Insurance Journal West 2024-04-01

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Opening Note

Homeowners Insurance Customers Are Not Happy

Did your homeowners insurance premium go up this year? Mine did. Of course I live just outside of Austin, Texas, where wildfire risk has risen significantly as the state battles ongoing severe drought.

Even with a nearly 25% increase in annual homeowners premium, I was relatively pleased that I didn’t receive a nonrenewal notice as did many homeowners in my neighboring community. While I wasn’t happy to pay more, I do understand why — there are more and more claims driven by catastrophe weather events nationwide.

But after reading many posts on my neighbors’ social media, it was clear that many people had no idea why their insurance premiums rose substantially or why their carrier decided to cancel their coverage after 10, 15, 20 years of no claims.

That lack of knowledge by property owners appears to show in this year’s J.D. Power report on 2024 U.S. Property Claims Satisfaction. With 28 catastrophic weather events in 2023 causing nearly $93 billion in damage, customer service satisfaction plunged to a seven year low, the study found. More extreme weather events led to a larger number of high-severity claims and longer claims settlement times, negatively affecting satisfaction. The average claims cycle time — the amount of time from reporting the claim to finished repairs — has now reached 23.9 days, over six days longer than in 2022.

For claims related to catastrophic events, that average repair cycle time jumped to 34.2 days.

As a result, customer satisfaction has declined by five points to 869 (on a 1,000-point scale) from a year ago, the study found.

The average overall satisfaction score among customers who experienced catastrophic claims is 841.

‘Catastrophic weather events are straining an already fragile system still experiencing supply chain issues that affect the availability and cost of materials.’

“Catastrophic weather events are straining an already fragile system still experiencing supply chain issues that affect the availability and cost of materials,” said Mark Garrett, director of claims intelligence at J.D. Power. “Resources become strained for both insurers and the contractors doing the work. Unfortunately, it’s when claims last beyond three weeks that J.D. Power sees things decline. When claims last less than three weeks, satisfaction improves, so it’s the longer claims that are solely responsible for the decline. Insurers are challenged to manage expectations and proactively communicate during longer claim periods as customers tend to have more questions when experiencing delays.”

Because of rising insurance premiums, when customers have a claim and have to cover $1,500 or more in costs, the study found that satisfaction is negatively affected, even if it is to cover their deductible.

The increasing frequency of catastrophic weather events coupled with policies that often have higher deductibles for this type of weather (wind, hail, named storms, etc.), means more customers will be paying higher deductibles.

News & Markets

2024 Elections to Direct Global Course for Next Decade-Plus: Marsh Specialty

More than 60 elections will be held worldwide in 2024, and the outcomes will likely affect international relationships, drive policy uncertainty and disrupt markets, Marsh Specialty leaders said in a new political risk report.

“The outcomes of the elections taking place this year are set to direct the course of global events for the next decade and beyond,” said Robert Perry, global political risks and structured credit leader at Marsh Specialty.

He continued: “While the world feels like a riskier place in such a time of such macroeconomic and geopolitical uncer-

tainty, businesses that effectively manage and transfer risks in this rapidly changing environment will be well-positioned to seize on future growth opportunities and continue to thrive.”

Long-term uncertainty stemming from macroeconomic competition and geopolitical insecurity “will create even greater economic divergence between sectors and economies, amid growing government intervention and the increasing frequency of harder-to-predict disruptive security events.”

Fragile macroeconomic conditions in the wake of the 2024 elections will be further stressed by high debt levels among

companies and governments, Marsh reported. This, combined with potential weak growth in advanced geographies, could disrupt governmental investment policies and contribute to heightened credit, supply chain and business interruption risks for organizations.

“[A] record number of voters heading to the polls this year are likely to focus on internal economic and international security concerns,” Marsh said. “In addition, the weaponization of artificial intelligence (AI) by non-state groups, adversarial states, politicians and individuals to amplify misinformation and disinformation will further exacerbate policy uncertainty and political violence risks for organizations and investors.”

Marsh reported that the presidential and legislative elections in the United States this November will drive behavior and preparatory decision-making throughout 2024 as businesses and governments “attempt to divine the outcome and its potential economic and political consequences.”

“On a positive note, the limited range of potential outcomes will facilitate efforts to use scenario-planning strategies to prepare for the results,” the report said. “As the election nears, levels of governmental policy paralysis are expected to worsen, with neither Democratic nor Republican parties eager to give the opposition a legislative victory on which to campaign.”

The report also shares that, despite continued volatility and uncertainty, there are substantial global growth opportunities that organizations may benefit from — if these risks are managed effectively.

Read the full report for a deep dive into these diverging risks.

In addition to the political risk report, the World Economic Forum’s Global Risks Report 2024, published in partnership with Marsh McLennan and others, asserts that cooperation on urgent global issues could be in increasingly short supply in the next decade, requiring new approaches to addressing risks.

& Markets

Towers Watson Again Denied Coverage for $90M Settlements Over 2016 Willis Merger

By Andrew G. Simpson

Towers Watson has been hit with another roadblock on its long and winding road to reach coverage for $90 million in settlements of two lawsuits related to its merger with broker Willis in 2016.

A Virginia federal district judge in Alexandria has ruled that a “bump-up” exclusion in the directors and officer (D&O) liability policy provided by National Union applies to bar coverage for the settlements of the lawsuits brought by shareholders. The shareholders complained they were shortchanged by what they said was the “inferior” price they got in the $18 billion merger.

Eastern Virginia U.S. District Judge Anthony J. Trenga rejected Towers Watson’s argument that the settlements did not fall under the exclusion because they did not represent a bump-up in the merger price as the exclusion requires; rather, Towers Watson maintained, they were payments to settle the liability claims. The judge ruled that the focus should be on the overall result. He found that

“at the end of the day, the former Towers Watson shareholders were paid additional monies because the amount they received in the merger was inadequate” and the shareholders’ allegations were “solely predicated on the theory that shareholders got less in the merger than Towers Watson was worth.”

In May 2023, the Fourth Circuit Court of Appeals had rejected another argument by Towers Watson in its bid for coverage.

Towers Watson shareholders filed lawsuits in Virginia and Delaware against Towers Watson’s chairman and CEO John Haley and others, alleging that they received below-market consideration for their shares in the merger. They alleged that Haley negotiated the merger agreement under an undisclosed conflict of interest: Haley would receive $165 million if the deal closed. The shareholders maintained that because of this alleged conflict, Haley purportedly agreed to a below-market valuation of Towers Watson shares to ensure the merger’s success.

The Virginia litigation settled for $75 million; the Delaware settled for $15 million. Towers Watson sought indemnity coverage

for the settlements under its D&O policies including the primary policy from National Union Fire Insurance. The insurers refused the indemnity request, citing the bump-up exclusion in the policies. Towers Watson argued that the exclusion did not apply.

Towers Watson prevailed on one of its arguments in a 2021 federal district ruling when the same judge, Judge Trenga, found that the bump-up exclusion did not apply to bar coverage because the deal between Willis and Towers Watson was not a typical acquisition where one entity gains control over another. Trenga referred to the fact that Towers Watson cancelled its common stock and issued new shares to Willis when it merged into a Willis subsidiary and disappeared.

But in a 3-0 opinion written by Judge G. Steven Agee, the Fourth Circuit Court of Appeals rejected the district court’s reasoning and vacated Trenga’s decision. The appeals court criticized the lower court’s reading of the exclusion and characterization of the merger as “unduly narrow” and faulted the district court for finding “ambiguity where none exists and continued on page 23

Figures

$575 Million

The amount in coverage the Federal Emergency Management Agency (FEMA) said it has secured from insurance-linked securities reinsurance markets for the National Flood Insurance Program (NFIP). FEMA entered in a 3-year agreement with its transformer reinsurer, Hannover Re (Ireland) Designated Activity Co., who then transferred the NFIP risk to investors through a special purpose insurer, FloodSmart Re, for sponsoring catastrophe bonds.

$6.5

Million

The amount two Colorado Farmers must pay for defrauding federal crop insurance programs, according to U.S. Attorney Cole Finegan. Finegan’s office announced that Patrick Esch and Ed Dean Jagers of Springfield, Colorado, agreed to pay the sum to resolve allegations that they defrauded federal crop insurance programs by tampering with rain gauges. The farmers reportedly conspired to make it appear that there was less precipitation in their area than there actually was and tampered with rain gauges in southeast Colorado between July 2016 and June 2017 to prevent them from accurately measuring rainfall.

22%

The percentage rise in reports of incidents of bias — like antisemitism and anti-Black behavior among others — in New Jersey last year, according to preliminary data released by Attorney General Matt Platkin’s office. Unofficial data for 2023 show reports to law enforcement climbed to 2,699 from 2,221 the year before, and an analysis for 2022 and 2021 showed an increase of 17% year over year.

$364

Million

The amount the National Flood Insurance Program has paid out on flood claims from Hurricane Idalia, the storm that swamped part of Florida in August. The Federal Emergency Management Agency said the NFIP had received 5,210 claims from Idalia and had closed 98% of them. The average flood claim paid for Idalia was about $69,900.

Declarations

‘We Don’t Take Sides’

“As a surety, we don’t take sides, it would be wrong for us to do so, and we are in no way supporting the defendant.”

— Said Chubb CEO Evan Greenberg in a letter acknowledging his company’s role in providing Donald Trump with a $91.6 million appeal bond. The surety bond contract, issued by Chubb’s Federal Insurance Co. and signed by Trump, allows the former president to appeal the $83.3 million verdict against him in the E. Jean Carroll defamation case.

COVID Steal

“These individuals took advantage of New Yorkers who stayed at home in the beginning of the COVID-19 pandemic to steal some of their most valuable assets.”

— New York Attorney General Letitia James said, announcing the guilty pleas and sentencing of nine members of a Bronx car theft ring for their roles in the theft of 45 vehicles during a six-month period from April to October 2020. Carried out during the beginning of the COVID-19 pandemic, the operation targeted cars in New York City and Westchester County that were parked on the street for days at a time. The investigation was dubbed “Operation Master Key” for the theft crew’s ability to create keys to gain access to different vehicles.

Texas Panhandle Fire

“Based on currently available information, Xcel Energy acknowledges that its facilities appear to have been involved in an ignition of the Smokehouse Creek fire.”

— Xcel Energy said in a statement acknowledging its involvement in the Smokehouse Creek Fire in the Texas panhandle, which quickly became the largest wildfire in the state’s history, burning more than 1 million acres. The Texas Tribune reported that in the statement Xcel disputed claims that the company acted negligently in maintaining and operating its infrastructure

Wouldn’t Have Bought It

“Plaintiff would not have even bought the Cadillac vehicle to begin with had he known of this grave invasion of privacy.”

— Notes a lawsuit filed by Romeo Chicco, of Palm Beach County, Florida, against General Motors and LexisNexis Risk Solutions, claiming motorist-assistance systems like GM’s OnStar feed data to auto insurers, resulting in higher premiums for some drivers. Chicco’s lawsuit claims his premiums shot up after “erroneous” information was illegally supplied to insurance carriers. The suit claims he neither signed up for the OnStar system nor agreed to let LexisNexis share his driving data.

Pie Concerns

“Although reserves have stabilized since third-quarter 2023, the magnitude of the development is concerning and has had an adverse impact on Pie’s risk-adjusted capital position.”

— Insurance industry rating agency AM Best noted in a statement after placing the financial strength rating of Pie Insurance Group under review with negative implications. AM Best said the action regarding Pie Insurance Company of Columbus and Pie Casualty Insurance Company of Chicago was prompted after Pie’s financial results for 2023, “which included material underwriting losses brought on by adverse reserve development in its New York book of business.”

California Cat Modeling

“As Californians grapple with record inflation and become increasingly vulnerable to climate-driven extreme weather, including catastrophic wildfires, this is a critically needed tool to help identify future risks more accurately and set rates that reflect our new reality. … More accurate ratemaking will help restore balance to the insurance market and ensure all Californians have access to the coverage they need.”

— Mark Sektnan, APCIA vice president for state government relations, commented after California Insurance Commissioner Ricardo Lara said he will allow catastrophe modeling to be used in rate regulation for wildfires.

News & Markets

EEOC Charges, Enforcement, Recoveries Up in 2023: Report

The U.S. Equal Employment Opportunity Commission (EEOC) reported heightened enforcement activity, charge activity and settlements in 2023, according to a recently released report on the agency’s performance during fiscal year (FY) 2023, covering October 1, 2022, through September 30, 2023.

“In line with its strategic plan and strategic enforcement plan, the agency’s performance during FY 2023 reflects both an increased demand for its services and significant remedies for workers who suffered discrimination,” the EEOC report said. The agency reported that it handled more than 522,000 calls from the public through the agency contact center and a 10% increase in receipts of private sector charges of discrimination, while recovering more than $665 million for employees over discrimination.

Overall litigation driven by the EEOC increased, along with a 50% increase in the amount recovered through those litigations and a 10% increase in charges filed with the EEOC.

Some of that increased charge activity

relates to the new Pregnant Workers Fairness Act (PWFA). During FY 2023, the EEOC implemented the newly enacted PWFA, which was signed into law on Dececember 29, 2022. The PWFA provides workers with limitations related to pregnancy, childbirth or related medical conditions the ability to obtain reasonable accommodations, absent undue hardship to the employer. The EEOC began accepting PWFA charges on the law’s effective date, June 27, 2023.

Overall, the report reveals that the EEOC has pursued an aggressive litigation strategy, according to an online analysis by JD Supra of the report. “It comes as no surprise that the EEOC’s enforcement activity, charge activity, and settlements have all increased under a Democratic administration,” the firm wrote.

The performance report showed that the EEOC's recovering of the more than $665 million for employees for discrimination is a 29.5% increase over FY 2022. Of that total, approximately $440.5 million was for 15,143 employees for employment discrimination in the private sector, and

state and local government workplaces through mediation, conciliation, and settlements; and more than $202 million for 5,943 federal employees and applicants, an increase of 53% over FY 2022.

Other report highlights:

• The EEOC received 81,055 new discrimination charges in 2023, which included 233,704 inquiries in field offices, more than 522,000 calls from the public through the agency contact center, and over 86,000 emails, representing respective increases of 10.3%, 6.9%, 10%, and 25% over FY 2022.

• The EEOC filed 143 new lawsuits, an increase of more than 50% compared to FY 2022, including 86 suits on behalf of individuals, 32 non-systemic suits with multiple victims, and 25 systemic suits involving multiple victims or discriminatory policies.

• The EEOC obtained more than $22.6 million for 968 individuals in litigation, while resolving 98 lawsuits and achieving “favorable results” in 91% of all federal district court resolutions.

• The EEOC reported reducing both private and federal sector inventories, including reducing the private sector inventory by almost 300 charges, despite the 10.3% increase in new charges.

• The agency also noted reducing federal sector hearings inventory by 26.3%, the sixth consecutive annual reduction in the federal hearings inventory, and resolving 2,207 federal sector appeals that were or would have been more than 15 months old at the end of the fiscal year, substantially increasing the speed of resolutions.

“Given the increases in charges, litigation, and demand for EEOC services, employers should continue to keep their guard up, particularly due to the increases in monetary recovery,” advised JD Supra in its analysis. “With the upcoming presidential election, employers face the potential for the continuation of the EEOC’s aggressive agenda or a potential shift in a different direction.”

Lloyd’s Reports Banner Year in 2023 but ‘Disciplined Underwriting’ Must Be Maintained

By L.S. Howard

The strong 2023 results at Lloyd’s reaffirm the primacy of underwriting, “but it’s one year and therefore not a reason for complacency,” said Patrick Tiernan, chief of markets, in a market message to discuss preliminary results.

Burkhard Keese, Lloyd’s chief financial officer, said the market “is now super strong” because of continued disciplined underwriting.

As a result, market expansion will be supported for the coming year for high-performing underwriters.

The market delivered a combined ratio of 84%, compared to 91.9% for full-year 2022, which Tiernan said is a global top quartile performance. Underwriting profit for FY 2023 increased nearly 127% to £5.9 billion (US$7.5 billion), compared with £2.6 billion (US$3.3 billion) for full-year 2022.

“In 2023, the shape and geographic composition of the Lloyd’s portfolio meant we were largely sheltered from some of the extreme regional nat cat activity …,” Tiernan said, noting that this performance was achieved despite the fact that global insured losses for natural catastrophes are expected to exceed $100 billion for the fourth year in a row.

“This was a highly successful journey for all of us, remarkable in uncertain times, which we certainly have. Resilience is key and Lloyd’s market is now super strong,” said Keese during the market briefing. “We have followed our robust strategic framework and focused on performance and capital. Your disciplined underwriting has pushed the market’s results into unchartered territory. We have created possibly our own tailwind, but be careful as creating headwind is far easier.”

Keese implored market practitioners to “stay disciplined, please,” while continuing to benefit from “outstanding” underwriting conditions.

Gross written premium increased by

11.6% to £52.1 billion (US$66.3 billion) in 2023, compared with £46.7 billion (US$59.4 billion) for full-year 2022, which reflects 4% organic growth and rate increase of just over 7%. (Actual 2023 FY results were expected to be released on March 28.)

“[O]verall pricing once again outperformed plan and outstripped loss cost trends. So 2023 represents a strong disciplined result that compares favorably against peers, but looking forward, it’s critical that we focus on underlying performance and be led by market fundamentals,” Tiernan emphasized.

Keese said the market handled the D&O and cyber challenges “exceptionally well” in 2023, “but the risk landscape remains ‘spicy.’” This was marked difference from the Lloyd’s Q3 market message in September when Tiernan described the approach being adopted by some elements of the market for D&O underwriting as “moronic,” indicating a lack of discipline in that sector.

5 Phases for Success

Tiernan described Lloyd’s improved performance since 2017 as moving through five phases. First was the remediation

phase, followed by necessary rating for sharply rising exposure values.

During the third phase, Tiernan said, the market grappled with rapidly rising inflation and interest rates, while the latest phase “brings underlying rate adequacy into sharper focus.”

“Finally and crucially, underwriting performance must now be sustained,” he continued. “Right now, I believe we are sitting somewhere between the last two phases. In the last couple of years, the top of the market has been called many times, but in my view, this is a false summit. Risk factors remain elevated across the portfolio and uncertainty has not been becalmed.”

The higher underwriting returns, which are expected from disciplined capital, reflect increased uncertainty, which Tiernan said, gives him confidence “that current pricing dynamics at a market level will not change materially in the near term.

“As a result, we will continue to support market expansion, driven by existing high performers and underwriters with a track record of sustained underwriting profitability across all market conditions. If we look deeper into our own data, we know the best underwriters are capable of getting this right through the cycle.”

Tiernan noted that the outperforming cohort of syndicates has beaten the market by an average of 4% over the past eight years, and notably through the cycle they are able to return a net combined ratio in line Lloyd’s sub-95% threshold for a combined ratio that is deemed to provide sustainable profitability.

“Lloyd’s is uniquely placed to excel during periods of uncertainty and opportunity. It’s a great time to be a disciplined underwriter at Lloyd’s and discipline may well be the difference between sitting on the brink of sustainable growth versus the precipice of a fall,” Tiernan continued.

News & Markets

Expert: ‘Unceasing Onslaught’ of Legal Ads Worth Your Attention

By Allen Laman

Often alarming, misleading or just plain annoying — when mass tort lawsuit advertisements pop up on a TV screen, many consumers instinctually reach for the remote. An expert believes that the ads are worth your attention.

“Especially for those in the insurance industry, ignore them at your own peril, your own risk,” said Rustin Silverstein, president and founder of X Ante, a legal services company that shares data and insights on the forces driving the increase in mass tort litigation.

An ‘Unceasing Onslaught’

The Travelers Institute, the public policy and education arm of Travelers Insurance, recently hosted a webinar that explored the surge in attorney advertising encouraging consumers to pursue mass tort lawsuits.

During the event, Silverstein shared that last year, an estimated $1.2 billion was spent on TV ads by lawyers and others soliciting clients or offering legal services.

More than 16 million advertisements ran in 2023. Or, as Silverstein described it, an “unceasing onslaught.”

To put that number in context, about 45,000 TV ads by lawyers and others soliciting legal claims aired across the United States every day. That works out to about 1,900 ads per hour, or about one lawyer ad airing on television every two seconds.

General auto accident, slip and fall, and personal injury advertisements accounted for about $1 billion in spending, while a selection of more specific topics totaled $152.3 million. Some of these specific mass tort ads targeted prescription drugs, medical devices, specific consumer products, natural disaster insurance claims and more.

“I think one thing to understand about those lawyers and others who solicit these advertisements is that they will always be shifting their topics,” Silverstein said. “They’re always going to look for what is the most likely to bring … the most

lucrative cases ... . So, they’re constantly shifting the targeting of their advertising, and that’s something that we monitor.”

Advertising Drives Financial Rewards

“There is a lot to be gained by airing these ads,” Silverstein said.

Plaintiff firms that place these advertisements collect between a contingency fee of 25% and 40% from the rewards or settlements they receive, Silverstein said, and in the past 10 years or so, about 2,000 advertisers have sponsored ads related to mass tort.

Only about 15 of those advertisers account for half of all the ad spending, though, and a third of those top-spenders aren’t even law firms — they’re for-profit lead generation companies that exist to

generate and sell claims to law firms. Third-party litigation financing is also increasing and has been an attractive proposition, Silverstein said, because returns have been high.

“These advertisers are very sophisticated,” Silverstein said. “They are direct marketers. So, when they see that particular ads will generate what they consider quality leads, quality clients, they will continue to invest in that. They will continue to advertise around it. And then, of course, when they get positive developments in litigation … that will only fuel the fire and the interest in advertising in that particular topic.”

When it comes to verdicts and settlements becoming more expensive in general, Silverstein believes “that a lot of it

is driven by this attorney advertising,” he said. “People see these ads, and it drives them to file more claims.”

He added that this advertising not only generates thousands of lawsuits, but it also pressures insurers and defendants into settlements due to the cost of litigation that never ends because of the large volume of cases and the risk of damage to reputations.

Also, when consumers see enough ads about a company, it begins to change their perception, Silverstein said, translating to impacts on bottom lines and stock share prices. It also influences people who sit on juries about what’s a fair outcome, Silverstein said of the ads.

“I’ll just conclude with saying that I think these ads are ignored at your own risk,” he said. “If you are involved in one of these industries that’s targeted, you will probably face greater consequences. And

what we argue with our clients is the more you can stay on top of what’s happening with this advertising, the better prepared you can be to address these issues as they come up.”

Practical Steps and Key Takeaways

Silverstein outlined three clear values of tracking mass tort advertisement data for insurance industry professionals. The first is the litigation risk component. From an underwriting perspective, are potential policyholders already vulnerable?

“These legal ads are like the canary in the coal mine,” he said. “You will see them before you’ll see the lawsuits being filed. So, before you write a policy for somebody who has a product in the market or may be vulnerable to potential litigation, you can see, have there already been ads run against them on this topic?”

When it comes to managing claim

volumes, the ads can “also be a good proxy for what’s coming,” Silverstein said. “If we’re seeing a lot of lawsuits, is this going to continue for the next year, two years, five years? Well, the lawyer advertising will tell you that. If the ads continue to stay on TV and stay out there, you can expect more lawsuits to follow.”

Monitoring the ads can also be helpful, he said, because studying them can give insurers a sense of who is behind the lawsuits — and who they may face on the other side of the negotiation table. In addition to that, they can help identify parts of the country that are susceptible to advertising and high verdicts and awards.

It’s a bit early to determine the effect of artificial intelligence on ad targeting, Silverstein said, but he believes AI will probably be utilized to streamline the potential client intake process firms have to go through early on in this process. He also sees AI being utilized to develop and tailor their messaging. Because so many of these ads are running, attorneys are constantly competing, Silverstein explained, and they’re “always looking for new technology, [a] new approach to help them in this kind of never-ending competition.”

A Parting Thought

During the webinar, Stef Zielezienski, executive vice president and chief legal officer of the American Property Casualty Insurance Association, pointed to Florida as an example of light at the end of the tunnel.

Last year, Florida Gov. Ron Desantis signed a reform bill into law that aimed to “decrease frivolous lawsuits and prevent predatory practices of trial attorneys who prey on hardworking Floridians,” according to information posted on the governor’s official website. The bill “modifies the bad faith framework, eliminates one way attorney’s fees and fee multipliers and ensures that Floridians can’t be held liable for damages if the person suing is more at fault,” the statement said.

Zielezienski said effectively highlighting the disconnect between the percentage of claims versus a high percentage of lawsuits “was really what opened the eyes of those that were probably skeptical to reform.”

People

National

CRC Group, headquartered in Birmingham, Alabama, hired Vince Colosimo as executive vice president in the company’s New York City downtown office. Colosimo will assume the role of office president in mid-2025, with current Office President Fred Curatolo taking on a newly created role as office chairman. Before joining CRC Group, Colosimo most recently served as executive vice president at Markel.

AXA XL appointed Anne Marie Elder global chief underwriting officer.

Based in Hartford, Connecticut, Elder will collaborate with regional underwriting operations to set the strategic direction, and support business development, of AXA XL’s collective marine, aerospace, and specialty niche portfolios, under a newly created global specialty branch.

Elder previously served as AXA XL’s global chief underwriting officer, marine.

Marsh McLennan, headquartered in New York, appointed David Liston as U.S. and Canada chief commercial officer (CCO).

Liston previously served as Marsh U.S. and Canada corporate segment leader, and recently had an expanded role across Marsh and Mercer, driving mid-market offerings for the region. His appointment follows the transition of Susan Potter to the role of president, Mercer U.S. and Canada.

Liston, who has been with Marsh for over 30 years, previously served as the U.S. sales and marketing leader, and prior to that was responsible for the New York, New Jersey and Connecticut region. He is based in New York.

East

Markel Group Inc., based in Glen Allen, Virginia, named Mike Heaton executive vice president and chief operating officer.

Heaton most recently served as executive vice president at Markel Group. From 2016 to 2022, he served as president of Markel Ventures and was the chief operating officer of Markel Ventures before that.

Risk Strategies, headquartered in Boston, named Stuart Piltch president of its Risk Strategies Consulting business segment.

A 35-year consulting industry veteran, Piltch joined Risk Strategies through the 2021 acquisition of Cambridge Advisory Group, a pharmacy, actuarial and benefits consulting firm founded by Piltch in 1999. In his new role, Piltch will be responsible for the Risk Strategies Consulting business segment, including growth, strategic direction and client satisfaction.

Risk Strategies also named John T. Carson as employee benefits leader, New England region. Carson will be responsible for the regional strategy for the employee benefits business segment.

Carson has over 20 years of experience in business development and executive leadership in health, retirement, equity compensation and human resources/payroll

administration. He previously served as the head of U.S. commercial growth for TELUS Health and, before that, as chief revenue officer for Vericred and Flores & Associates.

Risk Strategies is a privately held brokerage firm offering risk management advice, insurance and reinsurance placement for commercial companies, nonprofits, public entities, and individuals from more than 100 offices.

Midwest

World Insurance Associates, in Iselin, New Jersey, named Andrea Haan chief human resources officer. Haan is based in Chicago.

Haan comes to World with over 25 years of human resources leadership experience in the insurance, financial services and data and analytics industries. Before joining World, Haan was senior vice president of global talent for Circana.

Lockton, headquartered in Kansas City, Missouri, named Steve Goldenberg executive vice president, operations. He is based in Kansas City.

Goldenberg joins Lockton from Aon where he held several senior leadership roles throughout his 15-year tenure, including most recently serving as global chief operating officer, commercial risk solutions.

Leif Assurance, headquartered in St. Louis, hired Lauren Elizabeth Gulli as brand marketing specialist and Connor Kay as digital

marketing specialist.

Before joining Leif Assurance, Gulli was a marketing director for a business consulting firm. Kay previously worked as a business development representative at Axiom.

Valley Insurance Agency Alliance (VIAA), a family of more than 160 independent insurance agencies in Missouri and Illinois, hired David Drda as an alliance coordinator.

Drda has 12 years of insurance industry experience, previously serving as an account manager for sister company Powers Insurance & Risk Management.

Matt Cohan joined Alliant Insurance Services as vice president within its employee benefits group. The Kansas City-based consultant will serve a national client base.

Cohan joins Alliant with more than 20 years of industry experience. Before joining Alliant, Cohan was vice president and director of employee benefits with IMA Financial Group Inc.

Acrisure, headquartered in Grand Rapids, Michigan, tapped longtime partner Kelly Reed to lead its newly established Great Lakes regional unit, encompassing its businesses in Michigan, Indiana and Ohio. Reed has over 15 years of experience in healthcare,

David Liston

David Drda

Steve Goldenberg

Kelly Reed

surety, construction, manufacturing, professional liability and transportation. He previously served as CEO at Vast. Schauer Group in Canton, Ohio, named Vice President Alex Schauer head of its employee benefits division. Schauer, who is based out of the firm’s Cleveland office, has been with Schauer Group since 2014. Schauer represents the fourth generation of Schauer Group leadership and is assuming departmental responsibilities held for decades by William T. Schauer, who now serves as vice chairman of Schauer Group.

South Central

Jeffrey Houston has been appointed to the Texas Risk Management Board for a term set to expire on Feb. 1, 2025. Additionally, Gerald Ladner Sr. was named chair of the board, which coordinates, monitors and directs information resources management within state government.

Houston, of Dripping Springs, is senior vice president at Mondee Holdings Inc. in Austin. He is a member of the Chartered Financial Analyst (CFA) Society of Austin and former member of the CFA Society of Chicago.

Ladner, of Austin, is a semi-retired property/casualty insurance company senior executive. His 42-year career included serving as vice president of Strategic Agent Partnerships and External Affairs, vice president of Sales, and regional president for State Auto.

Lou Lerant joined South & Western Insurance as a business development specialist. South & Western Insurance, based in Addison, Texas, is a member of the Bridge Specialty Group.

Lerant will work closely with sales and underwriting to grow revenue organically. Lerent has over 10 years of insurance industry experience in marketing and underwriting.

The board of directors for CompSource Mutual Insurance Co., headquartered in Oklahoma City, appointed Trey Ingram chief executive officer.

Ingram has served nine years on CompSource Mutual’s board and previously served as CEO at Momentum AI and Legend Energy Services.

Steve Hardin, CompSource Mutual’s chief financial officer, has served as the company's acting president since November and will continue as president along with his current role as CFO.

Southeast

BenefitMall, headquartered in Dallas, named Jenny Long as sales manager for retention overseeing Georgia and Florida markets.

Long brings 15 years of industry experience to her new role. Before joining BenefitMall, Long served as a retention manager and a sales executive with Humana.

West Leah

Barr joined commercial transportation insurance wholesaler Across America Insurance, based in Riverside, California, as chief financial and technology officer.

A 20-year insurance industry veteran, Barr was previously technology manager in the premium accounting department for Amwins and vice president, CFO at Hanover Excess & Surplus.

Marc Sobel joined Aspire General Insurance Services in Rancho Cucamonga, California, as state expansion and strategic account manager. He will focus on Aspire’s state expansion plans, starting with Arizona.

Sobel has 30 years of insurance expertise, primarily in specialty auto. He most recently served as a senior sales executive at Kemper, where he worked for over 20 years.

Burnham Benefits Insurance Services, headquartered in Irvine, California, named William Foderaro as managing director.

Foderaro has more than 20 years of experience in the employee benefits industry. He was most recently managing director at OneDigital.

Mercury Insurance, headquartered in Los Angeles, named Simon Zhang chief data and analytics officer.

Before joining Mercury, Zhang was chief data scientist

at GrowingIO.

BenefitMall named Carmen Perea sales executive for Northern California. Perea has more than two decades of industry experience. Perea previously worked as an account executive at Dickerson Insurance Services, An Alera Group Co.

Anne Belinn joined Alliant Insurance Services as a vice president within its employee benefits group. Belinn will provide employee benefits consulting to a wide variety of clients nationwide.

Belinn has over 25 years of experience in employee benefits consulting and served a lengthy tenure as a senior vice president and partner at Woodruff Sawyer.

Alliant is headquartered in Irvine, California,

C3 Risk & Insurance Services in San Diego promoted two employees to partner positions.

Doug Shea, construction practice leader, joined C3 in 2021 as its construction practice leader. He previously worked with Barney & Barney and Marsh McLennan.

Chris Morse, producer, joined C3 in 2022.

He previously worked at Brown & Brown and at Wells Fargo

Alex Schauer

Lou Lerant

Trey Ingram

Leah Barr

William Foderaro

Carmen Perea

Doug Shea

Chris Morse

Twice as Many Personal Lines Insurers Downgraded by AM Best in 2023

AM Best delivered 39 downward credit rating actions to U.S. personal lines insurers in 2023, more than twice the number registered for 2022, the rating agency reported in its official tally for the year.

Additional downgrades of 15 commercial insurers and one reinsurer brought the U.S. property/casualty insurance industry total to 55 for all of 2023 compared to 30 in total for 2022, the rating agency said in a recently published report.

Although upgrades outnumbered downgrades for both commercial carriers and reinsurers in 2023, only 9 of 48 up-or-down rating actions for personal lines insurers actually brought their credit ratings up. The personal lines cohort saw downgrades soar to more than twice the number recorded in 2022 (to 39 from 18).

Auto carriers accounted for 24 of the personal lines downgrades, and all of the downgrades in the personal lines segment included a dimmer view of balance sheet strength, one of the “building blocks” that drive AM Best rating actions. The AM Best report notes that many of these downgrades were fueled by changes to multiple building blocks, which also include operating performance, business profile and enterprise risk management.

“Declines in capitalization and deteriorating operating performance drove the rating downgrades in the personal lines segment,” said Helen Andersen, industry analyst, AM Best, in a statement.

The few personal lines insurer credit rating upgrades, on the other hand, were largely not related to building block improvements. Instead, 60% were related to lift created by greater support from a parent organization or companies being integrated into higher-rated rating units.

For the three segments combined — personal, commercial and reinsurance — rating downgrades represented 7.4% of all AM Best rating actions in 2023, which also include initial ratings (25), affirmations (585) and actions to place ratings under review (41).

The under-review actions for 2023,

mostly with negative implications, were almost double the number placed under review in 2022 (24), with the 2023 total representing 5.5% of all rating actions last year.

There were also seven fewer initial ratings assigned in 2023 than in 2022 (25 in 2023 vs. 32 in 2022). The bulk of last year’s newly assigned ratings — 19 — were in the commercial lines segment. Five were in the personal lines segment and one was a reinsurer, AM Best said.

One of the commercial insurers with newly assigned ratings in 2023 is already under review. AM Best in late March announced that it had put the A-minus (Excellent) financial strength rating of members of Pie Insurance Group under review with negative implications, along with the long-term issuer creating rating of a-minus (Excellent).

The rating agency said “material underwriting losses brought on by adverse reserve development in its New York book

of business” prompted the action on the workers’ comp insurtech.

“Although reserves have stabilized since third-quarter 2023, the magnitude of the development is concerning and has had an adverse impact on Pie’s risk-adjusted capital position,” AM Best added in a statement.

AM Best has also removed the “under-review” status from at least two property/casualty groups in recent weeks — affirming ratings for GuideOne Insurance Companies, a commercial casualty writer, and Stillwater Insurance Group, writing personal property.

Best removed the “under-review” status from GuideOne’s A- financial strength rating and a- long-term issuer credit ratings, highlighting a strategic capital investment of $200 million made by Bain Capital Insurance, as a reason for the change. While balance sheet strength is strong, other building blocks are weaker — operating performance is marginal,

business profile is neutral and enterprise risk management, appropriate.

“The [Bain] investment puts GuideOne in a much stronger capital position following significant surplus deterioration in 2022, driven by a net loss along with unrealized capital losses, as well as some deterioration through third quarter 2023 due to continued underwriting losses and other losses,” AM Best said.

AM Best’s GuideOne rating announcement also described the creation of The Mutual Group from Bain’s acquisition of GuideOne Insurance Co.’s operational platform. The Mutual Group will act as a full-service insurance operations service provider for small to mid-sized mutual insurance operations, GuideOne included.

In removing the “under-review” status, AM Best assigned a negative outlook to GuideOne’s ratings, reflecting “the continued pressure on GuideOne’s balance sheet strength assessment.”

While AM Best referenced the fact that “unprofitable underwriting performance related to the specialty business has negatively impacted its capital levels in recent years,” the rating agency also noted “significant actions the company has recently taken, including the exit of the specialty business” to improve underwriting results and the capital position.

AM Best similarly removed the “under-review” status while assigning a negative outlook to Stillwater Insurance Group’s affirmed financial strength (A-minus) and long-term issuer credit ratings (a-minus), assessing balance sheet strength as strong, operating performance as adequate, business profile as neutral and enterprise risk management, appropriate.

Among the issues that caused AM Best to place Stillwater’s ratings under review last year were “a significant decline in its surplus position at yearend 2022 from substantial unrealized capital and net underwriting losses,” with unfavorable underwriting results continuing in 2023.

The unrealized capital

losses were driven by equity markets volatility, while underwriting losses related to “multiple fire losses and weather-related events, as well as rapid and atypical increases in inflation that have plagued the entire industry,” Best said, noting that Stillwater’s homeowners line of business accounts for about 72% of its premium volume.

“The removal of the under review with negative implications status is based on a series of initiatives implemented by management to replenish capital, [including] a capital infusion from its parent, the implementation of a quota share reinsurance treaty for the property book of business, increased top layer catastrophe coverage and a further reduction of common stock holdings in the investment portfolio to remove market risks.”

Looking ahead, Best stated, “The expectation is for operating metrics to improve in the near term to alleviate further pressure on capitalization. Further deterioration in operating results or overall risk-adjusted capitalization could potentially result in a downgrade in either the balance sheet or operating performance assessments.”

As for what’s in store for other rated entities this year, Anderson said, “AM Best expects market trends to continue to have a negative impact on the U.S. personal lines insurers.”

“Carriers that are slow to address challenges or do not have the means, expertise or technological capabilities to keep pace with changes in the environment will likely face ratings pressure,” she said.

Business Moves

National

Novatae Risk Group, Bretton Woods International

Dallas-based Novatae Risk Group is acquiring the Lloyd’s broker Bretton Woods International (BWI) of London.

The transaction is subject to applicable regulatory approval and is expected to close before the end of the second quarter. Terms of the transaction were not disclosed.

BWI is a specialized insurance broker, focusing on open market and program placements, covering complex contingency, accident and health, cyber, professional liability, management risk and general liability.

The company was founded by Dan Goggin in 2015, a former Lloyd’s class underwriter with Ark Syndicate Management and previously a broker with Miller Insurance Services.

Locke Lord provided legal counsel and Alvarez & Marsal advised Novatae on the transaction. Temple Bright provided legal counsel and PKF Littlejohn LLP provided accountancy services to BWI on the transaction. No other advisors, diligence firms or legal counsel were disclosed.

Novatae Risk Group is a wholesale insurance brokerage, managing general agency and program manager that provides specialty insurance products and services for complex and hard-to-place risks across property, casualty, workers’ compensation, cyber, professional, management, construction, environmental, garage, inland marine/ocean marine and more. The

company serves more than 6,000 clients from 27 offices across the United States.

East

Brown & Brown, DealerMax

The dealer services division of insurance agency Brown & Brown has acquired the assets of DealerMax.

DealerMax, founded in 1982 by Jim Maxim Sr. as Maxim Automotive, serves car dealer customers in Pennsylvania and throughout the Northeast offering finance and insurance (F&I) training and product offerings.

The DealerMax team will join Brown & Brown Dealer Services and continue to operate from Berwyn, Pennsylvania.

The team will report to Robert Hunter, president of Automotive F&I. Co-owner Jim Maxim Jr. will remain with the company during the transition period.

Brown & Brown is a Florida-based global insurance brokerage firm.

Midwest

Hub International, Arbury Insurance Agency, Michigan Insurance Associates

Hub International Limited, a global insurance brokerage and financial services firm, announced it has acquired A.S. Arbury and Sons Incorporated (Arbury Insurance Agency) and the assets of Michelle L. Everett Inc. (Michigan Insurance Associates).

Terms of the transaction were not disclosed.

Located in Midland, Michigan, Arbury

Insurance Agency and Michigan Insurance Associates are independent insurance agencies providing commercial and personal insurance, and employee benefits services to the Midland region. The move continues Hub’s growth in the state after the addition of Project Motown last year.

Arbury Insurance Agency principals and Michigan Insurance Associates principals Michelle Chesney, Matt Granzo, Jacob Howard, Brian Holmes, Neil Provost, Jared Leidich, Austin Rapanos and their respective teams will join Hub Midwest East.

Arbury Insurance Agency and Michigan Insurance Associates were represented by the consulting firm Reagan Consulting for the transaction.

North Risk Partners, McKinneyOlson Insurance

North Risk Partners, one of the largest independent insurance brokers and risk advisory firms in the Midwest, has acquired McKinneyOlson Insurance in Sioux Falls, South Dakota.

With this new partnership, 26 McKinneyOlson team members have joined North Risk Partners, adding new Sioux Falls and Brandon, South Dakota, office locations. Owners Amy Olson-Miller and Steve Tripp both joined North Risk’s equity partnership group.

McKinneyOlson Insurance has a strong history of serving clients in the Sioux Falls area with roots dating back to the 1880’s. The firm has been under current ownership since 2008 when McKinney & Allen Inc. and The Olson Group merged. In 2019, McKinneyOlson Insurance further expanded operations with the acquisition of The Insurance Connection.

North Risk Partners – McKinneyOlson Insurance clients now have access to North Risk’s wide array of capabilities and insurance companies in the areas of commercial insurance, employee benefits, and personal insurance.

Brawner Insurance, Armstrong Insurance

Brawner Insurance Agency acquired Armstrong Insurance, a four-year-old agency serving Northeast Missouri.

Brawner Insurance owner Jared Brawner will continue to serve as president and

hired Jake Bunker as sales advisor to assist with day-to-day operations.

Bunker brings 12 years of experience to his position. He previously worked at State Farm and various regional auto dealerships in sales, finance, and leadership positions.

Founded in 1992, Brawner Insurance specializes in crop, employee benefits, Medicare, personal and commercial insurance needs. The full-service agency is located n Kirksville, Missouri.

Brawner Insurance is a member of Valley Insurance Agency Alliance (VIAA), a cohesive family of more than 160 independent insurance agencies in Missouri and Illinois.

South Central

Brown & Brown, Hillco Insurance

Brown & Brown has acquired the assets of Texas-based Hillco Insurance.

Hillco was established by Hunter Hill in the Dallas metropolitan area to serve the personal and commercial insurance needs of the expansive Dallas business community. The Hillco team is focused on providing insurance solutions for their wide range of customers with deep understanding of unique needs of the Texas insurance market.

Hillco will join the Brown & Brown office in Dallas and will continue to be led by Hunter Hill. Hill will report to Erik Templin, the leader of Brown & Brown Dallas team.

Brown & Brown Inc. is an insurance brokerage firm, delivering risk management solutions to individuals and businesses since 1939.

Southeast

FTI Consulting,

Madison Consulting Group

FTI Consulting, a global risk advisory firm has acquired Madison Consulting Group, based in Madison, Georgia, and Newtown Square, Pennsylvania.

FTI Consulting, which recently released an annual report on mergers and acquisitions in the European insurance market, said the acquisition expands its actuarial and compliance offerings in its global insurance services and its forensic and

litigation consulting practice.

Terms of the deal were not disclosed.

Madison Consulting, an independent actuarial firm, was founded in 1987. Clients include state and federal regulatory agencies, law firms, insurance companies, managing general agents and self-insurance programs.

Madison President Mark Crawshaw will join FTI as senior managing director. Tina Knight, Leslie Marlo and John Gleba will serve as managing directors.

With offices in Washington, D.C., FTI now has almost 8,000 employees in 31 countries and territories.

West

IMA Financial,

RiskPoint Insurance Advisors

IMA Financial Group acquired RiskPoint Insurance Advisors LLC in the Pacific Northwest. With the transaction, k.p.d. Insurance and JL Jones and Associates

will join RiskPoint in rebranding as IMA companies and expanding IMA’s presence in the Pacific Northwest.

RiskPoint was founded in 2009.

IMA Financial Group is an independent broker with 2,300-plus associates in offices across the U.S.

Hub International, Bolds Risk & Insurance Hub International Ltd. acquired the assets of Bolds Risk & Insurance Services in Larkspur, California.

Bolds Risk is an independent insurance firm providing commercial and personal insurance, and risk management services to clients in the region. Ron Bolds, president of Bolds Risk, and the Bolds Risk team will join Hub Central and Northern California in the Larkspur office.

Chicago, Illinois-based Hub is an insurance broker and financial services firm providing risk management, insurance, employee benefits, retirement and wealth management products and services.

Spotlight: Association D&O

3 Things to Know About Condo Association Boards

By Patrick Wraight

The condo association takes on a special level of responsibility because of the unique form of ownership that is the condominium. To make sure we are all on the same footing, a condominium is a form of ownership where a person (in the broadest possible sense) purchases a unit within a building. By purchasing the unit, they also buy their spot as co-owner of the entity that owns the entire property — whether it is a single building or a group of buildings, including their appurtenant structures (the clubhouse, pool houses, pools, etc.) — the condo association.

The association elects a board of directors. The board acts on behalf of the unit owners to conduct the business of the association. This allows business to be done without the need to bring the body of owners together to make decisions. That exposure creates the need for the board to have directors’ and officers’ liability (D&O) insurance in place.

D&O insurance provides coverage for the decisions of the board and the individual members of the board. Condominium association boards have to make decisions ranging from hiring lawn maintenance contractors to handling the association’s funds to purchasing insurance for the association’ various exposures.

All of these decisions can lead to a D&O exposure. While it seems like it would be impossible to reduce the chance of a D&O claim to zero, it is possible to reduce the chances and to mitigate the impact of the claim, if filed.

Know the Board Members

In order to best manage the risks of a D&O claim, the association should start at the source of potential D&O issues and that is with the board members.

Each member, and potential member, of the board should be required to submit to some degree of scrutiny. Their personal business is not personal if they want to take on the responsibility of leading the association for the good of the members. Board members should be required to, at

a minimum, submit an application that details the board position they are seeking and why they think they would make a good board member.

The application process should include divulging any businesses that the potential board member has an ownership stake in, especially any businesses that could end up bidding as a vendor for the association. Additionally, the application should include an anti-conflict of interest provision that requires board members and potential board members to report any potential conflicts of interest before any business is considered.

It may seem intrusive, but especially if the board members have access to association funds, a review of potential board members’ financial situation may be in order.

Financially insecure board members may be swayed in their decision-making process to vote in such a way that helps their finances rather than protecting the

financial investments of the association. Document Proceedings

If there is an item that can prevent a problem as quickly as it can create a problem, it’s documentation.

Properly documenting meetings allows for the transparency that people expect and can answer most questions that come up. A decision may have turned out to be the wrong one and created a problem, but if the decision-making process is documented and the conversation captured, it tells why the decision was made in the way it was.

The documentation of meetings creates the historical records that form the chain of events before each decision. Documentation helps to answer questions such as why choose vendor A over vendor B or why choose solution 1 over solution 2. This takes away the potential for accusations of misconduct in fielding business proposals, or other business where the board could be questioned.

In the past, a secretary might have recorded the meeting minutes, and that may still be the preferred method for many association boards. It would be easy enough, however, to create a video (or audio) record of board meetings so that there are no questions as to how the board came to a decision.

Communicate Decisions

After documentation, communication is another simple way to avoid D&O trouble and the lack of communication is a way to invite trouble. Communication should be simple, direct and complete. All board communications should be sent the same

continued from page 9

ascribing specialized meanings to policy terms that the parties did not reasonably intend.” Judge Agee noted that neither the bump-up exclusion nor the policy stipulates, or even hints, that the term “acquisition” was intended to refer only to a particular form of acquisition, such as a takeover.

The Fourth Circuit concluded that the merger was unambiguously within the scope of the bump-up exclusion, vacated the district court’s order, and remanded the case for further consideration of Towers Watson’s remaining arguments: Whether for the purposes of the exclusion Towers Watson is “an entity” under the policies and whether the settlements “represent the amount by which … consideration is effectively increased.”

The Fourth Circuit denied Towers Watson a rehearing and Towers Watson dropped the argument over whether it was an entity as anticipated under the policies. That left Judge Trenga and the district court to consider whether the underlying $90 million settlements represent an effective increase in consideration for the original Towers Watson shares and thus fall under the exclusion.

National Union argued that the consideration paid in the merger to shareholders was inadequate and the $90 million settlements increased the total payments to former Towers Watson

way every time in a way that is clear to the members of the association.

Any time the board meets, they should communicate the results of that meeting, even if it seems as though there was nothing to report. The more information that is available to the association, the easier it will be to defend issues that might come up.

If every board meeting is communicated to the association, including those meetings where major decisions are made, it reduces the likelihood of someone accusing the board of making decisions without informing the association about what’s happening.

shareholders because of the merger.

Towers Watson argued that the exclusion did not apply because the $90 million represented amounts to settle the shareholder liability claims and did not represent an increase in the final merger price. Towers Watson denied that the settlements represent an increase in consideration as a material condition of the settlement and said shareholders were never told that it was.

Judge Trenga rejected that argument and sided with the insurer, ruling that the exclusion applies to bar coverage because the $90 million does relate to the final merger price. The judge said the issue is whether the settlements “represent the amount by which such price or consideration is effectively increased.” He found that the amounts paid by way of the settlements “clearly related to the amount of consideration the shareholders received in connection with the merger and were paid because of the merger.”

The question, he continued, is whether the settlements in effect represent such consideration for the merger. The court concluded the settlements did just that.

While it is true that the settlements were not amounts paid “for” the merger in the same way that the special dividend and the Willis shares received by Towers Watson shareholders were paid as merger consideration, the exclusion does not only apply to those amounts specifically

Continual open communication with the association also allows the board to seek the input of the association members.

If the members choose not to make their voices heard, either by attending meetings, or by responding to the reports of the board, then they help make the case that the board is acting according to the wishes of the members.

Editor’s Note: A version of this article ran in April 2023.

Wraight, CIC, CRM, AU, is director of Insurance Journal’s Academy of Insurance. He can be reached at pwraight@ijacademy.com.

identified as the consideration paid for a merger or its completion, the opinion says. Rather, the exclusion reaches any amounts “representing” that which “effectively increases” the consideration paid for the merger.

“The focus is therefore on the overall result — whether, at the end of the day, the former Towers Watson shareholders were paid additional monies because the amount they received in the merger was inadequate. That is the case here, where the actions’ allegations of harm were solely predicated on the theory that shareholders got less in the merger than Towers Watson was worth.

Moreover, the court added, the policy contemplates that the exclusion could apply to amounts distributed after the merger consideration has already been paid. Accordingly, the “real result” of the subsequent settlements was that the shareholders received increased consideration for the merger, which places the settlements squarely within the exclusion’s carve-out from covered loss.

Willis and Towers Watson completed their merger on January 4, 2016, and shares of Willis and Towers Watson ceased trading at the close of the New York Stock Exchange and NASDAQ Stock Market, respectively, that day. Shares of Willis Towers Watson now trade on the NASDAQ under the symbol WLTW.

Closer Look: Cyber

Underwriters’ Dilemma: Is AI a Cyber or Tech E&O Risk?

By Elizabeth Blosfield

When it comes to artificial intelligence, more questions than answers keep underwriters from venturing into the space and lead to a lack of clarity, according to panelists at The Professional Liability Underwriting Society’s 2024 cyber symposium in New York City.

“I mean, the thing with AI is it’s not new. It’s been around since the ‘50s,” said Garrett Droege, director of innovation and digital risk practice leader at IMA. “Generative AI is pretty new, but it’s still a subset of deep learning and a subset of machine learning. It’s all been with us for a long time. I

think we as an industry have done a bad job at keeping pace with that, because we saw this coming 20 years ago.”

Droege, who was speaking on a panel about the intersection of cyber and tech E&O coverages, said insurers should have built models around AI and how it would likely impact the risk profile of companies when they first saw the risk coming.

“I haven’t seen, in the wild, any AI exclusions policies,” he said. “However, I talked to a lot of people in this room — chief underwriting officers — and I know they exist. They’re sitting at a desk waiting to be deployed” on cyber and tech E&O policies.

He said one element keeping

insurers from moving forward is a lack of clarity about AI risks and whether they fall under a cyber or a tech E&O policy. “I mean, we do work with a lot of technology companies — a lot of emerging technology companies — and the risk is not that clear between the two,” he said. “Sometimes it’s both. What happens if the tech fails and allows unauthorized access? Well, then that’s a tech E&O claim. What happens if there’s just a brute force entry? Then it’s a cyber claim.”

Subtle Differences

The challenge for underwriters is that these differences are often subtle, said Jeff Kulikowski, executive vice president at Westfield Pro.

“Just because a company uses technology doesn’t make it a tech E&O risk,” he said. “So, we get a lot of requests — and I’m sure it comes from the client most times — to just add every coverage they can, and that’s fine. But there’s a distinct difference between a company that uses technology to perform their professional service versus a company that’s providing a technology service for others for a fee.”

He said strategic consultants, doctors, auto salespeople and accountants, for example, all use technology to perform a professional service and should have their own E&O policies. However, they’re not providing a technological service to others like a software or

telecommunications company.

“It sounds easy to distinguish, but it’s really not,” he said. “You can get into some very confusing arguments around third-party administrators, whether it’s an entirely related software or it’s a service model. There are hybrid models, but I think we all can do a better job at determining what’s technology versus a technology service. It’s very, very subtle, and it takes a little digging into.”

Underwriters should be analyzing clients’ operational models to determine what their losses could be and the types of exposures that should be covered, Kulikowski said.

“While it’s certainly the client’s responsibility to analyze as much as possible, it’s also the

underwriter that needs to tell the client what information is needed on their contracts, what questions around their business model differentiates them from A, B, C or D, and to really dive in. It’s just a different level of underwriting than your standard cyber policy. We have to understand the operational risk, not from a business interruption standpoint but from an actual financial loss standpoint.”

This is especially important as these financial losses can add up, Droege said.

“If and when the shoe drops and there’s a major event that results in AI containment that people are worried about, you want to know if this would be an exclusion on a policy around the cyber or tech E&O or both,”

he said. (Editor’s note: AI containment refers to limitations being placed on AI that prevent it from advancing too far.)

“I’m sure there are people in this room that are aware of recent claims involving generative AI and social engineering claims. They’re very, very costly. That’s going to be where we’re headed,” Droege said. “We’ve got to figure out what does that mean for cyber? How do we underwrite against that? Can we underwrite against that?”

Evolving Risk

Meghan McEvoy, vice president and cyber and E&O broker at Aon, said she is constantly working with clients as this risk evolves. She added it’s important to find out who

the key stakeholder in a client’s organization is to make sure they’re ethically entering the AI space and what their ethics committee or privacy team is doing to keep up with the regulatory environment.

“It’s about making sure you’re keeping up with that AI regulatory environment that’s starting to expand and what you’re doing to protect data and protect your network,” she said.

Kulikowski agreed, adding that “AI has to be the most overused phrase in the industry right now,” and with good reason.

“Ten years ago, if you said AI to an underwriter, the first thing that they would think of is Skynet. So, now we’re sitting continued on page 26

Closer Look: Cyber

continued from page 25

here thinking, ‘How can we underwrite to AI?’” he said. “When you dig into it, it’s not simple in any way. But I really think the big question [for clients] is not just do you use AI but how do you use it?

Is it within your marketing platform? Do you use it to scrape data? Do you use it for running a trading platform or making investment decisions? Do you utilize it within your manufacturing process?” (Editor’s Note: Skynet is the fictional AI system depicted in “Terminator” films.)

While determining how AI is being used is a step toward increasing clarity around cyber and tech E&O coverage, those aren’t the only questions on

‘I haven’t seen, in the wild, any AI exclusions policies. However, I talked to a lot of people in this room — chief underwriting officers — and I know they exist. They’re sitting at a desk waiting to be deployed.’

Garrett Droege, IMA

insurers’ minds when it comes to AI risks.

“There are some issues with generative AI and software development where you can use ChatGPT to code for you, and most developers do that all day every day,” Droege said.

“Where’s the liability line for that if the software results in a data breach? If the code was not secure and it allowed unauthorized access, but the code was written by the AI and not the company, who’s responsible? Is it the developer of the AI model? Is it the software developer?”

Truth with Certainty

Another problem Droege sees with AI is an inability to determine the truth with

‘There’s a distinct difference between a company that uses technology to perform their professional service versus a company that’s providing a technology service for others for a fee … Just because a company uses technology doesn’t make it a tech E&O risk.’

Jeff Kulikowski, Westfield Pro

certainty.

“For hundreds of years, we’ve been able to use our eyes and ears to verify, ‘Yeah, I saw that, I heard that, so that is true.’ Now, that’s not the case,” he said. “There are cyber events happening right now where people are using generative AI to mask live video streams and to mask audio calls.”

He said in these cases, phone or video calls can come from cyber criminals using AI to pose as a company executive and gain information or money fraudulently.

“I think you’re going to see blockchain as a bit of a savior for the AI challenges that we have, as a general ledger that is a single source of truth that

‘It’s about making sure you’re keeping up with that AI regulatory environment that’s starting to expand and what you’re doing to protect data and protect your network.’

Meghan McEvoy, Aon

can back up, and we can verify identities,” he said. “That’s going to be the way in my opinion.”

While underwriters are figuring out how to address AI, Kulikowski said one thing is certain: He doesn’t feel that it’s ready to be its own class of business quite yet.

“I feel like everybody panics about AI, and it’s something that you need to take your time and really look through the basics of what it is — specifically generative AI — and how it’s utilized within a company,” he said. “I don’t know that it’s yet its own class of business. It’s certainly an exposure class, but it’s really up to us as the industry to define the risk as it sits in every industry, and again, how it’s utilized and how we can address that.”

This means that at some point, hesitant underwriters will simply need to take the plunge despite unanswered questions, Droege said.

“There aren’t a lot of carriers raising their hands and saying, ‘Yeah, we love new risks,’” he said. “That’s the one thing we don’t do well as an industry. We want to understand it. We want to sit on the sidelines, let someone jump in the water first, and see what plans are going to come out of it. But a lot of these emerging technologies are moving so fast. Insurance is the currency of business. These companies have to have insurance to get the contracts to build the models that we’re all relying on and build things safely.”

Blosfield is the deputy editor of Carrier Management, a sister publication to Insurance Journal. Email: eblosfield@wellsmedia. com

News & Markets

Colorado Farmers Must Pay $6.5M for Defrauding Federal Crop Insurance Programs

Two Colorado Farmers must pay more than $6.5 Million for defrauding federal crop insurance programs, according to U.S. Attorney Cole Finegan.

Finegan’s office announced that Patrick Esch and Ed Dean Jagers of Springfield, Colorado, agreed to pay the sum to resolve allegations that they defrauded federal crop insurance programs by tampering with rain gauges.

The farmers reportedly concocted a scheme to defraud these insurance programs by making it appear that there was less precipitation in their area than there actually was, including tampering rain gauges in southeast Colorado between July 2016 and June 2017 to prevent them from accurately measuring rainfall.

Some of the gauges that were tampered with belonged to the National Oceanic and Atmospheric Administration and were operated by the National Weather Service. The two used various means and methods to tamper with the gauges. Each

covered gauges in southeastern Colorado with agricultural equipment, and filled gauges with silicone to prevent them from collecting moisture, cutting wires on the gauges, or detaching and then tipping over the bucket that collected precipitation.

Jagers was reported to typical use an agricultural disc blade to cover up a rain gauge in Lamar, Colorado. This tampering created false records making it appear that less rain had fallen than was the case.

The government investigated Esch and Jagers using civil tools, including the False Claims Act, which imposes civil penalties for certain types of fraud on the federal government, and the Financial Institutions Reform, Recovery, and Enforcement Act, which imposes civil penalties for a variety of misconduct, including knowingly making any false statement or report for the purpose of influencing in any way the action of the Federal Crop Insurance Corporation.

The U.S. alleges that this conduct violated both statutes. Esch and Jagers have agreed to pay a combined $3.5 million to settle the civil allegations.

The United States also indicted Esch and Jagers criminally for their roles in the conspiracy. Both pled guilty and were sentenced to pay a combined $3.1 million in restitution. Esch was also sentenced to be imprisoned for a term of two months. Jagers was sentenced to be imprisoned for a term of six months.

The claims resolved in the civil settlements are allegations. In agreeing to settle, Esch and Jagers did not admit liability except to the extent admitted in their guilty pleas.

The investigations into this crop insurance fraud scheme were a coordinated effort by the U.S. Attorney’s Office for the District of Colorado, the U.S. Department of Agriculture, Office of Inspector General, the U.S. Department of Commerce, Office of Inspector General and the FBI.

News & Markets

Waymo’s Robotaxi Expands into Los Angeles, Starting Free Rides in Parts of City

Robotaxis began cruising the streets of Los Angeles in mid-March when Google spinoff Waymo starts offering free rides to some of the roughly 50,000 people who have signed up for its driverless ride-hailing service.

Waymo is expanding into Los Angeles, the second largest U.S. city, seven months after California regulators authorized its

robotaxis to begin charging for aroundthe-clock rides throughout San Francisco. That came despite objections from local officials who asserted the driverless vehicles posed unacceptable risks to public safety.

Although Waymo isn’t charging for rides in its robotaxis in Los Angeles to start, the company said in a blog post announcing

$12.6M in Aid Delivered to San Diego County Communities

To aid recovery efforts in San Diego County following the January storms, FEMA, the California Governor’s Office of Emergency Services and local partners continue to work together to bring relief to affected communities.

In just three weeks since Gov. Gavin Newsom secured a Major Disaster Declaration from President Joseph R. Biden, more than $12.6 million has been dispersed to help residents repair damage

to their homes and property.

In addition to needed repairs, FEMA-provided disaster assistance funds are available to help with temporary lodging and rental assistance as affected survivors work on getting their homes fixed.

the expansion that it will eventually collect fares from passengers there too.

Waymo also hopes to begin commercial operations in Austin, Texas, later this year, a goal that makes its robotaxi service available in four major U.S. cities 15 years after it began as a secret project within Google. Waymo’s robotaxis have been charging for rides in Phoenix since 2020

For now, Waymo’s free rides in Los Angeles will cover a 63-square-mile (101-square-kilometer) area spanning from Santa Monica to downtown.

Waymo launched operations in Los Angeles two weeks after the California Public Utilities Commission approved the expansion in a decision that once again overrode the concerns of city transportation officials about robotaxis coming to sudden stops that block roads and the potential for driverless vehicles to malfunction in more serious ways that could jeopardize lives.

The worst fears about robotaxis were realized in San Francisco last October when a vehicle operated by Cruise, a driverless ride-hailing service owned by General Motors, dragged a pedestrian who was hit by another car operated by a human for 20 feet (6 meters) while traveling at roughly 7 mph before coming to a stop. The incident resulted in California regulators suspending Cruise’s state license and triggered a massive shakeup at that service.

Waymo’s robotaxis so far haven’t been involved in any major accidents.

Copyright 2024 Associated Press. All rights reserved.

Individuals, families and business owners in San Diego County covered in the Presidential Major Disaster Declaration who sustained losses currently have until April 19 to apply for disaster assistance. To apply call the FEMA Helpline at 800-621-3362 from 7 a.m. to 10 p.m.

News & Markets

Handcuffed Colorado Man Stunned by Taser Settles Lawsuit for $1.5M

By Colleen Slevin

Aman who was stunned with a Taser while handcuffed, including on his lip, has settled a federal lawsuit with a Colorado sheriff’s department for

$1.5 million, his lawyers said.

Kenneth Espinoza was arrested after he stopped to wait for his son when he was pulled over in Trinidad, Colorado, on Nov. 29, 2022. Espinoza, who had been following his son to a car appointment, was first told he had to move his truck. But after he started to leave, he was ordered to stay. Las Animas County Sheriff’s Deputy Mikhail Noel pulled his gun, then took out his Taser, according to an independent investigation.

Noel, then Lt. Henry Trujillo used their Tasers on Espinoza. The Las Animas County Sheriff’s Office confirmed in September they were both fired after an investigation by the Pueblo County Sheriff’s Office found they had violated a number of agency policies, including inappropriately using a Taser against Espinoza and inaccurately reporting what happened.

Las Animas County Sheriff Derek Navarette did not immediately respond to a telephone call or email seeking comment. Trujillo declined to comment. A telephone number could not be found for Noel.

The outside investigation found Espinoza did not attempt to strike Noel with his truck and “at no time does Mr. Espinoza actively use any force against Lt. Trujillo or Dep. Noel,” Las Animas County Undersheriff Reynaldo Santistevan wrote in a letter to the sheriff. He recommended both deputies be fired after reviewing body camera footage and the investigative report. Santistevan acknowledged that he did not watch the body camera footage of the incident before reviewing and signing off on the officers’ accounts of what happened.

Espinoza’s lawsuit alleges that Noel used a Taser to stun him. Body camera video then shows Espinoza being pulled from the truck, handcuffed and squeezed into the back of a patrol car.

As the deputies struggle to get Espinoza into the car, video shows, one warns that he is going to use the Taser on him, and uses an expletive. One device can be seen contacting Espinoza’s body along with the wires that carry Taser electrodes, as crackling sounds are heard.

Copyright 2024 Associated Press. All rights reserved.

My New Markets

Contractors Professional & Pollution Liability

Market Detail: Shield Commercial Insurance Services, in business since 2004, offers a full line of commercial and residential contractor insurance coverage. Minimum premium is $1,500 for contractors professional and pollution liability (CPPL) coverage. We have a very user-friendly online rater that allows you to write multiple risks per day. Appointment process is quick and easy; no minimum production quota. We do not offer a retail product to the general public. We only accept risks from our large network of appointed brokers. Appointment required.

Available Limits: Not disclosed.

Carrier: Not disclosed.

States: Available in 50 states plus District of Columbia.

Contact: Rob Anderson; randerson@ shieldins.net; 760-345-9029.

Service & Repair

Market Detail: DMI Insurance Services

Inc. offers service and repair coverage for auto repair-related businesses. Since 1962, the firm has provided innovative insurance programs for the automotive industry. DMI has earned a highly acclaimed reputation throughout the insurance industry for successful program management.  Over the years we have enjoyed long-term, profitable relationships with high quality

A rated insurance carriers. Eligible businesses include air conditioning shops; auto repair shops/general auto service; auto seat cover, tops and upholstery shops; body and/or paint shops with a U.L. approved spray booth; brake shops/muffler shops; diagnostic shops; electrical repair shops; frame alignment shops; radiator shops; smog control centers/tune-up shops; and transmission shops. The following exposures in conjuction with an eligible dealer business require prior company approval: incidental new car franchise such as KIA; equipment sales/rental; motorcycle sales/ repair; truck sales/repair greater than 2-ton capacity; detailing for the public; boat sales/repair; engine rebuilding/modification; stereo installation; quick lube and oil; mobile exposures; auto parts/accessory

sales; and RV sales and repair. Has pen. Available Limits: Not disclosed.

Carrier: Admitted.

States: Available in Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin.

mericainsurance.com; 760-302-5300.

Farm and Ranch Insurance

Contact: Neiman Maske; nmaske@ dmi-insurance.com; 408-465-2302.

Trucking: Trailer Interchange

Market Detail: Across America Insurance Services offers a trailer interchange policy as part of a comprehensive risk management program for commercial trucking business clients. If you have trucking clients who are looking for trailer interchange insurance, we’ll help you find the coverage they need from the industry’s best A+ rated carriers. It’s not uncommon for trucking carriers to transfer, trade or share trailers while transporting freight. Interchange agreements often include a provision holding the trucking company responsible for any damages to a nonowned trailer or container while in their possession. However, standard coverage may not be enough to ensure the trucking company is protected and that their customers will be adequately compensated in the event of a loss. Trailer interchange insurance provides extra coverage under a trailer interchange agreement.

Available Limits: Not disclosed.

Carrier: Not disclosed.

States: Available in Arizona, California, Florida, Georgia, Illinois, Indiana, Iowa, Michigan, Nevada, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Texas, Utah, Virginia, Washington.

Contact: Oscar Valdepena; oscar@acrossa-

Market Detail: Stroud National Agency Inc. offers coverage for farms and ranches. With roots in the plains of western Oklahoma and over six decades of experience in the agribusiness insurance industry, Stroud National Agency understands the unique insurance needs of farmers and ranchers in the midwestern, southwestern and western United States, and we are passionate about helping our agents to protect the legacies of the folks who work the land in their local rural communities. Has pen; appointment required. For information on current appetite and coverages, please visit: https://www.stroudga.com/ products/.

Available Limits: Not disclosed.

Carrier: Travelers Agribusiness; Liberty Mutual.

States: Available in Arizona, Arkansas, Colorado, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Wyoming.

Contact: Sales & Marketing; stroud@ stroudga.com; 800-654-4056.

Special Report: The Real Estate Issue

Property Restoration Industry: A Culture in Need of Repair?

By Jim Sams

Jatiek Smith, a Bloods gang member convicted on extortion and racketeering charges in New York, blamed ruthless competition and a culture of violence in the fire restoration industry for the accusations made against him by federal prosecutors.

Smith was a fire chaser, one of many in the restoration business who aggressively

solicit business from owners of fire-damaged properties by monitoring emergency dispatches. They may show up at a homeowner’s door with a contract, sometimes while the fire is still burning. The restoration work is paid for by the property owners’ insurance companies.

Prosecutors found that through his control of one mitigation company, Smith asserted control over the indus-

try by using violence, threats and extortion to drive his main competitor out of the business.

Smith was found guilty on racketeering and extortion charges on February 14. The judge said that Smith’s defense was undermined by the government’s proof of his use of violence and extortion to enforce his system. According to prosecutors, once Smith and his crew had established control over the industry, they

imposed rules under which they gained a preferential share of fires.

U.S. Attorney Damian Williams, whose office prosecuted the case, said Smith’s “audacious takeover of the New York City fire mitigation industry with the help of his gang associates presented a new form of organized criminal activity.”

The use of violence and extortion to dominate an

industry places the New York case in a category of its own. But experts say often-aggressive, sometimes-violent tactics have been seen across the country as fire restoration, paid for by insurance carriers, attracts illegitimate contractors seeking quick profits.

In many cases, contractors or adjusters show up at fire victims’ homes, sometimes even before firefighters have extinguished the blaze.

“We have unfortunately seen this emerge as a common practice after major loss events,” said Michael Richmond-Crum, director of personal lines and counsel for the American Property and Casualty Insurance Association, in a prepared statement. “While these practices are seen in areas where major catastrophic events take place, there is no geographical limit to the practice, and we have seen these bad actors move around the country in response to major events.”

Restoration firms say insurers’ practice of directing mitigation work to their preferred vendors puts more pressure on firms who don’t want to work for discounted prices to get to fire scenes early.

The Smith case and others around the country have made headlines. And some states’ lawmakers are now calling for limits on when public adjusters can swoop in.

‘Fistfights, Guns’

Sean Scott, a former restoration contractor in San Diego who now writes articles and does consulting work in disaster recovery, said the violence that led to Smith’s conviction isn’t surprising. He said interactions among restoration contractors who show up at fire scenes can get ugly.

“Guys get in fistfights: ‘I was here first!’” he said. “There have been guns pulled, people shot. I was in it. I know firsthand about it.”

Scott is the author of two books about the restoration industry: “Secrets of the Insurance Game” and “The Red Guide to Recovery.” He wrote those guidebooks after

serving for 12 years as president of two San Diego restoration companies.

Scott said during an interview that “guerilla marketing” tactics, such as monitoring emergency dispatches to find new customers, can be a crucial business-development tool for contractors who don’t have an inside connection with their local fire department or the Red Cross to alert them when disaster strikes.

The stakes are high. A contractor who is hired to board up a fire damaged home can walk away with a restoration contract worth hundreds of thousands of dollars, Scott said. The initial pitch to customers may include a promise to work with a public adjuster partner who will take care of all of the insurance paperwork.

Scott said fire chasing allows restoration contractors to get their foot in the door. Nowadays, no one is staying up all night listening to emergency dispatch scanners, he said; there are services such as PulsePoint or Text Me Fires that send text messages to their subscribers.

“There are good guys out there trying to compete with the bad guys,” Scott said. “People in some situations are forced to do it. You have some fire departments where a retired fire chief will set up a board-up shop and start getting $300,000 or $400,000 jobs.”

Department Connections

One board-up service touts its connections to fire departments. Franchiser 1-800-Boardup boasts of 75 independently owned locations in the United States.

“We have a proven process that has helped numerous res-

toration companies grow their annual revenue by millions of dollars through strategic fire department partnerships,” the company’s website says.

The company, based in Jacksonville Beach, Florida, was founded in 2002 by Michael Hosto, a Red Cross disaster action team captain, the website says. The company’s senior vice president of operations, Tony Young, is a retired deputy fire chief with the Oklahoma City Fire Department. National Director Jeff Clohessy is a retired assistant chief for the Bedford Park Fire Department in the Chicago area.

The value of getting feet into doors is reflected in the salaries being offered by restoration contractors. In an online job posting titled “Fire Chaser/Emergency Response Coordinator,” Paul Davis Restoration of West San Fernando Valley promises an annual salary of $70,000 to $90,000.

“ERC’s need to possess the ability to turn an emotionally distraught customer into a satisfied one and leave the customer with a positive lasting impression,” the ad says.

A job opening posted by a ServPro franchise in Pittsburgh, Pennsylvania, offers an annual base salary of $100,000 for an “entry-level” emergency response coordinator.

Scott said most insurance claims adjusters have come to accept fire chasers as part of the claims process, at least in Southern California. He said he worked on both sides of the street when he was in the restoration business: His company accepted referrals from insurers but also dispatched crews to continued on page 30

Special Report: The Real Estate Issue

continued from page 29

fire scenes.

“Having a chaser out there can ensure that the jobs that should rightfully be yours stay with you,” he said. “It’s sort of like guarding your chickens, to a certain degree.”

Business Strategy

That sounds like a sound business strategy to Israel Stepanian, owner of PackoutLA in Los Angeles.

Stepanian said he became involved with the insurance industry 18 years ago as an art appraiser after obtaining a master’s degree in art history. About five years ago, he started offering “pack-out” services. His company loads up the contents of homes or businesses damaged by fire or water and stores them in a warehouse until the building is restored.

Stepanian said he added disaster restoration work to his business’ portfolio about two

years ago.

“It was natural growth, a natural progression,” he said. “I got into contents. For example, an insurance adjuster would say, ‘Can you do these couches, too?’ Then I became a content-loss specialist. I started doing mitigation work, too.”

Stepanian said when insurers dispatch him to fire scenes, he often finds several fire chasers lurking outside. He said some people find the practice distasteful, but he personally doesn’t feel there is anything wrong with offering services to customers who need help after a disaster.

In fact, Stepanian said he would hire a fire chaser to drum up business for his own company if he could find a person who would work on commission and behave “ethically.” So far, he hasn’t found the right person.

“When I work, I really consider who I am dealing

with,” he said. “These people (property owners) are already in trouble. Now, they may yell and scream. I don’t take it personally. I may take two or three hours just to talk to them.”

Stepanian said he doesn’t want to do any fire chasing himself, even though he signed up for a free service that texts him the addresses of emergency dispatch calls. Instead, he is in discussions with a national franchise that would steer business his way.

“When you buy the franchise, they give you the jobs,” he said.

Rise in Fire Chasers

The number of fire chasers may be increasing as more people move into areas at high risk of wildfires, the National Association of Mutual Insurance Companies said in a prepared statement. That also holds true for “storm scammers” who use similar tactics

Fire Chasing May be Latest Iteration of Unscrupulous Tactics

Fire chasing may be only the latest example of some public claims adjusters and contractors using aggressive and underhanded tactics to tap into property insurance payouts.

In hurricane-prone Florida, a state with more than its share of disasters and public adjuster challenges, Operation Rubicon famously exposed staged water damage claims. The multi-year investigation by the state Department of Financial Services and the Miami-Dade Police Department targeted water mitigation and restoration companies, as well as public adjusters, insurance agents, a police officer and as many as 25 homeowners.

The owner of a public adjusting firm, along with her father, her ex-husband and others allegedly bilked or attempted to bilk Citizens Property Insurance Corp. and other insurers out of more than $600,000.

According to state officials and court records, the operators would send a contractor to a home to create evidence of water damage. Insurance agents got involved, increasing coverage on homes or writing new policies at some point in the fraud, officials said. Nine people were charged in 2019 for alleged involvement; in 2022, two others were arrested.

Florida authorities have seen similar tactics by some roofing companies. A few have gone so far as to offer to inspect a roof, deliberately cause damage to the shingles, then tell the homeowners they need a new roof, courtesy of the insurance carrier. Four people were charged with fraud in December 2023 after a state investigation.

In 2022 and 2023, Florida lawmakers passed reforms to address widespread property claims abuse by barring assignment-of-benefit agreements, disincentivizing the litigation that often accompanied AOBs, and putting some limits on public adjusters.

in areas where hurricanes, winter storms and other natural disasters cause property damage, the organization said.

“Fire chasers seeking to exploit the stress of someone losing their home to a fire or other natural disaster by promising quick fixes is unconscionable,” NAMIC said. “The impulse for homeowners to restore normalcy is understandably strong but can make them vulnerable to bad actors. Moving too quickly can ultimately muddy the claims process and create unnecessary delays.”

Legislation to Crack Down

Some state lawmakers, however, have concerns about the unsavory nature of drumming up business by tracking emergency calls.

Nicholas Zeitlinger, a spokesman for the National Insurance Crime Bureau, said laws that seek to restrict soliciations too tightly may not withstand free speech challenges. The Florida Legislature learned that lesson after it imposed controls over solicitations by roofing contractors in 2021. A federal judge issued an injunction blocking the new law a year later.

But Zeitlinger said policymakers are finding other ways to protect consumers, such as requiring disclaimer notices.

“Some states are also tackling this issue by creating cancellation windows to allow consumers to exit a contract without penalty, or to extend the cancellation window,” he said in an email. “I’ve seen this legislation filed in Florida, Maryland, and Mississippi. Other options include offering inducements and other forms of prohibited advertisements. For example, Kentucky and

Louisiana have filed legislation around prohibited advertisement this session.”

The property/casualty committee of the National Council of Insurance Legislators is proposing an amendment to its model law on professional standards to prohibit public adjusters — who often work with restoration contractors — from soliciting customers during any “loss-producing natural occurrence.”

The model law also would also require public adjusters to use pre-approved contract forms, establish conflict-of-interest standards and bar public adjusters from making complaints against insurers’ claims-handling process without the consent of their client.

The NCOIL Executive

Committee will consider final adoption of the change during the organization’s spring meeting in Nashville, April 11-14. NCOIL’s model laws are not binding. They serve only as templates for state legislatures to consider when adopting standards for the industry.

Lawmakers in at least two states this year have proposed rules similar to those in the NCOIL model.

In South Carolina, state Sen. Ronnie W. Cromer, R-Newberry, introduced a measure on February 7, Senate Bill 1032, that would prohibit public adjusters from soliciting customers during loss-producing events. The bill has been assigned to the Senate Committee on Banking and Insurance.

The Maryland state Senate on February 8 passed Senate Bill 231, a measure that would prohibit public adjusters from soliciting new customers between the hours of 8 p.m. and 8 a.m.

During a hearing before the Senate Finance Committee, a representative for the Maryland Insurance Administration told lawmakers that the agency proposed the bill after receiving complaints from consumers that public adjusters showed up while fires were still in progress and gave them the impression that they were working for the property owner’s insurance company.

“Imagine your house burning down and someone comes up with a warm car and a cup of coffee and says, ‘Sign this

contract and I’ll take care of your insurance claim,’” said Joseph Smith, acting associate director of the Insurance Administration’s Fraud and Enforcement Division.

“What we are hearing from consumers is they are of the opinion and belief, at the moment when they are most vulnerable, that this person is with their insurance company and they are signing the contract without fully reading the contract,” Smith said.

SB 231 must also be passed by the House of Delegates and signed by the governor before becoming law.

Sams is a veteran journalist, editor and freelance writer based in California. He previously served as the editor of Claims Journal.

Special Report: The Real Estate Issue

Survey: Most Architects and Engineers Professional Liability Rates to Rise

By Allen Laman

Most insurers plan to increase architects and engineers (A&E) professional liability insurance rates for a third consecutive year, according to a new survey by Ames & Gough.

The specialty insurance broker reported that the increases are driven by concerns regarding the effects of economic and social inflation on claim expenses, along with heightened risks associated with specific project types, professional design disciplines and evolving project delivery methods.

Seventeen leading insurance companies that represent a significant percentage of the overall marketplace providing professional liability insurance to architects and engineers in the U.S. were surveyed. According to the survey results, all but one plan to raise rates, with one insurer seeking to keep rates flat. Among the insurers raising rates, 75% plan increases of up to 5%, while 25% plan rate increases of 6% or more.

Cady Sinks, assistant vice president and partner at Ames & Gough and co-author of the survey, described the market as “cautious” but also having a “cautiously optimistic” outlook. Despite the withdrawal of a major

insurer, more limit restrictions and rate increases, “part of the message that I’m trying to tell my clients is that some of this is to ensure that the insurers in the market today stay in the market long-term,” she said.

“So, I think the positive out of all of this is that insurers are really taking a cautious and careful look at their business for that long-term outlook,” Sinks continued. “And that’s

Source: Ames & Gough, PLI Market 2024

not a bad thing. We want them there. We want them strong and healthy so that they can insure our clients.”

Addressing Movement in the Market

Ames & Gough’s annual survey aims to inform clients about the changing A&E landscape through continued research. The writers’ goal is to find a new nugget of valuable information each year, and this year, Sinks highlighted the importance of shifting to an even more collaborative approach because of the changing market dynamics.

“What I’m finding is that, for myself and for Ames & Gough, we are really taking a much more strategic and holistic approach for our clients because of how much change is happening in the industry,” she said, explaining that rate increases are a little higher than continued on page 34

Cady Sinks

Special Report: The Real Estate Issue

continued from page 32

last year and more consistent across carriers.

“I think that strategy is really trying to make sure that insureds know that there’s a lot of movement in the market,” Sinks said. “And if they have needs for special projects, higher practice limits, things like that, they really need to be working with us early on in that strategy so that we can deliver for them.”

Limits Scaled Back

Even though more than three-fourths of surveyed insurers reported consistent availability of professional liability limits, just 40% indicated they can provide limits exceeding $5 million (a significant decline from two-thirds of insurers in the 2023 survey).

So, even as market capacity generally remains stable, some insurers are scaling back limits for single accounts.

“In their quest to obtain higher professional insurance

limits of liability, many A&E firms now find themselves between a rock and a hard place,” explained Jared Maxwell, vice president and partner at Ames & Gough and co-author of the survey. “They need to meet higher limit requirements of project owners but face greater underwriting scrutiny to obtain them.”

For design firms, “try negotiating with owners to check that higher limits are warranted. If the firms still need to increase their limits, they might explore alternative structures, such as specific additional limits endorsements/project excess or review their program structure and build layers with multiple participating insurers,” he said.

Intensifying Claim Severity

Just 6% of surveyed insurers

reported a decrease in claim severity in 2023, while 18% indicated their claim experience worsened in 2023 from the prior year. Meanwhile, 81% of insurance companies cited inflation as driving up costs, noting that construction

Source: Ames & Gough, PLI Market 2024

inflation is exceeding headline inflation with higher costs for materials, supplies and labor. Most insurers surveyed also reported paying multimillion-dollar claims in 2023. Twenty-three percent paid a claim of $5 million or more, including 12% paying claims of $10 million or more. The largest claims often involved what insurers consider high-risk projects or disciplines, Ames & Gough reported. When asked to rank the top three disciplines for claim severity, 82% of insurers surveyed cited structural engineering, followed by civil engineering (59%) and architecture (47%).

Projects are larger and more complex than they were 10 or 20 years ago — a trend that Sinks sees continuing. Mechanical, electrical and plumbing firms are working on more complicated systems, she said, and as expectations rise, “we are seeing an uptick in claims for MEPs.” She added that Ames & Gough is also

Jared Maxwell

seeing large claims for its civil road and highway firms.

Widespread Rate Increases

According to the report, 75% of the insurers surveyed plan to target rate increases on accounts with adverse loss experience in 2024. At the same time, 56% will target firms with what they consider higher-risk projects, such as condominiums and other residential construction, including multifamily apartment dwellings, as well as street/road, highway and infrastructure.

Fifty-six percent of insurers also plan to target higher-risk disciplines, including structural engineering, mechanical engineering, civil engineering and architecture. Additionally, 25% are planning increases across their entire book of business, reflecting lingering concerns about rate adequacy and new worries over larger claims as business activity continues to rebound.

“Even as insurers providing professional liability coverage continue competing for A&E business, many are focusing on the most desirable risk segments while being relentless in applying sound underwriting discipline across their entire portfolio,” Sinks said.

She continued: “In this environment, design firms need to approach their risk management with heightened diligence that encompasses all aspects of their business — from client and project selection to choosing and managing subconsultants, maintaining effective quality control, performing thorough contract reviews, ensuring proper contractual risk allocation, and providing timely documentation of

communication with owners and project participants.”

Go Deeper

Participants in the survey were AIG/Lexington, Aspen, Beazley, Berkley Design Professional, Berkshire

Hathaway Specialty Insurance, Euclid/Nationwide, Everest, Great American Insurance Co., Hanover Insurance, The Hartford/Navigator, Liberty Mutual, PUA, RLI, Riverton/ Hudson Insurance, Sompo International, Travelers and

Victor Insurance.

The full survey can be found on the Ames & Gough website (https://amesgough. com/2024-ames-goughmarket-survey-a-e-firms-seesteady-growth-evolving-risksand-inflation-driven-costs/).

1,662 results for ‘personal auto’

Special Report: The Real Estate Issue

Landlords and Their Tenant’s Liquor Liability

ABy Paul Broussard

landlord decides to lease a space in a retail strip center to a sports bar. The landlord’s commercial real estate representative sends the lease to the new prospective tenant to sign — it is a standard industry lease that has the typical insurance clauses like general liability, workers’ compensation, property, etc. — simple enough, right? However, there is one important consideration for landlord’s leasing to restaurants or bars serving alcohol — liquor liability.

Chances are the tenant has liquor liability already, even though it may not be required in the lease, and yes, the indemnification and hold harmless clause in the lease may be broad enough to encompass any liquor-related matters. However, depending on the lease indemnification language and the structure of the tenant’s insurance policy, the tenant could be forced contractually to defend the landlord out of pocket or the landlord (and/or landlord’s insurer) would have to defend the landlord until the indemnification could be enforced against the tenant for both damages and legal expenses. You can see how this might create a sticky situation for a

landlord-tenant relationship. In some states, the landlord can be held liable for the actions of a tenant. While my understanding is that it typically applies to criminal actions, it is not unreasonable to believe a landlord’s vicarious liability could be applied to liquor liability claims depending on the state’s dram shop laws. This can be the case, especially if the landlord is grossly negligent (failing to vet/perform due diligence of a tenant or turning a blind eye to the tenant serving alcohol to minors).

The first question a landlord might have is, “Will my tenant’s insurance cover me?”

It depends. Typically liquor

liability is added on to the commercial general liability (CGL) policy using a separate coverage form (like a CG 00 33 04 13 Occurrence form) that has its own insuring agreement, distinct limits, and its own conditions. If that’s the case, any “blanket” additional insured endorsement language will not be automatically extended to the liquor liability coverage part (unless the liquor liability coverage part is specifically listed as being modified by the endorsement). In addition, there is no contractual liability coverage provided in the liquor liability coverage part so the lease indemnification will not trigger the tenant’s insurer to provide defense for the landlord.

There may be cases where the tenant’s liquor liability coverage is provided by endorsement that modifies the general liability coverage part like in a business owners policy (BOP). In that case, the “blanket” additional insured language should extend to the landlord for liquor liability, as well (when required by written contract).

The second question a landlord might have is, “Am I protected under my general liability policy?”

Again, it depends. Some landlords of triple net (NNN) leases don’t even carry their own liability coverage — something we advise against — because they assume the tenant’s insurance policy will cover them, which isn’t always the case. It also depends if the landlord has standard general liability policy language or if there is any absolute liquor liability exclusion. The unendorsed Insurance Service Office (ISO) CGL (form CG 00 01 04 13) excludes liquor liability “if you are in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages.”

If you don’t manufacture, distribute, sell, service, or furnish alcoholic beverages, any resulting liability would be covered. This is known as “host liquor” liability coverage.

That said, the landlord needs to evaluate their lease terms to see if they can be considered “in the business” of “selling” alcoholic beverages. For example, if the lease terms dictate that the landlord receives a percentage of the tenant’s gross sales, the landlord has a profit motive regarding alcohol sales. While the landlord is generally

in the business of leasing space, this could be considered “in the business of selling alcoholic beverages” whether directly or indirectly. Regardless, a good attorney could probably win both sides of this argument.

As a precaution though, this landlord should endeavor to require the tenant to name the landlord as an additional insured on the tenant’s liquor liability coverage part and/or look into purchasing their own liquor liability coverage.

If the landlord does not have an alcohol-related profit motive, then the landlord should look to the host liquor coverage provided in an unendorsed ISO CGL policy to at least trigger their insurer’s duty to defend for their vicarious liability.

In some states, the landlord can be held liable for the actions of a tenant.

The third question a landlord might have is, “How can I protect myself?”

Here are some suggestions for landlords with bar/restaurant tenants:

named as additional insured for the liquor liability coverage part (not just general liability coverage part) where permissible.

• Track your tenant’s liquor license renewal dates and ask them to provide renewed liquor licenses to you for confirmation. Most liquor liability policies exclude coverage for all insureds if the proper licensing is not in place.

• Require the tenant to carry liquor liability coverage with adequate limits.

• The liquor liability lease requirement should state there should be no exclusions for assault and battery or sexual abuse.

• Request or require by contract to be specifically named as a designated additional insured on tenant’s liquor liability policy using form CG 34 01 Additional Insured Owners, Managers or Lessors of Premises Liquor Liability. Please note that this ISO form was only introduced in 2019 so some carriers may not be using this form yet depending on the state.

• If not allowed by the liquor liability carrier, consider contractual language regarding tenant’s duty to defend obligation to be immediately triggered for alcohol-related claims where landlord is named in the suit.

• Track and review tenant certificates of insurance with the applicable additional insured endorsements being requested by contract. Request and review the full policy to confirm no assault and battery exclusions and that landlord is

• Maintain a landlord liability policy including host liquor liability with sufficient limits in the event your tenant’s insurance does not adequately protect you as the landlord for liquor related matters.

• Discuss these matters with your qualified legal professional to structure your leases properly and transfer the risk to the party that actively manages and controls the liquor exposure and stands to gain profit from the activity. Every state’s laws are different regarding dram shops and contractual indemnifications, so an experienced attorney in your jurisdiction will be invaluable.

There are several insurance and risk management implications and variables to think about when an insured considers leasing to restaurants and bars serving alcohol. It is important to involve the insurance broker or specialist, and legal counsel early, and often, to ensure that the insured is adequately protected as a landlord.

Broussard, CIC, CRM, MLIS, SBCS, PWCA, cyRM is a risk advisor at Cavignac in San Diego, California, and is experienced in hospitality risks, real estate risks, as well as professional trades such as architects and engineers.

Spotlight: Programs

7 Reasons to Consider Program Business Opportunities

As the insurance marketplace continues to harden, many carriers may be looking to further tighten their underwriting guidelines and appetites — primarily as it relates to new business. Accounts they may have considered, quoted or written in the past may now fall outside of their appetite and/or interest — leaving the agent to have to spend more time, expenses and effort marketing the account, searching for a competitive proposal.

By Mark McCrary

In addition, and sometimes surprisingly for insurance agents focused on retaining their customers, providers’ in-force books of business are also coming under increased scrutiny — at times even when they may be historically profitable. Driven by corporate pressure, fear of loss and other factors, companies may non-renew, change terms (from slight to major) or increase rates significantly on well-performing accounts to trim their book or push them away. It can seem like the underwriters are trying to stay as close as they can to the middle of the lane and away from accounts that may vary even slightly from

the core, or “perfect” account.

In addition to the increased effort it creates for agents, it can leave the insureds with a sour taste for that market — “After all, didn’t I stay with this market for ‘x’ years, through the marketplace changes and have low to no claims — and now you don’t want my account?” say the agents and insureds.

So, with the above as a backdrop — what about considering the pursuit of program business if you have not explored it before or taken advantage of it for some time.

First, for the purpose of this article, program business is being defined as accounts

having common operations — homogeneous risks if you will — like manufactured housing as an example. Or, more broadly — a set of operations that while not homogenous, may be of similar and defined risk types — like trucking and truck dealerships. Across the program there would be a level of commonality, similarity of exposures, operations, and in contrast to, say, general commercial business or even BOP (business owners policy) accounts.

7 Benefits of Programs

Pursuing specialty program business can bring agents and brokers many rewards. Here

are some benefits to consider as an agent/agency if you are writing program business.

1. Homogeneity.

Being similar in their segment, structure and focus, the agent can relate experiences from one account to another. Being familiar with the class/ type helps the agent build expertise. It can also be tied to the benefit of predictability. All risks are not exactly the same, yet working in a niche or similar business can be very beneficial.

2. Easy (or easier) to earn.

Rather than trying to be an expert in all types of business across a broad spectrum, the agent may have a faster learning curve. Not necessarily a “once you’ve seen one, you’ve seen them all” mentality, but the experience and the expertise can tend to have a building block effect — establishing a base of knowledge for the producer and/or account executive.

3. Predictability.

This has a few aspects — first, predictable income. While program business does vary, often the types of accounts can run a more consistent or predictable range of pricing. Knowing this and developing a book of program business can make it far easier to forecast production and revenue. In addition — predictability of work effort — meaning, that if

you know your average account is $50,000 of the type of program business you’re pursuing, and you have a goal to generate $2 million of written premium, you know you need 40 binders to meet that goal, and you can then back into the hit ratios and efficiency ratios (submit to quote) to estimate your work effort.

4. Partnership with a specialty market (MGA or company).

By writing program business and with some effort to repeat with additional prospects and/ or insureds, you can begin building a relationship and, ideally, a partnership with the market. This partnership can be mutually beneficial — affording the agent a reliable, predictable home for the specific type of business while affording the program a more well put together, complete, and actionable submission for them to work, propose and win. You are likely to be able to develop a deeper and stronger relationship with a market or MGA than branch office or one-off account underwriting. This can be more rewarding, more efficient, and seemingly less of a grind for the agent and account manager.

5. Prospects come to you.

You may find that as you build your program business book in a particular segment, you have prospects approach you — either from referrals or simply from insureds

acknowledging the breadth and scope of your agency’s involvement in a particular segment. This can be most helpful as you grow your book of business because you can become more of a stronghold, rather than a one-off producer in the segment. This can help strengthen agency retention and help your bottom line.

6. Agency expense savings.

When an agency produces program business there can be real cost savings. These can be in the form of IT savings, by virtue of the repetitive and reliable communications with a recurring partner for the business segment — features like electronic upload and download can save time and therefore expense. Other processes like proposals, endorsement requests and delivery, as well as billing an electronic policy issuance can all be easier once executed a few times, thereby easing the burden on agency staff, increasing efficiency, and saving cost. This can allow for more focused use of agency staff where needed for other projects and tasks.

7. Hunting in a target rich environment.

The niche you choose may have one or more local, state or national organizations. This can afford you an opportunity to sample and evaluate them for membership. Presumably many, if not all the members, would fit your program niche,

so you’ve saved time and effort in tracking down “suspects.” Many of the associations offer associate memberships, or some other category of membership, to insurance agents and vendors to be a part of the group. This usually comes with a membership list — again, helping to favorably impact overall lower acquisition costs.

‘You may find that as you build your program business book in a particular segment, you have prospects approach you – either from referrals or simply from insureds acknowledging the breadth and scope of your agency’s involvement in a particular segment.’

As with anything, check it out. See what the specialty program or company is offering. Conduct some due diligence of your own and connect with the program business provider to ask questions, vet them, see whether they are responsive to your needs and whether they may be a fit for your organization. Given its specialized aspect, program business can be beneficial to agents and brokers and relatively easy to access. Good hunting!

McCrary, ARM-P, AIC is a senior vice president, Distribution for K2 Insurance Services, a San Diego-based program services company focused on specialty insurance programs, products and services. Website: www. k2ins.com.

Idea Exchange: Excess & Surplus Lines

U.S. E&S Sector Is Booming … But Is it Too Much Business to Handle?

The excess and surplus (E&S) lines and specialty insurance market is booming and looks set to continue its upward trajectory. The question is whether the sector currently has the resources to take advantage of these business opportunities.

By Greg Gaydos

The financial statistics are testament to this success: E&S saw double-digit, year-over-year growth for four consecutive years, from 2018 to 2022. According to S&P Global, the market grew by 20% in 2022, reaching $75.5 billion in premiums.

The E&S market is expected to continue to grow in the coming years, with a compound annual growth rate of 15.2% from 2020 to 2027, taking the market to $125.9 billion, according to a 2020 report from Allied Market Research. In November 2023, AM Best changed its outlook for E&S from stable to positive, citing increased business due to declining capacity in commercial lines and some personal lines markets.

Shift to E&S/Specialty Market

Over the last few years, the industry has seen tremendous growth in the U.S. E&S and specialty markets. This shift from “admitted” business and Lloyd’s to U.S. E&S is being driven by a multitude of issues. Let’s unpack the reasons.

the cost of capital so expensive. Pricing should be adequate to support the capital being used to write the account, while still being relatively affordable for the client. Additionally, capacity at, and the utilization of, Lloyd’s is also shrinking, partially driven by the expense ratio associated with doing business at Lloyd’s. The impact of this is an expanded use of the U.S. E&S/ specialty market.

Concurrently, we are seeing movement from the admitted space to E&S as the market follows capacity. The issue here is the availability of coverage and capacity, not price. This trend is primarily driven by rising claim costs due to factors like weather events, social inflation (increased litigation costs), and supply chain disruptions affecting car repair costs.

In addition, carriers are leaving U.S. states like Florida, Louisiana and California due to high hurricane risk, wildfires, mudslides, and concerns about the legal environment, further reducing capacity in the market.

Private Flood Cover

Capacity issues are being driven in part by the volatile nature of the property-catastrophe market (CAT). Capital is more costly to support CAT risks and is accessed according to stricter underwriting rules and pricing models to help ensure there is enough capacity throughout the year. It is the volatility of CAT business that makes

All of the above factors mean that E&S is not just being used by commercial insurers. Carriers that insure single-family residences are also turning to the E&S market. As it becomes increasingly difficult and expensive to get coverage (capacity) through the federal flood program in the U.S., the spill over into E&S for private flood insurance has grown. While prices have not come down, there are more capacity and coverage options available to the brokers and clients in the E&S market.

Beginning in 2021, a new flood risk rating system was implemented in phases for National Flood Insurance Program (NFIP) policies, which aims to shift the U.S. government-backed NFIP to a more accurate and equitable pricing methodology. The new pricing model has driven up rates and

sent more property owners to the private E&S market, creating a surge in demand.

(Editor’s note: The NFIP’s new pricing approach, Risk Rating 2.0, was implemented in phases from Oct. 1, 2021, through April 1, 2023. According to 2023 research from the Insurance Information Institute, private insurers are accounting for a bigger piece of a growing flood insurance pie. In 2016, only 12.6% of flood coverage was written by 18 private insurers. Between 2016 and 2022, the total flood market grew 24% to over $4 billion in direct premiums, with 77 private companies writing 32.1% of

the business in 2022.)

Evolving Risks

Besides the movement from Lloyd’s and admitted markets, E&S growth is being driven by increasing complexity of risks, along with the specialized insurance products needed for those risks, which are not available from traditional insurers. For example, specialty insurance has stepped in to cover less mature exposures such as cyber and, because of the immaturity of the market, cyber insurance is in a constant state of change. Responding to cyber policies in an admitted market would be challenging — first because of the time it takes to get through the filing pro-

cess with state departments of insurance. In addition, every time market conditions change, and a modification is needed to rates, underwriting rules, Increased Limit Factors (ILFs), or policy forms, those filings would need to be amended, with regulators. Carriers could miss the market cycle or be exposed to losses they did not want or need to cover.

Utilizing E&S “paper,” carriers can respond quickly to market conditions as needed.

Additionally, there’s more need than ever for a swift and agile response from carriers as cybercriminals find new, more sophisticated ways to weaponize artificial intelligence (AI). AI chatbots can

generate malware in a matter of seconds, embedding it into YouTube tutorials on how to download popular software, and even adding fake likes and comments for authenticity.

What’s more, AI can crack passwords at record speeds and deploy social engineering scams to trick targets into revealing sensitive information with convincing, fraudulent communications. AI can also identify digital vulnerabilities and review stolen data to facilitate cybercrime. As AI develops into reproducing people’s voices and images, there will no doubt be further unknown exposures down the line.

Almost Too Much Business?

There is no doubt that the E&S and specialty market is growing in leaps and bounds, but that growth may come with a price. E&S carriers may struggle to take advantage of the growth opportunities, overwhelmed with the amount of business that’s coming in the door. The question is no longer “how do I get more business?” but instead becomes “how do I underwrite (or evaluate) more of the business I have received?”

E&S carriers that don’t have the resources to figure out which submissions are good and which should be avoided, will lose out. They may not even get a chance to deliver a quote.

Modernization Is Key

Carriers already in or entering the E&S space need to improve the submission process to get to more of those submissions. Currently, most of the industry is still relying on emails to transmit applications from the broker to the wholesaler and ultimately to the carrier.

How many times does the same information get entered and re-entered? Once received by the carrier, the manual work continues. The data gets entered and the prospect cleared. Other data is sourced and evaluated. The data gets re-entered, and a quote is produced. After all that — finally — the underwriter can evaluate the complete submission, understanding how much premium they have the potential to collect for the limits exposed.

continued on page 42

Idea Exchange: Excess & Surplus Lines

continued from page 41

Innovative insurers, however, are starting to benefit from the transition to dynamic, adaptable, API-native platforms that enable them to respond efficiently and effectively to the risks that admitted carriers are less likely to write.

Over the last few years, the industry has seen tremendous growth in the U.S. E&S and specialty markets. This shift from ‘admitted’ business and Lloyd’s to U.S. E&S is being driven by a multitude of issues.

Automation, data,and application programming interface (API) have become the way forward. These tools that enhance and connect data and services, allow the underwriter to triage those submissions and glean insights early in the submission process, which saves time and enables smarter decision-making, improved accuracy, and increased efficiency.

This same workflow could be used to process renewals to refresh pricing and underwriting requirements. That efficiency gain and the ability to get to more of those submissions also allows the underwriters to focus their time where it benefits the organization and clients the most.

Investing in modernization offers a range of benefits. It improves front-line distribution, smoothing the entire insurance journey and supporting everyone in the chain. It also streamlines back-end distribution and enables carriers to support broker partners with tools for quoting and comparing coverage.

Carriers can also create personalized coverage for clients, and quickly adapt to market trends, emerging risks, and changing underwriting rules and rating algorithms.

What Should Happen Next?

The infrastructures of most organizations look different. Some have a “build mentality,” some have kept their core

“legacy” systems intake rather than doing a rip and replace, and others are at the blazing edge of insurance technology.

But often the E&S and specialty divisions of those organizations are left with Excel files, Word documents, email templates, or old legacy technology. These inadequate tools were put in place to satisfy the needs of the E&S company to respond rapidly to the ever-changing needs of the market — something that couldn’t be supported by legacy agency management systems (AMS) or policy administration systems (PAS).

For insurers looking to thrive in the specialty market, building a robust digital infrastructure, partnering with the right technology providers, and making an ongoing commitment to digital solutions will set them on the road to success.

This should begin by conducting an audit to identify problems in the current process, areas of disconnect, critical

gaps, siloes, data inconsistencies and bottlenecks. From that, a strategy will be developed to plan workflows that align with growth objectives to organize and activate the revenue organization. After building and activating the tech stack, it is essential to be prepared to keep up with the latest upgrades to optimize the technology.

Embracing digitalization will ensure that new and existing players can better take advantage of the opportunities in the growing excess and surplus lines segment, quickly responding to evolving customer needs by adapting to market trends in an agile way and through data-driven decisions.

Gaydos is a senior business development executive at Zywave. Gaydos is responsible for developing and executing strategic plans to expand the company’s portfolio of cloud-based sales management, client delivery, content and analytics solutions.

Idea Exchange: Life & Disability

Securing Life Insurance Alternatives for Clients in War Risk Zones

Warfare has raged on our planet since man first walked upright and disputed territorial boundaries. Those battles have impacted not only the lives of those they came into direct contact with, but also those on the periphery, particularly in the areas of business and commerce.

By Sean McNiff

Business, as seen in the war in Israel, persists despite challenges. And those with interests in traveling to war zones, whether for business or humanitarian reasons, will continue to do so. Fortunately, there are insurance products to protect individuals and groups traveling to war risk zones. This protection can include death and disability coverage, along with medical evacuation services. And such policies cover someone even if they’re on their way to JFK and get in a car accident on the Belt Parkway (which some New Yorkers may claim is far more dangerous).

For skeptics questioning the rationale behind conducting business in conflict-ridden areas, we’d like to share three real-world scenarios that demonstrate the necessity.

We recently were approached by a

group of attorneys with business in Tel Aviv. They have a trial scheduled for a seven-month period and do not have life insurance for their business. No traditional carrier will underwrite a new policy for people traveling to war zones or even hot zones. The advisor was forced to seek support outside the domestic markets.

By tapping into international insurance providers, like Lloyd’s of London, the advisor found alternative solutions. In this case, the attorneys were able to obtain an accidental death policy that included accidental disability while working in and around war risk zones. It won’t cover them if they have a heart attack overseas, but if they experience a war-related loss (short of one of the attorneys picking up a rifle and yelling “Charge!”), they would be covered.

Another example involves a large humanitarian food distributor at the U.S.-Mexico border, contracted by the U.S. government. The government has also contracted this business to run food distribution services in and around the border crossing of Israel and Gaza. To protect his business and his family, the client sought short-term coverage for 30 days while he established his operation.

The final scenario involves an international group of business executives planning to visit Israel to assess the current infrastructural damage and begin planning

restoration. This group, committed to its mission, has already purchased flak jackets and helmets for participants and staff while touring the Gaza border communities. They are working with security consultants and have security personnel traveling with them in plain clothes. This group could involve a total of 300 people across more than 25 trips spread throughout the year. But they, too, will need similar coverage that traditional carriers are unable to provide. Again, this type of coverage will fall squarely on the shoulders of specialized markets such as Lloyd’s of London.

It’s important to emphasize these types of policies don’t provide a benefit if you die or become disabled due to a medical issue while you are traveling. The policy, however, can include medical coverage, like health insurance, but it’s not going to pay a death or disability claim due to a sickness-related event or a pre-existing condition.

Advisors also should note that these insurance products are short term in nature, likely lasting 30-60 days and written around the itinerary.

In conclusion, if you already have a life insurance policy, it will cover you in Israel should the unthinkable happen. However, if you don’t have one and plan to go to Israel, no U.S. carrier will issue you a life or disability insurance policy today; you would need to access coverage through the international marketplace.

In the words of American Civil War General William Tecumseh Sherman, “War is hell.”

For those traveling into high-risk zones, it’s crucial to remember that protecting oneself goes beyond helmets and flak jackets; it also involves incorporating proper insurance coverage into a safety plan.

McNiff is vice president of Business Development and Marketing at Exceptional Risk Advisors. He is passionate about developing new business relationships and educating advisors on the international insurance marketplace. Phone: 201-252-4717. Email: Sean.McNiff@ExceptionalRiskAdvisors.com

Idea Exchange: Agency Management

Relationship Refresher: 5 Ways to Keep Your Professional Relationships Fresh

With technology relentlessly simplifying many parts of our business, and consolidations changing the competitive landscape as well, personal service businesses will continue to be challenged to rethink their business models in the coming years.

By Tony Caldwell

Typically, when an industry sees change in the method and costs of product delivery (or manufacturing), competitive pricing is the result, which inevitably brings lower margins

and commoditization. Commoditization is where the consumer of the product sees price as the preeminent — and often only — value proposition.

Many think that personal service businesses, like insurance agencies, are immune to this consequence. After all, the independent agency’s traditional value propositions have been service, choice and relationship, which seem difficult to commoditize. But we’ve all seen consumer surveys over the last few years that demonstrate that agency services are not valued as highly by customers as they are in the minds of agency owners. As many carriers have broadened their

distribution platforms through direct selling, aggregator access and downsizing individual agency volume requirements, the value of “choice” is impaired, as well.

With all else being equal, or at least not determinative of value, that leaves “relationship” as the lone differentiator for any service business, including insurance agencies. This begs the question: How intentional and intensive are our customer relationships? Are they as deep, broad and valuable to the customer as we think they are? If it is increasingly the most important part of long-term client business, how can we focus on ensuring relationships are truly a valuable hallmark of our businesses?

Here are five simple, fundamental and easy-to-implement disciplines to promote across your agency to fuel a successful future based on strong relationships.

Deep Understanding

How many producers or agency service team members know what the mission and values of the clients they write insurance for are? Do we know the business plans of the prospects we solicit? Have we become acquainted with the personal histories and ambitions of the people with which we interact in our clients’ businesses?

Various sales “systems” use questionnaires to remind us to consider these things. But are we skilled at taking conversations with our clients beyond those questions? And if we do, do we share our findings with our whole team?

Do we know what our clients and prospects want? Do we ever simply ask that question? I am not talking about a product they want. I’m referring to their goals, ambitions, dreams, fears and other more fundamental things. In my experience it’s rare. But isn’t understanding those aspirations and fears fundamental to any meaningful, deep, human relationship? It’s a simple but profoundly powerful question to ask, especially when followed by others that demonstrate a genuine desire to know.

Altruistic Attention

Starting out as producer many years ago I made a promise to myself that I would never calculate a commission when working on a prospect or client’s account. I didn’t want to even tempt myself to think about their value to me before I’d proven my value to them.

This seems a simple thing, but it isn’t easy to do when carriers are in your office constantly pushing compensation opportunities to move business. There are many opportunities to put the interests of the people we do business with first in our daily work. Some agents are better at this than others, but it is a discipline that pays dividends. It’s worth thinking about and worth finding every possible way we can to make sure the client is always first in our thinking.

Mutual Admiration

In prospecting for new clients, and servicing existing ones, I find it most common for agency owners to think about the businesses they serve in terms of commission volume, premium and perhaps niche membership. It’s rare to hear a producer say, “I am working on obtaining this account because I admire what they do, who they are, their values or their owner’s capabilities.” And I don’t often hear agency staff, when discussing the pride they feel for their agency, citing their admiration for their clients.

How intentional and intensive are our customer relationships?

We may admire our clients, but is it a centerpiece of how we care for their needs? Is it something we express, in human terms, in our interactions with them? It can be and it can also be the impetus for client reflection on how they value us. Or, what they’d like to see changed in our behavior or service.

Independent agents seek to be “trusted advisors.” I have always told my sons that people usually do business with people they trust and to be trusted, a person must like you first. If they don’t admire you, they probably don’t like you either. No admiration equals no trust. No trust equals business based on something other than relationships.

Communicating Consistently

I often find people believe that when they’ve spoken to someone, they’ve communicated with them. But it’s only when the other person understands what has been said that communication has taken place.

I recently coached a local financial services executive. She’s a very bright and talented executive, but was concerned that when she presented, her audience was not comprehending. She’s an expert in a very technical field, filled with jargon and acronyms — just like insurance. I reminded her that it’s not the audience’s responsibility to understand her, as much

as it is her responsibility to present the material in a way that can be understood.

Considering whether or not people are comprehending what we are saying is key to improving relationships. How often and in what manner we “communicate” with prospects and customers is a discussion for another time. But I think it’s worth recognizing that whatever our current level of communication with our clients is, it is likely not enough.

There is an often-cited statistic that a person must be told something seven times before they will remember it. In my experience, that’s not enough. When I was running my first political campaign, a voter showed me a handful of mail pieces I’d sent. He said, “if you send me one more thing I’m voting for your opponent.” This was obviously upsetting. When I complained to my experienced consultant, he said, “that means we are just now getting our message through.”

Whatever you are doing isn’t enough.

Gratitude

We all say “thank you” when we issue the binder, pick up the check, get the order, secure the renewal and at many other times in our interactions with prospects and clients. In fact, we say it dozens of times every day. What does it really mean? Does it mean anything beyond the checking of a box on the list of expected social norms?

What if we took the time to tell our clients why we are grateful for their business? What if we told them what their business really means to us personally? I started doing that many years ago and found it was transformative. I discovered it was the secret sauce for deepening relationships.

I am convinced the future success of your business is centered on building strong, resilient relationships with clients. Thinking about how to improve, and consistently act on these five disciplines will create a powerful marketplace advantage.

Caldwell is an author, speaker and mentor who has helped independent agents create more than 250 independent insurance agencies. Website: www.tonycaldwell.net. Email: tonyc@oneagentsalliance.net.

Idea Exchange: The Marketing Connection

Unlocking Success in the Insurance Industry: The Power of Account-Based Marketing

Iand analyze the impact of their efforts, allowing for data-driven adjustments and improvements over time.

By Anita Nevins

n the insurance industry, staying ahead of the competition requires innovative approaches to client acquisition and relationship management. One strategy gaining prominence is accountbased marketing (ABM), a targeted and personalized approach that is proving to be a game-changer for insurance entities.

Understanding Account-Based Marketing

ABM is a strategic approach that aligns marketing and sales efforts to target specific high-value accounts or businesses. Instead of casting a wide net, ABM focuses on individual entities — tailoring marketing strategies and communication to address their unique needs and challenges. This precision targeting is particularly beneficial in the insurance sector, where establishing strong relationships is crucial for sustained success.

Benefits of ABM for Insurance Entities

Enhanced Personalization. One of the key advantages of ABM is the ability to tailor marketing messages and content to the specific needs and interests of targeted clients. This personalized approach allows

insurance entities to demonstrate a deep understanding of their clients, fostering a sense of trust and loyalty.

Improved Targeting and Efficiency. ABM enables insurance entities to focus their resources on high-potential accounts and avoid wasting time and budget on less promising leads. By identifying and prioritizing key prospects, companies can optimize their marketing efforts for maximum impact.

Stronger Client Relationships. Building and maintaining strong relationships is paramount in the insurance industry. ABM allows companies to engage in meaningful interactions, providing valuable insights, resources, and solutions tailored to the specific needs of their clients.

Increased Cross-Selling Opportunities. ABM facilitates a holistic understanding of the needs and preferences of targeted accounts. This comprehensive knowledge opens up avenues for cross-selling additional insurance products and services that align with the client’s business objectives, resulting in increased revenue opportunities.

Measurable ROI. The targeted nature of ABM makes it easier for insurance entities to measure the return on investment (ROI) of their marketing campaigns. By focusing on specific accounts, companies can track

Challenges of Implementing ABM

Resource Intensity. While the benefits of ABM are substantial, the strategy can be resource-intensive. Creating personalized content, conducting in-depth research on target accounts, and managing individualized campaigns require significant time and effort.

Data Accuracy and Integration. ABM relies heavily on accurate and up-to-date data about the target firms. Ensuring the accuracy of such data and integrating it seamlessly into marketing and sales systems can be a challenge.

Alignment of Marketing and Sales Teams. Successful ABM requires close collaboration between marketing and sales teams. Both teams must be aligned in their understanding of target accounts, strategies and goals.

Longer Sales Cycles. Due to the personalized and relationship-driven nature of ABM, the sales cycles in this approach can be longer compared to traditional marketing strategies. Insurance entities need to be patient and committed to the process, understanding that the benefits may take time to materialize.

In the competitive landscape of the insurance industry, the adoption of account-based marketing can be a transformative step for entities looking to establish and nurture relationships with high-value accounts. The benefits of enhanced personalization, improved targeting, and stronger client relationships outweigh the challenges — making ABM a strategic imperative for those aiming to thrive in the dynamic insurance market. By embracing ABM, insurance entities can unlock new opportunities, drive revenue growth, and position themselves as trusted partners in the ever-evolving insurance ecosystem.

Nevins is the founder and co-CEO of Direct Connection Advertising & Marketing. She manages the company and is heavily involved in strategy and planning for the agency’s clients. Website: www. directconnectionusa.com.

Idea Exchange: Minding Your Business

M&A Due Diligence: Understanding the Issues and Solutions to the Pitfalls

Mergers and acquisitions in the insurance industry continue steadily despite a slowdown due to COVID-19 and higher interest rates.

After the price and terms are negotiated and a Letter of Intent (LOI) is executed, then it is time for the buyers and their advisors to perform due diligence. Our role as consultants in the industry is to guide the seller through the due diligence process and coordinate the flow of documents and data with the buyer. This article highlights some key areas in the due diligence process to be aware of if selling or making acquisitions.

Bill Schoeffler

What Is Due Diligence?

Due diligence is a comprehensive investigation and evaluation of the seller’s assets, background, financial standing, risk exposure, and other relevant factors. This process is necessary to ensure the buyer understands the potential risks of buying a specific insurance agency.

Some buyers, especially local/peer-type buyers, will perform the work internally. Others, such as buyers backed by private equity money, will hire an outside firm for an independent assessment, especially the financial and legal due diligence.

Usually, a lengthy checklist is sent, and a place is established for the seller to download all of their various files for financial statements, leases, bank records, carrier statements, and myriad computer reports (employee records, book of business breakdown, new and lost accounts, legal documents, etc.).

Key Milestones

Typically, the buyer will make an offer

to the seller, contingent upon successful due diligence. It is not uncommon for an offer to be revised based on the findings during due diligence. So, be prepared to renegotiate the terms of the deal.

Prolific buyers will do the financial and general due diligence work first. This would be revenue verification, pro forma analysis, a review of the book of business, general risk assessment, and a review of employees, compensation, and benefits. The legal review and draft of the purchase agreement usually follow but can be done concurrently. Generally, the timeframe is four to six weeks.

Common Issues

Agency owners are often surprised when issues arise during due diligence. This is because buyers have a different perspective than the seller. The seller might operate in a manner that makes sense to them but is a potential risk for the buyer. For example, an agency might have several large accounts owned by an individual who happens to be the seller’s best friend. That is a good arrangement for the seller, but the buyer will be concerned

that those accounts might shop their business elsewhere when the seller retires.

Another situation that sellers don’t consider is the impact of account ownership. The agency cannot sell accounts if a producer owns them. Sellers will insist that the producer is going nowhere and has been happily employed for years. As for buyers, they would love to keep that revenue stream, but they need to “lock it up” before closing the deal. Two standard options are for the seller to buy the book before the agency sells, or the buyer can purchase the book from the producer in conjunction with the agency acquisition. Other options include excluding the revenue from the purchase price but keeping it in for any bonuses based on profitability.

Other issues include:

Revenue – Adjustments can be due to discrepancies or pro forma adjustments. Expenses – This is usually related to pro forma adjustments.

Compensation and Benefits – This usually concerns meeting the buyer’s standards.

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By Catherine Oak and

Idea Exchange: Minding Your Business

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Outside Business Interests – This can create a conflict of interest with the buyer.

Unusual Business Practices – The agency might operate in a manner the buyer will not accept. For example, large buyers typically do not charge policy fees to personal lines clients.

Risk Concentration – The seller might be overly dependent on a large account, a small carrier/market, or an unusual niche.

Use of PEO – Termination of contract with the PEO must be understood. If the PEO manages the retirement/401(k), this creates extra steps for the transaction.

Network Membership - Termination of contract with the network must be understood. There can be a fee/penalty to leave the network or a waiting period before exiting. Contingent income can also be impacted by leaving the network.

Verify Commission Revenue

One of the most important purposes of due diligence is to verify the revenue. There can be many issues with an agency’s stated revenue. The timing of when things are recorded can distort the “true” 12-month revenue generated by the agency. For example, it is possible that 11 or 13 months of direct bill commissions can be recorded. Or a large agency bill client can be invoiced well before the effective date to overstate accrued agency bill commissions.

Certain revenue might be adjusted in the pro forma. For example, non-recurring

revenue is often excluded if there is no long track record of that income, such as commissions from term life policies, large bonds, or wrap/builder’s risk policies.

Multi-year policies, such as directors and officers, are annualized. Contingent income can be adjusted to a three-year average or modified for other reasons.

The standard process to verify the commission revenue is to obtain carrier statements, bank statements, client invoices, carrier invoices, and premium finance statements for the analyzed period. Usually, a limited selection of the larger accounts and carriers is made rather than sending in everything. These documents are cross-referenced, along with the general ledger and the production report, to establish a certain level of confirmation that the revenue is correct or to determine what adjustments need to be made.

Expenses

Expenses are important for deals based on EBITDA (earnings before interest, taxes, and depreciation/amortization) and less of a concern for revenue-based deals. Buyers and the due diligence provider look at historical spending levels and general reasonableness to assess the pro forma expenses.

Owners are often very liberal in expensing things through the business. That is taken into consideration in the pro forma. Personal and discretionary spending, such as auto, meals, and entertainment, are trimmed or eliminated. Sometimes,

the buyer and seller will have different opinions on expenses. For example, an agency might attend an annual trade show as part of its marketing. The seller might insist it is unnecessary, but an astute buyer would leave that expense in the pro forma. Some buyers will have overhead or burden charges factored into the pro forma. A common target is a minimum pro forma profit margin of 30% for the seller.

Compensation and Benefits

When we work with a client that is selling, we often change the compensation for the owners, producers and sometimes the service staff to reflect an optimized situation for staffing and compensation. Often, the assumption is to keep the agency as a “stand-alone” business. However, if a regional or national firm is acquiring, we may remove accounting and some administrative people. We often look at removing any “deadwood,” including producers that are not performing well. When payroll records are sent in for due diligence, those changes must be accounted for, as the past does not equal the future.

Buyers understand that any decrease in compensation could mean an exodus of employees. So, compensation rates are usually kept the same, including bonuses and benefits. However, the number of staff may to be cut. Some buyers will have standard compensation plans for producers. This can be an issue if the current compensation rate is generous. Those buyers must be flexible when changing producer compensation. A solution is for the seller or buyer to offer a one-time bonus or grandfather’s old compensation rates for existing accounts.

Most large buyers have generous benefits plans for their employees. Those rates are allocated to the seller’s payroll. If the seller has limited or no benefits, the cost of the buyer’s benefits can be a significant hit to the bottom line. Sometimes, the seller could have a more lucrative benefits package than the buyer. For that scenario, the employee’s compensation is adjusted upwards to account for “lost benefits.”

Legal Review

Ensuring the seller has complied

with all applicable laws and regulatory requirements is another essential aspect of the due diligence process. Buyers and their lawyers will also review the licenses, corporate documents, leases, carrier contracts, membership in networks, HR matters, open and pending litigation, and E&O claims as part of the review. It is essential to fully disclose all issues, despite how bad it might look. Deals can be structured so the buyer only takes on certain liabilities, allowing the deal to close. The seller can then later resolve any issues the buyer did not accept as part of the deal.

Due Diligence Results

There is a good chance that financial due diligence will result in differences from the pro forma used in the LOI. This can result from losing a large account after the LOI was signed, the discovery of non-recurring revenue, expenses not considered, or different pro forma assumptions. It is not always negative for the seller; the revenue or profits sometimes increase, perhaps due to new business having been added since the LOI was signed.

Depending on how large the difference

is or who the buyer is, the two parties might need to renegotiate the deal. In some cases, the buyer will honor the original terms, even if there is a noticeable decrease in revenue or profits.

Other issues, such as problems terminating network membership, potential risk with keeping employees or large accounts, and producer account ownership, can impact the terms of the deal.

Summary

Navigating the due diligence process in M&As is a complex and multifaceted task.

April 1, 2024

Coventry Health Care of Illinois, Inc. 3200 Highland Avenue Downers Grove, IL 60515

The above company has made application to the Division of Insurance to obtain a Foreign Company License to transact Health insurance in the Commonwealth of Massachusetts.

Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, 1000 Washington Street, Suite 810, Boston, MA 02118-6200, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.

April 1, 2024

AmFirst Insurance Company 500 Steed Road Ridgeland, MS 39157

The above company has made application to the Division of Insurance to obtain a Foreign Company License to transact Life, Accident and Health insurance in the Commonwealth of Massachusetts.

Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, 1000 Washington Street, Suite 810, Boston, MA 02118-6200, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.

As a seller, try to stay focused and provide the correct information asked for. Using a consultant to prepare the profile and pro forma from the beginning and negotiate the sales price and terms is a good step. The adviser can also help a seller rectify the due diligence results against the original offer in the Letter of Intent.

Oak is the founder of the international consulting firm, Oak & Associates, based in Bend, Oregon, and Sonoma, California. Schoeffler is an associate of the firm. Phone: 707-935-6565. Email: catoak@gmail. com. Website: www.oakandassociates.com.

April 1, 2024

Delaware Life and Annuity Company

10555 Group 1001 Way Zionsville, IN 46077

The above company has made application to the Division of Insurance to obtain a Foreign Company License to transact Life, Accident, and Health insurance and Variable Life or Variable Annuities in the Commonwealth of Massachusetts.

Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, 1000 Washington Street, Suite 810, Boston, MA 02118-6200, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.

The above company has made application to the Division of Insurance to obtain a Foreign Company License to transact Life, Accident and Health Insurance in the Commonwealth of Massachusetts.

Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, 1000 Washington Street, Suite 810, Boston, MA 02118-6200, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.

Closing Quote

The Cyber Risk Pendulum

By Stephanie Snyder Frenier

Privacy risk is so 2014, right? Ten years ago, numerous retail and healthcare companies were hit with data breaches related to the exposure of credit card or healthcare data. Given many data breach claims, which included fines by state attorney generals and the payment card Industry, the cyber insurance market focused on privacy risk.

This focus remained until 2017, when ransomware claims developed into more substantial matters, triggering large business interruption losses for carriers. Underwriters accordingly focused on ransomware exposure to minimize the potential for business interruption claims.

However, in 2024, with new state privacy laws and renewed interest from the plaintiffs’ bar, carriers are once again seeing privacy claims, based on biometric, pixel or chat technology. While ransomware has not gone away, attacks have evolved from network encryption to the theft and ransom of consumer or confidential corporate information. The cyber pendulum has swung back to privacy risk.

While all 50 states have data breach notification laws, many states have passed comprehensive privacy bills following the model set by the California Consumer Privacy Act (CCPA),

as amended by the California Privacy Rights Act (CPRA). At the time of this writing, five states have active privacy laws, eight have passed laws that will go into effect within the next two years and 17 other states have active bills. With new state privacy laws, there is a greater ability for state regulators to fine companies who violate privacy provisions. Additionally, many state privacy laws allow for a private right of action for certain violations.

Over the past several years there has been increased activity from the plaintiffs’ bar around biometric, pixel and chat technology. While Illinois’ Biometric Information Protection Act (BIPA) was enacted in 2008, there has been more litigation activity since 2018, with several key decisions made during 2023 that will impact future BIPA cases. BIPA includes a private right of action as well as a statutory-damages provision, keeping potential large damage awards firmly on plaintiffs’ firms’ radars.

Within the last two years, use of website user-tracking technology — such as pixel, chat, session replay, website

software development kit, or pen-registers — has spawned litigation by plaintiffs’ firms based on the Video Privacy Protection Act and the California Invasion of Privacy Act. Like BIPA, these acts allow for a private right of action as well as statutory damages, which have the potential to raise the claims price tag.

This activity forms a backdrop to the continued frequency and severity of ransomware claims. Corvus Insurance reported in January, based on data collected from ransomware leak sites, that ransomware activity was up 69% in 2023, based on prior year totals. Carriers also report that severity remains an issue. According to Coalition, average ransomware demands in the first half of 2023 were up 47% over the previous six months, and 74% over the prior year.

While ransomware was historically used to encrypt networks, threat actors have pivoted in recent years to theft of customer or confidential corporate information, and holding that data for ransom, with the threat of publishing it on the dark web. In many instances, there may be a

double extortion by threat actors with ransoms both to regain access to the network as well as to stolen data.

In this environment, carriers are refining their underwriting to address the potential for losses. In 2024, there is a greater focus on controls related to “wrongful collection” coverage — the collection of data in a manner that could run afoul of privacy regulations — whether it be on a state or federal level. Several carriers have introduced supplemental applications with questions that focus on consent regarding data collection practices and the use of website user-tracking technology. Underwriters remain concerned about security controls related to ransomware losses, and most carriers require a ransomware supplemental application as a part of the submission process.

As the cyber pendulum has swung back to privacy risk, underwriting preference has swung, too, with regards to industry. While in prior years carriers focused on ransomware losses and the associated business interruption, “brick and mortar” industries fell out of favor. However, now these industries are again preferred by underwriters, while information holders such as healthcare, retail, and financial institutions cause greater concern. And potential new areas for claims include spoofing attacks using Generative AI, attacks on critical infrastructure, or even cyber war.

Snyder Frenier is senior vice president, business development leader with CAC Specialty’s Professional & Cyber Solutions practice.

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