 2014. From 2012-14, Facebook advertisingmarket share shifted from 5.4 percent to a whopping 21.7 percent. These are a few examples of the kind of growth tech companies can bring to the insurance industry. They aren’t just companies, they are “change agents.”

Innovation economy

Internally, the insurance market also faces consolidation, accelerated by the disparity between carriers that are data-driven and those that are not. The personal-lines market has experienced this for a while—more than 70 percent of market share now belongs to the Top 10 companies. Unsurprisingly, analytics use was pervasive first in personal lines, and much of the consolidation happened when carriers such as Progressive pioneered the use of data and analytics to price personal-auto risks more efficiently and accurately. Now, the commercial-lines market is showing strong indicators of a similar market shift (Table 1).

Why do we need to become data-driven? To put it bluntly, insurance is losing the battle for customer experience and satisfaction. According to a Comscore 2013 online auto insurance shopping report, traditional insurance is not meeting expectations: 68 percent of 18-34 year-olds are seriously considering changes to their auto insurance policy and 85 percent believe they can save if they compare prices. This well-known problem is the catalyst for why companies like Zenefits, Google Compare and most recently, Lemonade, have been interested in the industry. It also is an indicator as to why insurance tech investment has never been higher ($2.65 billion in 2015, according to CB Insights). When tech companies catch the scent of an industry that is ripe for disruption, it typically doesn’t wane. A study from Silicon Valley Bank shows that tech innovators often are aggressive when they see a particular business climate has large growth potential. However, there is plenty of room for agents and carriers to adapt and continue to have success in this industry moving forward. The recent announcement that Google Compare is terminating its services, despite its initial heavy growth expectations, is a testament that progression won’t move as fast or seamlessly for these companies as perhaps expected. In this same vein, the CEO of Zenefits, an online insurance broker once valued at $4.5 billion, stepped down due to compliance issues (i.e., allowing unlicensed agents to broker deals). However, this does not mean these companies won’t break into the insurance industry eventually. Today’s industry leaders were not first to market. For example, Google was not the first search engine, nor will it be the last, but it perfected change and innovation in a way that blew the competition out of the water.

Market consolidation The “Big 4” tech giants (Amazon, Google, Apple and Facebook) are consolidating industries all around them. E-commerce, consumer electronics, social media and advertising are just a few of the bigger niches affected by these tech giants. According to a report by The Mobile 1

Table 1. Growth in workers’ compensation net written premium by company Company

2014 net Percent change written since 2009

1 Travelers

3,840

52.4

2 The Hartford

3,012

28.2

3 AIG

2,436

-32.2

4 Liberty Mutual

2,236

-44.7

5 Berkshire Hathaway

1,742

408.5

1,511

21.1

7 Texas Mutual

1,176

84.7

8 Chubb

1,109

55.1

9 W.R. Berkley

1,085

93.1

10 Zurich American

1,033

20.0

6 State Compensation Insurance Fund

Source: SNL Financial, Fitch Ratings

The companies that found the most significant growth between 2009-14 (e.g., Travelers and Berkshire Hathaway), are well-known for their holistic use of analytics. Of course, many factors drive whether an overall line of business is profitable in any given year. Still, it’s no coincidence that as carriers became more data-driven in commercial lines, workers’ compensation became profitable for the first time since 2006. Adding to this effect is the continued growth of mergers and acquisitions,

Professional Insurance Agents magazine

which saw an incredible 61 percent year-over-year increase in the U.S., according to a report by Clyde & Co.

Agents are the leading roles As the face of the carrier, agents have the ability to remain an asset as long as they learn to cater to this new generation of consumer. Recent research conducted by PIA National finds that small-business owners prefer working with independent insurance agents in today’s insurance environment, but ones who are using the Internet and technology need to be more efficient communicators. Today, consumers expect more engaged, immediate interactions and to provide this, agents need to work with carriers that have the technology to offer the most competitive prices, especially during a time when price-comparison sites continue

to flourish. This involves collaborating with data-driven carriers in a more hands-on manner. Predictive analytics not only help the carrier, they significantly help the agent as well. In addition to allowing underwriters a more accurate and full view of the market and risks associated with each policy, they also greatly improve efficiency, including the communication and response times between agents and carriers. Predictive analytics are tools that empower underwriters to minimize the amount of policy touchpoints on the fringe of carriers’ appetite, which helps agents spend more time on profitable business. Our research has shown that the winning combination of profitability for an insurer includes predictive models and underwriter expertise, which is great news for agents, since underwriters

depend on them for a street-level view of the market. Many of the recent innovations in the insurance industry have placed agents on the knife’s edge of the industry. However, learning from other industries how customers expect to be engaged and paying attention to the carriers that will empower agents to promote a better customer experience to their clients, is essential for remaining competitive as the industry continues to shift. Craig is the co-founder, CEO and president of Valen Analytics, a provider of proprietary data, analytics, and predictive modeling for property/ casualty insurers. Valen leverages its large contributory data assets to help carriers price insurance policies more accurately and achieve lower loss ratios. He can be reached at dax.craig@valen.com.

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110297 4/16

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michael j. greenberg, esq. Attorney, Keane & Beane, P.C.

Estate plans in today’s changing environment How insurance can enhance these plans

Some professional, independent insurance agents are under the impression that insurance policies and estate-planning documents (e.g., wills and trusts) are separate parts of personal planning. In fact, a comprehensive estate plan often integrates insurance products to maximize tax savings; protect government benefits; and provide for loved ones. This article discusses three recent market trends (1. Life-insurance trusts for estate tax minimization and business-succession planning; 2. Long-term care insurance and asset protection planning; and 3. Second-to-die life insurance policies for special needs planning), and example cases of how estate-planning documents and insurance can be used together.

Life-insurance trusts A recent national trend is for states either to eliminate their estate tax or to increase the exemption level (the higher the exemption amount, the fewer estates subject to tax). Meanwhile, the federal exemption level is currently $5.45 million and is increasing every year based on inflation. This trend means that fewer people will be responsible for paying either state or federal estate taxes in the future.

However, for families with taxable estates above either the state or federal level (or both), developing an estate plan to decrease or minimize the hit of such taxes is still a major concern. In order to pay these taxes, beneficiaries of an estate could be forced to sell assets of the estate. Life insurance within an irrevocable life-insurance trust would help pay for, or avoid, estate taxes and avoid forcing family members from having to sell important assets, especially those that are less liquid (e.g., a family business, investment property or vacation home). Some believe that life insurance is not included in the insured’s taxable estate. However, that is only true if the policy is owned by an individual other than the insured or by an entity such as an irrevocable life-insurance trust. Ownership by an individual other than the insured results in the insured losing all control over the ultimate disposition of the insurance proceeds at the time of the insured’s death as this individual can change the identity of the ultimate beneficiary. In contrast, a life-insurance trust allows the insured to design the terms and conditions or to whom and in what manner the life insurance proceeds will be paid at the time of the insured’s death. In addition, once inside this trust, the money can be

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distributed to beneficiaries outside of probate, will not be included in the taxable estate of the deceased, and can provide the liquidity necessary to pay estate taxes and avoid selling businesses and real estate.

Long-term care insurance According to the U.S. Department of Health and Human Services, the population aged 65 and over is projected to be 83.7 million by 2050, almost double its estimated population of 43.1 million in 2012. This projected growth will present challenges to policymakers and programs, such as Social Security, Medicare and Medicaid, which in turn affects the insurance industry. Medicaid is the nation’s top payer of long-term care services in nursing home facilities. To qualify for

Medicaid an applicant must remain below certain income and assets levels. Nursing-home Medicaid counts all assets that are owned by the applicant when applying for care as well as all assets that have been transferred or given away in the previous five years. A Medicaid asset protection trust allows the creator of the trust to receive income from the trust; maintain control of the assets in the trust; and continue to live in his or her own residence during the five-year period. This is a better option than transferring assets directly to a loved one or friend, who even with the best intentions, could lose the money in a divorce or lawsuit. For people to utilize a Medicaid asset protection trust for receiving nursing-home care through Medicaid, any asset placed into the trust must be in there for the five-

year, look-back period. If the trust creator requires assistance before five years have lapsed, the family will need to pay out of pocket, which is incredibly expensive, or Medicaid maintains the right to seize assets to pay back the state. A long-term care policy, which is the only type of insurance that pays for nonskilled custodial care at home or in a nursing home, combined with a Medicaid asset protection trust, will allow the family to withstand the long look-back period and receive the care a sick or disabled family member requires. Long-term care policies, though expensive, can save hundreds of thousands of dollars down the line. For those worried about investing thousands of dollars a year for a product they may never use, insurance companies are now offering hybrid long-term care/life insurance policies. These hybrid

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Professional Insurance Agents magazine

products can still provide a payout after death for those individuals that do not require long-term care during their lifetimes.

Second-to-die policies The Centers for Disease Control and Prevention has reported that the prevalence of autism spectrum disorder among children in the U.S. has increased by 119.4 percent from 2000 (1 in 150) to 2010 (1 in 68). This increase has major implications for families in providing for disabled loved ones when they no longer are around to support them. One of the most important tools for families to protect loves ones that that are disabled is a special (or supplemental) needs trusts. These trusts provide special-needs individuals with money and assets that can be used to

enhance their lives while at the same time not disqualifying them from the many government benefits that they may be entitled to, including housing. This trust can provide for education, health care, vacations, electronics and many other lifeenhancing items and opportunities. A common worry for parents with a disabled child is providing for the child once both parents pass away. The purpose of a second-to-die life insurance policy for the parents is to provide for such childâ&#x20AC;&#x2122;s needs for the rest of the childâ&#x20AC;&#x2122;s life as the insurance does not pay out until both parents are deceased. These policies are less expensive than policies on a single individualâ&#x20AC;&#x2122;s life and therefore an affordable option to use to fund the special needs trust at the specific time when the funds are needed. Clients considering any of these three options should work with both their

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insurance agent and estate planning, elder law or special needs attorney. They need to ensure that their insurance policies and estate planning documents are working together as part of a comprehensive plan that can achieve their goals. Greenberg is an estate planning, elder law and special needs planning attorney at Keane & Beane, P.C., White Plains, N.Y. He is a member of the Trusts & Estates and Elder Law and Special Needs sections of the New York State Bar Association as well as the National Academy of Elder Law Attorneys. He received his law degree from Emory University School of Law and his undergraduate degree from Williams College. He is admitted to practice law in New York, New Jersey, Connecticut and Florida. You can follow him on Twitter @MJGElderLaw or email him at mgreenberg@kblaw.com.

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The 2015 claim trend of most concern With 2015 firmly in the books, it is interesting to review the agents’ errors-and-omissions claim trends. Claim severity—the ultimate cost of an E&O claim—is rising. Claims frequency—the number of E&O claims per 100 agencies—remains in excellent shape. However, failure to mirror the coverage of the previous policy continues to generate more than its share of E&O claims.

The example What follows is an example of an E&O claim: The claimant’s initial homeowners policy included an endorsement extending liability coverage for the client’s rental dwelling. When the client bought a new house, the initial policy was canceled and rewritten with a different carrier and did not include the extended liability coverage for the rental dwelling. The underlying claim involved a two-year-old child who fell down the basement steps at the rental dwelling and subsequently died. The child’s estate pursued a wrongful death action against the agency’s client, alleging negligence for failure to have railings on the stairway. When the claim was submitted to the homeowner’s carrier, it was denied due to the lack of the extended liability endorsement. This prompted an E&O action against the agency with the allegation of failure to mirror the coverage of the previous policy.

Point out the differences Ask most professional, independent insurance agents when was the last time they moved an account to a new carrier and more often than not, the answer will be: yesterday. As accounts are moved to a new carrier, it is possible that the coverage with Company B is not as broad as Company A. How do you minimize the chance of being sued when coverage is not equivalent? Bring the differences, especially the reductions, to the client’s attention and secure their sign-off on the new policy. This documentation will be key if a claim occurs and clients find out they did not have the coverage they thought they did. The most common areas in which there can be coverage differences include the following: • sublimits; • coverage grant;

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E&O

Curtis m. pearsall, cpcu President, Pearsall Associates Inc.

• specific endorsements; • who is an insured • what is excluded; and • the carrier’s financial rating. Remember: On E&O policies, the covered professional services can vary greatly from one carrier to another.

Perform the ‘mirror test’ Having a staff member give policies a quick once-over is not comprehensive enough to identify gaps or problems with a policy. It is best for agencies to use a checklist that is completed and saved in the system. The checklist should be broken down by overall issues (e.g., named insured, additional insureds, address, effective and expiration dates, policy number) and by line of business. For whatever reasons an account is switched to a new carrier, agents should perform the “mirror test” to see whether replacement coverage is equivalent to the previous policy and, if not, should point out the differences in writing to the customer. It could save the agency from a big E&O headache down the road. Pearsall is president of Pearsall Associates Inc. and special consultant to the Utica National E&O Program.

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4/28/15

9:47 AM

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