Independent
Insurance Agents of Iowa
FALL 2016 • VOLUME 34 • ISSUE 4 INDEPENDENT INSURANCE AGENTS OF IOWA
IIAI 111th President
Eldon Hunsicker 2016 Convention Highlights
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PRESIDENT’S REPORT Changes, Challenges and Transitions
Independent Insurance Agents of Iowa 4000 Westown Parkway West Des Moines, Iowa 50266 (515) 223-6060 • FAX (515) 222-0610 800-272-9312 (In-State only)
Advertising Editors Melissa Meiners & Nicole Peffers
BOARD OF DIRECTORS President Eldon Hunsicker - Ottumwa
President-Elect Terry Friedman, CPCU - Dubuque
Treasurer Tim English, CIC - Dyersville
National Director Dean Brooks, CPCU, CLU - West Des Moines
Directors
John Dalton - Council Bluffs Steve Madsen - Marshalltown David Rowley, CPCU, CIC, AU - Spirit Lake Scott Wirtz - Emmetsburg Luke Horak - Washington Lottie Miller, CPCU, CIC, AAI, CISR, CPIW, AAM, CRIS - Cedar Rapids Chris Gentry - Ollie Dave Walters - Audubon
Past President Jerry Mease - Winterset
IIAI OFFICE STAFF Chief Executive Officer Bob Skow, CPCU, CAE bob@iiaiowa.org • Ext. 13
Chief Operating Officer
It is with a great deal of humility and anticipation that I begin serving as your 111th President of the Independent Insurance Agents of Iowa. There are many issues and challenges that face our association in the new year. Eldon Hunsicker Page 5
NATIONAL DIRECTOR’S REPORT Grow Up Professionally Through The Association You have elected a great representative to serve as your new National Director. Terry McDonald, with the A.W. Welt Ambrisco Agency in Iowa City, takes over in January. He attended the September Board meeting in Chicago as an observer to get a head start on his duties. Dean Brooks, CPCU, CLU Page 7
In This Issue Meet Independent Insurance Agents of Iowa 111th President Eldon Hunsicker Page 11
2016 IIAI Convention Awards
ADVERTISERS We would like to thank our advertisers for their support. This magazine would not be possible without them. THANK YOU!
Page 21
2016 IIAI Convention Highlights
35 Acuity
Page 22
10 Amerisafe
The Misclassification of Employees
39 Big “I” Professional Liability
by Lynne D. Mapes-Riordan, JD, Barack Ferrazzano Compensation & Employment Group Page 25
Drones, Risk Management and Insurance
8 BITCO Insurance Companies 15 Burns & Wilcox 6 Errors and Omissions 31 EMC Insurance Co. 28 Grinnell Mutual
Tom O’Meara tom.omeara@iiaiowa.org • Ext. 18
by Steve Anderson Page 29
2 The IMT Group
Director of Membership Operations & Education
Shifting Liability
24 Merchants Bonding Co.
by Karen Robison Page 32
24 M.J. Kelly Company
The “Primary and Noncontributory” Myth
34 Pekin Insurance
Melissa Meiners melissa@iiaiowa.org • Ext. 15
Technology & Communications Coordinator Nicole Peffers nicole@iiaiowa.org • Ext. 17
Membership Services Coordinator Marilyn Paul, CPCU, AIT, AAM, CPIW marilyn@iiaiowa.org • Ext. 11
by Bill Wilson Page 37
4 Iowa Mutual Insurance Co.
24 Partners Mutual Insurance
20 SECURA Insurance Co. 9 West Bend 36 Western National
Membership Services Coordinator Brenda Kluger, CIC, CISR, CIIP, CRM brenda@iiaiowa.org • Ext. 14
Membership Services Coordinator Megan Kincy, AINS, AIS megan@iiaiowa.org • Ext. 16
Office & Education Assistant Cindy Grim cindy@iiaiowa.org • Ext. 12
MISSION STATEMENT: The Independent Insurance Agents of Iowa will be an unrelenting advocate of the business, professional and p olitical interests of its members; doing so by working in the p ublic’s best interest and with the highest e thical standards. Viewpoint is a publication of the Independent Insurance Agents of Iowa. Viewpoint is published quarterly: Winter, Spring, Summer and Fall. Viewpoint is mailed to Iowa insurance agents, Iowa Home Office Executives, Affiliate members, and other state associations and organizations.
president’s REPORT
Changes, Challenges and Transitions Independent by Eldon Hunsicker
Insurance Agents of Iowa
IIAI’S 111TH PRESIDENT – ELDON HUNSICKER It is with a great deal of humility and anticipation that I begin serving as your 111th President of the Independent Insurance Agents of Iowa. There are many issues and challenges that face our association in the new year. It is my intent to discuss with you the numerous changes, challenges and transitions faced by your association in the four articles that I will write for the Viewpoint this year. In this article I would like to focus on some transitions. FIRST: I want to express my sincere thanks to Jerry Meese for his outstanding service to this association for the past 11 years, most recently as your 110th President. Along with members of your executive committee, he has been very instrumental, in the very smooth process of vetting candidates and ultimately negotiating the terms of a contract for our next CEO, Tom O’Meara. SECOND: Our association has been particularly well represented by Dean Brooks, as he has served as our National Director for the past four years. His knowledge base, strong work ethic, and loyalty to our
association and members has been demonstrated time and again, as he has worked through many challenging scenarios with the IIABA Board. Thank you, Dean, for all your efforts on behalf of our association. THIRD: Terry McDonald will become our new National Director effective January 1, 2017. Terry brings a wealth of experience to this position. Our association will be well served with Terry’s leadership. FOURTH: Undoubtedly the most important transition that begins this year will be surrounding our CEO position. As most of you are aware,
Bob Skow announced his intention to retire as IIAI CEO early in 2018. Your board, and in particular, the executive committee, sprang into action. A timeline was quickly put into effect for the solicitation of applications, the interview process and eventual hiring of a new CEO. This process involved getting legal/contractual arrangements completed, agreed to and signed by all parties. This was accomplished in less than six months. We are extremely pleased that Tom O’Meara has accepted the CEO position. As most of you know, Tom comes to us with extensive experience in the Insurance Division; as well as, time spent working for Allied Insurance. It is my hope that you all will get the opportunity to welcome Tom during this coming year. Due in great measure to the thoughtful planning and fiduciary discipline demonstrated by many IIAI board of directors, current and past, our association is financially strong. This has allowed us the unique and enviable position of being able to continue the services of our current CEO, while at the same time bring the new CEO designee on board so they can work together during this transition period. Few associations would be able to afford this type of unique training/transition period. This just points out the constructive/forward thinking of your board of directors over the years. I would be remiss if I didn’t mention the professionalism of our IIAI staff
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during this period of seeming uncertainty as we searched for our next CEO. While sometimes wondering about the future course the leadership changes might bring, they continued to complete their association tasks with the thoroughness and expertise that we have come to expect through the years. Finally, and undoubtedly, most importantly, the loyalty, professionalism and commitment that Bob Skow has brought to this process has been nothing short of exemplary. (Just what I would have expected). Many associations have found themselves “going it alone” during these transitions because their leaders have moved on with little concern for the future of the association. Bob has been just the opposite. He has been willing and eager to make this process seamless for our association. We are and have been indeed fortunate to have his leadership of our association.
Again, I want to thank you for the opportunity to serve as your 111th President. There are indeed many challenges, changes and transitions that we will face. However, with the
commitment and involvement of all our members, we can indeed make a difference for our association and all the agencies and agents who comprise this association.
Call your Big “I” Errors and Omissions Team! Three Reasons your Errors and Omission Coverage should be with your Association
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hen it comes to your agency professional liability insurance who can you trust more than the Big “I”? First we have membership discounts with the three main markets for agents errors and omissions insurance, second we have a team of errors and omissions professionals to assist you and help answer your questions, and third we are the only market that actively puts your association clout to work passing liability laws which help make Iowa a great place to operate your agency! So if your coverage is not with us…call and get a quote! Marilyn Paul, CPCU, AIT, AAM, CPIW; Brenda Kluger, CRM, CIC, CISR, CIIP and Megan Kincy, AIS, AINS along with CEO Bob Skow, CPCU, CAE are here to help you! 800-272-9312
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national director’s REPORT
Grow Up Professionally Through the Association Independent by Dean Brooks, CPCU, CLU
Insurance Agents of Iowa
IT’S BEEN AN HONOR AND A PLEASURE This is my last article as your National Director – probably good news for both you and me. The time flew by quickly and, without any question, it has been an honor and a pleasure to represent the Big “I” of Iowa on the IIABA National Board of Directors for the past five years. You have elected a great representative to serve as your new National Director. Terry McDonald, with the A.W. Welt Ambrisco Agency in Iowa City, takes over in January. He attended the September Board meeting in Chicago as an observer to get a head start on his duties. If I haven’t said everything I wanted to say in these articles over the past five years, it’s too late now. There’s just a couple of closing thoughts on topics I’ve mentioned before I would like to revisit before signing off. First, our Association provides great benefits at both the state and national levels for the dues paid. IIABA has so many programs it is hard to keep track of them all. I always encourage you to visit the IIABA website and review the many products and services offered. You will be amazed at what your membership gets you. Second, a lot of bad things for the
insurance business in general and independent insurance agents in particular can emanate from Washington. Without our national legislative team on the hill fighting literally every day to contain unfavorable legislation and to promote positive legislation, we agents would be in big trouble. This underscores the importance of an active and well-funded national PAC. If you write Federal crop insurance, and I know most of you do, you owe your income from that product to the efforts that IIABA’s government affairs team and member volunteers have put forth over the years on your behalf. And if you don’t contribute to InsurPAC yearly to support them, shame on you! Really
– what is a $250 annual contribution to the PAC compared to your annual income from crop insurance? Make an investment in the future of your business! There are even more compelling reasons for all agency owners to contribute annually to the state PAC (IIAIPAC). The reality is most legislative, regulatory and judicial activity affecting the insurance business occurs at the state level. A prime example is the horrible Iowa Supreme Court decision in the Langwith case in 2010 that overturned the longstanding Sandbulte case regarding an agent’s legal duty to clients in Iowa. In short, the Langwith case created a much greater duty to advise on the part of an agent and, if left unchallenged, would have resulted in a significant increase in agents’ E&O litigation and a concomitant increase in E&O premiums for every agency in Iowa. Bob Skow immediately reacted to this adverse decision and successfully placed a provision in the Insurance Division’s omnibus bill that modified the Langwith decision to return Iowa to the standard of care established by Sandbulte. Further, the legislature specifically abrogated the holding in Langwith. Bob, representing the interests of the Iowa Big “I”, went toe-to-toe with the very influential plaintiffs’ lawyers who were vehemently opposed to this legislation, and Bob won. That victory alone saved every agency in this state far more
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money in future E&O premiums than a yearly $250 IIAIPAC contribution. I’ll say again what I said above regarding a PAC contribution: If you are an agency owner and you haven’t contributed to your own state PAC, shame on you! Invest in the future of your business! Looking at just this one issue for the moment, your E&O premiums are less in Iowa because of what your Association did for you in the legislature – step up to the plate and do your part with a contribution! One of the benefits of national service is an appreciation for how well managed and successful our Iowa Association is when compared to other state associations around the country. The biggest reason the Iowa Big “I” is so successful is the leadership of Bob Skow over the years, and his hardworking staff in our Association office. I’ve known a lot of state execs around the country in my twenty plus years of national involvement and can tell you without reservation Bob is at the top of
his class. So, to Bob and the IIAI staff, thanks for all you do to make the Iowa Association so great! I’ll close on a personal note. Over the years, I’ve often been asked why I‘m so passionate about our Association. The answer is truly personal for me. When I left graduate school in the spring of 1972 to join my parents’ predominately crop insurance agency, my dad handed me a Farmers Mutual Hail state rate map and an EMC rate manual and said “start”. That was the extent of my initial training. To say I did not have an understanding of the insurance business would have been an understatement, and initially I wandered around like a lost puppy unsure if I was right for this business. We did not belong to the Big “I” back then. I remember Larry Vander Tuig calling on our agency while it was still in my parents’ home. Dad was not a big joiner but he deferred to me and I signed on. Without reservation, the
best business decision I ever made was joining the Big “I”. By luck and by circumstance, I found myself at age 29 on the Iowa Board of Directors and on the first national Federal Crop Insurance Task Force. Over the years, the benefits I received from Association membership and involvement have far outweighed the dues and the time spent. I had the opportunity to meet and work with successful and dedicated agents from all over the country, many of whom became mentors to me and many of whom became lifelong friends. Association involvement gave me the opportunity to see success in others and to be successful. I had the opportunity to grow up professionally through the Association. I’ll never forget everything the Association has provided me over the years, and I would encourage each of you to get more engaged with IIAI when the opportunity arises. You will get back far more than you could ever imagine.
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Meet Independent Insurance Agents of Iowa 111th President
ELDON HUNSICKER
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Janelle and Eldon at the National Cathedral on one of many trips to Washington DC.
We are in Ottumwa, Iowa visiting with Eldon Hunsicker, the 111th President of the Independent Insurance Agents of Iowa.
L-R front row: Beth Hanlon, Eden Campbell, Brooke Campbell and Lena. Back row: Devon Hanlon, Eldon Hunsicker, Janelle Hunsicker and Joel.
ELDON: I went to college at Northwest Missouri State
Eldon tell us about yourself.
in Maryville, Missouri where I earned a Bachelor’s Degree, as well as, my Master’s Degree. Then I went on to do post-graduate work at the University of Missouri in Kansas City.
ELDON: I grew up on a farm northwest of Bethany,
VIEWPOINT: What was your first job after completing
Missouri and spent all my early years on the farm. There I learned many of the skill sets I still use today.
VIEWPOINT: As a farm kid, did you participate in 4-H or county fairs?
ELDON: Yes, our whole family was very active in 4-H. I actively participated for nine years of 4-H which included exhibiting at all of the county fairs and the state fair. Our projects included livestock, judging teams and electricity just to mention a few.
VIEWPOINT: Do you think 4-H helped you prepare for other things in life?
ELDON: Yes, the 4-H Creed has applied to most things in life. I apply that same creed to my working with clients and others today.
VIEWPOINT: What school activities did you participate in growing up?
ELDON: I lettered in basketball for three years in high school, led the yearbook staff and was a class officer.
VIEWPOINT: Where did you go to college?
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college?
ELDON: My first job was a teaching job at Truman High School in Independence, MO.
VIEWPOINT: Independence is an interesting city; isn’t that the home of Harry S. Truman?
ELDON: Indeed, it is. The first years that I taught there, it was not unusual for Harry & Bess to come into the building. A place would be set for them in the front lobby. The students and staff would get to visit with them.
VIEWPOINT: We understand you got to meet some other famous people during this time?
ELDON: As it turned out, Mr. Truman passed away while I was teaching there, so there were a number of activities going on in the city following his death. Also, the renaming and reworking of the Eastern Jackson County Courthouse to the Truman Complex was completed during this time. So in the process of doing that, teachers are cheap help and quick to volunteer. I volunteered to help and passed the Secret Service background check. I was responsible for working the back door at five of those public events. With that, I got to meet five past Presidents; as well as, Senators, Congressmen
Eldon Hunsicker with his daughters Brooke Campbell and Beth Hanlon at a Charity Golf event which NOEL helps sponsor each year.
Packing house employment is significant in Ottumwa. Here is Eldon in front of JBS (Swift) facility.
and other dignitaries. That was where I first got to see actual sharp shooters in position on the buildings.
VIEWPOINT: What did you teach? ELDON: I taught Business for nine years at Truman High School.
VIEWPOINT: Tell us about your children. ELDON: Beth is our oldest and born during my teaching years, and Brooke was born five years later when we were in Osceola, Iowa. Beth now lives in Houston, Texas and Brooke lives in Washington, Illinois. We have two wonderful granddaughters, Eden and Lena.
VIEWPOINT: Many agents start off as teachers and end up in the insurance business. How did this happen for you?
ELDON: First, I think it is a logical thing because some of the things you do as a teacher are the same skill set that an insurance agent uses. For me, it worked out that my father-in-law was a State Farm agent and he encouraged me to change professions and go into the insurance business because he thought that had a brighter future than the teaching profession.
VIEWPOINT: After being a State Farm agent in Osceola, you ended up in another career, tell us about that.
ELDON: Yes, I was in Osceola for five years and needed to make a move because of my wife’s job situation. I bought a GM car dealership here in Ottumwa. We moved here right in the teeth of the recession, 1983-84.
VIEWPOINT: Tough time to be in the car business. Is that how you ended up being an independent agent?
ELDON: That is exactly right. Russ Sporer had called on me a couple of times when I was actually an agent in Osceola and as soon as he learned that I was going to get out of the car business, he contacted me. Within a week I was working at NOEL Insurance and thirty-two years later that is history.
VIEWPOINT: With the kids growing up, I know that like a lot of fathers, you were involved in a lot of activities with your girls, correct?
ELDON: There are so many activities that kids can do today, and we were involved in all sorts of them including music, orchestra and dance, but mostly swimming and golf. Both girls were participants in both of those, especially swimming. Our oldest daughter swam all through high school and went on to swim at the college level for Nebraska. Our youngest daughter was active in dance and sorority, which she was quite involved with at Iowa State.
VIEWPOINT: You became a swim official, correct? ELDON: You quickly learn that whatever your kids get interested in, you get involved. It may never have been what you expected to do. So the answer is yes, I was certified as an official in many states all the way through to Olympic qualifying with United States Swimming. I worked a lot of meets, including state swim meets here in Iowa.
VIEWPOINT: Like so many independent agents, you are deeply involved in the community, tell us about some of these activities.
ELDON: I have been a member of the Rotary Club of Ottumwa for many, many years. I am completing the last year on the Board of Ottumwa Regional Health Center after twenty-four years. I am the incoming president of the Ottumwa Regional Legacy Foundation Board this fall. I have served on the Chamber Board in the past and have been involved in many activities that most agents participate in.
VIEWPOINT: Tell us about the Regional Legacy Foundation and what does it do?
ELDON: The Regional Legacy Foundation was established with the sale of our hospital to a private hospital association. The proceeds of that sale went into the foundation that is set up to benefit the community with specific emphasis on infrastructure, housing, education and jobs. At the time it was set up, it was the tenth largest foundation in the state of
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Eldon has served for 24 years on the Ottumwa Regional Health Center Board.
Eldon standing in front of the John Deere Plant in Ottumwa.
Iowa. In a town of 25,000, that is a very significant thing in terms of what they can do to help with quality of life issues here in Ottumwa.
ELDON: Yes, while John Deere and JBS (Swift) certainly
VIEWPOINT: What are some of their successes in this short period of time?
ELDON: Well, in the first five years, the Foundation has given away just short of six million dollars to various projects, mostly non-profit organizations and that sort of thing. However, it has also assisted with some major projects. The foundation has just finished the project for reclaiming the 100 block of Main Street with all the building facades being completed. The Market on Main which has been totally renovated and now has entertainment on Friday nights and has a market place inside where people can shop and eat. A major project to reclaim the two historic downtown theaters is also underway.
VIEWPOINT: We understand you are active in your church?
ELDON: Yes, we go to the First United Methodist and
are those things, there is no question about it, but nonetheless, there is a lot more than that. Recent statistics received by the development people would indicate that although traditionally Ottumwa has been thought of as a blue collar community serving these industries that have been here a long time, we are about evenly divided between white collar and blue collar jobs here. It is a large center for the court system. District courts are here, and subsequently many attorney offices are located here. Ottumwa Regional Health Center is a regional referral hospital. Mercy Medical is building a new clinic here. Pella Regional also has a clinic here. So many health professionals and physicians work here. In addition, this is home to many accounting firms. So there are many white collar professionals here. Indian Hills Community College is a big part of our city, I think it is the fifth largest employer here with a beautiful campus.
VIEWPOINT: Does NOEL Insurance Agency have multiple locations?
ELDON: Yes, three locations; Ottumwa is, of course, our
I just came off of the Board there where I served as an Administrative Chair for the last six years.
base of operation, but we also have offices in Osceola and in Eddyville. We employ fourteen people, in addition to the two principles.
VIEWPOINT: When you and Janelle are not engaged in
VIEWPOINT: Tell us about the mix of business that
all of these community activities, what do you like to do in your leisure time?
ELDON: We like to travel and I love to play golf when I have time.
VIEWPOINT: Tell us about Ottumwa. Many of our readers probably think of it as a John Deere, packing house community, but there appears to be a lot more about Ottumwa that would be interesting to know.
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NOEL writes.
ELDON: We write a number of things. Obviously, we write the usual things for an Iowa agency in terms of Farms and Personal Lines business. Pretty much split evenly between Personal and Commercial Lines at about 45% each with the remainder of our business with life and health. We represent Auto-Owners, Pekin, West Bend, Nationwide, Safeco, Grinnell, as well as three mutuals. We also represent a number of companies in the E&S Market. Almost all of our life insurance business is written with Auto-Owners and Pekin. We are a retail agency for Wellmark Blue Cross Blue
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Some of the staff from NOEL Insurance are, left to right: Kathryn Smith, Mindy Beekman, Mary Birchmier, Jane Scales, Oscar Molina, Bonnie Ritz, Coleen Bueltel and Eldon Hunsicker.
Pictured are the original founders of NOEL Insurance.
three locations, we really look at ourselves as more regional in terms of the products we offer and customers we serve. The region of southern Iowa that we service has a very similar customer base. They are looking for many of the same things with their insurance services. We think we put together a marketing plan that meets the needs of these customers.
VIEWPOINT: Tell us about the history of NOEL Shield. Governments are another niche market that we do quite a bit of business in.
Insurance and how you have been successfully perpetuating internally.
VIEWPOINT: Is there some philosophy that you feel is
ELDON: NOEL is an anagram for the original owners:
key to the success NOEL Insurance Agency has had over the years?
Nimocks, Overmann, Evans and Latimer and was formed in 1960. All four of these individuals had their own agencies, one of which went back to 1918. They chose to come together and form NOEL. Many agents and principals have come into the agency and retired out of the agency. Clearly perpetuation has always been a big issue for us and our perpetuation plan has been a critical component of our ongoing success.
ELDON: Know your market, be true to your market and be prepared to change and evolve with that market. The principals and agents who were here before me did a great job with that. We have really worked hard to try to do that, which is obvious as we analyze our business as a whole. NOEL used to be just represented in Ottumwa, Iowa. Now with
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Eldon serves as a part time faculty member for Buena Vista College which utilizes Indian Hills Community College campus in Ottumwa.
Eldon is pictured here with partner Willene White.
VIEWPOINT: What Agency Management System does
our industry. However, when the day is done, it has to work in your agency. Whatever it is, it must meet your needs, give you the informational sources you need and keep the information available for future use.
the agency use?
ELDON: We use Applied System, TAM Online. We began our move to a paperless agency some twelve years ago. With a few exceptions, we have been paperless on all lines for about eight or nine years now.
VIEWPOINT: Eldon, you have often been looked as a person on the cutting edge of automation and technology as an agent, if you were to advise someone what they should look for in an agency automation system and what are the keys, what would you say?
ELDON: You start by looking internally at the operation and identifying what you do well and what you would like to do differently or improve upon. Then with that in mind, talk to vendors to see what they have to offer. In addition to talking to vendors, I would suggest talking to current users of the products. They are usually quick to share and tell you what works well and what doesn’t. Then try to tailor the product that appears to work best for your agency. The bad thing about all of this is that no one plan/process fits all and you really have to get a feel for what you need and to offer by matching the vendor and their products to meet your needs. We do participate in a user group and have always felt that participation in the users group is critical for the operations. I want to know what is going on, what is happening, what is out there and how various people perceive it. I also like to talk to my fellow agents and ask how it is working for them. Because of commitment to that, I have been active on the National level with the Agents Council on Technology, as well as the IIAI Agency Management/ Technology Committee. We want to be informed about the issues and topics that are driving the automation decision in
VIEWPOINT: It has been said by some that insurance, especially Personal Lines Insurance, has been turned into a commodity and consumers are doing the 1-800 or online. How is NOEL putting themselves in a position to attract future buyers and respond to changes in the market place?
ELDON: The bottom line is we want to be in any and all of those places where a customer can get to us. In other words, this contact is not just online or in the agency. We need to have an access point wherever a customer wants to reach us. So that means, we must view this from the perspective of the customer who says “I only want to do this at 2:00 a.m. in the morning”, for example. We then better be available online where/when they can contact us. In addition, there are other customers who want personal contact. The key is to be available to customers in whatever format they prefer. They just need to be able to access us at their pleasure in the format they choose to utilize.
VIEWPOINT: Obviously, you have a website, but what other ways do you make yourself accessible to customers?
ELDON: We have a website, 24/7 contact availability and have a phone system/answering service that has a live person that will talk with the consumers anytime day or night. Some of our companies are utilizing automated systems from which they will forward information to us when a customer makes a contact. We are expected to follow-up. This includes Trusted Choice contacts. Just last night I had two phone calls from the answering service with customers who
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Oscar Molina, PL, CSA
Eldon with Receptionist Bonnie Ritz
needed things done right away, or so they thought. I think people are comforted by talking to a real person. It may not mean that anything really happens at that moment in time in terms of changing anything, but they are reassured by the fact that someone has the information and it will get taken care of. If it is a crisis, the calls gets put right through to us. I know a lot of industries pride themselves on being available 24/7, but you don’t hear much about that in our business. But that is indeed what we do. If there is a fire or accident, those calls come in and are routed directly to me and if I am not available, they are routed to the next person in our call answering system. We need to be able to provide that to our customers immediately in real time. I think they expect that.
ELDON: First, stability – In addition to that we look at the
VIEWPOINT: Over the years, Ottumwa has changed and how is NOEL met those challenges?
ELDON: Ottumwa, like a lot of cities our size in the state of Iowa, has changed in the last 50-60 years. The population base has changed because of major employer requirements here. Right now we have a fairly significant minority community that is important to the city and all of the business people here. So it is important to be sensitive to that and that we put in place the kind of things these customers might need. They might not be the traditional things we have offered in the past. Automation has helped us a great deal with that. We have also put in place staff who are bilingual and have a greater understanding of the cultural expectations of these clients. These people can have business discussions with these folks in a forum and language that is quite comfortable to them.
VIEWPOINT: When you evaluate companies, what are the key things as an agent, which are important in a relationship with a company?
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product mix, completeness of product lines, available company support and commission rates. I think agents look for a different support than they did in the past and that doesn’t have to be a presence in our office all of the time. We need and expect the support when the need arises. Today, as we look at the issue of company relationships, agents are looking for a team partner. We want our companies to also see this as a partnership. The issue is how the systems, as a whole, works to the customer benefit. This is the ultimate measurement used by the customer on how well we are doing our job. 2nd, Automation is a big thing and sometimes we assume that companies are more automated than us, but that is not always a good assumption. Ease of doing business is huge. 3rd, Relationships are really important. I need to be able to talk with company people (underwriters/claim reps/etc.) who know me and understand me so that we have a better opportunity to get things done for the customer. This is critical to us. 4th Compensation – Obviously, we have to be able to pay the bills and in a changing environment, compensation is a big deal for us. But, I would say to you the other things that I talked about are higher on the priority list than the compensation. Compensation is no small deal, I’m not saying that, but relationships are a bigger deal and the ability to be responsive and be able to do things for our customers when we need has priority over the compensation piece for us.
VIEWPOINT: Earlier you mentioned it was important to be able to network with a user group, and we understand that you participate in another group with agents like you so tell us about that.
ELDON: Yes, I participate in a buzz group that I have been a part of for at least 7 or 8 years. It is a group of agents from different parts of Iowa. We are all located far enough apart, that even as competitors it is not really an issue when we
have discussions. We meet once per quarter and the whole purpose of the discussions are to simply talk about what is working and what isn’t working, identifying problems and making suggestions. Many times we are just helping each other talk through issues that we have in common. From time to time we have speakers or guests like Bob Skow come in and talk to us about issues that impact pretty much all of us in the insurance industry. I recommend that other agents get into a buzz group. I would like to see a couple more of these buzz groups form in Iowa. Sometimes to just have the opportunity to sit down with fellow agents helps you find out that the problems you are having are the same ones expressed by other agents. Often, someone has already found a quick solution to that problem that can be applied right away in your agency.
so much from the programs, but even more gleaned from discussions in the halls and at breaks when you have the opportunity to talk to other agents about what is going on and what is working or not working for them. I think it is a very valuable part of what we do.
VIEWPOINT: We understand that is in part of why you
VIEWPOINT: What message would you like to convey to
belong and are active in the Big “I” is to network correct?
Big “I” members about your coming year as president?
ELDON: The benefit of the Big “I” has been enormous. I
ELDON: It is another cliché, but we are in changing times.
have been very fortunate to participate not only at the local and state level, but at the National level and get an even broader perspective. The Big “I” provides training and education, legislative/lobbying support and special programs. It is great to be able to call or email someone when there is a problem and get help working on a solution to the problem. The Big “I” has been a vital part of that.
VIEWPOINT: Do you find value in things like Rural
It is critical that we actually utilize the programs provided by our Association. Get involved. It is true, “you tend to get out of an organization what you put in.” We need every member actively working with the association. 2017 will see IIAI leadership changes, company contract issues, monetary hurdles, government restrictions and legislative challenges. In these changing time, we really need “all hands on deck”. Together, as an association of member agents, we can accomplish what we could never do alone.
Agents, Convention and engaging young people in the Young Agents Conference?
VIEWPOINT: If a member wants to contact you over the
ELDON: Our agency has a tradition, of attending these functions ever since I can remember (some 30+ years). We have been very active and participative in association activities and events. When attending these events, one learns
VIEWPOINT: You just brought up the history of this agency with the Independent Insurance Agents of Iowa, tell us about that.
ELDON: This agency has always been plugged in to the Independent Insurance Agents of Iowa. I will be the third president of the Association from this agency, the other two were Carl Obermann and Russ Sporer. We have always felt the need to be connected to the Association.
next year, what is the best way possible?
ELDON: I encourage them to get in touch with me. My email address is eldon@noelins.com or they can call me at (641) 682-7533.
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2016 IIAI Convention
AWARDS Dean Brooks, CPCU, CLU – receives Presidential Citation from Jerry Mease for his years of service.
Forrest Schnobrich – Presidential Citation recognizing him for his leadership on InsurPac.
Dao Nguyen was awarded C. Daniel Fulwider IIAI Young Agent of the Year.
Independent
Insurance Agents of Iowa
Mark Currie,CIC, CPIA received H.H. “Red” Nelson IIAI Agent of the Year.
Dave Walters was elected as a New IIAI Board Member.
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Deborah Pickford conducting a work shop on Recruiting, Hiring and Managing Millennials.
Keynote speaker Commander Kirk Lippold, USN (Ret.) had audience glued to their seats as he told his story on the attack of the USS Cole and importance of leadership during crisis.
Steve Anderson tech guru making a point on Password Protection and Automation Security Issues for Every Agency.
Dave Gregory discusses Keys to Successful Selling – Ideas to Get and Stay Motivated.
Dax Craig of Valen Analytics covers a very interesting topic of Google, Millennial and the Tech Revolution.
2016 IIAI
Convention
Trucking regulation expert Don Egli, CDS spoke on Trucking Regulatory Issues Impacting Insurance.
IIAI’s 110th President Jerry Mease of Winterset updates agents on the state of the association.
Our new 111th IIAI President Eldon Hunsicker of Ottumwa addresses Convention attendees.
Highlights
Dave Sanborn, CPCU taught two great CEC programs Occurrence vs Claims Made Policies and Look at Completed Operations and Product Exposures Issues and 5 Hot Commercial Coverage Issues – Right Now!
At Partners Mutual Insurance, we have one focus: building relationships. From listening and responding to our agents’ feedback, to building selfservice online tools to make it easier to interact with us effortlessly, we believe that it is our relationships that make our company stand out from the rest. For information about becoming a Partners Mutual Insurance Agent please contact Chuck Becker at 800.388.4764 ext. 3484.
M. J. Kelly Company www.mjkelly.com
800.725.7211
The Misclassification of Employees 6 Factors to Consider in Determining Independent Contractor Status By Lynne D. Mapes-Riordan, JD, Barack Ferrazzano Compensation & Employment Group
N
ow more than ever employers in all industries need to carefully examine whether their independent contractors can satisfy the “new” U.S. Department of Labor (DOL) test for independent contractor status. This is because it is becoming increasingly a matter of when, not if, that status will be challenged.
Background On July 15, 2015 the Administrator of the Wage and Hour Division of the U.S. Department of Labor issued Administrator’s Interpretation No. 2015-1. In this Interpretation, the Administrator sets forth the test for independent contractor status that the DOL will use in its enforcement actions. The DOL’s enforcement
authority derives from its enforcement of the Fair Labor Standards Act (the “FLSA”). The FLSA requires certain employees, but not independent contractors, to receive a minimum wage and overtime. State minimum wage laws also require employers to pay non-exempt employees a minimum wage and overtime. Since 2011 the DOL and the IRS have had an information sharing agreement. This means that if one of the agencies finds a worker misclassification violation it will inform the other. The IRS is interested in making sure all taxes are paid and has its own test of determining whether a service provider is an employee or an independent contractor (the “20 Factor Test”). In addition, the DOL has a memorandum of under-
standing with more than twenty state unemployment agencies (Iowa does not currently) that they too will share and receive information about violations found by the other. Those states also have one or more tests depending on the interested state agency. What all this means is that if an issue is identified by the IRS, the DOL or by a state unemployment agency, all the others will be informed. Therefore, each time an independent contractor is misclassified, there are at least three governmental agencies that are interested.
Consequences of Misclassification If a service provider is misclassified as an independent contractor, the employer can be exposed to damages or claims for several past years (varies according to the claim or damage) which includes such items as unpaid minimum wage and overtime; unpaid employment taxes, penalties and interest (federal and state); unemployment insurance taxes; workers compensation premiums and benefits; contributions to tax-qualified retirement plans; and claims for all employee benefits such as stock options, vacation pay and similar items of compensation. In addition, the service providers would be covered under non discrimination laws. And finally, there could be I-9 consequences which include criminal sanctions for failure to document the employment eligibility of employees.
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Determining Independent Contractor Status Under 2015-1 The DOL’s test begins with the FLSA’s very broad statutory language of the definition of employ which is “to suffer or permit to work.” The test is what is used by the courts to interpret this broad definition. The test is known as the “economic realities test.” The economic realities test focuses on whether the worker is economically dependent on the employer or in business for him or herself. The test is both multifactorial and fact specific (must be determined for each and every service provider individually). Before describing the factors, the following principles have to be understood. All the factors are to be considered in each case; no one factor, particularly the control factor, is determinative; factors are to be applied with the principle that the scope of the employment relationship is very broad (and therefore employee status may be a presumption); factors are not to be applied in a mechanical fashion, such as a checklist. The list requires a qualitative not a quantitative analysis. Labels, contractual provisions, and tax treatment are not determinative (and are barely persuasive). Finally, the DOL has the view that it is a “narrow subset of workers” who are truly independent contractors.
Factor 1 — Is the work integral to the business? If the work performed by a worker is integral to the employer’s business, it is more likely that the worker is economically dependent on the employer. Work can be integral to an employer’s business even if it is performed away from the employer’s premises. The DOL provides the following examples: • “Work performed by cake decorators ‘is obviously integral’ to the business of selling cakes which are custom decorated.” • “It does not take much of a record to demonstrate that picking the pickles is a necessary and integral part of the pickle business...”
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• Carpenters are integral to the employer’s business of framing residential homes. • A software developer who creates software to assist the construction company in tracking bids, scheduling projects and crews, etc. is performing work that is not integral to the construction company’s business.
Factor 2 — Worker’s Profit or Loss This factor examines whether the worker’s managerial skill affects the worker’s opportunity for profit or loss. • Ability to hire others, purchase materials or equipment, advertise, rent space, and manage time tables. • Worker’s ability to work more hours has nothing to do with managerial skill. • Being more technically proficient is unrelated to ability to earn or lose profit via managerial skill. • Look at whether there is an opportunity for loss. DOL example: A worker provides cleaning services for corporate clients. The worker performs assignments only as determined by a cleaning company. He does not independently schedule assignments, solicit additional work from other clients, advertise his services or endeavor to reduce costs. The worker regularly agrees to work additional hours at any time to earn more. The worker does not exercise managerial skill that affects his profit or loss.
Factor 3 — Worker’s & Employer’s Investment This factor looks at the worker’s relative investment and compares it to the employer’s investment. • Worker should make some investment and therefore undertake at least some risk for a loss in order for there to be an indication that he or she is an independent business. • It is relative investments that matter – if worker’s investment is relatively minor then that suggests that the worker and employer are not on similar footings and the worker may be economically dependent on the employer. • Look not at the level of the job but overall investment in the relative enterprises. DOL example: The company provides the vehicle, insurance and all equipment and supplies and the worker occasionally brings her own preferred cleaning supplies to certain jobs (relative investment is indicative of employment relationship). Compare to worker who receives referrals and sometimes works for a local cleaning company. The worker invests in a vehicle not suitable for personal use, rents space to store the vehicle and materials, advertises and hires a helper for larger jobs. Brings her own equipment and supplies to the jobs. DOL’s conclusion is that her level of investments is similar to the investments of the local cleaning company for whom she sometimes works (relative investment is indicative of an independent contractor).
Factor 4 — Special Skill and Initiative
DOL example:
This factor looks at whether the work performed requires special skill and initiative. The factor looks at business, not technical skills. Skills must be used in some independent way, such as demonstrating business-like initiative.
• Where an editor has worked for an established publishing house for years and her edits meet the house’s specifications, she uses its software and only edits books provided by the publishing house, the relationship indicates permanence.
DOL example:
• If an editor works intermittently for fifteen different publishing houses over the past several years, markets her services to numerous houses and negotiates her rates and turns down work if she is too busy, the relationship indicates a lack of permanence.
• When a carpenter does not make any independent judgments at the job site beyond the work that he is doing for that job; he does not determine the sequence of work, order additional materials, or think about bidding the next job, but rather is told what work to perform where — this worker does not demonstrate the skill and initiative of an independent contractor.
Factor 6 — Control
• In contrast, a highly skilled carpenter who provides specialized services for a variety of area construction companies, for example, custom, handcrafted cabinets that are madeto-order, may be demonstrating the skill and initiative of an independent contractor if he markets his services, determines when to order materials and the quantity of the materials to order, and determines which orders to fill.
This factor looks at both the nature and the degree of control. The worker must control meaningful aspects of the work such that it is possible to view the worker as a person conducting his or her own business. The worker’s control must be more than theoretical — it must be exercised. Lack of control of employees who work from home or off site is not particularly telling (no need to be looking over the worker’s shoulder). Control over hours worked is not indicative of independent contractor status. Importantly, the DOL emphasizes that the control factor is not to play an “oversized” role in the analysis.
Factor 5 — Temporal Aspect of Relationship
How Do Potential Issues Arise?
This factor looks at whether the relationship between the worker and the employer is permanent or indefinite. Permanency and indefiniteness suggests the worker is an employee; however, lack of permanency or indefiniteness does not automatically suggest an independent contractor relationship. One must look at whether the reason indicates that the worker is running an independent business. The key is whether the lack of permanence or indefiniteness is due to “operational characteristics” intrinsic to the industry (for example, employers who hire part-time workers or who use staffing agencies) or the worker’s “own business initiative.”
Potential issues frequently arise when workers and former workers, even inadvertently, apply for unemployment. In addition, government agency audits and investigations, and again the state unemployment agencies are active in conducting audits and investigations. Also, issues can arise in the merger or acquisition context and cause difficulties.
Steps Toward Compliance
The key is whether the lack of permanence or indefiniteness is due to “operational characteristics” intrinsic to the industry (for example, employers who hire part-time workers or who use staffing agencies) or the worker’s “own business initiative.”
on an individual basis for each worker. If in the final analysis the worker is economically dependent on the agency then some consideration should be given to using the IRS Voluntary Classification Settlement Program, which can significantly reduce federal taxes and penalties. Lynne D. Mapes-Riordan is an attorney with Barack Ferrazzano Compensation & Employment Group in Chicago, Illinois. She can be reached at (312) 984-3107, lynne.mapes-riordan@ bfkn.com. This information was distributed by the law firm of Barack Ferrazzano Kirschbaum & Nagelberg LLP, 200 West Madison Street, Suite 3900, Chicago, Illinois 60606, T 312.984.3100, as a general source of information and does not constitute an opinion or legal advice and does not create an attorney-client relationship with readers. This information may constitute attorney advertising material in some jurisdictions. Any tax advice contained in this informational material was not intended to be used, and cannot be used, by you (or any other taxpayer) to avoid penalties under the Internal Revenue Code of 1986, as amended.
Conduct a privileged self-audit (have legal counsel direct the audit). In that audit each job function where contractors are used should be reviewed and the factors described above should be applied in a non-mechanical way and
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Drones, Risk Management and Insurance – What You Need to Know
MONITORING
Police surveillance Protection system Spying
MOVIE, PHOTOGRAPHY Film industry Extreme sports video Amateur movie Photos
I
t seems like drones are everywhere these days. Last week I participated in a 5K run that started in the downtown square of my town – Historic Franklin, TN. As the crowds were milling around waiting for the starting gun, I noticed a quad copter – a drone – flying over the crowd with what I assumed was a Go-Pro camera capturing video of the event. The operator was standing to the side with an iPad strapped to his controller watching the captured video. The use of Unmanned Aircraft Systems (UAS) or what we more commonly call Drones, will rise substantially by Steve Anderson within the next ten years as many different people, businesses, and industries find a way to use these new aerial tools. Examples are everywhere. By now you have heard that Amazon and UPS are exploring the use of them for delivering packages. The insurance industry is aggressively testing the use of drones for adjusting claims, property inspections, and gathering underwriting information. It is significantly safer to fly a drone to the top of a house to inspect the roof for hail damage than sending a person climbing a ladder to do the same job. If the job is dull, dirty or dangerous, then it is likely you will use a drone. The use of drones by commercial companies will require the proper insurance coverage. This is an opportunity for insurance agents and brokers to demonstrate their risk management expertise and, at the same time, create new business. However, providing the proper insurance coverage for a UAS is not as simple as it might seem. There are a variety of insurance liability and coverage concerns, from personal injury and invasion of privacy, to fraud surveillance and gathering of information, to the more traditional bodily injury and property damage exposures.
Drone, UAS or UAV?
CONTROL
Controller Smartphone Tablet GPS
An Unmanned Aerial Vehicle (UAV) is an aircraft controlled by an operator on the ground. An Unmanned Aerial System (UAS) is the entire system – aircraft, controller, camera systems, and software. The evolution of technology surrounding UAVs has resulted in the development of small vehicles at a price point (under $2,000) that makes them attainable for commercial businesses as well as individuals. I have several friends who now own a “drone.” This has led to a growing debate surrounding regulations of their use, particularly as it relates to the safety and pri-
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vacy of the general public. What – if any – is the legal (and insurance policy coverage) difference between a very large military Predator drone (with a wingspan of 47 feet and a length of 27 feet) that requires a human operator to function and a “hobby” drone that weighs under 55 pounds and operates like a remote control airplane? How is the term “aircraft” defined in a general liability insurance policy? How have the courts interpreted what an “aircraft” is? By 2020, the Federal Aviation Administration (FAA) estimates there will be about 30,000 small UASs in use by a wide variety of businesses. The total global expenditure for these types of aircraft systems is estimated to be about $89 billion. This is due to a strong military requirement and commercial demand as well, according to a 2012 market study by Teal Group. In a recent Notice of Proposed Rulemaking (NPRM), the FAA has begun the process of regulating the use of drones in the United States. Under the proposed rules, Drones would be limited to daylight only, lineof-sight operations with at least a three statute miles visibility at speeds of less than 100 mph and altitudes below 500 feet. The UAS would not be allowed to operate over people, except those involved in the flight. There would also be restrictions on the airspace where they could operate. Current regulations apply to Drones weighing under 55 pounds and are around 4.5 feet long. The NPRM also sets certification requirements for small UAS operators. Operators would be required to be at least 17 years of age, pass an FAAadministered knowledge test every two years, and obtain an FAA-issued UAS Operator Certificate with a small UAS rating.
In order to insure UASs properly, insurance companies will need to know their function or intention, their departure and arrival spots, whether they will be operating in inhabited areas, and their flying height. These systems can also gather vast quantities of information. Insurers should know how the proprietor of such aircraft systems will utilize the information it has assembled and what steps they need to take to preserve/destroy the data it has stockpiled. UASs will have the identical insurance needs as other aircraft, just on a smaller scale given their size, flying range, and price tag. Given the risk avoidance nature of the industry, carriers might enforce even stricter rules than what the FAA may require. Drones are not going away. Insurance agents and brokers will need to be ready to help their clients understand the increased liability for operating a drone and provide insurance solutions to fill the coverage gap.
By 2020, the Federal Aviation Administration (FAA) estimates there will be about 30,000 small UASs in use by a wide variety of businesses. The total global expenditure for these types of aircraft systems is estimated to be about $89 billion.
Legal Questions Remain Following are a few of the legal issues related to the use of drones:
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• Can a property owner allege that a Drone is “intruding” or trespassing on his/her property? • How will nuisance, aggravation, and other laws controlling felonious deeds be useful to the use of Drones? • Do territory restrictions apply to UASs? • What about confidentiality and cyber-liability for the data that is being captured and stored? • How will federal aviation law work in conjunction with state laws on some of these issues? In addition to the regulatory and legal matters, there are many liability, risk management, and insurance coverage issues (in relation to insuring UASs for business use) that will need to be addressed for both personal insurance and business insurance. Very few insurers offer insurance coverage to the aircraft industry (up from less than a dozen a few years back). It is likely additional companies will provide coverage options once the FAA solidifies regulations around the use of drones. While insurance companies are beginning to look at how to provide coverage, they don’t have much information or experience to assist them as they seek to provide their policyholders with proper coverage. Grinnell Mutual is reportedly making available an endorsement that provides liability coverage on their Farm-Guard Policy and their farm liability policy for unmanned aircraft for “precision agricultural operations.”
Steve Anderson is an authority on insurance technology. He is a prolific writer and frequent speaker known for his knack for translating “geek speak” into easily understood concepts. Check out his free weekly newsletter “TechTips” and other resources on his website.
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Shifting Liability The race to respond to autonomous cars By Karen Robison
Autonomous cars are poised to hit the highways and (soon after) byways, causing a bumpy road for the insurance industry as liability shifts away from drivers and toward manufacturers. How well insurance carriers prepare and respond to the new terrain will determine their relevance in the years ahead.
R
eady or not, here they come. Fully autonomous cars will arrive in 2019, according to a recent Business Insider Intelligence report. Forbes’ prediction is along the same lines: “Many experts agree that self-driving cars could be used in controlled environments like highways by 2020.” And by 2035, Boston Consulting Group projects that fully autonomous cars will account for one in four auto sales globally. With tech companies (the ubiquitous Google), auto manufacturers (Audi was second only behind Google to receive an autonomous-car test license), and even ridesharing giants (Uber and Lyft) moving the technology along, the fast-paced projections seem likely.
Just as state regulators are gaining comfort with the technology, the general public is coming around as well. Sure, completely self-driving cars have yet to hit the streets, but “smarter” cars – equip with self-parking, automatic emergency braking and lane-keeping technologies – are here and are easing drivers into the idea. The University of Michigan Transportation Research Institute’s recent, international survey of public opinions on autonomous cars found: “As much as [drivers] have concerns, there’s an interest there. It’s a matter of…slowly proving what these vehicles can do, slowly introducing them to the public.” But “slowly,” it appears, may be relative.
“The technology is really advancing faster than we had originally anticipated,” shared Steve Hill, of the Nevada governor’s office of economic development, with the National Conference of State Legislatures. Nevada was the first state to legislate an allowance for the testing of driverless cars. California, Florida, Michigan and Washington, D.C. quickly followed suit.
It has been well documented that self-driving technology will upend public safety – and, in turn, the personal auto insurance market – as we know it. The Atlantic recently asserted that “automation on the roads could be the great public-health achievement of the 21st century,” suggesting that fully autonomous cars could save 10 million lives per decade globally. And McKinsey & Company estimates that,
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PERSONAL LINES REPERCUSSIONS
by 2050, autonomous cars and other advanced driver-assistance systems will save $190 billion per year in U.S. health care expenses. While auto manufacturers slowly ease “smart” technology into their products, the impact on safety is already becoming evident. The Highway Loss Data Institute studied the impact on insurance claims data from the 2013 Honda Accord safe-driving technology – an alert beeps when the car gets too close to traffic in front of it or leaves its lane without signaling. The results? Bodily injury losses decreased 40 percent, and medical payments dropped by 27 percent. These safety findings and projections are painting an increasingly clear picture for the future of the personal auto insurance market. The revered Warren Buffett summed it up: “If you could come up with anything involved in driving that cut accidents by 30 percent, 40 percent, 50 percent, that would be wonderful. But we would not be holding a party at our insurance company.” The impact of self-driving technology on insurance claim frequency could prompt a 60 percent decrease in premiums within 15 years, according to research firm Celent. “You have to be prepared to see that part of your business shrink, probably considerably,” said Celent’s Donald Light to property and casualty insurers.
Remaining risks Will auto accidents completely diminish and the personal auto insurance market dissolve? It’s unlikely – at least while some cars on the road still have human drivers. And turning over a countrywide fleet of vehicles would take decades. Another study by the University of Michigan Transportation Research Institute found that, while driverless vehicles have accident rates twice as high as their human-driven counterparts, the autonomous cars never have been at fault. Nearly all of the accidents were caused when human drivers ran into the driverless car in front of them. At issue: People are not used to sharing the road with cars that follow all of the rules.
Spiking severity While the frequency of accidents is expected to make a drastic drop in the decades ahead, the severity of claims – to fix cars filled with cameras, radars and sensors – is expected to rise. Attorney Hilary Rowen, who is well versed in the legal and insurance repercussions of driverless cars, explained the outlook to Insurance Journal: As the [country’s auto] fleet increasingly moves toward more autonomous features…bodily injury rates will go down – both the frequency of accidents and the severity of accidents. In all likelihood the frequency of property damage claims will also go down. [However,] it is likely that the severity, the cost per claim on property damage, will go up because cars will now have very expensive sensors hung in or arrayed in, very vulnerable locations.
It has been well documented that self-driving technology will upend public safety – and, in turn, the personal auto insurance market – as we know it. Bottom line: The personal auto insurance market is poised for drastic change, yet the change won’t occur overnight. A countrywide fleet of vehicles will take time to turn over, so the likely result will be an evolution – steadily declining frequency and severity of bodily injury claims and gradually increasing severity of property damage claims. What remains to be seen is how insurance carriers will respond, when they will adjust pricing and what that means for market share.
COMMERCIAL LINES CONSIDERATIONS Beyond the implications for the personal auto insurance market are those for commercial lines. Gradual adoption of in-car automation is expected to create a period of complicated part-car, part-human insurance issues and, in time, a complete shift from personal to product liability.
Realigned responsibility Driverless cars, as machines (and complex ones at that), are subject to malfunction. Strict product liability is the theory most often used by plaintiffs in suits against manufacturers involving the design of automobiles. As such, it likely will play a central role in litigation over the responsibility for crashes associated with autonomous vehicles – and prompt manufacturers to purchase additional insurance coverage. Just how much litigation will occur – and at what cost, literally and figuratively – is in question. Some legal and technology experts wonder if the threat of lawsuits could slow manufacturers’ development of self-driving technology. Others take it a step further and question if an influx of litigation will necessitate legislation to create a type of no-fault auto insurance system.
Cyber concerns Beyond product liability, autonomous vehicles are accelerating another emerging risk for the car industry (not to mention car manufacturers’ suppliers): cyber liability. Driverless cars – and even their increasingly “smart” predecessors – rely on radars, cameras and GPS…all of which can be hacked. Arguably the most notable demonstration of the emerging need for cyber liability insurance on “smart” cars came in July 2015. Two security researchers remotely took control of a Jeep Cherokee as a Wired magazine writer drove it on a
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Gradual adoption of in-car automation is expected to create a period of complicated part-car, part-human insurance issues and, in time, a complete shift from personal to product liability. St. Louis interstate. They hacked into the Jeep’s Inernetenabled entertainment system and went as far as to disengage the transmission. After the story broker, Fiat Chrysler issued a voluntary safety recall of 1.4 million U.S. vehicles.
Wasson predicts that auto manufacturers eventually will need to step up and use their assets, resources and connections to negotiate proper, primary cyber liability coverage with insurance brokers. After all, if the supplier goes bankrupt, the car manufacturer is going to be next in line for a lawsuit.
A change in the liability structure and an expansion of the cyber liability insurance market could be around the corner. Dave Wasson, with brokerage Hays Cos. in Chicago, explained to Risk & Insurance:
PREPARATIONS AND PROJECTIONS Self-driving technology that once seemed farfetched now appears just years away from widespread implementation. As such, the insurance industry is poised for significant changes. But all is not lost. What’s ahead appears to be a gradual shift in liability, with some traditional markets withering while new ones flourish. How quickly individual insurance carriers prepare and respond could be indicative of their future market share and even longevity. And how well educated and nimble insurance producers are could impact their livelihood.
Right now, you have a pull market, with small [original equipment manufacturers (OEMs)] seeking [cyber] coverage because the first-tier OEMs and carmakers demand that they be indemnified. But that is not sustainable. A client might demand a $15 million cover from a small supplier, but that cover could cost the supplier $50,000 when he only grosses $100,000 on the contract. EVERY DAY. EVERY HOUR. ALWAYS.
Karen Robison is public relations director for Insurance Agents & Brokers of Pennsylvania.
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The
“Primary and Noncontributory”
Myth
Y
our customer has signed a construction contract that requires the following to be added in the Description of Operations field on the ACORD 25 certificate of insurance you’re expected to issue yesterday so that your customer can get access to the job site (or get paid for work already completed): “ABC General Contractor, Inc., XYZ Architectural Firm, Inc., and PQRST Engineers, Inc. and their respective customers, directors, officers, employees, agents, subsidiaries, divisions, affiliates, and successors are named as Additional Insureds on a primary and non-contributory basis with respect to liability for bodily injury, property damage or personal and advertising injury caused in whole or in part by the acts or omissions of either you or the additional insureds to the extent required by the written contract.” Aside from the name changes to protect the ridiculous, this statement was actually added to an issued certificate by an agency. This is not unusual… we see this kind of thing on a weekly, if not daily, basis. There are MANY problems with this statement, but this article focuses on just one of them… the “primary and noncontributory” comment. The following commentary outlines why this phrase should NEVER be placed on a certificate. First, this is what the ACORD Forms Instruction Guide (FIG) says should go in the Description field: “As used here, records information necessary to identify the operations, locations and vehicles for which the certificate was issued.” What does “primary and noncontrib-
by Bill Wilson
utory” have to do with the operations, locations and vehicles of the insured? Answer: Nothing. So this statement is not appropriate for this field in the certificate. The ACORD FIG has historically said that the certificate should not be used in the following situations: To quote wording from a contract To quote any wording which amends a policy unless the policy itself has been amended The “primary and noncontributory” wording is requested to be shown on the certificate because the contract requires it to be done that way. ACORD makes it clear that proper use of the certificate does not include quoting contract wording. Also, unless coverage is actually provided by the policies on a “primary and noncontributory” basis, the certificate shouldn’t say so. For example, the “primary and noncontributory” statement on the certificate does not reference any specific policy. The certificate included information on the CGL, BAP, and workers compensation policies. We know, or should know, that auto coverage cannot be provided on a “primary and noncontributory” basis under ISO forms. Commercial auto primacy is governed largely by ownership and ISO’s symboling system, along with various and diverse state laws. Saying that auto coverage is “primary and contributory” on a certificate quite likely does not accurately reflect the policy. As such, the certificate, on that one point, could be patently illegal in some states and in all states could be subject to allegations that it is a misrepresentation or a fraudulent insurance document, something that carriers
severe penalties in all states. Keep in mind that insurance policies govern primacy of coverage, not certificates or construction contracts, and any attempt by a certificate to purport to provide a policy right not actually afforded by the policy could be presumed to be an attempt to amend, extend or alter the policy. A majority of states now expressly prohibit this. If the certificate implies that it extends such a policy right, then it is in effect purporting to be a policy form which, I suspect, is illegal in all states whether they’ve opined on specific certificate issues or not. Either a policy grants “primary and noncontributory” coverage or it doesn’t, and the certificate should only reflect what the policy does provide. With that said, let’s focus on the CGL coverage for which that statement “primary and noncontributory” is usually directed at. The ISO CGL policy governs primacy under the Other Insurance clause: 4. Other Insurance If other valid and collectible insurance is available to the insured for a loss we cover under Coverages A or B of this Coverage Part, our obligations are limited as follows: a. Primary Insurance This insurance is primary except when b. below applies. If this insurance is primary, our obligations are not affected unless any of the other insurance is also primary. Then, we will share with all that other insurance by the method described in c. below.
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b. Excess Insurance This insurance is excess over: (2) Any other primary insurance available to you covering liability for damages arising out of the premises or operations for which you have added as an additional insured by attachment of an endorsement. As we can see, condition 4.b.(2) says that the CGL policy is excess over any other primary insurance under which the named insured has been added as an additional insured by attachment of an endorsement. It sounds like this solves our problem, but it doesn’t. Why? First, keep in mind WHOSE policy we’re looking at. It’s the ADDITIONAL INSURED’s policy (assuming they have an ISO or equivalent form) that governs whether AI coverage is primary or excess, NOT your insured’s CGL policy. NONE of ISO’s 30 or so additional insured endorsements mention the phrase “primary and noncontributory.” ISO relies on the Other Insurance clause in the CGL to control primacy which, as we’ve just seen, lies within the AI’s policy, not your insured’s policy. So, that being the case, how can YOU, the agent, say that your insured’s policy is extending additional insured status to the upstream party when it’s THEIR policy that controls primacy? The fact of the matter is that, when you’re using ISO forms, you can’t. At best, you’re guessing that the AI coverage you’re providing is primary. The only way to know with absolute certainty is by reviewing BOTH general liability policies. Do you do that before placing the “primary and noncontributory” wording on a certificate? Unlikely. To make matters worse, you can’t even be certain that what appears to be the unambiguous intent of the policies really is. In the case of Travelers Lloyds Ins. Co. v. Pacific Employers Ins. Co., No. 07-20157 (5th Cir. April, 2010), a tenant insured by Pacific agreed to provide “primary and noncontributory” CGL coverage for the landlord insured by Travelers. Following a customer injury, Pacific refused to provide cover-
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age on a primary basis. The landlord’s “almost ISO” policy said it provided excess coverage over any other “valid and collectible insurance available to you if you are added as an additional insured under any other policy.” However, the tenant’s policy said it was excess over other insurance “unless that insurance is written specifically to apply in excess of the Limits shown in the Declarations.” The court opined that this statement sounded like it was referring “specifically” to an umbrella or excess policy, not another CGL policy. So, there could possibly be no coverage or, at best, pro rata coverage. This demonstrates how important the very specific and unique wording of policies may be interpreted, making it difficult and highly inadvisable that broad wording like “primary and noncontributory” be used on a certificate of insurance, compliance checklist, warranty statement, or agent affidavit. If a loss occurs that is uncovered or otherwise denied by the downstream party’s insurer, you can bet that the agent will be on the receiving end of the lawsuit. Again, keep in mind that none of the ISO AI endorsements address “primary and noncontributory.” However, a number of proprietary carrier AI endorsements do say they are primary or even “primary and noncontributory.” But, once again, you don’t know what the upstream party’s CGL policy says, so you can’t predict exactly how even this specific language might fit with the language in their CGL policy. Also, exactly what does “noncontributory” mean? I’ve never seen it defined in a contract. I’ve seen it defined a couple of times in a proprietary insurer AI endorsement, but that seems rare. If we don’t know with certainty what this term means, how can we say coverage is “noncontributory” without a meeting of the minds on the meaning of the term. Here’s another issue…notice that, under the Other Insurance clause, the upstream party’s CGL policy is excess over the downstream party’s CGL policy only if “you have been added as an additional insured by attachment of an endorsement.” Some carriers are now
extending AI status on a blanket basis within their proprietary CGL policy, not by the attachment of an endorsement. For example, consider this excerpt from one insurer’s liability policy: Additional Insureds When Required By Written Contract or Agreement The person(s) or organization(s) described below are additional insureds when you have agreed, in a written contract or agreement, that such person or orgnaization be added as an additional insured on your policy. Because AI status is provided within the downstream party’s CGL policy and not by endorsement, a literal reading of the AI’s CGL policy now implies that it is NOT excess coverage, which means that it is either primary or provided on a pro rata basis. This may seem like a mincing of words beyond the intent of the policy language, but this is exactly what trial lawyers do when they are litigating policy language. With this information in mind, along with the increasing focus of regulators on certificate wording that might misrepresent policy language, we suggest that agents use extreme caution when responding to requests to place specific wording on a certificate. Note: In its 2013 CGL filing, ISO included a new primary and noncontributory endorsement, the CG 20 01. This form does not eliminate the problem(s) cited above but it does clearly indicate that the intention of the downstream party’s CGL insurer is to provide primary and noncontributory coverage. Related articles can be found on Virtual University by searching “Primary & Noncontributory Myth” “CGL ‘Primary & Noncontributory’ Certificate Requirements” “CGL Contractual Liability, Additional Insured Status, Primary and Noncontributory, and Other Stuff You’re Sick and Tired of Dealing With” The VU Certificates of Insurance Resource Section
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